INGREDIENTS FOR SUCCESS
2014 ANNUAL REPORT
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)
810
862
844
839
714
137
110
95
107
84
‘10
‘11
‘12
‘13
‘14
‘10
‘11
‘12
‘13
‘14
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
600%
500%
400%
300%
200%
100%
0%
‘07
‘08
‘09
‘10
‘11
‘12
‘13
‘14
‘15
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 2014
We will continue to invest to
become stronger as a business
so that we are positioned well for
future growth, margin expansion
and solid yields.
Dear Fellow Innophos Investors,
I am proud of our 2014 operating
performance. We continued to generate
strong cash flow, the majority of which
we returned to our shareholders, despite
external headwinds that hindered growth
on our top line. We were able to generate
stronger bottom-line performance
supported by operational efficiency
improvement efforts at our Coatzacoalcos,
Mexico facility. This helped generate
a $22 million increase in Specialty
Phosphates operating income compared
to last year and a 310 basis point
improvement in our Specialty Phosphates
operating income margin to over 14% in
2014.
Over the years, we have invested
significant time and resources in
transforming our Coatzacoalcos facility
and we are thrilled these efforts are
producing positive results. In fact, the
fourth quarter 2014 marked the seventh
consecutive quarter of improving yields.
This serves as a great example of our
ability to not only fix acute challenges in
our business, but to also make permanent
enhancements to our operations.
2014 was a challenging year for the
industry. Market demand remained
soft throughout most of the markets we
serve. This trend continued from the
prior year, which overshadowed a 24%
year-over-year increase in INNOVALT®
sales for the asphalt paving market. We
remain confident in the long-term market
potential we see for this product line.
We ended the year with net sales of $839
million, a 1% decrease over last year.
Diluted earnings per share of $2.91 were
up 32% compared to the $2.21 recorded
in 2013.
Our strong balance sheet and ability
to generate free cash flow allowed for
increased returns to our shareholders.
We increased our quarterly dividend rate
by 20% during the year and ramped up
our share repurchases to conclude our
2011 share buyback program.
Increasing Returns for Our
Shareholders
Our cash flow conversion was very strong
in 2014, with $97 million of free cash
flow for the year, which was 51% higher
than our net income. This strong cash
flow enabled us to execute against
our shareholder return initiatives and
ultimately increase shareholder value.
This past year, we returned 105% of our
full-year net income to our shareholders
through increased dividends and share
repurchases. For the full year 2014, we
spent $38 million on dividend payments
and $30 million on share buybacks for a
total of $68 million.
We expect to increase shareholder returns
in 2015 with the new share buyback
program announced in December of last
year. The program has been authorized
for $125 million which represents
roughly 10% of our market capitalization.
Looking Ahead
As we look ahead into 2015, we expect
to face continued external headwinds
including soft end product market
demand, a challenging selling price
environment, and volatile foreign
exchange rates. However, much like our
performance during this past year, we
remain confident in our ability to navigate
these challenges and generate value for
our shareholders. Equally important, we
will continue to invest to become stronger
as a business so that we are positioned
well for future growth, margin expansion,
and solid yields. We expect to be ready
and well positioned to capitalize when
market demand improves.
We are targeting to generate above-
market organic growth within our core
business in 2015 and beyond. To
support this, we must further expand
our technical and commercial resources
with targeted innovation and geographic
initiatives for growth.
We will also leverage our strong cash
flow and balance sheet to support growth
through our disciplined M&A strategy.
We will continue to prudently evaluate
opportunities that are compelling from
both a strategic and financial point of view.
As always, we will evaluate and discuss the
best ways to allocate our capital with our
Board throughout the year.
In closing, I want to thank our customers,
shareholders, suppliers and employees
for their support and contributions to
another productive year for Innophos. I
look forward to executing and achieving
our goals for 2015 and beyond.
Randy Gress
CEO and Chairman
April 23, 2015
2014 ACHIEVEMENTS
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(cid:74)(cid:83)(cid:86)(cid:4)(cid:70)(cid:69)(cid:79)(cid:77)(cid:82)(cid:75)(cid:16)(cid:4)(cid:56)(cid:73)(cid:92)(cid:88)(cid:89)(cid:86)(cid:17)(cid:49)(cid:73)(cid:80)(cid:88)(cid:398)(cid:4)(cid:74)(cid:83)(cid:86)(cid:4)(cid:71)(cid:76)(cid:73)(cid:73)(cid:87)(cid:73)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:50)(cid:89)(cid:88)(cid:86)(cid:69)(cid:4)
(cid:56)(cid:69)(cid:70)(cid:398)(cid:4)(cid:74)(cid:83)(cid:86)(cid:4)(cid:82)(cid:89)(cid:88)(cid:86)(cid:77)(cid:88)(cid:77)(cid:83)(cid:82)(cid:4)(cid:69)(cid:82)(cid:72)(cid:4)(cid:84)(cid:76)(cid:69)(cid:86)(cid:81)(cid:69)(cid:71)(cid:73)(cid:89)(cid:88)(cid:77)(cid:71)(cid:69)(cid:80)(cid:87)(cid:18)
(cid:37)(cid:89)(cid:88)(cid:76)(cid:83)(cid:86)(cid:77)(cid:94)(cid:73)(cid:72)(cid:4)(cid:8)(cid:21)(cid:22)(cid:25)(cid:4)(cid:81)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:4)(cid:87)(cid:76)(cid:69)(cid:86)(cid:73)(cid:4)(cid:70)(cid:89)(cid:93)(cid:70)(cid:69)(cid:71)(cid:79)(cid:4)(cid:84)(cid:86)(cid:83)(cid:75)(cid:86)(cid:69)(cid:81)(cid:4)
(cid:74)(cid:83)(cid:86)(cid:4)(cid:22)(cid:20)(cid:21)(cid:25)(cid:16)(cid:4)(cid:91)(cid:76)(cid:77)(cid:71)(cid:76)(cid:4)(cid:86)(cid:73)(cid:84)(cid:86)(cid:73)(cid:87)(cid:73)(cid:82)(cid:88)(cid:87)(cid:4)(cid:86)(cid:83)(cid:89)(cid:75)(cid:76)(cid:80)(cid:93)(cid:4)(cid:88)(cid:73)(cid:82)(cid:4)(cid:84)(cid:73)(cid:86)(cid:71)(cid:73)(cid:82)(cid:88)(cid:4)
(cid:39)(cid:69)(cid:80)(cid:17)(cid:54)(cid:77)(cid:87)(cid:73)(cid:111)(cid:4)(cid:90)(cid:83)(cid:80)(cid:89)(cid:81)(cid:73)(cid:4)(cid:75)(cid:86)(cid:83)(cid:91)(cid:88)(cid:76)(cid:4)(cid:83)(cid:74)(cid:4)(cid:21)(cid:20)(cid:9)(cid:4)(cid:74)(cid:83)(cid:86)(cid:4)(cid:80)(cid:83)(cid:91)(cid:4)(cid:87)(cid:83)(cid:72)(cid:77)(cid:89)(cid:81)(cid:4)
(cid:83)(cid:74)(cid:4)(cid:45)(cid:82)(cid:82)(cid:83)(cid:84)(cid:76)(cid:83)(cid:87)(cid:365)(cid:4)(cid:81)(cid:69)(cid:86)(cid:79)(cid:73)(cid:88)(cid:4)(cid:71)(cid:69)(cid:84)(cid:77)(cid:88)(cid:69)(cid:80)(cid:77)(cid:94)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:18)
(cid:70)(cid:69)(cid:79)(cid:77)(cid:82)(cid:75)(cid:4)(cid:69)(cid:84)(cid:84)(cid:80)(cid:77)(cid:71)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:87)(cid:18)
(cid:41)(cid:92)(cid:71)(cid:73)(cid:80)(cid:80)(cid:73)(cid:82)(cid:88)(cid:4)(cid:86)(cid:73)(cid:87)(cid:89)(cid:80)(cid:88)(cid:87)(cid:4)(cid:74)(cid:83)(cid:86)(cid:4)(cid:88)(cid:76)(cid:73)(cid:4)(cid:45)(cid:50)(cid:50)(cid:51)(cid:58)(cid:37)(cid:48)(cid:56)(cid:111)(cid:4)(cid:84)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:4)(cid:80)(cid:77)(cid:82)(cid:73)(cid:4)
(cid:91)(cid:77)(cid:88)(cid:76)(cid:4)(cid:90)(cid:83)(cid:80)(cid:89)(cid:81)(cid:73)(cid:87)(cid:4)(cid:89)(cid:84)(cid:4)(cid:22)(cid:24)(cid:9)(cid:4)(cid:93)(cid:73)(cid:69)(cid:86)(cid:4)(cid:83)(cid:90)(cid:73)(cid:86)(cid:4)(cid:93)(cid:73)(cid:69)(cid:86)(cid:4)(cid:77)(cid:82)(cid:4)(cid:22)(cid:20)(cid:21)(cid:24)(cid:18)
INNOPHOS ANNUAL REPORT 2014
2015 GOALS
Specialty Phosphates volume growth of 2% to 3%
Specialty Phosphates operating income margins
in the 13% to 14% range
Increased shareholder value
(cid:56)(cid:76)(cid:73)(cid:4)(cid:74)(cid:83)(cid:80)(cid:80)(cid:83)(cid:91)(cid:77)(cid:82)(cid:75)(cid:4)(cid:76)(cid:77)(cid:75)(cid:76)(cid:80)(cid:77)(cid:75)(cid:76)(cid:88)(cid:87)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:84)(cid:80)(cid:69)(cid:82)(cid:4)(cid:88)(cid:83)(cid:4)(cid:87)(cid:89)(cid:71)(cid:71)(cid:73)(cid:87)(cid:87)(cid:74)(cid:89)(cid:80)(cid:80)(cid:93)(cid:4)(cid:73)(cid:92)(cid:73)(cid:71)(cid:89)(cid:88)(cid:73)(cid:4)(cid:83)(cid:82)(cid:4)(cid:83)(cid:89)(cid:86)(cid:4)(cid:80)(cid:83)(cid:82)(cid:75)(cid:17)(cid:88)(cid:73)(cid:86)(cid:81)(cid:4)(cid:75)(cid:83)(cid:69)(cid:80)(cid:87)(cid:30)(cid:4)
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.
2015
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.
PRODUCT LINE
PERFORMANCE
Specialty Phosphates
Specialty Phosphates comprise
the three product categories be-
low, Specialty Ingredients, Food
and Technical Grade Purified
Phosphoric Acid (“PPA”) and So-
dium Tripolyphosphate (“STPP”)
& Detergent Grade PPA. In
2014, sales revenue was down
2% versus 2013 on lower prices
and flat volumes due to soft end
product market conditions.
Specialty Ingredients
Specialty Ingredients encompass-
es a wide range of mineral-based
specialty compounds providing
performance critical ingredients
to food and beverage, dietary
supplement, pharmaceutical and
oral care end markets, as well as
select high performance industri-
al end markets. These differenti-
ated, high-value products provide
stable demand and strong mar-
gins. Sales revenue decreased
1% versus 2013 on lower prices.
Specialty Ingredients are the pri-
mary area of focus for Innophos’
business both within and outside
North America.
Food and Technical Grade PPA
Most of Innophos’ PPA is con-
verted 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 Coatzacoal-
cos, Mexico facility is capable of
producing a wide range of higher
grade PPA, which is essential to
successfully delivering growth
from the higher value products.
In 2014, sales declined 4%
compared to 2013 on lower pric-
es and slightly 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 cleanli-
ness are required in challenging
conditions. Over recent years,
phosphates have been reformu-
lated out of consumer oriented
detergents in the US and Canada
although Latin America remains
an important market for these
products. Sales were 4% lower
than 2013 primarily on lower vol-
umes as we continue to focus on
shifting business towards higher
value Specialty Ingredients.
