INGREDIENTS FOR SUCCESS
2013
A N N U A L R E P O R T
3
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. Innophos
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value products with industry-leading technical service. Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations
in Nashville, TN; Chicago Heights, IL; Chicago (Waterway), IL; Geismar, LA; Ogden, UT; North Salt Lake, UT; Salt Lake City, UT; Paterson,
NJ; Green Pond, SC; Port Maitland, ON (Canada); Taicang (China); Coatzacoalcos, Veracruz and San Jose de Iturbide (Mission Hills),
Guanajuato (Mexico).
For more information please visit www.innophos.com.
Revenues by Segment
($ Millions)
Operating Income by Segment
($ Millions)
935
810
862
844
714
667
579
299
127
137
110
95
84
48
07
08
09
10
11
12
13
07
08
09
10
11
12
13
Specialty Phosphates US/Canada
Specialty Phosphates Mexico
GTSP & Other
Specialty Phosphates US/Canada
Specialty Phosphates Mexico
GTSP & Other
Cumulative Return Comparison
IPHS
Russell 2000 Index
400%
300%
200%
100%
0%
07
08
09
10
11
12
13
14
Safe Harbor for Forward-Looking and Cautionary Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities
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incomplete or preliminary information; changes in government regulations and policies; continued acceptance of Innophos’ products and services in the marketplace;
competitive factors; technological changes; Innophos’ dependence upon suppliers; and other risks. For any of these factors, Innophos claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended.
INNOPHOS ANNUAL REPORT 2013
We continued to implement actions to
improve operations and grow the core
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better position than when we entered
Dear Fellow Innophos Investors,
As I look back on 2013, in spite of a
very challenging year, we still continued
to invest in the food, beverage and
nutritional ingredient businesses and
made good progress executing on our
strategic initiatives to strengthen our
performance and position us for stronger
future growth and improved profitability.
We generated net sales of $844 million
for the year, down two percent, and
diluted EPS of $2.21, but our strong
balance sheet and free cash flow profile
allowed for a continued increase to the
dividend. Our results for the year reflected
sluggish market demand, the lowest
fertilizer prices in the last four years and
acute headwinds like reduced government
spending which significantly affected
sales in limited product lines. While faced
with these challenges, we continued to
implement actions to improve operations
and grow the core business, and exited
the year in a significantly better position
than when we entered. In fact, the fourth
quarter delivered the highest levels
of operating income and margin for
Specialty Phosphates in nearly two years.
Our improved income and margin was
supported by the strength of our Specialty
Ingredients product line, where volumes
grew four percent organically, as well as
improved costs and higher overall average
selling prices for the US and Canada
business.
Our Coatzacoalcos facility experienced
certain maintenance and operating issues
in the first half of the year as well as the
extended planned maintenance outage
in the third quarter. But our actions
and investments to improve the future
reliability and capability of this facility
have enabled significantly improved
operating performance, and we ended
2013 achieving our best yields of the year
in the fourth quarter while also setting
new monthly and annual production
records on our Specialty Ingredients unit.
We are excited about the improved
operations and increased capability of
our Coatzacoalcos facility, which will play
an integral part of our growth strategy
as well as help to enhance profitability
across our businesses.
Strategic Growth Initiatives
We achieved a number of important
accomplishments in 2013, positioning us
well to deliver above-market growth rates,
while strengthening our product portfolio
and market position.
In Mexico, our focus will be on
supporting growth and profitability
by further enhancing the capability,
reliability and efficiency of our
Coatzacoalcos facility. To this end,
we recently commissioned a new, higher
grade purified phosphoric acid (“PPA”)
operation in Mexico that will provide
greater efficiency and flexibility in that
region, support our US and Canada
network and strengthen our product mix
in Latin America.
We continued to make progress on our
geographic expansion initiatives which
contributed to strong export sales from
the US, up nine percent for the year.
Our new food ingredients manufacturing
facility and laboratory in China helped
support progress in the Asia-Pacific
region, enabling 10 percent growth
from the US and Canada to Asia-Pacific
in 2013. Export sales were also strong to
Europe, Middle East and Africa,
as we made enhancements to our
operations and supply chain while
improving customer education. We view
these export regions and Latin America as
strong growth areas for Innophos, especially
for the food and beverage markets.
From a product development standpoint,
our sodium reduction product, Cal-Rise®,
continues to perform very well, recording
over 60 percent volume growth for 2013
compared to 2012. We continue to invest
in product development and applications
to support above market growth rates.
Nutrition Businesses
Mexico
Looking Ahead
At the start of the fourth quarter of 2013,
Innophos completed its fourth acquisition
in a little over two years. We acquired
substantially all of the assets of privately-
held Chelated Minerals International, Inc.
(CMI), based in the Salt Lake City area.
CMI has significant technology and know-
how in the manufacture, application, and
science of chelated minerals supplied to
the human nutrition market.
The acquisition of CMI strengthens our
position in dietary minerals for health
and enables us to supply a broad range
of nutrition fortification solutions to
our customers. While the acquisition
was modest in size, it provides valuable
technology that can be exploited through
the existing channels of our recently-
acquired businesses, AMT and Kelatron,
which provide high-quality, custom
ingredients to the mineral fortification
industry. Collectively our nutrition
businesses are expected to grow in excess
of the six to eight percent projected
market growth rates for 2014.
Going forward, we remain focused on
opportunities to expand our position in
the high-growth micronutrient ingredients
sector, which provides us with an
enhanced long-term platform for growth
that complements our strong position in
Specialty Phosphates.
US and Canada
In our US and Canada Specialty
Phosphates business, sales increased
seven percent for the year driven by
acquisition benefits and three percent
higher volumes in our core business,
partially offset by unfavorable product
mix. 2013 growth rates and operating
income were negatively affected by
lower sales of INNOVALT®, a valuable
performance enhancer, due to lower
asphalt market demand from reduced
government spending. However, we
remain optimistic regarding the long-
term growth prospects of this innovative
product line. We anticipate deferred
projects will come back online and local
governments will once again resume
investing in repairing and updating their
aging infrastructure. We began to see
some encouraging signs in the second half
of the year as we completed a successful
paving trial in one state likely to approve
our product, and are making progress in
five of the remaining nine unapproved
states. This more favorable outlook for
growth extends to export markets as well,
with trials planned or recently completed
in two South American countries, as
well as growing market opportunities in
Europe, the Middle East and Africa. We
also generated great performance in our
low sodium product line and our recently
acquired nutrition businesses overall.
Our performance for the year in Mexico
was negatively affected by premature
equipment failures that caused production
issues in the first half of 2013 as well as
an extended planned maintenance outage
in the third quarter at our Coatzacoalcos
facility. As a result, Specialty Phosphates
sales were down 10 percent for the year,
primarily on lower volumes, and operating
income was $10 million lower than the
previous year. However, we exited the year
on a high note and generated significantly
improved profitability levels in the
fourth quarter from better sales mix,
greater levels of efficiency and improved
operations. In fact, we achieved the best
yields of the year at Coatzacoalcos in the
fourth quarter, up 490 basis points from
our first quarter 2013 low, and we also
set new monthly and annual production
records at our Specialty Ingredients plant.
Although 2013 was a difficult year for
us in Mexico, we are confident in our
outlook for this region. The Coatzacoalcos
plant is now operating normally and
achieving yields recorded prior to the first
half 2013 reliability issues. In 2014,
we will undergo a heavy maintenance
capital program across the company,
but in particular in Mexico, which has
always been part of our longer-term plant
upgrade program. We expect these efforts
will enable us to achieve higher yields
than previously demonstrated, along
with better capability and reliability. We
are starting to reap the benefits of these
efforts and will continue to invest for
long-term growth throughout the Latin
American region.
Fertilizer Market
Weak market demand drove market
fertilizer selling prices to four-year
lows during the year. Prices have
since recovered, with an increase of
approximately 20% in January 2014 from
mid-December levels, and have continued
to increase further in February, with reports
showing prices 25-30% higher than mid-
December levels.
The significantly lower selling prices
in 2013 had a pronounced effect on
our Granulated Triple Superphosphate
(“GTSP”) & Other segment, which reported
a decline in revenue of 36 percent for the
year, and a net loss. We expect profitability
to return to break-even in the second
quarter 2014 based on March 2014
market price indications. As I have said
before, GTSP is roughly 10 percent of
our revenue and is not a core focus of the
business. However, it is a necessary piece
of our economic model as it represents
a salable co-product that arises in our
Mexico acid purification process.
In 2014, we expect low double-digit
growth from our nutrition businesses.
We are also poised for a recovery in
asphalt market demand, and in particular
for our INNOVALT product line. These
factors, along with the improved
operations at our Coatzacoalcos facility
and our focus on geographic expansion
and innovation, give us confidence in our
outlook of three to five percent volume
growth for Specialty Phosphates in 2014,
which is more than double the market
growth rate of one to two percent. Even
though market conditions are expected to
remain challenging, we are confident in
our growth strategy and market position.
Finally, we remain committed to
maximizing shareholder value by
leveraging our strong cash flow and
balance sheet both to support growth and
to improve cash returns to shareholders.
During the year, we executed on this
strategy through our acquisition of CMI as
well as increasing our quarterly dividend
rate for the fourth time in three years,
which now stands at an attractive $0.40
per share. We also bought back 150,000
shares for $7.1 million in the fourth
quarter, consistent with our approach
to offset dilution from equity awards at
attractive prices.
In 2014, we expect capital expenditures
to be in the range of $45 million to $50
million. Dividend payments will be roughly
$35 million at the current quarterly rate.
Adding in share repurchases consistent
with what we have done in the past gets
us close to $90 million in projected capital
deployment in 2014. Investments beyond
this amount will be focused on supporting
growth, particularly through strategic M&A,
as well as opportunistically returning cash
to shareholders as we deem appropriate
and prudent. As always, we will continue to
discuss the best uses of our cash with our
Board throughout the year.
In closing, I want to thank our employees,
customers, suppliers and shareholders for
their support and contribution to another
productive year for Innophos. I look
forward to executing and achieving our
goals for 2014 and beyond.
Randy Gress
Chief Executive Officer & Chairman
April 25, 2014
INNOPHOS ANNUAL REPORT 2013
Our 2014 Goals
We target Specialty Phosphate operating income margins of 14% to
15% for 2014. This will be achieved by targeting volume growth of
3% to 5%, which is above the Company’s estimated market rate of
growth of approximately 1% to 2%, and by sustaining or moderately
improving the profitability of our growing volume base. This is based
on the improved operations at our Coatzacoalcos facility, low double-
digit growth expectations for our nutrition business and the recovery
of our INNOVALT® product line for asphalt markets.
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
Enhance Supply Chain
We are targeting to exceed our market
growth rates by 2% to 3% through
product innovation and
geographic expansion.
We will build on our already attractive
strategic position particularly by
continuing to enhance our industry
leading supply chain.
2014
Invest in Facilities
Generate Cash Flow
We are investing in our facilities to
strengthen the reliability, efficiency and
flexibility of our operations.
We expect to generate solid cash flow to
support our growth initiatives as well as
return cash to shareholders.
2013 Achievements
Acquired Chelated Minerals International,
expanding our position in the high-
growth micronutrient ingredients sector
and our long-term platform for growth
that complements our strong position in
Specialty Phosphates.
Increased investments in new product
applications to ensure faster and
more efficient market success for new
developments and satisfying future
performance needs.
Significant investments in our
Coatzacoalcos facility to restore our
operating capability and reliability, leading
to improved phosphoric acid yields each
quarter of the year, with fourth quarter
performance at 490 basis points higher
than the first quarter low point.
Commissioned a new, higher grade food
and beverage PPA operation in Mexico
to support our US and Canada network
and add strength to our product mix in
Latin America.
Established new monthly and annual
production records on the Coatzacoalcos
Specialty Ingredients unit.
Continued investment in support of
Mexico’s capability to process multiple
grades of phosphate rock consistent
with the Company’s supply chain
diversification strategy.
Grew export sales out of the US and
Canada by nine percent compared to
2012, supported by the permitting
and start-up of a blending facility and
laboratory in Taicang, China.
Increased quarterly dividend by 14%
to the current rate of $0.40/share, our
fourth increase in three years.
Strong cash flow from operations of
$91 million supported $77 million of
investments, higher dividend payments
and share repurchases along with $13
million of debt repayments.
66%
Specialty
Ingredients
Baking
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Meat & Seafood
Keeps meat or seafood moist and tender during processing, storage and cooking
Processed Cheese
Controls melting properties of cheese slices, blocks and shreds
Potatoes
Beverage
Prevents unwanted discoloration during french fry manufacture
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range of beverages, from soy milk to sports drinks
Pharmaceutical
Excipients
Contributes essential minerals to nutritional supplements and through superior tableting performance
allows for proper dosing of active ingredients
Oral Care
Asphalt
Horticulture
Fire Safety
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
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Water Treatment
Prevents build-up of impurities in municipal and industrial water systems
(cid:48)(cid:76)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:41)(cid:82)(cid:85)(cid:87)(cid:76)(cid:262)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:37)(cid:82)(cid:87)(cid:68)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:15)(cid:3)(cid:72)(cid:81)(cid:93)(cid:92)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:76)(cid:82)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:80)(cid:76)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:81)(cid:88)(cid:87)(cid:85)(cid:76)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:89)(cid:68)(cid:85)(cid:76)(cid:72)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:76)(cid:262)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:82)(cid:71)(cid:86)(cid:15)(cid:3)(cid:69)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:86)(cid:15)(cid:3)
dietary supplements and sports nutrition
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 2013 revenues.
Innophos continues to invest in research
and development (R&D) and technical
services and applications 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
Revenues by End Market
($ Millions)
Total Sales
844
CAGR
6%
5%
-10%
6%
14%
Total Sales
579
97
145
129
208
07
129
75
186
454
13
Pharma, Food, Beverage & Oral Care
Industrial
Detergents
Fertilizer & Horticulture
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.
Phosphates for Meat and Poultry Processing
Low sodium is not just for baking.
Innophos offers a complete range
of phosphates for meat and poultry
applications. From retaining moisture and
texture to maintaining flavor, phosphates
play an important role in the meat and
poultry industry. Our new blends help
achieve low sodium requirements for meat
and poultry products to develop healthier
and tastier foods.
For example, our Curavis® So-Lo93 blend
enhances processed meat and poultry,
without compromising taste, by reducing
sodium by 93% compared to standard
sodium phosphates, while maintaining
good binding qualities and pH formulated
for optimum taste and appearance. Our
SuperBind® product is a sodium phosphate
blend that produces very good cooking
yields, superior retention in low salt meat
products and higher use of lower binding
meats while maintaining yield and texture.
Phosphates for Fitness
The beverage market is one of the largest
and most dynamic segments in the food
industry. The industry continues to grow,
offering health conscious consumers
new product choices that meet their
demands, including sports beverages,
dairy beverages, meal replacements, soy
beverages, dry mixes and enhanced water.
Phosphates are used widely in all beverage
applications as they serve various
functions. Innophos realizes the need for
high quality functional phosphates and we
continue to provide innovative products
that meet customer demands to formulate
the best quality beverages. Innophos
developed industry leading products to
enhance the health of beverages, including
its VersaCAL® applications, which
provides calcium fortification for a wide
variety of beverages.
Phosphorus and Calcium for Bone Health
Phosphorus is fundamental to growth,
maintenance, and repair of all body
tissues, and is necessary, along with
calcium and magnesium, for proper growth
and formation of bones in infants and
children. Sufficient levels of phosphorus
intake are important throughout
life to ensure the proper balance of
essential minerals in order to promote
remineralization of bones and teeth to keep
them in a healthy state.
As an excipient and nutraceutical
ingredient, Innophos calcium phosphates
provide the flexibility to deliver calcium
and phosphorus with the most effective
combination of dissolution, bioavailability
and mouth feel to make the customer’s
formulations a market success.
Additionally, Innophos’ ongoing research
has ensured that our products meet the
needs of the world’s evolving health and
nutrition demands. In addition to our
internal research facilities, Innophos
maintains academic research partnerships,
such as the Osteoporosis Research Center
of Creighton University, to continually
support customers with the products
and services needed to provide high-
performance nutritional supplements.
INNOPHOS ANNUAL REPORT 2013
Beverage
Provides tartness in colas without taste overtones
Water Treatment
Prevents accumulation of potentially harmful impurities in municipal water
Metal Treatment
(cid:37)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:81)(cid:86)(cid:3)(cid:68)(cid:79)(cid:88)(cid:80)(cid:76)(cid:81)(cid:88)(cid:80)(cid:3)(cid:262)(cid:81)(cid:76)(cid:86)(cid:75)
Detergents
Ingredient in consumer-oriented laundry detergents
Industrial Cleaning
Detergent formulations with phosphate provide superior cleaning performance in challenging environments
Phosphate Fertilizer
(cid:42)(cid:85)(cid:68)(cid:81)(cid:88)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:55)(cid:85)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3)(cid:54)(cid:88)(cid:83)(cid:72)(cid:85)(cid:83)(cid:75)(cid:82)(cid:86)(cid:83)(cid:75)(cid:68)(cid:87)(cid:72)(cid:3)(cid:11)(cid:234)(cid:42)(cid:55)(cid:54)(cid:51)(cid:235)(cid:12)(cid:3)(cid:73)(cid:72)(cid:85)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:72)(cid:85)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:86)(cid:88)(cid:76)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:82)(cid:92)(cid:69)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
vineyard cultivation
17%
Food & Technical
(cid:42)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:51)(cid:88)(cid:85)(cid:76)(cid:262)(cid:72)(cid:71)(cid:3)
(cid:51)(cid:75)(cid:82)(cid:86)(cid:83)(cid:75)(cid:82)(cid:85)(cid:76)(cid:70)(cid:3)(cid:36)(cid:70)(cid:76)(cid:71)(cid:3)(cid:11)(cid:234)(cid:51)(cid:51)(cid:36)(cid:235)(cid:12)
9%
Sodium Tripolyphosphate
(cid:11)(cid:234)(cid:54)(cid:55)(cid:51)(cid:51)(cid:235)(cid:12)(cid:3)(cid:9)(cid:3)(cid:39)(cid:72)(cid:87)(cid:72)(cid:85)(cid:74)(cid:72)(cid:81)(cid:87)(cid:3)
Grade PPA
8%
GTSP & Other
Product Segment Performance
Specialty Phosphates
Specialty Phosphates comprise the three
product categories below, Specialty
Ingredients, Food and Technical Grade
Purified Phosphoric Acid (“PPA”) and
Sodium Tripolyphosphate (“STPP”) &
Detergent Grade PPA. In 2013, sales
revenue increased 3% versus 2012
on a 4% benefit from acquisitions
that exceeded a 1% decline in core
business volumes primarily due to the
first half 2013 production issues in
Coatzacoalcos, Mexico.
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
differentiated, high-value products provide
stable demand and strong margins. Sales
revenue increased 8% versus 2012
primarily on higher volumes. Acquisitions
contributed 6% to volume growth and
organic volumes contributed 3% while
overall prices declined 1% primarily due
to sales mix. 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 treatment and metal finishing. Our
Coatzacoalcos, Mexico facility is capable
of producing a wide range of higher
grade PPA, which is key to successfully
delivering growth from the higher value
products. During the year, we invested
in our Coatzacoalcos facility to improve
its operating performance and future
reliability after first half production issues
eliminated any upside potential to sales.
In 2013 sales declined 4% compared to
2012 on lower volumes.
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 US and
Canada although Latin America remains
an important market for these products.
Sales were 17% lower than 2012 on
lower volumes as we continue to focus
on shifting business towards higher value
Specialty Ingredients.
GTSP and Other Co-products
Fertilizer co-products, such as GTSP,
produced sales revenue of $67 million
in 2013, down 36% compared to 2012,
on lower volumes resulting from weak
market demand that drove phosphate
fertilizer market prices to four-year lows
in the second half of 2013. Profitable
markets for the Company’s co-products
are important to the overall value of
the Company’s Mexico manufacturing
facilities. The outlook for GTSP & Other is
not as clear as with Specialty Phosphates,
but we expect to return to break-even
operating income in the second quarter
2014 based on March market price
indications. While it’s difficult to predict
the direction in which fertilizer market
prices will move for the remainder of
2014, it should be noted that Innophos
margins are typically advantaged in
inflationary market conditions, with raw
material cost increases lagging changes in
fertilizer market selling prices by three or
more months. Similarly, margins can be
disadvantaged during deflationary market
conditions.
Revenues by Product Line
($ Millions)
118
216
150
34
82
74
80
107
109
451
451
444
105
91
152
98
92
134
486
514
67
75
146
556
70
131
85
293
07
08
09
10
11
12
13
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
GTSP & Other
INNOPHOS ANNUAL REPORT 2013
Innophos’ acquisition strategy seeks
to strengthen the Company’s market position
in high-growth market segments
and geographies
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 fourth acquisition in just over two
years with the purchase of Chelated
Minerals International, a privately
held company in Salt Lake City, Utah.
Additionally, the Company invested in
its core product innovation, geographic
expansion initiatives and infrastructure
enhancements while continuing to return
value to shareholders through dividend
payments and a share repurchase
program. Capital expenditures in
2013 were $33 million.
Net debt decreased from $149 million
at the end of 2012 to $130 million at
the end of 2013 as cash provided from
operations exceeded investments in the
aforementioned areas.
Innophos recognizes the importance of
dividend income to shareholders and on
October 30, 2013, announced that its
Board of Directors declared an increase
of 14% over the previous quarterly
dividend rate to a new rate of $0.40 per
share of common stock. Innophos has
increased its dividend rate by nearly two
and one-half times via four increases in
less than three years.
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,
2013, the Company had repurchased
450,000 shares under the program for
a total of $20.5 million, with 150,000
of those shares repurchased in 2013 for
$7.1 million. The program is currently
under a five-year time limit.
At December 31, 2013, Innophos had
$96 million principal amount of term
loan debt and a $225 million revolving
credit facility, of which $67 million was
outstanding. Total remaining availability
was approximately $156 million, taking
into account approximately $2 million in
face amount of letters of credit issued
under the sub-facility.
Given the Company’s available financial
resources, management continues to
target acquisitions to enhance growth.
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.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC, 20549
_______________________________________________________________________________________________
FORM 10-K
_______________________________________________________________________________________________
(cid:58)(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, 2013
(cid:133)(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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:58) Yes (cid:133) 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:133) Yes (cid:58) 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
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:58) Yes (cid:133) 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:58) No (cid:133)
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:58)
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:58) Accelerated Filer (cid:133) Non-accelerated filer (cid:133) Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:133) Yes (cid:58) No
The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $1.0 billion as of
June 28, 2013, 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, 2014, the registrant had 22,348,092 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 20, 2014
Document
Incorporated By Reference In Part No.
III (Items 10, 11, 12, 13 and 14)
Page 1 of 82
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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 82
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 82
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, 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, 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 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.
In October 2013, Innophos purchased all of the assets of Chelated Minerals International, Inc., (CMI), for $5 million in
cash. CMI, a privately held company based in Salt Lake City, Utah, has significant know-how in the manufacture and science
of chelated minerals supplied to the human nutrition market.
The combined businesses of Kelatron, AMT, Triarco and CMI generate annual revenues in excess of $50 million with
attractive positions in high growth end markets.
Page 4 of 82
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 reporting segments for US/Canada and Mexico, 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
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.
Page 5 of 82
The table below presents a list of the main Specialty Ingredients sold by us in 2013:
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.
Other (Sodium Bicarbonate, Tetrasodium Pyrophosphate
(“TSPP”), Mono, Di, & Trisodium Phosphates (“MSP”,
“DSP”, “TSP”))
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
Baking powders; gelling agent in puddings; cheese
emulsifiers.
Bioactive mineral nutrients used in a wide variety of fortified
foods, beverages and dietary supplements.
Fortification for food, beverage and sports nutrition.
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.
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
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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. We also
compete with imports from China, Belgium and Israel.
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, Russia 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,
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.
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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, 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 many decades. 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, 2013, 2012 and 2011, we generated net sales of $844.1 million, $862.4 million and
$810.5 million, respectively.
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 2014 to supply the Coatzacoalcos facility. In addition to these primary sources, the
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
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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 2013, 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. Though we did not do so in 2013, in 2012 we did enter into an economic
hedge for approximately 75% of our 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 $3.9 million, $3.1 million and $2.9 million for the years ended December 31, 2013, 2012
and 2011, 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
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.
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Liabilities 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, 2013, we had 1,427(cid:3)employees, of whom 762 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, 2017 at the Chicago Heights facility; International Union of
Operating Engineers, Local No.(cid:3)912 through April(cid:3)21, 2016 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.
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Executive Officers
The following table and biographical material present information about the persons serving as our executive officers:
Name
Randolph Gress
Mark Feuerbach
William Farran
Iris Alvarado
Charles Brodheim
Louis Calvarin
Joseph Golowski
Gail Holler
Russell Kemp
Michael Lovrich
Abraham Shabot
Mark Thurston
Susan Turner
Age
58
54
Position
Chairman of the Board, Chief Executive Officer, President and Director
Vice President, Chief Financial Officer, Investor Relations, Treasury, Financial
64
43
50
50
52
55
55
60
52
54
60
Planning & Analysis
Vice President, General Counsel and Corporate Secretary
Vice President of Purchasing, Logistics & Distribution
Vice President and Corporate Controller
Vice President, Operations
Vice President, Specialty Phosphates
Vice President, Human Resources
Vice President, Research & Development and Chief Risk Officer
Vice President, Planning and Customer Service
Vice President, Director General, Innophos Latin America
Vice President, Corporate Strategy and Worldwide Business Development
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. Mr. Gress currently serves on the Board of Directors for Coeur Mining, Inc.