GTSP and Other Co-products
Fertilizer co-products, such as
Granulated Triple Super Phos-
phate (“GTSP”), produced sales
revenue of $77 million in 2014,
up 16% compared to 2013, on
higher volumes that exceeded
lower selling prices. Profitable
markets for the Company’s co-
products are important to the
overall value of the Company’s
Mexico manufacturing facilities.
INNOPHOS ANNUAL REPORT 2014
Nearly two-thirds of
sales to consumer
oriented applications.
Pharma, Food, Beverage & Oral Care
Industrial
Detergents
Fertilizer & Horticulture
16%
9%
21%
54%
(cid:54)(cid:73)(cid:90)(cid:73)(cid:82)(cid:89)(cid:73)(cid:87)(cid:4)(cid:70)(cid:93)(cid:4)(cid:41)(cid:82)(cid:72)(cid:4)(cid:49)(cid:69)(cid:86)(cid:79)(cid:73)(cid:88)
(cid:12)(cid:8)(cid:4)(cid:49)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:87)(cid:13)
Total Sales
839
CAGR
4%
4%
-5%
1%
8%
Total Sales
714
116
87
174
337
‘10
137
72
179
451
‘14
Pharma, Food, Beverage & Oral Care
Industrial
Detergents
Fertilizer & Horticulture
(cid:54)(cid:73)(cid:90)(cid:73)(cid:82)(cid:89)(cid:73)(cid:87)(cid:4)(cid:70)(cid:93)(cid:4)(cid:52)(cid:86)(cid:83)(cid:72)(cid:89)(cid:71)(cid:88)(cid:4)(cid:48)(cid:77)(cid:82)(cid:73)
(cid:12)(cid:8)(cid:4)(cid:49)(cid:77)(cid:80)(cid:80)(cid:77)(cid:83)(cid:82)(cid:87)(cid:13)
105
91
152
67
75
146
77
72
141
98
92
134
486
514
556
549
74
80
109
451
‘10
‘11
‘12
‘13
‘14
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
GTSP & Other
CAPITAL ALLOCATION
Innophos operates with
a strong balance sheet
and has been able to
significantly increase cash
returns to shareholders.
INNOVATION
CAPITAL
EXPENDITURES
Strong Balance Sheet
• Capital expenditures in 2014 were $28 million,
with approximately 70% spent on maintenance
and 30% on strategic growth initiatives.
• Net debt decreased from $130 million at the end
of 2013 to $100 million at the end of 2014.
• On December 22, 2014, Innophos’ Board of
Directors authorized a share repurchase program
for Company common stock of up to $125 million,
representing approximately 10% of outstanding
shares. Innophos repurchased 528,000 shares for
a total of $30 million in 2014.
• At December 31, 2014, Innophos had $92 million
principal amount of term loan debt and a $225
million revolving credit facility, of which $44 mil-
lion was outstanding. Total remaining availability
was approximately $179 million, taking into ac-
count approximately $2 million in face amount of
letters of credit issued under the sub-facility.
BOLT-ON ACQUISITIONS IN HIGH-
GROWTH MARKET SEGMENTS &
GEOGRAPHIES
DIVIDENDS
SHARE REPURCHASES
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, 2014
(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)
_______________________________________________________________________________________________
001-33124
(Commission File number)
Delaware
(state or other jurisdiction
of incorporation)
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 $1.2 billion as of
June 30, 2014, 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 6, 2015, the registrant had 21,263,114 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 22, 2015
Document
Incorporated By Reference In Part No.
III (Items 10, 11, 12, 13 and 14)
Page 1 of 85
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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
Financial Statements and Supplementary Data
Item 8.
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.
Exhibits, Financial Statement Schedules
Signatures
Page 2 of 85
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 85
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, which has been a part of Solvay S.A. since 2011. 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’s more recent acquisitions have focused on the bioactive mineral and nutritional 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, made in December 2012, was in the
botanical and enzyme based specialty nutritional ingredients sector. As with the bioactive mineral ingredients, botanical and
enzyme based specialty nutritional ingredients are important to our customers for their nutritional value and mineral, botanical
and specialty phosphate ingredients are often formulated together. The acquisition, 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 KI Acquisition, Inc., the holding company of Kelatron
Corporation (“Kelatron”), for a purchase price of approximately $21.0 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 acquired 100% of the equity of AMT Labs, Inc. (“AMT”) and an affiliated real estate company
holding all AMT real property for $27.0 million. 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.
In December 2012, Innophos purchased all of the assets of Triarco Industries, Inc. (“Triarco”) for $45.0 million in cash
plus $1.0 million in 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 $5.0 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.
Page 4 of 85
The combined nutrition businesses generate annual revenues in excess of $50.0 million with attractive positions in high
growth end markets. On December 31, 2014, AMT, Triarco and CMI were merged into Kelatron, which is now operating under
the name Innophos Nutrition, Inc.
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) Granular Triple Super
Phosphate (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 85
The table below presents a list of the main Specialty Ingredients sold by us in 2014:
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”)
Dicalcium Phosphate (“DCP”)
Tricalcium Phosphate (“TCP”)
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
Toothpaste abrasive; leavening agent; calcium fortification.
Calcium and phosphorus fortifier in food and beverage
applications (e.g., orange juice, cereals, and cheese); flow aid;
additive in expandable polystyrene.
Pharma Calcium Phosphates (“A-Tab®”, “Di-Tab®”, “Tri-
Tab®”)
Excipients in vitamins, minerals, nutritional supplements and
pharmaceuticals.
Ammonium Phosphates (“MAP”, “DAP”)
High-end fertilizer products for horticultural use; flame
retardant; cigarette additives; culture nutrient.
Potassium Phosphates (“TKPP”, “DKP”, “MKP”, “KTPP”) Water treatment; sports drinks; buffering agent; improves
in meat, seafood and poultry applications;
tenderness
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
Baking powders; gelling agent
emulsifiers.
in puddings; cheese
Bioactive mineral nutrients used in a wide variety of fortified
foods, beverages and dietary supplements.
Plant based botanical, enzyme and mineral nutrients
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. We also compete
with imports from Germany, Belgium, Israel and China.
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Food and Technical Grade PPA
Food and Technical Grade PPA are high purity forms of PPA, distinct from the agricultural-grade merchant green
phosphoric acid, or MGA, used in fertilizer production. PPA is used to manufacture specialty phosphate salts and acids and is
also used directly in beverage applications as a flavor enhancer and in water treatment applications. We also sell Technical
Grade PPA in the merchant market to third-party phosphate derivative producers.
Our major PPA competitor is Potash Corporation of Saskatchewan Inc., or PCS, a global fertilizer company for which
specialty phosphates represents only a small part of its business. We consume the majority of our PPA production in our
downstream operations and sell the remainder on the North American merchant market and to other downstream phosphate
derivative producers, where we compete with PCS. To the best of our knowledge, PCS does not have any downstream technical
or food grade phosphate derivative production capacity, other than a small potassium phosphate salt unit. 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. The end use market for STPP is largely 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 Grade STPP. We are not a significant supplier to the GTSP fertilizer market. 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
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acid process for all of our Specialty Ingredients manufacturing needs. Other alternative methods of production, such as a kiln-
based thermal method, are under research and development which, if implemented, could add to the future capital needs of
phosphate producers and change the competitive landscape in the industry.
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 since 2000. 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.
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 ingredients through a variety of production
processes customized through spray drying, roller compactions, fine grinding, wet granulations, solvent extractions and custom
blending resulting in more than 2,000 product formulations. 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 ingredients 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, 2014, 2013 and 2012, we generated net sales of $839.2 million, $844.1 million and
$862.4 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,
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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.
Although we have acquired concessions in Mexico that could allow future development of our own phosphate reserves, we are
not currently 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 the section
entitled “Raw Materials Availability and Pricing” in Item 1A. Risk Factors of this 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 2015 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, a key raw material used
in the production of merchant green acid by the wet method. We produce the vast majority of the sulfuric acid required to
operate our Coatzacoalcos facility. The majority of the sulfuric acid required for the production of MGA by PCS Geismar is
supplied by Solvay. Our U.S. needs for sulfuric acid and our Mexican needs for sulfur are handled through long term contracts
with Solvay 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 2014, 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 2014 or 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 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 $4.6 million, $3.9 million and $3.1 million for the years ended December 31, 2014, 2013
and 2012, respectively.
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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, including the U.S. Federal Railroad Administration,
or FRA, 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.
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 of this Form 10-K, and in the section entitled
“Environmental, Product Regulations and Sustainability Initiative Concerns” in Item 1A. Risk Factors of this Form 10-K.
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.
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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 31, 2014, we had 1,445 employees at our facilities worldwide, of whom 776 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. 7-765 through January 16, 2017 at the Chicago Heights
facility; International Union of Operating Engineers, Local No. 369 through April 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 17, 2017 at the Chicago (Waterway) facility; the United Steelworkers, Local
No. 6304 through April 30, 2017 at the Port Maitland, Ontario facility; and the Sindicato de Trabajadores de la Industria
Química, Petroquímica, Carboquímica, Gases, Similares y Conexos de la República 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 2016.
Executive Officers
The following table and biographical material present information about the persons serving as our executive officers:
Name
Randolph Gress
Robert Harrer
William Farran
Charles Brodheim
Louis Calvarin
Mark Feuerbach
Joseph Golowski
Gail Holler
Abraham Shabot
Mark Thurston
Susan Turner
Age Position
59 Chairman of the Board, Chief Executive Officer, President and Director
50 Vice President and Chief Financial Officer
65 Vice President, General Counsel and Corporate Secretary
51 Vice President, Corporate Controller and Information Technology
51 Vice President, Strategy and Chief Risk Officer
55 Vice President, Investor Relations, Treasury, Financial Planning & Analysis
53 Vice President, Global Specialty Phosphates
56 Vice President, Human Resources
53 Vice President, General Manager Mexico and Latin America
55 Vice President, Nutrition and Business Development
61 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.
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Robert Harrer is Vice President and Chief Financial Officer of Innophos. Mr. Harrer joined Innophos in March 2014.
Prior to that, Mr. Harrer was with Avantor Performance Materials, Inc. (formerly Mallinckrodt Baker, Inc.) where he had served
as Executive Vice President, Chief Financial Officer and Chief Administrative Officer, since August 2010. Mr. Harrer moved to
the United States in 2000 to join specialty chemicals company Rohm and Haas, first serving that company as Vice President
and Chief Financial Officer of Rohm and Haas Electronic Materials, LLC and, over the following nine years, in various other
financial leadership positions. When Dow Chemical acquired Rohm and Haas in 2009, Mr. Harrer became Controller of the
new Advanced Materials division, and led the integration of the two finance organizations. At the end of 2009, Mr. Harrer
became a business advisor to New Mountain Capital LLC, a New York-based private-equity company, which acquired Avantor
Performance Materials, Inc. in August 2010. After starting his career as an auditor with Arthur Andersen & Co. GmbH in
Stuttgart, Germany, Mr. Harrer joined Alcatel S.A., Paris, France, in 1993, serving as controller for several foreign locations,
and, in 1997, he joined SKW Trostberg AG as Vice President and Chief Financial Officer for the Nature Products Division
located in Paris, France. Mr. Harrer holds a master of business administration and mathematics from Albert Einstein University
in Ulm, Germany.
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.
Charles Brodheim is Vice President, Corporate Controller and Information Technology 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, Strategy and Chief Risk Officer of Innophos. Dr. Calvarin joined Rhodia in France in
1986. Prior to his current role, Dr. Calvarin had been Vice President, Operations of Innophos since 2004. Prior to that,
Dr. Calvarin held the positions of Director of Manufacturing and Engineering for Specialty Phosphates, Director of
Manufacturing for Specialty Phosphates (U.S.), Mineral Chemicals Industrial Operations Manager for Home, Personal Care
and Industrial Ingredients, and Projects Director for Paint, Paper and Construction Materials. Dr. Calvarin earned a Ph.D.
degree in Chemical Engineering from the Ecole Nationale Superieure des Mines in France and graduated from Ecole
Polytechnique in France.
Mark Feuerbach is Vice President, Investor Relations, Treasury, Financial Planning & Analysis and had previously
served as Chief Financial Officer of Innophos from August 2004 through April 2005, from June through September 2009, and
from July 2013 through March 2014. Mr. Feuerbach joined Rhodia in 1989 and was Global Finance Director of Specialty
Phosphates from 2000 to 2004, including a two-year assignment in the U.K. immediately following the purchase of the
phosphates business of Albright & Wilson. Prior to this assignment, Mr. Feuerbach was the Finance Director of Rhodia’s North
American phosphates business from 1997 to 2000 and he previously held various finance positions in a number of Rhodia’s
businesses. Prior to joining Rhodia, Mr. Feuerbach held various accounting and finance positions in both manufacturing and
service companies. Mr. Feuerbach earned a B.A. in Business Administration/Accounting from Rutgers College and an M.B.A.
in Finance/Information Systems from Rutgers Graduate School of Management.
Joseph Golowski is Vice President, Global Specialty Phosphates Business of Innophos. 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
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Director of Sales for the Specialty Phosphate Business. This path brought him to be appointed Vice President of Sales in 2006
and ultimately to his current role. 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.
Abraham Shabot is Vice President, General Manager Mexico and Latin America of Innophos. 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, Nutrition and Worldwide Business Development of Innophos and has served as
President of Kelatron Corporation, now Innophos Nutrition, Inc., since November 2011. Previous to that, he was Vice
President, Strategy and Worldwide Business Development and from 2004 to 2008 served as Vice President of Specialty
Chemicals. Mr. Thurston joined Rhodia in 1985 working in Fine Organics and rose to serve as General Manager of Food
Ingredients, North America from 2002 to 2004. Prior to that, he worked for Rhodia in various sales and marketing capacities.
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 Securities and Exchange Commission (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 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.
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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 key 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 some of these contracts will 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. 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 in place.
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 before recovering in 2014. 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 we expect our
requirements for 2015 to be met from these multiple 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 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, overall
tight demand conditions 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 us with contracted volumes, 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 suppliers' performance failures or from force majeure conditions, such as disaster, political unrest, may
Page 14 of 85
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, increased attractiveness of the U.S.
market because of a strong U.S. dollar, excess industry capacity and consolidation among our customers and competitors. The
potential development of lower-cost processing technologies could also modify the competitive landscape. 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 at any one time, 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. In addition, North African and some Chinese
producers are integrated back to developed reserves of 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
U.S. Environmental Protection Agency, or EPA, and the FDA, as well as other regulatory authorities, including the FRA, and
those with jurisdiction over our foreign operations and product markets. Moreover, if we increase operations in other
jurisdictions, such as we did in 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.
Page 15 of 85
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 was expected to take full
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 U.S. states, including New York, Kansas, Maryland, Illinois and South Dakota, continue
to restrict or ban the use of polyphosphoric acid in asphalt road construction, while others have permitted its usage after a
thorough evaluation (Georgia in 2012, South Carolina in 2014, and Nebraska in 2015) or are in the process of completing their
long term evaluation (California and Colorado). 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 ramp-up our business operations in China. Among the additional risks potentially
affecting our Mexican operations are changes in local economic conditions, currency devaluations, potential disruption from
socio-political violence in that country, and difficulty in contract enforcement due to differences in the Mexican legal and
regulatory regimes compared to those of the U.S. Risks to our Canadian operations, though generally less than for Mexico,
nevertheless include a differing federal and provincial regulatory environment from that in the U.S. and currency fluctuations
Page 16 of 85
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 foreign 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
Page 17 of 85
rights can be asserted in all cases, particularly in an international context, or that we can defend ourselves successfully or cost-
effectively against the assertion of rights by others.
Contingency Planning
We operate a number of manufacturing facilities in the U.S., 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 man-made 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.
Contingencies Affecting Dividends
Certain Financial Risks
After our common stock became publicly traded in 2006, our Board of Directors initiated a policy of paying regular
quarterly cash dividends, subject to the availability of funds, legal and contractual restrictions and prudent needs of our
business. We have maintained that policy and paid dividends continuously since that time, making payments that we believed
were prudent and promoted stockholder value. However, we are a holding company that does not conduct any business
operations of our own. As a result, we are normally dependent upon cash dividends, distributions and other transfers from our
subsidiaries, most directly Innophos, Inc., our primary operating subsidiary, and its intermediate parent or parents, to make
dividend payments on our common stock. The amounts available to us to pay cash dividends are restricted by provisions of
Delaware law and by direct or indirect limitations in our debt facilities. Further, 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 18 of 85
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
Cranbury, NJ
Coatzacoalcos, Mexico
Chicago Heights, IL
Nashville, TN
Port Maitland, Canada
Geismar, LA
Ogden, UT
Corporate Headquarters / Research & Development
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing / Research & Development / Administrative North Salt Lake, UT
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Warehouse
Administrative
Administrative
Administrative / Research & Development
Administrative / Research & Development
Administrative
Salt Lake City, UT
Green Pond, SC
Paterson, NJ
Chicago (Waterway), IL
Mission Hills, Mexico
Taicang City, China
Chicago Heights, IL
Mexico City, Mexico
Mississauga, Canada
Ogden, UT
Clifton, NJ
Sao Paulo, Brazil
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Leased
Owned
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 19 of 85
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
2014
2013
$
High
Low
56.70 $
57.82
61.48
59.59
44.69 $
51.33
53.61
52.83
Dividends
Paid
Per Share
0.40 $
0.40
0.48
0.48
High
Low
55.43 $
54.68
52.78
56.75
46.50 $
47.17
47.63
46.00
Dividends
Paid
Per Share
0.35
0.35
0.35
0.40
The Company declared a $0.48 per share dividend in the first quarter of 2015.
The number of holders of record of our common stock at February 17, 2015 was 9,900.
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, $0.40 per share in October 2013 and $0.48 per share in
August 2014. 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”.
Page 20 of 85
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.
Equity Compensation Plan Information
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted average exercise
price of outstanding
options, warrants and rights
Number of securities
remaining available for
future issuance under
equity
compensation plans
(excluding securities
reflected in column (a))
(a)
(b) **
(c)
675,656 $
— $
675,656 $
32.63
—
32.63
1,466,605 *
—
1,466,605
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
______________________
*
Includes in the total 164,695 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
The Board of Directors authorized a new stock repurchase program, commencing January 1, 2015, pursuant to which the
Registrant intends to acquire for cash in open market or private transactions from time to time up to $125 million of its
common stock over the ensuing 12 months. The timing of repurchases and the exact number of shares of common stock to be
purchased will depend upon market conditions and other factors. The repurchase program will be funded through existing
liquidity and cash from operations. Treasury stock is recognized at the cost to reacquire the shares. The 2011 repurchase
program in which up to $50 million of the Company's common stock could be repurchased from time to time at management’s
discretion was terminated on December 31, 2014. 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. During the second quarter of 2014, the Company
repurchased 112,002 shares of its common stock on the open market at an average price of $55.16 per share or $6.2 million.
During the third quarter of 2014, the Company repurchased 137,781 shares of its common stock on the open market at an
average price of $58.09 per share or $8.0 million. During the fourth quarter of 2014, the Company repurchased 278,578 shares
of its common stock on the open market at an average price of $54.92 per share or $15.3 million.
Page 21 of 85
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.
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)
______________________
$
$
$
$
$
$
(Dollars in thousands, except per share amounts, share amounts or where
otherwise noted)
Year Ended December 31,
2014
2013
2012
2011
2010
$
839,186 $
651,722
844,129 $
685,830
862,399 $
684,979
187,464
158,299
177,420
810,487 $
605,172
205,315
714,231
556,826
157,405
76,020
4,649
80,669
106,795
4,354
5,085
97,356
32,895
70,501
3,928
74,429
83,870
4,426
3,197
76,247
26,741
64,320
3,107
67,427
109,993
5,977
(1,957)
105,973
31,783
64,461 $
49,506 $
74,190 $
65,380
2,923
68,303
137,012
5,726
875
130,411
43,889
86,522 $
59,564
2,405
61,969
95,436
28,289
659
66,488
21,333
45,155
64,324 $
49,442 $
74,150 $
86,522
$
45,141
2.96 $
2.91 $
1.76 $
2.25 $
2.21 $
1.45 $
3.40 $
3.30 $
0.89 $
3.99 $
3.83 $
1.00 $
2.11
2.02
0.68
21,753,270
22,121,903
21,933,843
22,345,980
21,795,155
22,475,881
21,694,453
22,578,567
21,421,226
22,359,447
(Dollars in thousands)
Year Ended December 31,
2014
2013
2012
2011
2010
126,781 $
(29,398)
(94,042)
27,955
15.7x
91,677 $
(37,840)
(47,519)
33,415
11.1x
100,535 $
(104,766)
(5,066)
33,060
14.1x
46,346 $
(54,728)
(20,082)
34,195
17.7x
75,958
(31,192)
(113,511)
31,192
3.2x
Page 22 of 85
(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
(Dollars in thousands)
Year Ended December 31,
2014
2013
2012
2011
2010
$
$
36,207 $
90,551
184,621
198,988
728,411
136,005
463,007 $
32,755 $
88,434
181,467
201,985
745,666
163,009
463,419 $
26,815 $
94,033
163,606
195,723
738,511
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
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 and 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 and 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.
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 23 of 85
2014 Overview
Our financial performance in 2014 was highlighted by:
• Net sales of $839.2 million compared to $844.1 million for 2014, a decrease of $4.9 million mostly attributable to
lower selling prices of $16.1 million which were partially offset by volume increases of $11.2 million attributable
largely to GTSP;
• Specialty Phosphates operating income and margin improvements of $22.2 million and 310 basis points, respectively,
primarily on improved operating performance at the Coatzacoalcos, Mexico facility;
(cid:405) Mexico performance highlighted by continued sequential yield improvements each quarter which ultimately
reached a 660 basis point improvement in the fourth quarter 2014 compared to the first quarter 2013 low;
• Net income of $64.5 million or $2.91 per share (diluted);
• A 39% improvement in net cash provided from operations to $126.9 million, which was invested in capital
expenditures, debt repayments and returns to stockholders through increased dividends and share repurchases;
• Capital expenditures of $29.4 million with approximately 70% spent on maintenance and 30% spent on strategic
growth investments focused on:
(cid:405)
(cid:405)
capacity expansions at Nashville;
improving capabilities, yields and capacity at Coatzacoalcos;
•
Increased quarterly dividend rate by 20% to $0.48/share for the third quarter payment leading to total year dividends
of $1.76/share paid on the common stock in 2014, an increase of 21% over the $1.45/share paid in 2013;
• Repurchase of 528,361 shares of common stock for $29.5 million, exhausting the 2011 program capacity and
representing more than four times the amount spent on buybacks in any previous year;
• Announced a new common stock buyback program targeting $125 million of repurchases in 2015.
Recent Trends and Outlook
Specialty Phosphates volumes were better than expected in the fourth quarter 2014 compared to the prior year period.
The main contributors were INNOVALT® sales for asphalt markets, which were up 49% for the quarter and finished up 24%
for the full year compared to 2013, a recovery in nutrition sales which were up 14% year-over-year and 16% sequentially, and
Cal-Rise® volumes which were up 5% year-over-year for the quarter and 10% the for full year. These positive effects,
however, were overshadowed by lower volumes from reduced US/Canada PPA availability, lower export sales, continued weak
market demand and increased competitive pressures from imports given the recent strength in the US dollar. This resulted in a
net 1% decline overall in Specialty Phosphates volumes for the fourth quarter 2014 compared to the prior year period. Export
sales were down 8% year-over-year for the fourth quarter primarily due to reduced demand in Chinese seafood markets and
shipment delays caused by the dockworkers slowdown affecting US West Coast ports. These negative fourth quarter events
reduced the year to date September export growth rate of 7% to a full year growth rate of just 2%.