Mark Feuerbach is Vice President, Investor Relations, Treasury, Financial Planning & Analysis and is currently serving
as Chief Financial Officer of Innophos after having previously served that role 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.
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
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Mexico from 2000 through 2002 and Corporate Purchasing Manager in 2003. After her next positions as Innophos(cid:3244) Supply
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.
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.
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
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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. Pricing
for our remaining supply of raw materials typically adjusts 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, began to increase again through 2011 and subsequently declined again through
2013. Increased raw material 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 are currently capable
of successfully processing industrial scale quantities of phosphate rock from five separate suppliers and, for 2014, 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 may be required to realize the full benefits of
Page 13 of 82
improved process flexibility. Accordingly, process efficiency issues may arise over longer time periods as the plant processes
new sources of rock, necessitating further investment or changes in rock suppliers to maintain and improve our current plant
processing capabilities. We cannot be sure that 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, which 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 quality, or to overcome unanticipated interruptions in their own sources of
supply due to their supplier’s supplier performance failures or from force majeure conditions, such as disaster, 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 and regulation, 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. While we have a number of product quality improvement and product
enhancement initiatives underway, we cannot assure that our efforts in maintaining differentiation will be successful.
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, focus on
higher margin products 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, including the mix between our high margin and low margin products. If we are not able to offset price pressure when
it arises through improved operating efficiencies, reduced expenditures, improved product margin mix 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,
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
Page 14 of 82
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 increase 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 consumer detergent 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. Additional demand
restrictions may arise from producers reformulating to reduce or eliminate phosphate content, as was announced in early 2014
by a major Consumer Packaged Goods manufacturer.
Additional laws, regulations or distribution policies focused on reduced use of other phosphate-based products could
occur in the future. For example, 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 and other states are evaluating its allowance. 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 us to
reformulate or establish 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 became operational in 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 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
Page 15 of 82
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. Our products may also be susceptible to non-conformance resulting from
our raw materials. To mitigate this risk, we conduct extensive diligence and testing protocols regarding our raw material
suppliers. 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
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.
Page 16 of 82
Contingency Planning
We operate a number of manufacturing facilities in the US, Canada, China 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 completely prevented. 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 to guide 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.
Certain Financial Risks
Contingencies Affecting Dividends
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 17 of 82
ITEM 2.
PROPERTIES
Our headquarters are located in Cranbury, New Jersey, with manufacturing facilities strategically located throughout the
United States, Canada, Mexico and China. We do not own and are not responsible for any closed U.S. or Canadian elemental
phosphorus or phosphate production sites.
Facility Type
Location
Owned or Leased
Corporate Headquarters / Research & Development
Cranbury, NJ
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing / Research & Development / Administrative
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Warehouse
Administrative
Administrative
Administrative / Research & Development
Administrative / Research & Development
Administrative
Coatzacoalcos, Mexico
Chicago Heights, IL
Nashville, TN
Port Maitland, Canada
Geismar, LA
Ogden, UT
North Salt Lake, UT
Salt Lake City, UT
Green Pond, SC
Paterson, NJ
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Chicago (Waterway), IL
Owned
Mission Hills, Mexico
Taicang City, China
Chicago, IL
Mexico City, Mexico
Mississauga, Canada
Ogden, UT
Clifton, NJ
Sao Paulo, Brazil
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
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 18 of 82
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
2013
Low
46.50
47.17
47.63
46.00
$
Dividends
Paid
Per Share
0.35
0.35
0.35
0.40
$
$
High
51.85
56.46
58.01
49.71
2012
Low
45.25
47.07
46.60
43.93
$
Dividends
Paid
Per Share
0.25
0.27
0.27
0.35
$
$
High
55.43
54.68
52.78
56.75
The Company declared a $0.40 per share dividend in the first quarter of 2014.
The number of holders of record of our Common Stock at February 11, 2014 was 8,450.
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. Subsequently, the quarterly dividend was increased to $0.27 per share of Common Stock
starting with the first quarter of 2012, $0.35 per share in October 2012 and $0.40 per share in October 2013. 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 19 of 82
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)
700,525
$
—
700,525
$
$
26.60
—
26.60
*
1,597,363
—
1,597,363
*
Includes in the total 176,930 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. During the fourth quarter of 2013, the Company repurchased 150,000
shares of its common stock on the open market at an average price of $47.45 per share or $7.1 million. As of December 31,
2013, there is a balance of $29.5 million remaining under the repurchase program.
Page 20 of 82
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.
(Dollars in thousands, except per share amounts, share amounts or where
otherwise noted)
Year Ended December 31,
2013
2012
2011
2010
2009
Statement of operations data:
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling, general and
administrative
Research and development
Total operating expenses
Operating income
Interest expense, net
Foreign exchange losses (gains), net
Income before income taxes
Provision for income taxes
Net income
Allocation of net income 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)
______________________
$
$
$
$
$
$
$
$
844,129
685,830
158,299
862,399
684,979
177,420
$
810,487
$
605,172
205,315
65,380
2,923
68,303
137,012
5,726
875
130,411
43,889
64,320
3,107
67,427
109,993
5,977
(1,957 )
70,501
3,928
74,429
83,870
4,426
3,197
76,247
26,741
49,506
105,973
31,783
74,190
$
$
86,522
$
$
714,231
556,826
157,405
666,759
470,780
195,979
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
49,442
$
74,150
$
86,522
$
45,141
$
63,141
2.25
2.21
1.45
$
$
$
3.40
3.30
0.89
$
$
$
3.99
3.83
$
$
1.00 $
2.11
2.02
0.68
$
$
$
2.97
2.87
0.68
21,933,843
22,345,980
21,795,155
22,475,881
21,694,453
22,578,567
21,421,226
22,359,447
21,258,536
21,968,904
2013
2012
(Dollars in thousands)
Year Ended December 31,
2011
2010
2009
$
91,299
(37,840)
(47,519)
33,415
$
101,405
(104,766 )
(5,066 )
33,060
$
46,346
(54,728 )
(20,082 )
34,195
$
75,958
(31,192 )
(113,511)
31,192
11.1x
14.1x
17.7x
3.2x
174,100
(19,609)
(147,368)
19,609
4.6x
Page 21 of 82
(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.
Balance sheet data:
Cash and cash equivalents
Accounts receivable
Inventories
Property, plant & equipment, net
Total assets
Total debt
Total stockholders’ equity
2013
2012
(Dollars in thousands)
Year Ended December 31,
2011
2010
2009
$
$
32,755
88,434
181,467
201,985
745,177
163,009
463,419
$
$
26,815
94,033
163,606
195,723
736,266
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
Items included in the preceding tables which had a significant impact on results are summarized as follows:
2013 included the acquisition of CMI increasing investing activities by approximately $5.0 million; an after tax benefit of
$5.4 million ($7.2 million before tax) for the settlement of the CNA Fresh Water Claims. 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.
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.
Page 22 of 82
2013 Overview
Our financial performance in 2013 was highlighted by:
• Net sales of $844.1 million compared to $862.4 million for 2012, a decrease of $18.3 million mostly attributable to
lower fertilizer market demand and selling prices which resulted in a $38.1 million decline for our GTSP & Other
business. Specialty Phosphates grew $19.8 million primarily from acquisition benefits that exceeded a 1% decline in
core business volumes resulting from first half 2013 production issues in Coatzacoalcos, Mexico and demand in some
markets;
• Net income of $49.5 million or $2.21 per share (diluted);
•
Improved phosphoric acid yields each quarter after significant first half maintenance expense in Coatzacoalcos, with
fourth quarter performance at 490 basis points higher than the first quarter low point;
• Commissioned a new higher grade food and beverage purified phosphoric acid operation in Coatzacoalcos, Mexico to
support our US and Canada network and add strength to our product mix in Latin America;
• Established new monthly and annual production records on the Coatzacoalcos Specialty Ingredients unit;
• Grew export sales out of the US and Canada by 9% compared to 2012;
• Completed our fourth acquisition in the high growth nutritional ingredients space with the acquisition of Chelated
Minerals International (CMI) in October for $5 million;
• Completed the permitting and startup of a blending facility and laboratory in Taicang, China;
• Reached settlement on amounts owed for 2005-2008 Mexican water duties resulting in a net reduced liability of $5.4
million;
• Net cash provided from operations of $91.3 million which was invested in growth, through capital expenditures and
the acquisition of CMI, and returns to stockholders through increased dividends and share repurchases;
• Capital expenditures of $33.4 million with the focus on manufacturing investments consisting of:
•
•
•
restoring Coatzacoalcos capacity, reliability and efficiency after premature equipment failures in the first half;
capacity enhancements for US / Canada and Mexico Specialty Ingredients facilities to support growth objectives;
enhancing Mexico's capability to process multiple grades of rock consistent with the Company's supply chain
diversification strategy;
•
Increased the quarterly dividend rate by 14% to $0.40/share for the fourth quarter payment leading to total year
dividends of $1.45/share paid on the Common Stock in 2013, an increase of 27% over the $1.14/share paid in 2012;
and
•
150,000 shares of common stock repurchased for $7.1 million;
Recent Trends and Outlook
Specialty Phosphates overall volume was flat in the fourth quarter 2013 compared to the prior year, with a 3% benefit
from acquisitions offset by a 3% decline in the core business primarily resulting from Mexico’s increased intercompany sales
to replenish US inventories. Specialty Ingredients volumes were up 4%, but declines in lower margin STPP and PPA sales from
Mexico led to the overall 3% decline in core business volumes. Export sales out of the US were up 12% year-over-year with
strong growth recorded in Asia Pacific.
At this time, the company is confirming it’s previously announced 2014 outlook of 3-5% volume growth for Specialty
Phosphates. This is based on the improved operations at our Coatzacoalcos facility, low double-digit growth expectations for
our nutrition business and expected asphalt market demand recovery which detracted 90 basis points from our 2013 volume
growth rates.
Specialty Phosphates operating income margins were 15% for the fourth quarter 2013, slightly above expectations,
due to higher average selling prices achieved. We still expect to deliver 14-15% operating income margins for 2014. The first
quarter is expected to be the lowest margin quarter of the year, at approximately 100 basis points below the full year average,
Page 23 of 82
due to some higher cost PPA in inventory and some unexpected fourth quarter purchase price variances from our Merchant
Grade Acid supplier for phosphate rock consumption variances at their facility which have since been rectified.
Market prices for the key raw materials of phosphate rock and sulfur both declined approximately 20% in the fourth
quarter compared to the third quarter 2013, consistent with a drop in market fertilizer prices during that period. Fertilizer prices
have since rebounded by approximately 20% when comparing the end of January 2014 prices to mid-December 2013. Raw
material prices are therefore expected to rebound as well in the first quarter 2014, with sulfur costs increasing by nearly 50%,
putting those costs somewhere between second and third quarter 2013 levels, and phosphate rock likely to increase as well.
Although we have seen some resistance on selling prices in recent quarters, we have been able to maintain fairly stable pricing
overall, and are prepared to respond with selling price increases should raw material costs increase.
GTSP & Other profitability remained at a $4 million operating loss for the fourth quarter 2013 due to weak market
demand and selling prices that reached lows last recorded in early 2010. As usual, the outlook for GTSP & Other is not as clear
as with Specialty Phosphates, but an indicated operating loss of between $2-3 million represents our best view for the first
quarter 2014, based on business that has already transacted. We expect break-even operating income for the second quarter
2014 based on February market price indications and the expectation that market prices will continue to increase for the
remainder of the first quarter.
Net debt (total long-term debt (including any current portion) less cash and cash equivalents) increased sequentially by
$4 million in the fourth quarter 2013 to $130 million as the Company repurchased 150,000 shares for $7.1 million.
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:
2013
$
Amount
844.1
685.8
158.3
Year Ended December 31,
2012
2011
%
100.0
81.2
18.8
Amount
862.4
685.0
177.4
%
100.0
79.4
20.6
Amount
810.5
605.2
205.3
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
70.5
3.9
83.9
4.4
3.3
—
26.7
49.5
$
8.4
0.5
9.9
0.5
0.4
—
3.2
5.9
$
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
%
100.0
74.7
25.3
8.1
0.4
16.9
0.7
0.1
—
5.4
10.7
Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
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, 2013 were $844.1 million, a decrease of $18.3 million, or
2.1%, as compared to $862.4 million for the same period in 2012. Selling price had a negative effect on revenue of 2.0% or
$17.0 million and volumes decreased 0.1% or $1.3 million. GTSP & Other sales had 25.3% lower volumes and 11.1% lower
prices due to soft fertilizer market conditions and market prices that reached lows last recorded in early 2010. Specialty
Phosphates volumes were 3.3% higher with a 4.3% benefit from acquisitions and a 1.0% decline in our core business primarily
resulting from first half 2013 operating issues in Mexico. Specialty Phosphates average selling prices were 0.7% lower
primarily due to unfavorable sales mix in the US/Canada business and a price reset on a long-term customer contract in
Mexico.