Due to the second half volume softness, Specialty Phosphates full year 2014 volume was flat compared to 2013, which
was slightly better than an expected decline of 1-2% the company projected in its third quarter 2014 earnings release. Specialty
Phosphates volumes are expected to grow by 2-3% for full year 2015 compared to 2014 based on the recovery of the PPA
business and continued contributions from innovation and geographic expansion. However, market demand in the US and
Canada home markets is not expected to recover from second half 2014 levels.
Specialty Phosphates operating income margins were 13% for the fourth quarter 2014, above the high end of the expected
11-12% range, leading to full year 2014 margins at the mid-point of the 14-15% range that had been targeted since the
beginning of 2014. The sequential increase in cost of goods sold for higher raw material prices and lower production rates was
Page 24 of 85
$3 million compared to the expected $5 million due to higher year-end inventory levels, so the residual $2 million expense is
expected to hit the US & Canada P&L in the first quarter 2015. This, combined with a planned maintenance outage in
Coatzacoalcos that typically occurs every 12 to 18 months and typically costs $2-3 million, is expected to reduce Specialty
Phosphates margins by approximately 100 basis points sequentially for the first quarter 2015.
Full year 2015 Specialty Phosphates operating margins are expected to be in the 13-14% range. The margin decline is
primarily caused by a $6 million cost increase on the one annual PPA supply contract that reset on January 1, 2015. Given the
increased attractiveness of the US market because of the strong US dollar, the current selling price environment won’t allow for
price increases to cover this cost increase. Despite this temporary setback on margins, the cash flow generation capability of the
business remains strong.
Fertilizer market prices showed some decline early in the fourth quarter 2014, but then quickly rebounded back to third
quarter 2014 levels. Market phosphate rock prices were fairly stable sequentially in the fourth quarter 2014 and are expected to
remain stable for the first quarter 2015. Sulfur market prices decreased 5% sequentially in the fourth quarter 2014, but
increased 14% for the first quarter 2015.
GTSP & Other recorded a $1 million operating loss for the fourth quarter 2014, which was within the expected range. The
Company expects a similar operating result of between break even and a $1 million operating loss during the first quarter 2015.
Net debt (total long-term debt (including any current portion) less cash and cash equivalents) increased sequentially by
$17 million in the fourth quarter 2014 to $100 million primarily due to $15 million of share repurchases.
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:
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
Year Ended December 31,
2014
Amount
$
$
839.2
651.7
187.5
76.0
4.7
106.8
4.4
5.0
—
32.9
64.5
%
100.0
77.7
22.3
9.1
0.6
12.7
0.5
0.6
—
3.9
7.7 $
2013
Amount
844.1
685.8
158.3
70.5
3.9
83.9
4.4
3.3
—
26.7
49.5
%
100.0
81.2
18.8
8.4
0.5
9.9
0.5
0.4
—
3.2
5.9
2012
Amount
862.4
685.0
177.4
64.3
3.1
110.0
6.0
(2.0)
—
31.8
74.2
%
100.0
79.4
20.6
7.5
0.4
12.8
0.7
(0.2)
—
3.7
8.6
Year Ended December 31, 2014 compared to the Year Ended December 31, 2013
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, 2014 were $839.2 million, a decrease of $4.9 million, or
0.6%, as compared to $844.1 million for the same period in 2013. Specialty Phosphates sales were down 2.0% or $15.6 million
with prices lower by 1.6% or $12.2 million and volumes lower by 0.4% or $3.4 million. The price decrease was due to
increased competition in the Latin American export markets and the increased attractiveness of the U.S. market because of the
strong U.S. dollar, and was seen across all product lines but most meaningfully on a relative basis in Food & Technical Grade
Page 25 of 85
PPA. Volumes were relatively flat for the current period compared to the same period last year on weak market demand, with
declines in STPP & Detergent Grade PPA and Food & Technical Grade PPA, primarily the result of second half supply issues in
the U.S., being mostly offset by an increase in Specialty Ingredients. GTSP & Other sales were up 15.9% or $10.6 million with
volumes higher by 21.7% or $14.5 million but prices lower 5.8% or $3.9 million.
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, 2014 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
(1.3)%
(2.6)%
(1.6)%
(5.8)%
(1.9)%
(0.9)%
1.2 %
(0.4)%
21.7 %
1.3 %
(2.2)%
(1.4)%
(2.0)%
15.9 %
(0.6)%
The following table illustrates for the year ended December 31, 2014 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
Gross Profit
Price
Volume/Mix
Total
(1.5)%
(2.3)%
(0.7)%
0.1 %
(1.2)%
(3.0)%
(1.4)%
(3.5)%
(3.7)%
Gross profit represents net sales less cost of goods sold. Gross profit for the year ended December 31, 2014 was $187.5
million, an increase of $29.2 million, or 18.4%, as compared to $158.3 million for the same period in 2013. Gross profit
percentage increased to 22.3% for the year ended December 31, 2014 versus 18.8% for the same period in 2013. Gross profit in
2014 was favorably affected by $33.5 million lower raw material costs, primarily phosphate rock, a net $3.3 million decrease in
planned maintenance outage expense mainly at our Coatzacoalcos, Mexico manufacturing facility, $3.9 million favorable sales
volume effects, $2.5 million favorable exchange rate from Mexican peso and Canadian dollar based costs, and $0.3 million
lower depreciation. These favorable effects were partially offset by $16.1 million lower selling prices, $7.1 million higher
manufacturing costs, and $0.9 million for the accrual of Geismar, LA contingent liabilities. Included in 2013 were $15.4 million
in elevated cost of goods sold, of which $7.9 million related to Mexico manufacturing issues, $2.4 million related to demurrage
on raw material purchases and other inventory related costs, $2.3 million related to an out of period adjustment on a long term
supply agreement, $2.1 million related to a revision of estimates for phosphate rock inventories in Mexico and $0.7 million
related to acquisition accounting expenses. Also included in 2013 was a benefit of $7.2 million for settlement of historical
water duty claims by the Mexican authorities and expense of $1.6 million for a lower of cost or market reserve recorded in
GTSP.
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, 2014 were $80.7 million, an increase of $6.3 million, or 8.5%, as
compared to $74.4 million for 2013. The increase is due to $4.7 million higher employee related expenses for short-term
incentive and stock compensation, $1.0 million higher professional service fees, and a $0.6 million increase in all other costs.
Page 26 of 85
Operating Income
Operating income for the year ended December 31, 2014 was $106.8 million, an increase of $22.9 million, or 27.3%, as
compared to $83.9 million for the same period in 2013. Operating income percentages increased to 12.7% for 2014 from 9.9%
for 2013.
Interest Expense, net
Net interest expense, including deferred financing amortization expense, for the year ended December 31, 2014 was $4.4
million, unchanged from $4.4 million for the same period in 2013.
Foreign Exchange
Foreign exchange for the year ended December 31, 2014 was a loss of $5.0 million as compared to a loss of $3.3 million
for 2013. The U.S. Dollar is the functional currency of our Mexican and Canadian operations. The Company has greater foreign
denominated asset balances (largely Mexican Peso and Canadian Dollar), such as VAT receivables and prepaid income taxes in
foreign jurisdictions, than offsetting foreign denominated liability balances. As the US dollar strengthened throughout 2014
versus the Mexican Peso and the Canadian Dollar, the remeasurement of the net foreign asset denominated balances
contributed to a net foreign exchange loss for 2014. 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 34% for the year ended December 31, 2014 compared to 35% for the same period in 2013. The
variance in the effective tax rate is primarily due to increased taxable income in lower tax rate jurisdictions, changes in
uncertain income tax position benefits which decreased the effective tax rate by 2% from the prior year and proposed civil
penalties related to environmental matters at our Geismar facility which increased the effective tax rate by 1%.
Net Income
Net income for the year ended December 31, 2013 was $64.5 million, an increase of $15.0 million as compared to $49.5
million for the same period in 2013, due to the factors described above.
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.
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.
Page 27 of 85
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.
Page 28 of 85
Operating Income
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.
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. Innophos
Nutrition which consists of 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.
Page 29 of 85
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)
Total
Segment Operating Income % of net sales
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other (a) (b)
Total
Depreciation and amortization expense
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other
Total
2014
2013
2012
$
$
$
$
$
$
$
594,446
167,423
761,869
77,317
839,186
(2.2)%
(1.4)%
(2.0)%
15.9 %
(0.6)%
81,762
28,887
110,649
(3,854)
106,795
13.8 %
17.3 %
14.5 %
(5.0)%
12.7 %
24,264
9,416
33,680
1,781
35,461
$
$
$
$
$
$
607,578
169,851
777,429
66,700
844,129
$
$
569,816
187,743
757,559
104,840
862,399
6.6 %
(9.5)%
2.6 %
(36.4)%
(2.1)%
76,802
11,677
88,479
(4,609)
83,870
12.6 %
6.9 %
11.4 %
(6.9)%
9.9 %
26,537
7,200
33,737
1,724
35,461
$
$
$
$
86,002
21,913
107,915
2,078
109,993
15.1%
11.7%
14.2%
2.0%
12.8%
23,214
14,578
37,792
4,542
42,334
(a)
(b)
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.
Segment Net Sales:
Specialty Phosphates US & Canada net sales decreased 2.2% for the year ended December 31, 2014 when compared with
the same period in 2013. Average selling prices decreased by 1.3%, primarily in Food & Technical Grade PPA early in the year
and Specialty ingredients later in the year when the US dollar strengthened considerably against the Euro. Volumes decreased
0.9% primarily due to weak demand, second half PPA supply issues that limited availability for Food & Technical Grade PPA
sales and some further reformulation in STPP & Detergent Grade PPA. These volume declines were partially offset by
increases in Specialty Ingredients due to a strong recovery in the INNOVALT® asphalt business which grew 24% compared to
2013. In 2013 net sales increased 6.6% for the year ended December 31, 2013 when compared with the same period in 2012.
Page 30 of 85
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.
Specialty Phosphates Mexico net sales decreased 1.4% for the year ended December 31, 2014 when compared with the
same period in 2013. Selling prices decreased 2.6% mainly due to increased competition in the Latin American export markets.
Volumes increased 1.2%, primarily in Food & Technical Grade PPA, as a result of improved operations and production output.
In 2013 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.
GTSP & Other net sales increased 15.9% for the year ended December 31, 2014 when compared with the same period in
2013. Volumes increased 21.7% while selling prices decreased 5.8% due to higher fertilizer market prices in the first half of
2013. In 2013 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 second half fertilizer market demand which resulted
in a sharp decline in second half 2013 market selling prices to levels last recorded in early 2010.
Segment Operating Income Percentage of Net Sales:
The 120 basis point increase in Specialty Phosphates US & Canada operating income margins for the year ended
December 31, 2014 compared with the same period in 2013 is due to decreased raw material costs, PPA and MGA, which
increased margins 320 basis points and lower depreciation which increased margins by 40 basis points. This was partially offset
by higher manufacturing and operating cost, including currency exchange, which decreased margins by 210 basis points, lower
average selling prices which decreased margins by 110 basis points, and higher planned maintenance outage expenses which
decreased margins by 10 basis points. Included in 2013 were elevated cost of goods sold for previously noted items which had
a favorable effect on 2014 margins of 90 basis points when compared to the prior year period. 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 1,040 basis point increase in Specialty Phosphates Mexico operating income margins for the year ended December
31, 2014 compared with the same period in 2013 is due to lower raw material costs such as phosphate rock, which increased
margins by 530 basis points, lower planned maintenance outage expenses which increased margins by 180 basis points, lower
manufacturing and operating cost, including favorable currency exchange, which increased margins by 240 basis points, and
increased sales volume/mix which increased margins by 40 basis points. This was partially offset by lower average selling
prices which decreased margins by 250 basis points and higher depreciation which decreased margins by 130 basis points.
Included in 2013 were elevated cost of goods sold due to manufacturing inefficiencies and maintenance expenses stemming
from premature equipment failures and a revision of estimates for phosphate rock inventories which had a total favorable
impact on 2014 margins of 430 basis points when compared to the prior year period. 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.
Page 31 of 85
The 190 basis point increase in GTSP & Other operating income margins for the year ended December 31, 2014
compared with the same period in 2013 is due to lower raw material cost, phosphate rock, which increased margins by 760
basis points, higher sales volume/mix which increased margins by 760 basis points, lower planned maintenance outage
expenses which increased margins by 150 basis points, a favorable exchange rate effect which increased margins by 70 basis
points, and lower operating expenses which increased margins by 10 basis points. This was partially offset by lower selling
prices which decreased margins 660 basis points, higher manufacturing costs which lowered margins 320 basis points, the
accrual of Geismar, LA contingent liabilities which lowered margins by 130 basis points, and higher depreciation which
decreased margins by 10 basis points. Included in 2013 were elevated cost of goods sold due to manufacturing inefficiencies
and maintenance expenses stemming from premature equipment failures and a revision of estimates for phosphate rock
inventories which had a total favorable impact on 2014 margins when compared to 2013 of 400 basis points and expense for a
lower cost or market reserve which had a favorable impact on 2014 margins when compared to 2013 of 240 basis points. Also
included in 2013 was a benefit of $7.2 million due to progress made in reducing the amount required to be paid to settle
historical water duty claims by the Mexican authorities which had an unfavorable impact on 2014 margins when compared to
2013 of 1,080 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.
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
Effect of foreign exchange rate changes
$
Year Ended December 31,
2014
2013
2012
126.8 $
(29.4)
(94.0)
0.1
91.7 $
(37.8)
(47.5)
(0.4)
100.5
(104.8)
(5.1)
0.9
Year Ended December 31, 2014 compared to the Year Ended December 31, 2013
Net cash provided by operating activities was $126.8 million for the year ended December 31, 2014 as compared to $91.7
million for 2013, an increase of $35.1 million. The increase in operating activities cash resulted primarily from favorable
changes of $15.0 million in net income as described earlier, $17.7 million from reduced working capital, and $2.4 million in
non-cash adjustments to income.
The favorable change in working capital is derived from it being a source of cash of $21.0 million in 2014 compared to a
source in 2013 of $5.0 million, an increase in cash of $16.0 million. Favorable changes in other current liabilities of $11.8
million, of which $6.3 million related to a 2013 reduction in the CNA water tax claim payable, $15.3 million in inventory,
primarily due to a significant build in 2013 inventory levels, and $11.9 million in accounts payable were partially offset by
unfavorable changes of $15.0 million in other current assets, mainly due to refunds of value added tax last year by our Mexican
subsidiaries, and $8.0 million in accounts receivable. Accounts receivable as a percent of quarterly sales, when adjusted for
GTSP open accounts receivable of $0.9 million, $2.2 million, $11.0 million, $0.2 million, and $1.3 million as of December 31,
2014, September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013, respectively, was consistent with the last
four quarters' average.
Total inventories increased $3.2 million from December 2013 levels resulting in days of inventory on hand increasing to
103 days. The following chart shows its historical performance:
Page 32 of 85
Inventory Days on Hand
2014
2013
2012
103
96
86
Net cash used for investing activities was $29.4 million for the year ended December 31, 2014, compared to $37.8
million for 2013, a decrease in spending of $8.4 million. The change is mainly due to $9.4 million lower capital spending at our
Coatzacoalcos, Mexico manufacturing facility as we were making substantial investments in 2013 to improve the reliability of
that operation after suffering from premature equipment failures during the first half of 2013, and $4.4 million due to the
acquisition of CMI in 2013. This was partially offset by $2.9 million increased capital spending at our Nashville, TN facility
and $2.4 million for the migration of the Nutrition businesses acquired since November 2011 onto our IT systems.
Approximately 70% of the 2014 capital spending was for maintenance and the remaining 30% was for strategic growth
initiatives. The majority of the strategic growth investments were focused on capacity expansions at Nashville, as well as on
improving capabilities, yields and capacity at Coatzacoalcos. Our expectation for 2015 capital expenditures is approximately
$35 million.
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 the next three to four years. 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 are successfully attained. Combined 2010 through 2014 expenditures
on the exploration of the Baja California Sur concession deposits were approximately $5.0 million. 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, 2014, was a use of $94.0 million, compared to a use
of $47.5 million in 2013, an increase in the use of cash of $46.5 million. This was largely due to $54.0 million decreased loan
borrowings, $22.5 million increased stock repurchases, $6.5 million higher dividend payments, $1.8 million lower excess tax
benefits from the exercise of stock options, and $1.5 million lower stock option exercises partially offset by $40.0 million
decreased loan repayments.
Although it had no outstanding debt for the applicable period except attributable to its senior bank credit facilities,
Innophos and its subsidiaries and affiliates may from time to time seek to acquire or otherwise retire outstanding debt through
public or 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.
Year Ended December 31, 2013 compared to the Year Ended December 31, 2012
Net cash provided by operating activities was $91.7 million for the year ended December 31, 2013 as compared to $100.5
million for 2012, a decrease of $8.8 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 $20.4 million in working capital, $1.1 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 $5.0 million in 2013 compared to a
use of cash of $15.4 million in 2012, an increase in cash of $20.4 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.
Page 33 of 85
Total inventories increased $17.9 million from December 2012 levels resulting in days of inventory on hand increasing to
96 days. The following chart shows its historical performance:
Inventory Days on Hand
2013
2012
2011
96
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
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.
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,
Page 34 of 85
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 was a balance of $29.5 million remaining under the repurchase program.
Indebtedness
Total debt was $136.0 million as of December 31, 2014. Short term and long term debt net of cash was $99.8 million as
of December 31, 2014, a decrease of $30.4 million, or 23.3% from the December 31, 2013 level.
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 $0.6 million as of December 31, 2014.
In December, 2014, Innophos amended its existing credit agreement to remove restricted payments from the definition of
the fixed charge coverage ratio, thus providing enhanced capacity for higher levels of share buybacks expected under the $125
million share repurchase program for 2015.
As indicated elsewhere, the Company has increased the quarterly dividend on its common stock to an annual rate of
$1.92 per share starting with the third quarter 2014 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, 2014, the Company had cash and cash equivalents outside the United States of $30.7 million, or 85%
of the Company's balance. Further, the foreign cash amounts are not restricted by law to be used in other countries. Our current
operating plan does not include repatriation of any of the cash and cash equivalents held outside the United States to fund the
United States operations. However, in the event we do repatriate cash and cash equivalents held outside of the United States,
we may be required to accrue and pay United States taxes to repatriate these funds.
The Company’s available financial resources allow for the continuation of dividend payments, share repurchases, pursuit
of 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 $29 million for 2014. Approximately 70% of the full year spending was for maintenance
and the remaining 30% was for strategic growth initiatives. The majority of the strategic growth investments were focused on
capacity expansions at Nashville, as well as on improving capabilities, yields and capacity at Coatzacoalcos. Our expectation
for 2015 capital expenditures is approximately $35 million.
Page 35 of 85
Contractual Obligations and Commercial Commitments
The following table sets forth our long-term contractual cash obligations as of December 31, 2014 (dollars in thousands):
Contractual Obligations
Total
2015
2016
2017
2018
2019
Thereafter
Years ending December 31,
Term loan and revolver
borrowings (1)
Future Service Pension Benefits
Other (2)
Operating Leases
Total contractual cash
obligations
______________________
(1)
$ 136,000
$
4,000 $
4,000 $
4,000 $ 124,000
$
— $
—
11,689
284,002
28,391
760
96,313
6,349
917
62,563
4,650
1,038
62,563
3,903
1,127
62,563
3,080
1,212
—
2,619
6,635
—
7,790
$ 460,082
$ 107,422 $
72,130 $
71,504 $ 190,770
$
3,831 $
14,425
Amounts exclude interest payments. Interest on the $136.0 million current balance of the term loan and revolver
borrowings at current rates would be approximately $3.2 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, distributor incentives and rebates, the recoverability of long-lived assets,
including amortizable intangible assets, goodwill, depreciation and amortization periods, income taxes and commitments and
contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial statements.
Claims and Legal Proceedings
The categories of asserted or unasserted claims for which the Company has estimated a probable liability and for which
amounts are estimable are critical accounting estimates. Please refer to the section entitled “Commitments and Contingencies”
in Note 16 of Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for
additional information about such estimates.
Deferred Taxes
Deferred taxes are accounted for by recognizing deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the financial statements. Accordingly, deferred tax assets and liabilities are
determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Page 36 of 85
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 2014 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, CMI and GTSP & Other. As of December 31, 2014, the fair values of
our reporting units were substantially greater than their carrying values.
Long-lived assets
Under ASC 360, “Property, Plant, and Equipment,” long-lived assets including property, plant and equipment and
amortized intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable. 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.
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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 performance cycle, a number of shares
of Innophos common stock, within a range of shares from zero to a specified maximum (generally 200%), calculated
using a combination of performance indicators as defined solely by reference to the Company’s own activities.
Amounts equivalent to dividends will accrue over the performance period and are paid on performance share awards
when vested and distributed.
• Annual stock retainer grants, which entitle independent members of the Board of Directors to receive a number of
shares of the Company’s common stock equal to a fixed retainer value.
The fair value of the options granted during 2014, 2013 and 2012 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,
2014
Year Ended
December 31,
2013
Year Ended
December 31,
2012
50.1%
3.2%
2.0%
6 years
20.15
$
50.4%
2.8%
1.0%
6 years
19.99
$
53.2%
2.4%
1.3%
6 years
20.41
$
Since Innophos Holdings, Inc. was a newly public entity and had 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 has chosen a blended volatility which consists of 50% historical
volatility average of a peer group and 50% historical volatility average of Innophos. The expected term for the stock options is
based on the simplified method since the Company has limited data on the exercises of its stock options. These stock options
qualify as “plain vanilla” stock options in accordance with SAB 110. The dividend yield is the expected annual dividend
payments divided by the average stock price up to the date of grant. The risk-free interest rates are derived from the U.S.
Treasury securities in effect on the date of grant whose maturity period equals the options expected term. The Company applies
an expected forfeiture rate to stock-based compensation expense. The estimate of the forfeiture rate is based primarily upon
historical experience of employee turnover. As actual forfeitures become known, stock-based compensation expense is adjusted
accordingly.
Pension and Post-Retirement Costs / Post-Employment Plan
The Company maintains both defined contribution plans and noncontributory defined benefit pension 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,
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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 $86 thousand. A 1% decrease in our expected
rate of return on plan assets would increase our pension plan expense by $175 thousand.
Recently Issued Accounting Standards
New accounting standards effective in 2014 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, 2014, we had $92.0 million principal amount of term loan debt and a $225.0 million revolving credit
facility, of which $44.0 million was outstanding, both of which approximate fair value (determined using level 2 inputs within
the fair value hierarchy). Total remaining availability was $179.1 million, taking into account $1.9 million in face amount of
letters of credit issued under the sub-facility. Simultaneously with initiating the new senior facility in December of 2012, we
entered into an interest rate swap with a swap start date of December 31, 2012, swapping the LIBOR exposure on $100 million
of floating rate debt under the new senior facility to a fixed rate to maturity obligation of 0.9475% expiring in December 2017.