Page 24 of 82
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, 2013 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
(0.3 )%
(1.9 )%
(0.7 )%
(11.1 )%
(2.0 )%
6.9 %
(7.6 )%
3.3 %
(25.3 )%
(0.1 )%
6.6%
(9.5)%
2.6%
(36.4)%
(2.1)%
Note: Included within Specialty Phosphates US & Canada and Total Specialty Phosphates volume/mix variances were
benefits of 5.8% and 4.4%, respectively, from the AMT business acquired in the third quarter of 2012 and the Triarco business
acquired in December 2012.
The following table illustrates for the year ended December 31, 2013 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
(1.1 )%
0.2 %
(0.2 )%
9.2 %
(4.1 )%
(17.2)%
8.1%
(3.9)%
(17.4)%
Note: Included within Specialty Ingredients volume/mix was a 6.5% benefit from the AMT business acquired in the third
quarter of 2012 and the Triarco business acquired in December 2012.
Gross Profit
Gross profit represents net sales less cost of goods sold. Gross profit for the year ended December 31, 2013 was $158.3
million, a decrease of $19.1 million, or 10.8%, as compared to $177.4 million for the same period in 2012. Gross profit
percentage decreased to 18.8% for the year ended December 31, 2013 versus 20.6% for the same period in 2012. Gross profit
in 2013 was unfavorably affected by $17.0 million for lower selling prices, $4.4 million higher fixed costs mainly from higher
maintenance expense, a $1.6 million lower of cost or market reserve recorded in the current period for GTSP, $1.2 million
unfavorable exchange rate mostly from Mexican peso based costs, and $15.4 million in elevated cost of goods sold for the first
half 2013, of which $7.9 million related to Mexico manufacturing issues, $2.1 million related to a revision of estimates for
phosphate rock inventories in Mexico, $2.3 million related to an out of period adjustment related to a long term supply
agreement, $2.4 million related to demurrage on raw material purchases and other inventory related costs, and $0.7 million
related to acquisition related fair value adjustments. The $39.6 million total of unfavorable effects were partially offset by $7.2
million margin benefit from acquisitions, $9.2 million for lower depreciation in our core business as the assets acquired with
the creation of Innophos are nearing the end of their useful lives, $0.6 million higher sales volumes, $0.5 million lower raw
material costs, and $2.4 million of expense in the second quarter 2012 for adjustments made to cost of goods sold, including
amounts for prior periods. Included in 2012 was $0.6 million for acquisition related fair value adjustments. Both periods
included a benefit of approximately $7 million as we made progress in reducing the amounts required to be paid to settle
historical water duty claims by the Mexican authorities.
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, 2013 were $74.4 million, an increase of $7.0 million, or 10.4%, as
compared to $67.4 million for 2012. The increase was primarily due to $4.7 million increase from the acquired businesses, a
$2.7 million increase in focus on quality, research & development and business improvement programs and a $0.4 million net
decrease in all other costs.
Operating Income
Page 25 of 82
Operating income for the year ended December 31, 2013 was $83.9 million, a decrease of $26.1 million, or 23.7%, as
compared to $110.0 million for the same period in 2012. Operating income percentages decreased to 9.9% for 2013 from
12.8% for 2012.
Interest Expense, net
Net interest expense, including deferred financing amortization expense, for the year ended December 31, 2013 was $4.4
million, a decrease of $1.6 million, or 26.7% as compared to $6.0 million for the same period in 2012. The $1.4 million
decrease was mainly due to $1.0 million interest income received on Mexican income tax refunds and $1.4 million lower
interest expense on our term loan partially offset by $0.9 million interest expense for income tax audits in the US and $0.3
million increased interest expense on our revolving line of credit. There was $0.3 million accelerated deferred financing
expense from the refinancing of our credit facility in the fourth quarter 2012.
Foreign Exchange
Foreign exchange for the year ended December 31, 2013 was a loss of $3.3 million as compared to a gain of $2.0 million
for 2012, primarily due to weakening of the peso against the U.S. Dollar, combined with higher monetary asset positions, in the
2013 period, versus a strengthening of the peso against the U.S. Dollar in the 2012 period. 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 35% for the year ended December 31, 2013 compared to 30% for the same period in 2012. 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% and the reversal of valuation allowances on certain
state net operating loss carry-forwards which lowered the income tax rate 2%, both occurring in 2012.
Net Income
Net income for the year ended December 31, 2013 was $49.5 million, a decrease of $24.7 million as compared to $74.2
million for the same period in 2012, due to the factors described above.
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:
Page 26 of 82
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.
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.
Page 27 of 82
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
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.
Page 28 of 82
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, Triarco and CMI 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
2013
2012
2011
$
$
607,578
169,851
777,429
66,700
844,129
$
$
569,816
187,743
757,559
104,840
862,399
$
$
525,662
186,211
711,873
98,614
810,487
6.6 %
(9.5 )%
2.6 %
(36.4)%
(2.1 )%
8.4 %
0.8 %
6.4 %
6.3 %
6.4 %
$
$
$
$
$
76,802
11,677
88,479
(4,609)
83,870
$
$
86,002
21,913
107,915
2,078
109,993
$
$
94,055
21,948
116,003
21,009
137,012
12.6 %
6.9 %
11.4 %
(6.9 )%
9.9 %
15.1 %
11.7 %
14.2 %
2.0 %
12.8 %
17.9%
11.8%
16.3%
21.3%
16.9%
26,537
7,200
33,737
1,724
35,461
$
$
23,214
14,578
37,792
4,542
42,334
$
$
19,808
18,050
37,858
5,818
43,676
(a)
(b)
(c)
The year ended December 31, 2013, includes a $7.2 million benefit to earnings for the settlement of the Mexican CNA
Water Tax Claims and a $2.3 million charge to earnings for out of period costs in the US.
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.
Segment Net Sales:
Page 29 of 82
Specialty Phosphates US & Canada net sales increased 6.6% for the year ended December 31, 2013 when compared with
the same period in 2012. Volumes increased 6.9% due to a benefit of 5.8% from the AMT and Triarco acquisitions and 1.1%
growth in the core business, with actual volumes shipped up 3.1% but mix down 2.0%. The unfavorable mix primarily occurred
in our INNOVALT® product line for asphalt markets that were significantly affected by low government spending and a
number of weather related events. Selling price decreased 0.3% primarily due to sales mix. In 2012 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 slightly negative.
Specialty Phosphates Mexico net sales decreased 9.5% for the year ended December 31, 2013 when compared with the
same period in 2012. Volumes decreased 7.6% as the business experienced operating issues from premature equipment failure
in the first half of 2013 which limited production and therefore sales. Selling prices decreased 1.9% primarily from a price reset
upon the renewal of a long term contract. In 2012 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.
GTSP & Other net sales decreased 36.4% for the year ended December 31, 2013 when compared with the same period in
2012. Volumes decreased 25.3% and selling prices decreased 11.1% due to weak fertilizer market demand which resulted in a
sharp decline in 2013 market selling prices to levels last recorded in early 2010. In 2012 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.
Segment Operating Income Percentage of Net Sales:
The 250 basis point decrease in Specialty Phosphates US & Canada for the year ended December 31, 2013 compared
with the same period in 2012 is primarily due to increased costs of goods sold in 2013 compared to an inventory lag benefit in
the first quarter 2012 which decreased margins by 220 basis points, elevated cost of goods sold in the first quarter 2013 for
revisions in inventory accounting estimates, an out of period adjustment related to a long term supply agreement, demurrage on
raw material purchases and acquisition accounting expenses which decreased margins by 100 basis points, and lower selling
prices which decreased margins by 30 basis points. Lower fixed costs in the core business increased margins by 50 basis points
and higher volumes increased margins by 50 basis points. 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 480 basis point decrease in Specialty Phosphates Mexico for the year ended December 31, 2013 compared with the
same period in 2012 is primarily due to higher cost of goods sold for first half 2013 manufacturing issues and a revision of
estimates for phosphate rock inventories which decreased margins by 400 basis points, lower selling prices which decreased
margins by 170 basis points, lower sales volume which decreased margins by 20 basis points, increased fixed costs which
decreased margins by 630 basis points, and increased turnaround cost at our Coatzacoalcos manufacturing facility decreased
margins by 20 basis points. Lower raw material costs increased margins by 370 basis points and lower depreciation increased
margins by 390 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 phosphate rock and sulfur 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 890 basis point decrease in GTSP & Other for the year ended December 31, 2013 compared with the same period in
2012 is primarily due to lower selling prices which decreased margin by 1,220 basis points, a lower of cost or market reserve
which decreased margins by 150 basis points, lower sales volumes which decreased margins by 340 basis points, and increased
turnaround cost at our Coatzacoalcos manufacturing facility decreased margins by 20 basis points. Lower raw material costs,
mainly from lower rock and sulfur market prices, increased margins by 520 basis points, lower depreciation added 270 basis
points, and lower fixed costs increased margins by 50 basis points. 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 2012 period
decreased margins by 270 basis points.
Page 30 of 82
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,
2012
2011
2013
$
$
91.3
(37.8)
(47.5)
$
101.4
(104.7)
(5.1)
46.3
(54.7)
(20.1)
Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
Net cash provided by operating activities was $91.3 million for the year ended December 31, 2013 as compared to $101.4
million for 2012, a decrease of $10.1 million. The decrease in operating activities cash resulted primarily from unfavorable
changes of $24.7 million in net income, as described earlier, and $6.9 million lower depreciation, mostly offset by favorable
changes of $18.8 million in working capital, $1.4 million in other long term assets and liabilities and $1.3 million in non-cash
adjustments to income.
The favorable change in working capital is derived from it being a source of cash of $4.9 million in 2013 compared to a
use of cash of $14.7 million in 2012, an increase in cash of $19.6 million. Collections improved on the backlog of value added
tax, or VAT, refunds due the Company from the Mexican government; however, this was offset by an inventory build due to
increased requirements in Mexico to support improved production performance. Accounts receivable was a $5.9 million source
of cash in 2013 compared to a $13.0 million source of cash in 2012, and remained at a consistent trend as a percent of quarterly
sales, when adjusted for GTSP open accounts receivable of $1.3 million, $1.0 million, $1.6 million, $15.3 million and $4.3
million as of December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013 and December 31, 2012, respectively. In
October 2013, our Mexican subsidiary received their 2012 income tax refund of approximately $8.7 million.
Total inventories increased $18.4 million from December 2012 levels resulting in days of inventory on hand increasing to
95 days. The following chart shows its historical performance:
Inventory Days on Hand
2013
2012
2011
95
86
102
Net cash used for investing activities was $37.8 million for the year ended December 31, 2013, compared to $104.7
million for 2012, a decrease in the use of cash of $66.9 million which was mainly due to the acquisitions of CMI in 2013 when
compared with the acquisitions of AMT and Triarco in 2012. Capital spending was $0.4 million higher than 2012. This is
mainly explained by higher capital spending at our Coatzacoalcos, Mexico facility partially offset by decreased spending at our
China blending facility.
In July 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.
In December 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 contingent incentive compensation upon
success in delivering growth objectives over the next two years. The Company currently estimates the contingent incentive
compensation to be zero.
In October 2013, Innophos purchased all of the assets of Chelated Minerals International, Inc., (CMI), for $5 million in
cash. CMI, a privately held company based in Salt Lake City, Utah, has significant knowhow in the manufacture and science of
chelated minerals supplied to the human nutrition market.
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
Page 31 of 82
process design and completion of feasibility studies. Full expenditures would only occur if interim milestone goals were
successfully attained. Combined 2010 through 2013 expenditures on the exploration of the Baja California Sur concession
deposits were approximately $3.8 million, and management currently expects to spend an additional $1-2 million in 2014 on
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, 2013, was a use of $47.5 million, compared to a use
of $5.1 million in 2012, a decrease in cash of $42.4 million. This was mainly due to a $37.0 million decrease in net borrowing
activity, $7.0 million increased dividend payments, and $2.3 million lower excess tax benefits from exercise of stock options,
partially offset by $1.1 million increased stock option exercises and $1.5 million deferred financing cost from the refinancing
of our credit agreement in 2012.
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. On October 25,
2013 the Company's Board of Directors declared an increase to its dividend from $0.35 per share to $0.40 per share to holders
of record on November 15, 2013.
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
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. During the fourth quarter of 2013, the Company repurchased 150,000
shares of its common stock on the open market at an average price of $47.45 per share or $7.1 million. As of December 31,
2013, there is a balance of $29.5 million remaining under the repurchase program.
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
Page 32 of 82
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 contingent incentive compensation 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,
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.
Indebtedness
Total debt was $163.0 million as of December 31, 2013. Short term and long term debt net of cash was $130.2 million as
of December 31, 2013, a decrease of $19.0 million, or 12.7% from December 31, 2012.
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 credit 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 an asset of approximately $1.2 million as of December 31, 2013.
As indicated elsewhere, the Company has increased the quarterly dividend on its Common Stock to an annual rate of
$1.60 per share starting with the fourth quarter 2013 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, 2013, the Company had cash and cash equivalents outside the United States of $23.1 million, or 70%
of the Company's balance. Further, the foreign cash amounts are not restricted by law to be used in other countries. Our current
Page 33 of 82
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 April 2013, the Company paid $4.4 million to settle the 2005-2008 Mexican CNA Water Tax Claims under an amnesty
program governed by the Mexican government.
Capital Expenditures
Capital expenditures were $33 million in 2013. Investment continues to be focused on capacity enhancements for US,
Canada and Mexico Specialty Ingredients facilities, and further enhancing Mexico's reliability and efficiency, as well as
flexibility, to process multiple grades of phosphate rock, consistent with the Company's supply chain diversification strategy. A
new higher grade PPA operation was successfully commissioned in 2013 as part of the long term plant upgrade for
Coatzacoalcos. This higher-grade PPA will further support internal needs for the US and Canada network and allow a
continued upgrading of the product mix in the Latin America region. Our expectation for 2014 is for capital expenditure in the
$45-50 million range.
Contractual Obligations and Commercial Commitments
The following table sets forth our long-term contractual cash obligations as of December 31, 2013 (dollars in thousands):
Contractual Obligations
Term loan and revolver
borrowings (1)
Future Service Pension
Benefits
Other (2)
Operating Leases
Total contractual cash
obligations
Total
2014
2015
2016
2017
2018
Thereafter
Years ending December 31,
$ 163,000
$
4,000
$
4,000
$
4,000
$ 151,000
$
—
$
—
11,689
370,334
31,867
760
123,811
5,389
917
86,273
5,353
1,038
58,273
4,769
1,127
58,273
3,290
1,212
43,704
2,981
6,635
—
10,085
$ 576,890
$ 133,960
$ 96,543
$ 68,080
$ 213,690
$ 47,897
$ 16,720
______________________
(1)
Amounts exclude interest payments. Interest on the $163.0 million current balance of the term loan and revolver
borrowings at current rates would be approximately $3.9 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
Page 34 of 82
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
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 2013 exceeded the book value of our equity.
Our reporting units for goodwill purposes are Specialty Phosphates United States, Specialty Phosphates Canada,
Specialty Phosphates Mexico, Kelatron, AMT, Triarco and GTSP & Other. As of December 31, 2013, the fair values of our
reporting units were substantially greater than their carrying values.
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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. The review of these long-lived assets is performed
at the individual asset level, asset group level, or the product group level depending on the lowest level for which identifiable
cash flows are largely independent. The Company’s asset groupings or product groupings vary based on the interrelationship of
the long-lived assets and the identifiable cash flows. For example, in certain instances, multiple manufacturing units may work
with one another to produce the lowest identifiable cash flows or in other instances a stand-alone unit may produce the lowest
level of identifiable cash flows. There are other instances where a stand-alone unit may produce multiple products and the
lowest level of identifiable cash flows is at the product group level. 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,
asset group or product 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.
• 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 2013, 2012 and 2011 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,
2013
Year Ended
December 31,
2012
Year Ended
December 31,
2011
50.4 %
2.8 %
1.0 %
6 years
53.2 %
2.4 %
1.3 %
6 years
$
19.99
$
20.41
$
54.4 %
2.3 %
2.3%
6 years
17.14
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
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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 $81 thousand. A 1% decrease in our expected
rate of return on plan assets would increase our pension plan expense by $178 thousand.
Recently Issued Accounting Standards
New accounting standards effective in 2013 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.”.
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, 2013, we had $96.0 million principal amount of term loan debt and a $225.0 million revolving credit
facility, of which $67.0 million was outstanding, both of which approximate fair value (determined using level 2 inputs within
the fair value hierarchy). Total remaining availability was $159.7 million, taking into account $2.3 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 an asset of approximately $1.2 million as of December 31, 2013.
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.
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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 $67.0 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 $0.7 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. Though we did not do so in 2013, in 2012 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.
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 38 of 82
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, 2013 and December 31, 2012
Statements of Comprehensive Income for each of the three years ended December 31, 2013
Statements of Stockholders’ Equity for each of the three years ended December 31, 2013
Statements of Cash Flows for each of the three years ended December 31, 2013
Notes to Consolidated Financial Statements
Page
40
41
42
43
44
45
Page 39 of 82
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, 2013 and 2012, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control - Integrated Framework (1992 Edition) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these financial statements, 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, 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.
/s/PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 27, 2014
Page 40 of 82
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 22,327,670 and
22,110,249; outstanding 21,893,137 and 21,830,870 shares
Paid-in capital
Common stock held in treasury, at cost (434,533 and 279,379 shares)
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements
December 31,
2013
2012
$
$
$
$
32,755
88,434
181,467
81,472
384,128
201,985
84,373
74,691
745,177
4,002
38,717
34,124
76,843
159,007
45,908
281,758
$
$
$
$
22
120,046
(19,599)
364,515
(1,565)
463,419
745,177
$
$
26,815
94,033
162,940
99,944
383,732
195,723
83,108
75,948
738,511
4,000
36,424
46,030
86,454
172,000
35,734
294,188
22
115,782
(12,411)
346,866
(5,936)
444,323
738,511
Page 41 of 82
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 ($825), $71 and $448)
Change in pension and post-retirement plans, (net of tax ($1,359),
$572 and $388)
Other comprehensive (loss) income, net of tax
Comprehensive income
$
$
$
$
$
$
$
$
2013
844,129
685,830
158,299
$
Year Ended December 31,
2012
862,399
684,979
177,420
$
70,501
3,928
74,429
83,870
4,426
3,197
76,247
26,741
49,506
49,442
$
64,320
3,107
67,427
109,993
5,977
(1,957)
105,973
31,783
74,190
74,150
$
2011
810,487
605,172
205,315
65,380
2,923
68,303
137,012
5,726
875
130,411
43,889
86,522
86,522
2.25
2.21
$
$
3.40
3.30
$
$
3.99
3.83
21,933,843
22,345,980
21,795,155
22,475,881
21,694,453
22,578,567
1,345
$
(114) $
(732)
3,026
4,371
53,877
$
$
(827)
(941) $
$
73,249
(1,174)
(1,906)
84,616
See notes to consolidated financial statements
Page 42 of 82
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Statements of Stockholders’ Equity
(Dollars and shares in thousands)
Number of
Common
Shares
Common
Stock
Retained
Earnings
(Deficit)
Paid-in
Capital
Accumulated
Other
Comprehensive
Income/(Loss)
Total
Shareholders'
Equity
Balance December 31, 2010
Net income
Other comprehensive loss, (net of tax $836)
Proceeds from stock award exercises
and issuances
Share-based compensation
Excess tax benefits from exercise of stock
options
Common stock repurchases
Restricted stock forfeitures
Dividends declared
Balance, December 31, 2011
Net income
Other comprehensive loss, (net of tax $643)
Proceeds from stock award exercises
and issuances
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
Net income
Other comprehensive income, (net of tax
($2,184))
Proceeds from stock award exercises
and issuances
Share-based compensation
Excess tax benefits from exercise of stock
options
Common stock repurchases
Restricted stock forfeitures
Dividends declared
Balance, December 31, 2013
21,464
$
21
$ 227,752
$ 106,032
$
(3,089)
$
86,522
(1,906)
307
1
(150)
(1 )
(2,600)
6,250
2,511
(6,139)
(17)
21,620
$
22
$ 292,144
$ 106,037
$
(4,995)
$
(22,130 )
74,190
(941)
340
(150)
21
(2,255)
1,912
3,931
(7,254)
1,000
(19,468 )
21,831
$
22
$ 346,866
$ 103,371
$
(5,936)
$
49,506
217
—
(150)
(5 )
4,371
(759)
2,174
2,849
(7,118)
(70)
21,893
$
22
$ 364,515
$ 100,447
$
(1,565)
$
(31,857 )
See notes to consolidated financial statements
330,716
86,522
(1,906)
(2,599)
6,250
2,511
(6,139)
(17)
(22,130)
393,208
74,190
(941)
(2,255)
1,912
3,931
(7,254)
1,000
(19,468)
444,323
49,506
4,371
(759)
2,174
2,849
(7,118)
(70)
(31,857)
463,419
Page 43 of 82
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
Deferred profit sharing
Share-based compensation
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
(Increase) decrease in inventories
Decrease (increase) in other current assets
Increase (decrease) in accounts payable
Decrease 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,
2013
2012
2011
$
49,506
$
74,190
$
86,522
35,461
559
1,484
—
2,174
5,898
(18,402)
27,144
2,224
(11,913)
(2,836)
91,299
42,334
884
167
—
1,912
13,017
12,154
(21,283)
2,059
(20,573)
(3,456)
101,405
(33,415)
(4,425)
(33,060)
(71,706)
(37,840)
(104,766)
1,650
63,007
(76,000)
—
2,849
(7,188)
(31,837)
(47,519)
5,940
26,815
32,755
$
528
333,000
(309,000)
(1,461)
3,931
(7,254)
(24,810)
(5,066)
(8,427)
35,242
26,815
$
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)
(19,921)
(20,082)
(28,464)
63,706
35,242
$
See notes to consolidated financial statements
Page 44 of 82
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.
In October 2013, Innophos purchased all of the assets of Chelated Minerals International, Inc., (CMI), for $5 million in
cash. CMI, a privately held company based in Salt Lake City, Utah, has significant knowhow in the manufacture and science of
chelated minerals supplied to the human nutrition market.
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 first quarter of fiscal 2013, we identified an adjustment necessary for a long-term supply contract. We
corrected this item during the first quarter of fiscal 2013, which had the effect of increasing cost of goods sold by $2.3 million,
and decreasing net income by $1.6 million.
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 2013 financial statements.
Page 45 of 82
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 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 are 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, typically 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. The review of these long-lived assets is performed
at the individual asset level, asset group level, or the product group level depending on the lowest level for which identifiable
cash flows are largely independent. The Company’s asset groupings or product groupings vary based on the interrelationship of
the long-lived assets and the identifiable cash flows. For example, in certain instances, multiple manufacturing units may work
with one another to produce the lowest identifiable cash flows or in other instances a stand-alone unit may produce the lowest
Page 46 of 82
level of identifiable cash flows. There are other instances where a stand-alone unit may produce multiple products and the
lowest level of identifiable cash flows is at the product group level. 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,
asset group or product 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.
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. If the 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.
Page 47 of 82
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
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 file 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, 2013, 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.
Page 48 of 82
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.
Share-based Compensation
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.
Recently Issued Accounting Standards
Adopted
In January 2013, the Financial Accounting Standards Board, or FASB, issued a pronouncement updating the accounting
for financial instruments, which clarifies the scope of disclosures about offsetting assets and liabilities. This pronouncement
limits the scope of instruments subject to the offsetting disclosures to derivatives, repurchase and reverse repurchase
agreements, and securities borrowing and lending agreements subject to master netting arrangements or similar agreements.
This pronouncement is effective for annual and interim periods beginning on or after January 1, 2013. The adoption of this
accounting pronouncement did not have a material impact on the Company's consolidated financial position and results of
operations.
In February 2013, the FASB issued an amendment to the accounting guidance for the reporting of amounts reclassified
out of accumulated other comprehensive income (“AOCI”). The amendment expands the existing disclosure by requiring
entities to present information about significant items reclassified out of AOCI by component. In addition, an entity is required
to provide information about the effects on net income of significant amounts reclassified out of each component of AOCI to
net income either on the face of the statement where net income is presented or as a separate disclosure in the notes of the
financial statements. The amendment is effective prospectively for annual or interim reporting periods beginning after
December 15, 2012. The adoption of this accounting pronouncement did not have a material impact on the Company's
consolidated financial position and results of operations.
In July 2013, the FASB issued amendments to allow the Federal Funds Effective Swap Rate (which is the Overnight
Index Swap rate, or OIS rate, in the U.S.) to be designated as a benchmark interest rate for hedge accounting purposes under the
derivatives and hedging guidance. The amendments also allow for the use of different benchmark rates for similar hedges. The
amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July
17, 2013. The initial adoption had no impact on our consolidated financial position and results of operation.
In July 2013, the FASB issued amendments to guidance on the financial statement presentation of an unrecognized tax
benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments require
entities to present an unrecognized tax benefit netted against certain deferred tax assets when specific requirements are met. The
amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (early
adoption is permitted). The Company has elected to early adopt which had no material impact on our consolidated financial
position and results of operation.