The fair value of this interest rate swap is an asset of approximately $0.6 million as of December 31, 2014.
Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense on our
revolving line of credit. Changes in economic conditions may also result in lower operating income, reducing our funds
available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow has been used
to service debt and fund working capital needs, which may affect our ability to make future acquisitions or capital expenditures.
We may from time to time use interest rate protection agreements to minimize our exposure to interest rate fluctuation.
Regardless of hedges, we may experience economic loss and a negative impact on earnings or net assets as a result of interest
rate fluctuations. Based on $36.0 million outstanding borrowings as floating rate debt (not included in the swap) under our
credit facility, an immediate increase of one percentage point would cause an increase to interest expense of approximately $0.4
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 2014 or 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.
Page 39 of 85
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 remeasured at current exchange rates, non-monetary assets and liabilities are remeasured at
historical exchange rates, and revenue and expenses are remeasured 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 40 of 85
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, 2014 and December 31, 2013
Statements of Comprehensive Income for each of the three years ended December 31, 2014
Statements of Stockholders’ Equity for each of the three years ended December 31, 2014
Statements of Cash Flows for each of the three years ended December 31, 2014
Notes to Consolidated Financial Statements
Page
42
43
44
45
46
47
Page 41 of 85
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, 2014 and 2013, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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, 2014, based on criteria established in
Internal Control - Integrated Framework (2013 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 19, 2015
Page 42 of 85
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 22,447,058 and
22,327,670; outstanding 21,480,334 and 21,893,137 shares
Paid-in capital
Common stock held in treasury, at cost (966,724 and 434,533 shares)
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements
December 31,
2014
2013
$
$
$
$
$
36,207 $
90,551
184,621
60,135
371,514
198,988
84,373
73,536
728,411 $
4,003 $
53,137
34,806
91,946
132,002
41,456
265,404 $
21
124,558
(49,284)
390,525
(2,813)
463,007
728,411 $
32,755
88,434
181,467
81,961
384,617
201,985
84,373
74,691
745,666
4,002
38,717
34,613
77,332
159,007
45,908
282,247
22
120,046
(19,599)
364,515
(1,565)
463,419
745,666
Page 43 of 85
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 $221, ($825), and $71)
Change in pension and post-retirement plans, (net of tax $377,
($1,359), and $572)
Other comprehensive (loss) income, net of tax
Comprehensive income
Year Ended December 31,
2014
839,186 $
651,722
187,464
2013
844,129 $
685,830
158,299
2012
862,399
684,979
177,420
76,020
4,649
80,669
106,795
4,354
5,085
97,356
32,895
64,461
64,324 $
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
2.96 $
2.91 $
2.25 $
2.21 $
3.40
3.30
21,753,270
22,121,903
21,933,843
22,345,980
21,795,155
22,475,881
(360) $
1,345 $
(888)
(1,248) $
63,213 $
3,026
4,371 $
53,877 $
(114)
(827)
(941)
73,249
$
$
$
$
$
$
$
$
See notes to consolidated financial statements
Page 44 of 85
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, 2011
21,620 $
22 $
292,144 $
106,037 $
(4,995) $
393,208
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
Restricted stock forfeitures
Dividends declared
Balance, December 31, 2012
Net income
Other comprehensive loss, (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
Treasury stock reissued for acquisition of
business
Dividends declared
74,190
(941)
(2,255)
1,912
3,931
(7,254)
1,000
340
(150)
21
(19,468)
21,831 $
22 $
346,866 $
103,371 $
(5,936) $
49,506
4,371
217
(150)
(5)
(759)
2,174
2,849
(7,118)
(70)
(31,857)
Balance, December 31, 2013
21,893 $
22 $
364,515 $
100,447 $
(1,565) $
Net income
Other comprehensive income, (net of tax
$598)
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, 2014
64,461
119
(528)
(4)
(1)
(38,451)
160
3,280
1,071
(29,482)
(202)
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
64,461
160
3,280
1,071
(29,483)
(202)
(38,451)
463,007
(1,248)
(1,248)
21,480 $
21 $
390,525 $
75,274 $
(2,813) $
See notes to consolidated financial statements
Page 45 of 85
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
Share-based compensation
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
Decrease (increase) in other current assets
Increase in accounts payable
Increase (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
Acquisition of intangible assets
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
Effect of foreign exchange rate changes on cash and cash equivalents
Net change in cash
Cash and cash equivalents at beginning of period
Year Ended December 31,
2014
2013
2012
$
64,461 $
49,506 $
74,190
35,461
526
2,846
3,280
(2,087)
(3,054)
11,761
14,195
213
(821)
126,781
(27,955)
—
(1,443)
(29,398)
160
9,000
(36,004)
(191)
1,071
(29,684)
(38,394)
(94,042)
111
3,452
32,755
35,461
559
1,484
2,174
5,913
(18,348)
26,806
2,248
(11,624)
(2,502)
91,677
(33,415)
(4,425)
—
(37,840)
1,650
63,007
(76,000)
—
2,849
(7,188)
(31,837)
(47,519)
(378)
5,940
26,815
32,755 $
42,334
884
167
1,912
13,018
12,212
(21,551)
1,928
(20,984)
(3,575)
100,535
(33,060)
(71,706)
—
(104,766)
528
333,000
(309,000)
(1,461)
3,931
(7,254)
(24,810)
(5,066)
870
(8,427)
35,242
26,815
Cash and cash equivalents at end of period
$
36,207 $
See notes to consolidated financial statements
Page 46 of 85
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.
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, which has been a part of Solvay S.A. since 2011. 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”.
•
•
•
•
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 $44.8 million in cash plus
$1 million in shares of 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 owns 100% of Innophos, Inc; all are
incorporated under the laws of the State of Delaware. All intercompany transactions are eliminated in consolidation.
Page 47 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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.
These prior period adjustments are not material to the financial results of the previously issued annual financial
statements or the current financial statements.
Certain prior year balances have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles
requires the use of judgments and estimates made by management. Actual results could differ from those estimates. Some of the
more significant estimates pertaining to the Company include accruals for contingencies, distributor incentives and rebates, the
valuation of inventories, the allowance for doubtful accounts, income tax valuation allowances, the recoverability of long-lived
assets and goodwill analysis and cash flows and assumptions used in the recognition and measurement of assets acquired 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
Page 48 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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
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, trade names, 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.
Page 49 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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 remeasured at current exchange rates, non-monetary assets and liabilities are remeasured at
historical exchange rates. Revenue and expenses related to monetary assets and liabilities are remeasured at average exchange
rates and at historical exchange rates for the related revenue and expenses of non-monetary assets and liabilities. All translation
gains and losses are included in net income.
Research and Development Expenses
Research and development expenditures, including expenditures relating to the development of new products and
processes and significant improvements and refinements to existing products, are expensed as incurred.
Employee Termination Benefits
The Company does not have a written severance plan for its Mexican operations, nor does it offer similar termination
benefits to affected employees in all Mexican restructuring initiatives. However, Mexican law requires payment of certain
minimum termination benefits. Accordingly, in situations where minimum statutory termination benefits must be paid to the
affected employees, the Company records employee severance costs associated with these activities in accordance with ASC
712, Compensation – Nonretirement Post Employment Benefits. The Company does have a written severance plan which is in
accordance with ASC 712 for its U.S. and Canadian operations. The Company has an accrued obligation for post-employment
benefits for U.S. and Canadian operations when the amounts are probable and reasonably estimated. In all other situations
where the Company pays out termination benefits, including supplemental benefits paid in excess of statutory minimum
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 significant subsidiaries are the Company's United States subsidiaries which file a consolidated U.S. tax
return, the Company's Mexican subsidiaries which file a consolidated Mexico tax return and the Company's Canadian
subsidiary which files a separate Canadian tax return. The Company accounts for income taxes in accordance with ASC 740,
Page 50 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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, 2014, no significant adjustments have been proposed to the Company's tax positions and the
Company currently does not anticipate any adjustments that would result in a material change to its financial position during the
next twelve months.
Environmental Costs
Environmental liabilities are recorded undiscounted when it is probable that these liabilities have been incurred and the
amounts can be reasonably estimated. These liabilities are estimated based on an assessment of many factors, including the
amount of remediation costs, the timing and extent of remediation actions required by the applicable governmental authorities,
and the amount of the Company’s liability after considering the liability and financial resources of other potentially responsible
parties. Generally, the recording of these accruals coincides with the assertion of a claim or litigation, completion of a
feasibility study or a commitment to a formal plan of action. Anticipated recoveries from third parties are recorded as a
reduction of expense only when such amounts are realized. Any insurance receivables would be recorded gross of the estimated
liability.
Comprehensive Income (Loss)
Comprehensive income (loss) is composed of net income (loss), adjusted for changes in comprehensive income items
such as changes in defined benefit pension plan funded status.
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
None.
Issued but not yet adopted
In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of
components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a
major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued
operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for
individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively
for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is
Page 51 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
permitted only for disposals that have not been previously reported). The implementation of the amended guidance is not
expected to have a material impact on our consolidated financial position or results of operations and related disclosures.
In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current
revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize
revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange
for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is
recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the
transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain
circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual
periods beginning on or after December 15, 2016 (early adoption is not permitted). The guidance permits the use of either a
retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating
the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures.
In June 2014, the FASB issued guidance which requires that a performance target that affects vesting, and that could be
achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be
reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be
recognized in the period in which it becomes probable that the performance target will be achieved and should represent the
compensation cost attributable to the period(s) for which the requisite service has already been rendered. The guidance is
effective for the interim and annual periods beginning on or after December 15, 2015; early adoption is permitted. We do not
anticipate that the adoption of this standard will have a material impact on our financial position, results of operations and
related disclosures.
In August 2014 the FASB issued guidance which establishes management’s responsibility to evaluate whether there is
substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The
amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding
upon certain principles in U.S. auditing standards. Specifically, ASU 2014-15 provides a definition of the term substantial doubt
and requires an assessment for a period of one year after the date that the financial statements are issued or available to be
issued. It also requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s
plans and requires an express statement and other disclosures when substantial doubt is not alleviated. The guidance is effective
for the interim and annual periods beginning on or after December 15, 2016; early adoption is permitted. We do not anticipate
that the adoption of this standard will have a material impact on our financial position, results of operations and related
disclosures.
In January 2015, the FASB issued new accounting rules which remove the concept of extraordinary items from U.S.
GAAP. Under the existing guidance, an entity is required to separately disclose extraordinary items, net of tax, in the income
statement after income from continuing operations if an event or transaction is of an unusual nature and occurs infrequently.
This separate, net-of-tax presentation (and corresponding earnings per share impact) will no longer be allowed. The new rules
will be effective for us in the first quarter of 2016. We do not anticipate the adoption of the new accounting rules will have a
material impact on the our financial position, results of operations and related disclosures.
2. Acquisitions:
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
Page 52 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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.
The final 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 $20
Property, plant and equipment
Goodwill
Intangible assets
Accounts payable
Other current liabilities
Total
The intangible assets acquired with CMI include the following:
Customer relationships
Developed technology
Trade name
Non-compete agreement
CMI
97
299
125
1,092
1,265
2,348
(69)
(57)
5,100
$
$
Useful life
(years)
CMI
10
7
5
3
$
$
1,761
353
211
23
2,348
The CMI transaction was 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 as if the acquisition of CMI had been completed on January 1, 2013. 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
Page 53 of 85
Year Ended
December 31,
2013
$
$
$
$
845,610
49,571
2.26
2.22
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
3. Inventories:
Inventories consist of the following:
Raw materials
Finished products
Spare parts
2014
2013
60,697 $
111,600
12,324
184,621 $
60,157
108,334
12,976
181,467
$
$
Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of December 31, 2014 and December 31,
2013 were $12,626 and $13,857, respectively.