Issued but not yet adopted
None.
2. Acquisitions:
The Company has made three 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,
Page 49 of 82
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
adjustments, and 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 fair value of the contingent consideration
arrangement was zero. Closing of the purchase occurred upon execution of the definitive agreements effective as of December
31, 2012. The purchase consideration was funded from our revolving line of credit, as well as cash from operations. The
purchase accounting for the acquisition was closed in the first quarter of 2013 and no adjustments were recognized.
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. The fair
value of the contingent consideration arrangement is determined to be zero based on the probability of achievement. 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 in 2012. An
additional fair value adjustment decreasing inventory (and increasing goodwill) by approximately $0.7 million was recognized
in 2013. This fair value adjustment has been reclassified on the December 31, 2012 balance sheet. The purchase accounting for
the acquisition was closed in the fourth quarter of 2013 at which time a $0.6 million decrease in the purchase price and a $0.8
million decrease in goodwill were recognized.
In October 2013, Innophos purchased substantially all of the assets of privately held Chelated Minerals International, Inc.,
(CMI), based in Salt Lake City, Utah. CMI has significant knowhow in the manufacture and science of chelated minerals
supplied to the human nutrition market. The acquisition of CMI strengthens Innophos’ position in micronutrient ingredients,
which further enhances the Company’s ability to supply a broad range of nutrition fortification solutions to its customers.
Innophos enjoys a strong position in macronutrient 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 acquisition had a purchase price of approximately
$5 million, subject to specified adjustments, and was funded from cash on-hand.
Page 50 of 82
The final purchase price allocation for AMT and Triarco and the preliminary purchase price allocation for CMI 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:
Cash
Accounts receivable
Inventory, including fair value adjustment of $270,
$468 and $20
Other current assets
Property, plant and equipment
Goodwill
Intangible assets
Accounts payable
Other current liabilities
Total
AMT
Triarco
CMI
$
325
849
2,020
39
9,483
5,047
10,050
$
—
$
1,788
3,346
736
2,864
16,508
22,100
(377)
(219)
(1,348)
(180)
$ 27,217
$ 45,814 $
97
299
125
—
1,092
1,265
2,348
(69 )
(57 )
5,100
The intangible assets acquired with AMT, Triarco and CMI include the following:
Customer relationships
Developed technology
Tradename
Non-compete agreement
Useful life
(years)
10-15
$
7-8
5-10
3-10
AMT
Triarco
7,040 $ 10,720
1,900
4,590
930
6,300
$
180
$ 10,050
490
$ 22,100
$
CMI
1,761
353
211
23
2,348
These three transactions were treated as an asset purchase for U.S. federal tax purposes. 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.
Pro forma financial information (unaudited):
The following unaudited pro forma information presents the combined results of operations for the twelve months ended
December 31, 2013 and December 31, 2012 as if the acquisition of CMI had been completed on January 1, 2012 and for the
twelve months ended December 31, 2012 as if the acquisitions of AMT and Triarco had been completed on January 1, 2012.
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
Year Ended December 31,
2012
2013
894,019
845,610
69,823
49,571
3.20
2.26
3.11
2.22
$
$
$
$
$
$
$
$
Page 51 of 82
3. Inventories:
Inventories consist of the following:
Raw materials
Finished products
Spare parts
2013
60,157
108,334
12,976
181,467
$
$
2012
49,856
103,562
9,522
162,940
$
$
Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of December 31, 2013 and December 31,
2012 were $13,857 and $11,551, respectively.
4. Other Current Assets:
Other current assets consist of the following:
Creditable taxes (value added taxes)
Vendor inventory deposits (prepaid)
Prepaid income taxes
Other prepaids
Deferred income taxes
Other
2013
2012
$
$
24,257
14,820
12,269
3,524
21,589
5,013
81,472
$
$
35,181
19,445
22,000
2,884
12,917
7,517
99,944
Page 52 of 82
5. Property, Plant and Equipment, net:
Property, plant and equipment, at cost, consist of the following:
Land
Land improvements -
Buildings and improvements -
Machinery & Equipment -
Construction-in-progress
2013
2012
Useful life
(years)
-
3-15
2-9
10
14-16
20
25-34
1-4
5
6
7
8
9
10
11
12-13
15-25
-
Gross
$ 19,213
10,424
9,433
11,112
11,950
32,982
22,193
14,416
32,486
49,201
50,607
158,171
26,691
8,384
12,856
11,606
72,052
11,885
$ 565,662
$
Accumulated
Depreciation
—
8,361
9,141
5,506
6,528
9,876
4,605
7,677
22,467
49,161
32,908
135,164
26,144
3,493
10,496
9,029
23,121
—
$ 363,677
Net Book
Value
$ 19,213
2,063
292
5,606
5,422
23,106
17,588
6,739
10,019
40
17,699
23,007
547
4,891
2,360
2,577
48,931
11,885
Gross
$ 18,613
9,976
9,342
10,481
10,409
24,937
21,883
7,066
28,850
49,203
50,601
152,713
26,691
9,276
12,349
11,606
57,263
20,708
$ 201,985 $ 531,967
$
Accumulated
Depreciation
—
8,027
9,050
4,477
5,676
8,546
3,867
5,280
19,315
49,151
29,106
128,340
24,367
3,457
9,421
8,058
20,106
—
$ 336,244
Net Book
Value
$ 18,613
1,949
292
6,004
4,733
16,391
18,016
1,786
9,535
52
21,495
24,373
2,324
5,819
2,928
3,548
37,157
20,708
$ 195,723
Depreciation expense, excluding immaterial depreciation expense in changes of inventory, was $28,147, $37,930 and
$39,006 in 2013, 2012 and 2011, respectively. Unamortized capitalized software, included in machinery and equipment, was
$15,374 and $21,572 for the years ended December 31, 2013 and December 31, 2012, respectively.
6. Goodwill:
Balance, December 31, 2011
Investment in AMT
Investment in Triarco
Investment in Kelatron
Balance, December 31, 2012
Investment in CMI
Balance, December 31, 2013
Specialty
Phosphates
Canada
2,530
$
Specialty
Phosphates
Mexico
$ 38,584
GTSP &
Other
$
3,355
Specialty
Phosphates
US
$ 17,118
5,047
16,508
(34)
38,639
1,265
$ 39,904
2,530
38,584
3,355
$
2,530
$ 38,584
$
3,355
Total
61,587
5,047
16,508
(34)
83,108
1,265
$ 84,373
Page 53 of 82
7. Intangibles and Other Assets, net:
Intangibles and other assets consist of the following:
Developed technology and application patents, net of accumulated
amortization of $19,015 for 2013 and $16,155 for 2012
Customer relationships, net of accumulated amortization of $10,295 for
2013 and $7,666 for 2012
Tradenames and license agreements, net of accumulated amortization of
$6,198 for 2013 and $4,852 for 2012
Non-compete agreement, net of accumulated amortization of $796 for 2013
and $644 for 2012
Total Intangibles
Deferred financing costs, net of accumulated amortization of $1,652 for
2013 and $1,092 for 2012 (see note 9)
Other Assets
Total other assets
Useful life
(years)
2013
2012
7-20
25,817
5-15
28,517
5-20
11,463
3-10
$
$
$
$
537
66,334
2,008
6,349
8,357
74,691
$
$
$
$
28,325
29,384
12,598
666
70,973
2,567
2,408
4,975
75,948
Amortization expense for intangibles was $6,987, $4,567 and $3,528 in 2013, 2012 and 2011, respectively. Anticipated
amortization expense for the next five years related to intangibles is as follows:
Intangible amortization expense
2014
7,170
$
$
2015
7,129
$
2016
7,104
$
2017
6,912
$
2018
6,558
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 2013, the Company acquired $2.3 million of intangible assets as part of its acquisition of Chelated Minerals
International, LLC and in 2012, acquired $10.1 million and $22.1 million as part of its acquisitions of AMT and Triarco,
respectively. (see Note 2).
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
Income taxes
Other
2013
2012
—
8,680
5,610
7,240
3,960
3,879
4,755
34,124
$
$
10,855
10,723
8,352
6,727
4,604
—
4,769
46,030
$
$
Page 54 of 82
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
Capital leases
Total borrowings
Less current portion
Long-term debt
2013
96,000
67,000
9
163,009
4,002
159,007
$
$
$
2012
100,000
76,000
—
176,000
4,000
172,000
$
$
$
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 55 of 82
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, 2013, the Total Leverage Ratio, Senior Leverage Ratio, and Fixed Charge Coverage Ratio calculated
in accordance with the agreement were 1.40, 1.40 and 3.30, respectively.
As of December 31, 2013, the Company was in full compliance with all debt covenant requirements.
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 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, 2013, $96.0 million was outstanding under the Term Loan and $67.0 million was outstanding under
the revolving line of credit, both of which approximate fair value because they have a floating interest rate, Level 2 input within
the fair value hierarchy, with total availability at $147.1 million, taking into account $2.3 million in face amount of letters of
credit issued under the sub-facility. The current weighted average interest rate for all debt is 2.4%.
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 2) with the changes in value recorded through other comprehensive income. The fair value of this interest rate
swap is an asset of approximately $1.2 million as of December 31, 2013.
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.
Total interest paid by the Company for all indebtedness for 2013, 2012 and 2011 was $4,622, $5,432 and $6,046.
Page 56 of 82
Interest expense, net consists of the following:
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
Environmental liabilities
Other liabilities
Year Ended December 31,
2012
2011
2013
$
5,271
559
(1,049)
(355)
4,426
$
$
5,419
884
(65)
(261)
5,977
$
5,802
608
(238)
(446)
5,726
2013
2012
$
$
32,110
11,175
1,100
1,523
45,908
$
$
20,803
12,118
1,100
1,713
35,734
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. Compensation expense is amortized on a straight-line basis over the requisite vesting
period, generally three years, and accelerated for those employees that are retirement eligible during 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. The stock options generally vest annually over three years with a ten year term from 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. The
performance shares generally vest at the end of a 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
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, which immediately vest, equal to a fixed retainer value.
Page 57 of 82
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,
2012
2011
2013
Stock options
Restricted stock
Performance shares
Stock grants
Total stock-based compensation expense
$
$
1,002
676
196
300
2,174
$
$
$
1,436
236
(120)
360
1,912
$
1,601
6
4,343
300
6,250
A summary of restricted stock activity during the three years ended December 31, 2013, is presented below:
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
$
$
6,700 $
—
(6,178)
(522)
—
—
14,370
—
(110)
14,260 $
14,260 $
25,853
(1,932)
(5,154)
33,027 $
13.14
—
13.08
13.79
—
—
50.12
—
50.12
50.12
50.12
54.59
50.12
52.65
53.22
Outstanding at January 1, 2011
Granted
Released
Forfeited / Surrendered
Outstanding at December 31, 2011
Outstanding at January 1, 2012
Granted
Released
Forfeited / Surrendered
Outstanding at December 31, 2012
Outstanding at January 1, 2013
Granted
Released
Forfeited / Surrendered
Outstanding at December 31, 2013
Page 58 of 82
A summary of stock option activity during the three years ended December 31, 2013, is presented below:
Number of
Options
Weighted
Average
Exercise
Price
Weighted Average
Grant Date Fair
Value
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
Outstanding at January 1, 2013
Granted
Forfeited / Surrendered
Exercised
Outstanding at December 31, 2013
Exercisable at December 31, 2013
920,966
95,920
(25,531)
(91,213)
900,142
620,677
900,142
39,683
(37,238)
(181,165)
721,422
545,829
721,422
63,580
(23,001)
(92,977)
669,024
556,747
$
$
$
$
$
$
$
$
$
17.14
20.41
19.99
15.77
39.67
17.18
13.10
18.55
14.45
18.55
50.12
16.62
9.34
22.69
17.92
22.69
54.59
39.69
20.63
25.34
20.60
The fair value of the options granted during 2013, 2012 and 2011 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, 2013
50.4 %
2.8 %
1.0 %
6
Year Ended
December 31, 2012
53.2 %
2.4 %
1.3 %
6
Year Ended
December 31, 2011
54.4%
2.3%
2.3%
6
$
19.99
$
20.41
$
17.14
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.
Page 59 of 82
A summary of performance share activity is presented below:
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
Outstanding at January 1, 2013
Granted (at targeted return on invested capital)
Forfeited
Vested
Adjustment to estimate of shares to be earned
Outstanding at December 31, 2013
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
$
268,834
50,970
—
(189,534 )
79,300
209,570
209,570
43,106
—
$
$
(138,781 )
(113,895 )
$
$
—
—
43,091
(4,854 )
—
(25,848 )
12,389
$
17.92
39.67
—
14.57
25.68
29.08
29.08
50.12
—
25.68
41.19
—
—
54.59
54.59
—
54.59
54.59
The total intrinsic value of options exercised and stock grants during 2013, 2012 and 2011 was $4.7 million, $8.3 million
and $2.8 million, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2013
was $15.6 million and $15.6 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
Restricted
Stock
Stock
Options
Performance
Based
$
1,007
$
1.9
1,334
$
1.1
480
2.0
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, 2013, there is a
balance of $29.5 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
Page 60 of 82
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,
2012
2011
2013
49,506
(64)
74,190
(40)
$
49,442
$
74,150
$
86,522
—
86,522
21,933,843
412,137
22,345,980
21,795,155
680,726
22,475,881
21,694,453
884,114
22,578,567
$
$
2.25
2.21
$
$
3.40
3.30
$
$
3.99
3.83
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 330,420, 40,696 and 225,848 for the years ended 2013, 2012
and 2011, respectively.
Page 61 of 82
13. Dividends
The following is the dividend activity for 2013, 2012 and 2011:
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
$
0.35
7,641
0.35
7,641
0.35
7,685
0.35
7,685
March 31
June 30
$
2013
Quarters ended
September 30
0.35
7,694
0.35
7,694
2012
Quarters ended
September 30
$
December 31
0.40
8,817
0.40
8,817
$
0.27
5,885
0.25
5,405
$
0.27
5,891
0.27
5,885
— $
—
0.27
5,891
December 31
0.35
7,629
0.35
7,629
March 31
June 30
$
0.25
5,426
0.17
3,649
0.25
5,442
0.25
5,426
$
2011
Quarters ended
September 30
0.25
5,404.00
0.25
5,442
$
December 31
0.25
5,405
0.25
5,404
Total
1.45
31,837
1.45
31,837
Total
0.89
19,405
1.14
24,810
Total
1.00
21,677
0.92
19,921
$
$
$
$
$
$
$
$
$
$
$
$
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 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. 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
Page 62 of 82
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.
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 $81. A 1% decrease in our expected rate of
return on plan assets would increase our pension plan expense by $178.
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
Transition obligation
Pension
$
Other
Benefits
Total
$
97
61
—
$
—
15
29
97
76
29
The changes in benefit obligations recognized in other comprehensive loss during 2013 and 2012 are as follows:
Change in accumulated other comprehensive
income
Amortization of net gain
Amortization of prior service cost /
transition obligation
Net (gain) loss
Total change in accumulated other
comprehensive income
Deferred taxes
Net amount recognized
Pension Benefits
Other Benefits
Total
2013
2012
2013
2012
2013
2012
$
(366) $
(276) $
(36) $
(47) $
(402) $
(323)
(101)
(2,905)
(104)
1,243
(29)
(948)
37
546
536
(130)
(3,853)
(4,385)
1,359
(3,026) $
(67)
1,789
1,399
(572)
827
(1,013)
367
(241)
(646) $
295
$
(3,372)
992
(2,380) $
$
863
(331)
532
$
Page 63 of 82
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 (gain) loss
Benefits paid
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan 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
2013
2012
2013
2012
2,459
$
2,719
$
3,991
$
4,435
2,719
$
2,461
$
—
105
(329)
(36)
—
110
178
(30)
2,459
$
2,719
$
1,561
$
1,369
$
212
135
52
170
(36)
(30)
1,872
$
1,561
$
(587) $
(1,158) $
$
4,435
337
149
(803)
(127)
3,991
$
$
—
—
127
(127)
—
(3,991) $
$
— $
—
— $
—
$
—
(217)
(587)
(1,158)
(3,774)
(587) $
(1,158) $
(3,991) $
— $
— $
248
248
$
(94)
154
728
728
$
(277)
451
$
—
(676)
(676) $
257
(419)
3,404
327
161
678
(135)
4,435
—
—
135
(135)
—
(4,435)
—
(221)
(4,214)
(4,435)
—
126
126
(48)
78
Page 64 of 82
$
$
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Prior service cost
Actuarial loss (gain)
Net periodic benefit 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 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal Years 2019-2023
Pension Benefits
Other Benefits
2013
2012
2011
2013
2012
2011
$
—
105
(111)
—
110
(110)
—
50
44
$
—
14
14
$
$
—
$
$
337
149
—
—
—
327
161
—
(67)
—
421
$
$
284
140
—
132
(78 )
478
$
486
$
111
(77 )
—
—
34
5.00%
6.30%
NA
4.00%
6.35%
NA
4.50%
6.72%
4.50%
3.75%
4.25%
NA
NA
NA
NA
3.00%
3.00%
3.00%
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%
Pension Benefits
$
79
99
111
128
138
788
Other Benefits
217
$
289
361
394
414
1,856
Innophos expects to contribute approximately $0.2 million to its U.S. defined benefit pension plan in 2014.
The estimated actuarial loss, 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 2014 fiscal year are
$1, $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 2014 fiscal year are $40, $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 65 of 82
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, 2013 and 2012
by asset category are as follows:
Asset Category
Equity securities
Fixed income securities
Total
Plan Assets at
December 31
2013
2012
56.3 %
43.7
100.0 %
39.5%
60.5
100.0%
The fair values of Innophos, Inc.’s pension plan assets at December 31, 2013 by asset category are as follows:
Equity securities
Fixed income securities
Total
Level 1
Level 2
Level 3
$
$
1,053
819
1,872
$
$
1,053
819
1,872
$
$
—
—
—
$
$
—
—
—
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.
Defined Contribution Plan—U.S.
Innophos Inc.’s expense for the defined contribution plan was $3.2 million, $3.3 million and $3.2 million for 2013, 2012
and 2011, respectively.
Page 66 of 82
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
Actuarial (gain) loss
Benefits paid
Exchange rate changes
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Exchange rate changes
Fair value of plan 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
2013
2012
2013
2012
12,256
$
13,322
$
1,803
$
1,905
13,322
$
11,657
$
348
557
(643)
(468)
(860)
339
602
878
(392)
238
12,256
$
13,322
$
15,085
$
13,460
$
2,432
718
(468)
(1,084)
16,683
4,427
$
$
939
804
(392)
274
15,085
1,763
$
$
$
1,905
77
81
(107)
(29)
(124)
1,803
$
$
—
—
29
(29)
—
—
(1,803) $
$
4,427
$
1,763
$
—
—
—
—
$
—
(44)
(1,759)
4,427
$
1,763
$
(1,803) $
— $
— $
97
2,863
209
5,645
2,960
$
5,854
$
(740)
(1,550)
2,220
4,304
$
$
157
—
285
442
(111)
331
1,876
81
99
(150)
(39)
38
1,905
—
—
39
(39)
—
—
(1,905)
—
(30)
(1,875)
(1,905)
200
—
452
652
(173)
479
Page 67 of 82
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Actuarial loss
Prior service cost
Net transition obligation
Net periodic benefit cost
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
Pension Benefits
Other Benefits
2013
2012
2011
2013
2012
2011
$
$
$
348
557
(900)
339
602
(944)
$
280
575
(964)
$
77
81
—
316
101
—
422
$
$
261
104
—
362
165
107
—
$
163
$
36
—
29
223
$
81
99
—
47
—
30
257
$
$
68
95
—
40
—
31
234
4.75%
4.25%
5.50%
4.75%
4.25%
5.00%
NA
NA
NA
NA
NA
NA
4.25%
6.00%
NA
5.00%
6.50%
NA
5.50%
7.00%
NA
4.25%
5.00%
5.50%
NA
NA
NA
NA
NA
NA
9%
10%
10%
5%
2027
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
2013
2012
$
$
$
$
26
262
$
$
(21) $
(212) $
25
281
(20)
(226)
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 2014 fiscal year
are $102, $97 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 2014 fiscal year are $15, $0
and $29, respectively.
Page 68 of 82
Plan Assets
Innophos Canada Inc.’s pension plan invests in mutual funds and the weighted-average asset allocations at December 31,
2013 and 2012 by asset category are as follows:
Asset Category
Equity securities
Debt securities
Other (a)
Total
2013
2012
63.7 %
33.2
3.1
100.0 %
60.5%
35.5
4.0
100.0%
The fair values of Innophos Canada, Inc.’s pension plan assets at December 31, 2013 by asset category are as follows:
Equity securities
Fixed income securities
Other (a)
Total
Level 1
Level 2
Level 3
$
$
10,620
5,548
515
16,683
$
10,620
$
—
515
11,135
$
$
—
5,548
—
5,548
$
$
—
—
—
—
(a) Primarily cash and cash equivalents.
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 $0.7 million to its pension plan in 2013.
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 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal Years 2019-2023
Pension Benefits
$
420
475
496
523
572
3,382
Other Benefits
44
$
54
70
82
88
609
Innophos plans to contribute approximately $0.9 million to its Canadian pension plan in 2014.
Defined Contribution Plans—Canada
Innophos Canada Inc.’s expense for the defined contribution plans was approximately $0.1 million for 2013, 2012 and
2011, respectively.
Page 69 of 82
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:
2013
Year Ended December 31,
2012
2011
US
Canada/Mexico/Europe/Asia
Total
Current income taxes
Deferred income taxes
Total
Income
before
income taxes
$ 61,206
15,041
$ 76,247
Income tax
expense
$ 21,906
4,835
$ 26,741
$ 25,257
1,484
$ 26,741
Income
before
income taxes
$ 84,815
21,158
$ 105,973
Income
tax expense/
(benefit)
$ 25,973
5,810
$ 31,783
$ 31,616
167
$ 31,783
Income
(loss) 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
Year Ended December 31,
2012
2011
2013
Income tax expense at the U.S. statutory rate
State income taxes
Domestic manufacturing deduction
Deferred tax true-up
Uncertain tax positions
CNA matter related non-taxable reimbursement
Foreign tax rate differential
Change in valuation allowance
Permanent book / tax differences
Provision for income taxes
$
$
26,688
3,087
(1,639)
(1,602)
1,401
(329)
(1,161)
555
(259)
$
26,741
$
Net deferred tax assets were reflected on the consolidated balance sheets as follows:
$
37,091
2,458
(1,912)
—
715
(3,101)
(1,233)
(2,237)
2
31,783
$
45,645
2,207
(1,741)
—
—
850
(2,586)
—
(486)
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,
2012
2013
$
$
$
21,589
—
—
(32,110)
(10,521) $
12,917
—
—
(20,803)
(7,886)
Page 70 of 82
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,
2012
2013
$
$
$
5,443
10,846
10,296
26,585
(1,338)
(11,172)
(20,010)
(32,520)
(4,586)
(10,521) $
3,606
13,361
5,823
22,790
(1,344)
(5,136)
(20,165)
(26,645)
(4,031)
(7,886)
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
Gross unrecognized tax benefits at January 1
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions due to settlements
Reductions due to lapse of applicable statute of limitations
Gross unrecognized tax benefits at December 31
Year Ended December 31,
2013
2012
2011
$
$
1,100
1,535
—
—
—
2,635
$
—
1,100
—
—
—
1,100
Net uncertain tax benefits, that if recognized would impact the effective tax
rate, at December 31
$
2,116
$
715
$
—
—
—
—
—
—
—
The U.S. operations do not have any Federal tax loss carry forwards as of December 31, 2013. The Company realized tax
benefits of $2,849 and $3,931 from stock options exercised in 2013 and 2012, respectively.
The Company maintained a $4.6 million and $4.0 million valuation allowance at December 31, 2013 and 2012,
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. The net operating losses will expire in the years 2014 through 2026.
As of December 31, 2013, taxes have not been provided on approximately $210.2 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.
Business is conducted in various countries throughout the world and is subject to tax in numerous jurisdictions. A
significant number of tax returns are filed and subject to examination by various federal, state and local tax authorities. Tax
examinations are often complex, as tax authorities may disagree with the treatment of items reported requiring several years to
resolve. As such, the Company maintains liabilities for possible assessments by tax authorities resulting from known tax
exposures for uncertain income tax positions. 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 on income tax returns for the years 2006 through 2012. In addition, Innophos Canada, Inc. was
assessed approximately $4.0 million for the tax years 2006, 2007, and 2008 by the Canadian tax authorities. In April 2012, the
Page 71 of 82
Company filed a response to the Canadian tax authorities for the above tax matter disputing the full assessment and a follow up
response on October 15, 2013. 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. The Company estimates the liability for unrecognized tax benefits may decrease
approximately $1.2 million during the next twelve months as a result of possible settlements of income tax authority
examinations. The Company has recorded $0.7 million of interest and penalties in the statement of financial position. Other
than the items mentioned above, as of December 31, 2013, 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.
Income taxes paid (net of refunds) were $9,402, $45,080 and $27,164 for 2013, 2012 and 2011, respectively.
16. Commitments and Contingencies:
Leases
Under agreements expiring through 2020, the Company leases railcars and other equipment under various operating
leases. Rental expense for 2013, 2012 and 2011 was $6,324, $6,172 and $5,443, respectively. Minimum annual rentals for all
operating leases are:
Year Ending
2014
2015
2016
2017
2018
Thereafter
Lease Payments
$
5,389
5,353
4,769
3,290
2,981
10,086
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 $123.8 million for 2014.