4. Other Current Assets:
Other current assets consist of the following:
Creditable taxes (value added taxes)
Vendor inventory deposits (prepaid)
Prepaid income taxes
Deferred income taxes
Prepaid insurance
Other
2014
2013
18,124 $
9,483
12,658
12,647
2,109
5,114
60,135 $
24,257
14,820
12,269
22,078
2,329
6,208
81,961
$
$
Page 54 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
5. Property, Plant and Equipment, net:
Property, plant and equipment, at cost, consist of the following:
2014
2013
Useful life
(years)
Gross
Accumulated
Depreciation
Net Book
Value
Accumulated
Depreciation
Net Book
Value
Land
Land improvements -
Buildings and improvements -
Machinery & Equipment -
Construction-in-progress
-
3-15
2-9
10
14-16
20
25-40
1-4
5
6
7
8
9
10
11
12-13
15
16-25
-
$
— $
— $
19,213 $
10,825
9,450
11,491
12,103
35,551
22,209
15,865
38,141
49,201
53,183
163,697
26,684
10,159
12,079
11,603
76,309
1,737
12,320
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
47,492
1,439
11,885
$ 591,820 $ 392,832 $ 198,988 $ 565,662 $ 363,677 $ 201,985
19,213 $
2,076
215
4,892
4,784
23,870
16,851
4,200
12,372
30
16,378
22,228
463
5,793
648
1,603
50,205
847
12,320
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
69,807
2,245
11,885
8,749
9,235
6,599
7,319
11,681
5,358
11,665
25,769
49,171
36,805
141,469
26,221
4,366
11,431
10,000
26,104
890
—
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
22,315
806
—
Depreciation expense, excluding depreciation expense in changes of inventory, was $31,156, $28,147 and $37,930 in
2014, 2013 and 2012, respectively. Depreciation expense in changes of inventory was $(2,866), $327 and $(184), in 2014, 2013
and 2012, respectively. The carrying value of capitalized software, included in machinery and equipment, was $12,302, $15,374
and $21,572 for the years ended December 31, 2014, December 31, 2013 and December 31, 2012, respectively.
6. Goodwill:
Balance, December 31, 2012
Investment in CMI
Balance, December 31, 2013
Balance, December 31, 2014
Specialty
Phosphates
US
Specialty
Phosphates
Canada
Specialty
Phosphates
Mexico
GTSP &
Other
$
$
$
38,639 $
1,265
39,904 $
39,904 $
2,530 $
—
2,530 $
2,530 $
38,584 $
—
38,584 $
38,584 $
3,355
—
3,355 $
3,355 $
Total
83,108
1,265
84,373
84,373
Page 55 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
7. Intangibles and Other Assets, net:
Intangibles and other assets consist of the following:
Developed technology and application patents, net of accumulated
amortization of $21,894 for 2014 and $19,015 for 2013
Customer relationships, net of accumulated amortization of $13,054 for
2014 and $10,295 for 2013
Trade names and license agreements, net of accumulated amortization of
$7,573 for 2014 and $6,198 for 2013
Non-compete agreement, net of accumulated amortization of $954 for 2014
and $796 for 2013
Total intangibles
Deferred financing costs, net of accumulated amortization of $2,178 for
2014 and $1,652 for 2013 (see note 9)
Other tax assets
Other assets
Total other assets
Useful life
(years)
2014
2013
7-20
5-15
5-20
3-10
$
$
$
$
24,381
25,758
10,088
379
60,606 $
$
1,673
7,013
4,244
12,930 $
73,536 $
25,817
28,517
11,463
537
66,334
2,008
—
6,349
8,357
74,691
Amortization expense for intangibles was $7,171, $6,987 and $4,567 in 2014, 2013 and 2012, respectively. Anticipated
amortization expense for the next five years related to intangibles is as follows:
Intangible amortization expense
2015
2016
2017
2018
2019
$
7,129 $
7,127 $
6,912 $
6,769 $
6,229
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. (see Note 2).
8. Other Current Liabilities:
Other current liabilities consist of the following:
Payroll related
Taxes other than income taxes
Benefits and pensions
Freight and rebates
Income taxes
Other
Page 56 of 85
2014
2013
$
$
12,703 $
5,057
6,640
4,346
1,302
4,758
34,806 $
8,680
5,610
7,240
3,960
4,368
4,755
34,613
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
9. Short-term Borrowings, Long-Term Debt, and Interest Expense:
Short-term borrowings and long-term debt consist of the following:
Term loan due 2017
Revolver borrowings under the credit facility
Capital leases
Total borrowings
Less current portion
Long-term debt
2014
2013
$
$
$
92,000 $
44,000
5
136,005 $
4,003
132,002 $
96,000
67,000
9
163,009
4,002
159,007
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 agreement was again amended on December
18, 2014. This latest amendment deletes the requirement that Restricted Payments (as defined in the Credit Agreement) be
deducted from the Consolidated EBITDA for purposes of determining the Fixed Charge Coverage Ratio (as defined in the
Credit Agreement). The latest amendment also provides the Companies with additional flexibility to make certain Restricted
Payments (as defined in the Credit Agreement), including the repurchase by the Registrant of its stock, provided that the
Companies satisfy certain financial requirements.
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
Page 57 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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.
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, 2014, the Accessible Borrowing Availability was 179.1 million and the Total Leverage Ratio, Senior
Leverage Ratio, and Fixed Charge Coverage Ratio calculated in accordance with the agreement were 0.98, 0.98 and 3.15,
respectively.
As of December 31, 2014, 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 in 2012 with the amended and restated Credit Agreement were approximately $1.5 million.
Additional fees and expenses incurred in 2014 with the latest amendment were approximately $0.2 million. The amounts above
were recorded as deferred financing costs and are being amortized, along with the residual value of the initial fees and expenses
incurred in 2010, over the term of the Credit Agreement using the effective interest method.
As of December 31, 2014, $92.0 million was outstanding under the Term Loan and $44.0 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 179.1 million, taking into account $1.9 million in face amount of letters of
credit issued under the sub-facility. The current weighted average interest rate for all debt is 2.4%.
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 $0.6 million as of December 31, 2014.
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.
Page 58 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Innophos and its subsidiaries and affiliates may from time to time seek to acquire or otherwise retire outstanding debt
through public or 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 2014, 2013 and 2012 was $4,060, $4,622 and $5,432.
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
Uncertain tax positions
Environmental liabilities
Other liabilities
Year Ended December 31,
2014
2013
2012
$
$
3,977 $
526
(40)
(109)
4,354 $
5,271 $
559
(1,049)
(355)
4,426 $
5,419
884
(65)
(261)
5,977
2014
2013
24,400 $
10,714
2,798
1,100
2,444
41,456 $
32,110
11,175
—
1,100
1,523
45,908
$
$
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 performance cycle, 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
Page 59 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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.
The following table summarizes the components of stock-based compensation expense, all of which has been classified
as selling, general and administrative expense:
Stock options
Restricted stock
Performance shares
Stock grants
Total stock-based compensation expense
Year Ended December 31,
2014
2013
2012
$
$
1,346 $
1,066
598
270
3,280 $
1,002 $
676
196
300
2,174 $
1,436
236
(120)
360
1,912
A summary of restricted stock activity during the three years ended December 31, 2014, is presented below:
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
Outstanding at January 1, 2014
Granted
Released
Forfeited / Surrendered
Outstanding at December 31, 2014
Weighted
Average
Grant
Date Fair
Value
Number
of Shares
— $
14,370
—
(110)
14,260 $
14,260 $
25,890
(1,932)
(5,154)
33,064 $
33,064 $
26,821
(5,720)
(3,829)
50,336 $
—
50.12
—
50.12
—
50.12
54.59
50.12
52.65
53.22
53.22
55.49
52.81
53.13
54.49
Page 60 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
A summary of stock option activity during the three years ended December 31, 2014, is presented below:
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
Outstanding at January 1, 2014
Granted
Forfeited / Surrendered
Exercised
Outstanding at December 31, 2014
Exercisable at December 31, 2014
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average Grant
Date Fair Value
20.41
19.99
900,142 $
39,683
(37,238)
(181,165)
721,422 $
545,829 $
721,422 $
63,672
(23,389)
(92,977)
668,728 $
556,747 $
668,728 $
77,391
(33,387)
(87,412)
625,320 $
498,719 $
18.55
50.12
16.62
9.34
22.69
17.92
22.69
54.59
39.69
20.63
25.34
20.60
25.34
20.15
21.58
14.52
30.87
24.91
The fair value of the options granted during 2014, 2013 and 2012 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,
2014
Year Ended
December 31,
2013
Year Ended
December 31,
2012
50.1%
3.2%
2.0%
6
20.15
$
50.4%
2.8%
1.0%
6
$
19.99
$
53.2%
2.4%
1.3%
6
20.41
Prior to 2009, since Innophos Holdings, Inc. was a newly public entity and had 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. 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 61 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
A summary of performance share activity is presented below:
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
Outstanding at January 1, 2014
Granted (at targeted return on invested capital)
Forfeited
Vested
Adjustment to estimate of shares to be earned
Outstanding at December 31, 2014
Weighted
Average
Grant
Date Fair
Value
29.08
50.12
—
25.68
41.19
—
—
54.59
54.59
—
54.59
54.59
54.59
55.49
—
—
54.59
55.49
Number
of Shares
209,570
43,106
—
(138,781)
(113,895)
— $
— $
43,091
(4,854)
—
(25,848)
12,389 $
12,389 $
44,698
—
—
(12,389)
44,698 $
The total intrinsic value of options exercised and stock grants during 2014, 2013 and 2012 was $5.2 million, $4.7 million
and $8.3 million, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2014
was $17.4 million and $16.7 million, respectively. The total remaining unrecognized compensation expense related to share-
based payments is as follows:
Unrecognized Compensation Expense
Restricted
Stock
Stock
Options
Performance
Based
Amount
Weighted-average years to be recognized
$
1,417 $
1.5
1,466 $
1.5
1,665
2.0
The Board of Directors authorized a new stock repurchase program, commencing January 1, 2015, pursuant to which the
Registrant intends to acquire for cash in open market or private transactions from time to time up to $125 million of its
common stock over the ensuing 12 months. The timing of repurchases and the exact number of shares of common stock to be
purchased will depend upon market conditions and other factors. The repurchase program will be funded through existing
liquidity, including possible borrowings from the Senior Credit Facility, and cash from operations. Treasury stock is recognized
at the cost to reacquire the shares. The 2011 repurchase program in which up to $50 million of the Company's common stock
could be repurchased from time to time at management’s discretion was terminated on December 31, 2014.
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 62 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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:
Year Ended December 31,
2014
2013
2012
Net income
Less: earnings attributable to unvested shares
64,461
(137)
Net income available to common shareholders
$
64,324 $
49,506
(64)
49,442 $
74,190
(40)
74,150
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
21,753,270
368,633
22,121,903
21,933,843
412,137
22,345,980
21,795,155
680,726
22,475,881
$
$
2.96 $
2.91 $
2.25 $
2.21 $
3.40
3.30
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 313,794, 330,420 and 40,696 for the years ended 2014, 2013
and 2012, respectively.
Page 63 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
13. Dividends
The following is the dividend activity for 2014, 2013 and 2012:
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
2014
Quarters ended
$
$
$
March 31
June 30
September 30
December 31
Total
0.40 $
8,766
0.40
8,766
0.40 $
8,780
0.40
8,780
0.48 $
10,477
0.48
10,477
0.48 $
10,371 $
0.48 $
10,371 $
1.76
38,394
1.76
38,394
2013
Quarters ended
March 31
June 30
September 30
December 31
Total
0.35 $
7,641
0.35
7,641
0.35 $
7,685
0.35
7,685
0.35 $
7,694
0.35
7,694
0.40 $
8,817 $
0.40 $
8,817 $
1.45
31,837
1.45
31,837
2012
Quarters ended
March 31
June 30
September 30
December 31
Total
0.27 $
5,885
0.25
5,405
0.27 $
5,891
0.27
5,885
— $
—
0.27
5,891
0.35 $
7,629 $
0.35 $
7,629 $
0.89
19,405
1.14
24,810
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 defined contribution plans and noncontributory defined benefit pension plans that together cover
substantially all U.S. and Canadian employees.