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.
Page 72 of 82
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 for that site 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, 2013.
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
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 return 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.
In an attempt to address the remaining concerns of the Government Parties, we and PCS undertook joint efforts to
explore possible technical solutions to the issue of Raffinate treatment. Based upon work so far, there appears to be at least one
technically viable approach, namely that of “deep well injection,” which we believe is acceptable to regulators as part of a
negotiated solution among the parties.
Although we cannot give assurances as to the future course or ultimate outcome of ongoing negotiations, including
whether litigation may ultimately ensue, we believe, based on our appreciation of the current state of the proceedings, that deep
well injection is likely to be employed as the technologically acceptable approach for Raffinate and that we will not be asked to
contribute substantially to the cost of the deep well to be specified by the Government Parties in an anticipated consent decree
for settlement of this enforcement matter. However, in negotiated settlements leading to consent decrees with the
Governmental Parties, it is also common for penalties relating to previous “non-compliance” to be assessed and, in that
connection, we have been advised by the Governmental Parties that they expect to seek penalties against both PCS and us in
this case. Although we have argued and made submissions to the effect that for purposes of settlement penalties there is no
basis for any substantial penalty to be levied against us, nevertheless, we can give no assurance as to that outcome, or if a
penalty is initially assessed as to its amount, or whether it will be necessary for us to oppose or seek indemnity for the
assessment by further litigation. As a result, we have concluded that the contingent liability arising from compliance costs in
this matter remains, as we have previously disclosed, neither remote nor probable, but reasonably possible.
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 for
which 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.
Page 73 of 82
Innophos, Inc. has been assessed approximately $1.2 million of sales/use taxes by the State of Louisiana and Ascension
Parish. This tax assessment covers certain raw materials used in the production of Phosphoric Acid. The Company is contesting
both tax assessments. This assessment covers periods 2004 to 2010 for the Parish and 2007 to 2010 for the State. We have
concluded that the contingent liability arising from this matter is neither remote nor probable, but reasonably possible.
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,
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. Changes in Accumulated Other Comprehensive Income (Loss) by Component:
Balance at December 31, 2011
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive income (loss)
Balance at December 31, 2012
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive income (loss)
Balance at December 31, 2013
Pension and
Other
Postretirement
Adjustments
Changes in Fair
Value of
Effective Cash
Flow Hedges
Total
$
$
(4,486) $
(827)
—
(827)
(5,313)
3,026
—
3,026
(2,287) $
(509) $
(114)
—
(114)
(623)
1,345
—
1,345
722
$
(4,995)
(941)
—
(941)
(5,936)
4,371
—
4,371
(1,565)
18. 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 30%, 35% and 30%, respectively, of net sales for 2013, 2012 and 2011. No customer accounted for more than 10% of our
sales in the last three years.
19. Valuation Allowances:
Valuation allowances as of December 31, 2013, 2012 and 2011, and the changes in the valuation allowances for the year
ended December 31, 2013, 2012 and 2011 are as follows:
Balance, January
1,
2013
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Deferred taxes valuation allowances
$
4,031
$
555
$
— $
—
Deferred taxes valuation allowances
$
6,549
$
(2,518) $
— $
—
Balance, January
1,
2012
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Deferred taxes valuation allowances
$
5,860
$
689
$
— $
—
Balance, January
1,
2011
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Balance,
December 31, 2013
$
4,586
Balance,
December 31, 2012
$
4,031
Balance,
December 31, 2011
$
6,549
Page 74 of 82
20. 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, Triarco and CMI 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.
For the year ended December 31, 2013
Sales
Intersegment sales
Total sales
Operating income (a) (b)
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 (c)
For the year ended December 31, 2012
Sales
Intersegment sales
Total sales
Operating income (a) (b)
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 (c)
$
$
$
$
$
$
$
$
$
$
$
$
Specialty
Phosphates
US & Canada
607,578
2,910
610,488
76,802
26,537
11,084
123,893
720,251
Specialty
Phosphates
US & Canada
569,816
1,779
571,595
86,002
23,214
11,068
130,869
714,753
$
$
$
$
$
$
720,251
(255,928)
464,323
$
$
714,753
(260,559)
454,194
$
$
Specialty
Phosphates
Mexico
GTSP &
Other
$
169,851
$
66,700
$
55,359
225,210
308
67,008
11,677
7,200
$
$
(4,609)
1,724
$
22,237
$
94
$
76,698
291,264
1,394
2,670
291,264
$
2,670
$
(13,080)
—
278,184
$
2,670
$
Eliminations
—
(58,577)
$
(58,577)
Total
844,129
—
844,129
83,870
35,461
33,415
201,985
1,014,185
$
$
1,014,185
(269,008)
745,177
$
$
$
—
—
—
—
—
—
—
Specialty
Phosphates
Mexico
$
187,743
$
55,830
243,573
21,913
14,578
$
$
GTSP &
Other
104,840
409
105,249
2,078
4,542
$
$
Eliminations
—
(58,018)
$
(58,018)
—
—
$
$
Total
862,399
—
862,399
109,993
42,334
20,481
$
1,511
$
63,447
296,315
1,407
6,655
296,315
$
6,655
$
(18,653)
—
277,662
$
6,655
$
—
—
—
—
—
—
$
33,060
195,723
1,017,723
$
$
1,017,723
(279,212)
738,511
Page 75 of 82
For the year ended December 31, 2011
Sales
Intersegment sales
Total sales
Operating income (a) (b)
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 (c)
$
$
$
$
$
$
Specialty
Phosphates
US & Canada
525,662
1,303
526,965
94,055
19,808
25,323
127,020
648,408
$
$
$
$
648,408
(230,840)
417,568
$
$
Specialty
Phosphates
Mexico
GTSP &
Other
$
$
$
$
186,211
49,781
235,992
21,948
18,050
5,001
59,384
278,470
278,470
(10,040)
268,430
$
$
$
$
$
98,614
385
98,999
21,009
5,818
3,871
1,017
1,017
1,017
$
—
1,017
$
Eliminations
—
(51,469)
(51,469)
—
—
$
$
$
—
—
—
—
—
—
$
$
$
Total
810,487
—
810,487
137,012
43,676
34,195
187,421
927,895
927,895
(240,880)
687,015
(a)
(b)
(c)
The years ended December 31, 2013, December 31, 2012 and December 31, 2011 include a $7.2 million, $7.1 million
and $3.4 million benefit to earnings, respectively, for the CNA Fresh Water Claims in GTSP & Other.
The years ended December 31, 2013 and December 31, 2012 include a $2.3 million and $2.4 million charge to
earnings, respectively, for out of period costs.
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
2013
556,223
145,805
75,401
66,700
844,129
2013
495,276
132,737
36,574
179,542
844,129
$
$
$
$
$
$
$
Year Ended December 31,
2012
514,535
151,779
91,246
104,839
862,399
$
Year Ended December 31,
2012
471,851
131,353
38,905
220,290
862,399
$
$
$
$
2011
486,522
133,574
91,777
98,614
810,487
2011
436,981
128,018
34,976
210,512
810,487
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 76 of 82
21. Quarterly information (unaudited):
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
2013
Quarters ended
March 31
$ 214,441
37,034
12,403
June 30
$ 213,176
40,895
11,567
(a)
(a)
September 30
$ 219,993
38,705
10,940
December 31
$ 196,519
41,665
14,596
Total
$ 844,129
158,299
49,506
$
$
0.56
0.55
(a) $
(a) $
0.53
0.52
$
$
0.50
0.49
$
$
0.66
0.65
2012
Quarters ended
March 31
$ 228,252
55,868
27,588
June 30
$ 214,180
42,368
16,504
(b)
(b)
September 30
December 31
$ 211,188 $ 208,779
36,405
(c)
13,392
(c)
42,779
16,706
Total
$ 862,399
177,420
74,190
$
$
1.27
1.22
(b) $
(b) $
0.76
0.73
(c) $
(c) $
0.77 $
0.74 $
0.61
0.60
(a) The first quarter of fiscal 2013 included a benefit to earnings, primarily for the settlement of the CNA Fresh Water
Claims, decreasing cost of goods sold by $7.2 million and increasing net income by $5.4 million and out of period adjustments
increasing cost of goods sold by $2.3 million and decreasing net income by $1.6 million.
(b) 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.
(c) 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.
Page 77 of 82
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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, 2013.
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
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, 2013, 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 (1992). Based on the assessment, management concluded that, as of December 31,
2013, 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.
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, 2013, 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
2013 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 78 of 82
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 2014 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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this 10-K.
See the attached Exhibit Index.
Page 79 of 82
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 27th day of February, 2014.
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)
February 27, 2014
/S/ MARK FEUERBACH
Mark Feuerbach
Vice President and Chief Financial Officer
(Principal Financial Officer)
February 27, 2014
/S/ CHARLES BRODHEIM
Charles Brodheim
Vice President and Corporate Controller
(Principal Accounting Officer)
/S/ GARY CAPPELINE
Gary Cappeline
Director
/S/ AMADO CAVAZOS
Director
Amado Cavazos
/S/ LINDA MYRICK
Linda Myrick
/S/ KAREN OSAR
Karen Osar
/S/ JOHN STEITZ
John Steitz
Director
Director
Director
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
February 27, 2014
Page 80 of 82
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 81 of 82
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
10.19
reference to Exhibit 10.29 of Annual Report on Form 10-K of Innophos Holdings, Inc. for the year ended
December 31, 2006
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
10.20 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 27, 2014 pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 filed herewith
31.2 Certification of Principal Financial Officer dated February 27, 2014 pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 filed herewith
32.1 Certification of Principal Executive Officer dated February 27, 2014 pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 filed herewith
32.2 Certification of Principal Financial Officer dated February 27, 2014 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 82 of 82
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Officers & Directors
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(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Randolph Gress
Chairman of the Board, Chief Executive
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Robert Harrer
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Randolph Gress
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:9)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
(cid:55)(cid:53)(cid:36)(cid:49)(cid:54)(cid:41)(cid:40)(cid:53)(cid:3)(cid:36)(cid:42)(cid:40)(cid:49)(cid:55)(cid:3)(cid:36)(cid:49)(cid:39)(cid:3)(cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:53)
Wells Fargo
Gary Cappeline
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Chair, Compensation Committee
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PricewaterhouseCoopers LLP
Iris Alvarado
Vice President, Purchasing, Logistics &
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Amado Cavazos
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
Charles Brodheim
Vice President, Corporate Controller
Louis Calvarin
Vice President, Operations
Linda Myrick
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Corporate Governance Committee
Karen Osar
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William Farran
Vice President, General Counsel &
Corporate Secretary
John Steitz
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Mark Feuerbach
Vice President, Investor Relations,
Treasury, Financial Planning & Analysis
Joseph Golowski
Vice President, Specialty Phosphates
Gail Holler
Vice President, Human Resources
Russell Kemp
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Michael Lovrich
Vice President, Planning &
Customer Service
Abraham Shabot
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Innophos Latin America
Mark Thurston
Vice President, Corporate Strategy &
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Sue Turner
Vice President, Quality & Regulatory
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USA (Corporate Headquarters)
Innophos Holdings, Inc.
259 Prospect Plains Rd, Bldg A
Cranbury, NJ 08512-3706 USA
609-495-2495
Mexico
Innophos Mexicana S. de R.L. de C.V.
Bosques de los Ciruelos 186
Piso 11
Colonia Bosques de las Lomas
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+ (52) 55 5322 48 08
www.innophos.com
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(cid:41)(cid:36)(cid:38)(cid:44)(cid:47)(cid:44)(cid:55)(cid:44)(cid:40)(cid:54)
Port Maitland, Ontario, Canada
Chicago Heights, Illinois
Chicago (Waterway), Illinois
Paterson, New Jersey
Ogden, Utah
North Salt Lake, Utah
Salt Lake City, Utah
Nashville, Tennessee
Green Pond, South Carolina
Geismar, Louisiana
San Jose de Iturbide (Mission Hills),
Guanajuato, Mexico
Coatzacoalcos, Veracruz, Mexico
Taicang, China
(cid:44)(cid:49)(cid:57)(cid:40)(cid:54)(cid:55)(cid:50)(cid:53)(cid:3)(cid:53)(cid:40)(cid:47)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)(cid:3)(cid:38)(cid:50)(cid:49)(cid:55)(cid:36)(cid:38)(cid:55)(cid:54)
investor.relations@innophos.com
609-366-1299
or Bryan Armstrong
FTI Consulting, Inc.
312-553-6707
bryan.armstrong@fticonsulting.com
Innophos Holdings, Inc.
259 Prospect Plains Rd, Bldg A
Cranbury, NJ 08512-3706 USA
www.innophos.com