In the United States, salaried and hourly employees are covered by a defined contribution plan with a 401(k) feature. The
plan provides for employee contributions, company matching contributions, and an age-weighted annual company contribution
to eligible employees. Union-represented hourly employees, at our Nashville site, are covered by a traditional defined benefit
plan providing benefits based on years of service and final average pay. On April 26, 2007, the Company and the Union for the
hourly employees at our Nashville facility agreed that it would freeze its defined benefit pension plan (the “Plan”) as of
August 1, 2007. The accrual of additional benefits or increase in the current level of benefits under the Plan ceased as of
August 1, 2007, after which the Nashville union employees now participate in the Company’s existing non-contributory defined
contribution benefit plan. All plans were established by Innophos in 2004.
In Canada, salaried employees are covered by defined contribution plans which provide for company contributions as a
percent of pay, employee contributions, and company matching contributions. Union-represented hourly employees are covered
by a defined benefit plan providing benefits based on a negotiated benefit level and years of service. The defined contribution
plans were established by the Company in 2004; the defined benefit plan for union-represented hourly employees is a
Page 64 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
continuation of the Rhodia Canada Inc.’s pension plan for its Port Maitland union employees, which was included in the
acquisition of the Phosphates Business from Rhodia on August 13, 2004.
Innophos also has other postretirement benefit plans covering substantially all of its U.S. and Canadian employees.
Certain employee groups covered under the plans do not receive benefits post-age 65. In the United States, the health care plans
are contributory with participants’ contributions adjusted annually, and limits on the company’s share of the costs; the life
insurance plans are noncontributory. The effects of the Medicare Prescription Drug, Improvement and Modernization Act of
2003, or the Act, are not significant. In Canada, the plans are non-contributory.
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 $86. A 1% decrease in our expected rate of
return on plan assets would increase our pension plan expense by $175.
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 2014 are as follows:
Prior service cost
Net actuarial loss (gain)
Transition obligation
Pension
$
361 $
4,379
—
Other
Benefits
— $
(618)
119
Total
361
3,761
119
The changes in benefit obligations recognized in other comprehensive loss during 2014 and 2013 are as follows:
Pension Benefits
Other Benefits
Total
2014
2013
2014
2013
2014
2013
Change in accumulated other comprehensive
income
Amortization of net gain
Amortization of prior service cost /
transition obligation
Net loss (gain)
Total change in accumulated other
comprehensive income
Deferred taxes
Net amount recognized
$
(99) $
(366) $
55 $
(36) $
(44) $
(402)
(94)
1,724
(101)
(2,905)
(28)
(293)
(29)
(948)
1,531
(3,372)
(431)
1,100 $
992
(2,380) $
$
(266)
54
(212) $
(1,013)
367
(646) $
(122)
1,431
1,265
(377)
888 $
(130)
(3,853)
(4,385)
1,359
(3,026)
Page 65 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
U.S. Plans
Obligations and Funded Status—U.S. Plans At December 31
Accumulated benefit obligation
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
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
2014
2013
2014
2013
2,904 $
2,459 $
4,308 $
3,991
2,459 $
—
119
369
(43)
2,904 $
1,872 $
119
150
(43)
2,098 $
(806) $
— $
—
(806)
(806) $
— $
620
620 $
(236)
384
2,719 $
—
105
(329)
(36)
2,459 $
1,561 $
212
135
(36)
1,872 $
(587) $
— $
—
(587)
(587) $
— $
248
248 $
(94)
154
3,991 $
289
168
25
(165)
4,308 $
— $
—
165
(165)
— $
(4,308) $
— $
(241)
(4,067)
(4,308) $
— $
(582)
(582) $
221
(361)
4,435
337
149
(803)
(127)
3,991
—
—
127
(127)
—
(3,991)
—
(217)
(3,774)
(3,991)
—
(676)
(676)
257
(419)
Page 66 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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 benefit
obligation
Discount rate
Expected long-term rate of return on plan
assets
Rate of compensation increase
Weighted average assumptions for net
periodic benefit cost
Discount rate
Expected long-term rate of return on plan
assets
Rate of compensation increase
Pension Benefits
Other Benefits
2014
2013
2012
2014
2013
2012
$
$
$
—
119
(122)
—
105
(111)
—
—
(3) $
—
50
44
$
$
—
110
(110)
—
14
14
$
$
$
289
168
—
—
(69)
388
$
337
149
—
—
—
486
$
$
327
161
—
(67)
—
421
4.00%
5.00%
4.00%
4.00%
4.50%
3.75%
6.65%
NA
6.30%
NA
6.35%
NA
NA
3.00%
NA
3.00%
NA
3.00%
5.00%
4.00%
4.50%
4.50%
3.75%
4.25%
6.30%
NA
6.35%
NA
6.72%
NA
NA
3.00%
NA
3.00%
NA
3.00%
Estimated Future Benefit Payments
Pension Benefits
Other Benefits
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal Years 2020-2024
$
91 $
104
123
137
145
819
241
336
379
411
424
1,768
Innophos expects to contribute approximately $0.1 million to its U.S. defined benefit pension plan in 2015.
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 2015 fiscal year are
$65, $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 2015 fiscal year are $22, $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 67 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Plan Assets
The investment policy for the Company’s US defined benefit pension plan is designed to achieve long-term objectives of
return, while mitigating against downside risk and considering expected cash flow. 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 90% equities and
10% fixed income instruments has been established. Investment weightings and results are tested regularly against appropriate
benchmark portfolios.
Innophos, Inc.’s defined benefit pension plan invests in mutual funds and commercial paper and the weighted-average
asset allocations at December 31, 2014 and 2013 by asset category are as follows:
Asset Category
Equity securities
Fixed income securities
Total
Plan Assets at
December 31
2014
2013
89.9%
10.1
100.0%
56.3%
43.7
100.0%
The fair values of Innophos, Inc.’s pension plan assets at December 31, 2014 by asset category are as follows:
Equity securities
Fixed income securities
Defined Contribution Plan—U.S.
Total
Level 1
Level 2
Level 3
$
$
1,886 $
212
2,098 $
1,886 $
212
2,098 $
— $
—
— $
—
—
—
Innophos Inc.’s expense for the defined contribution plan was $3.0 million, $3.2 million and $3.3 million for 2014, 2013
and 2012, respectively.
Page 68 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Canadian Plans
Obligations and Funded Status—Canadian Plans at December 31
Accumulated benefit obligation
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Past service cost
Actuarial (gain) loss
Benefits paid
Foreign currency exchange rate changes
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
Foreign currency 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
2014
2013
2014
2013
13,786 $
12,256 $
1,480 $
1,803
12,256 $
315
570
381
1,783
(402)
(1,117)
13,786 $
16,683 $
1,424
433
(402)
(1,411)
16,727 $
2,941 $
2,941 $
—
—
2,941 $
— $
361
3,759
4,120 $
(1,030)
3,090
13,322 $
348
557
—
(643)
(468)
(860)
12,256 $
15,085 $
2,432
718
(468)
(1,084)
16,683 $
4,427 $
4,427 $
—
—
4,427 $
— $
97
2,863
2,960 $
(740)
2,220
1,803 $
68
85
—
(299)
(42)
(135)
1,480 $
— $
—
42
(42)
—
— $
(1,480) $
— $
(90)
(1,390)
(1,480) $
119 $
—
(36)
83 $
(21)
62
1,905
77
81
—
(107)
(29)
(124)
1,803
—
—
29
(29)
—
—
(1,803)
—
(44)
(1,759)
(1,803)
157
—
285
442
(111)
331
Page 69 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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
Pension Benefits
Other Benefits
2014
2013
2012
2014
2013
2012
$
$
$
315
570
(925)
$
348
557
(900)
$
339
602
(944)
99
94
—
153
$
316
101
—
422
$
261
104
—
362
$
68
85
—
14
—
28
195
$
$
77
81
—
36
—
29
223
$
$
81
99
—
47
—
30
257
4.00%
NA
4.75%
NA
4.25%
NA
4.00%
NA
4.75%
NA
4.25%
NA
Discount rate
Expected long-term rate of return
Rate of compensation increase
4.75%
6.00%
NA
4.25%
6.00%
NA
5.00%
6.50%
NA
4.75%
NA
NA
4.25%
NA
NA
5.00%
NA
NA
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
8%
5%
2033
9%
5%
2027
10%
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
2014
2013
$
$
$
$
14 $
163 $
(11) $
(134) $
26
262
(21)
(212)
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 2015 fiscal year
are $174, $120 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 2015 fiscal year are $0, $0
and $26, respectively.
Page 70 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Plan Assets
Innophos Canada Inc.’s pension plan invests in mutual funds and the weighted-average asset allocations at December 31,
2014 and 2013 by asset category are as follows:
Asset Category
Equity securities
Debt securities
Other (a)
Total
2014
2013
49.3%
50.7
—
100.0%
63.7%
33.2
3.1
100.0%
The fair values of Innophos Canada, Inc.’s pension plan assets at December 31, 2014 by asset category are as follows:
Equity securities
Fixed income securities
(a) Primarily cash and cash equivalents.
Total
Level 1
Level 2
Level 3
$
$
8,239 $
8,488
16,727 $
8,239 $
—
8,239 $
— $
8,488
8,488 $
—
—
—
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 50% equities and 50% fixed income
instruments has been established. Investment weightings and results are tested regularly against appropriate benchmark
portfolios.
Cash Flows
Contributions
Innophos Canada, Inc. contributed $0.4 million to its pension plan in 2014.
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 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal Years 2020-2024
Pension Benefits Other Benefits
451 $
90
$
478
66
501
59
550
75
580
72
3,546
549
Innophos does not plan to make contributions to its Canadian pension plan in 2015.
Page 71 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Defined Contribution Plans—Canada
Innophos Canada Inc.’s expense for the defined contribution plans was approximately $0.1 million for 2014, 2013 and
2012, respectively.
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:
Year Ended December 31,
2014
2013
2012
Income
before
income taxes
Income tax
expense
Income
before
income taxes
Income
tax expense/
(benefit)
Income
(loss) before
income taxes
Income tax
expense/
(benefit)
US
Canada/Mexico/Europe/Asia
Total
Current income taxes
Deferred income taxes
Total
$
$
67,288 $
30,068
97,356 $
$
$
23,275 $
9,620
32,895 $
30,049
2,846
32,895
61,206 $
15,041
76,247 $
$
$
84,815 $
21,158
21,906 $
4,835
26,741 $ 105,973 $
25,257
$
1,484
26,741
$
25,973
5,810
31,783
31,616
167
31,783
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
Other non-deductible permanent items
Provision for income taxes
Year Ended December 31,
2014
2013
2012
$
$
34,074 $
3,819
(2,072)
—
(745)
—
(932)
562
(1,811)
32,895 $
26,688 $
3,087
(1,639)
(1,602)
1,401
(329)
(1,161)
555
(259)
26,741 $
37,091
2,458
(1,912)
—
715
(3,101)
(1,233)
(2,237)
2
31,783
Net deferred tax assets were reflected on the consolidated balance sheets as follows:
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)
Page 72 of 85
Year Ended December 31,
2014
2013
$
$
12,647 $
—
—
(24,400)
(11,753) $
22,078
—
—
(32,110)
(10,032)
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
The components of the Company’s deferred tax assets/ (liabilities) were as follows:
Deferred tax assets:
Inventories
Accrued liabilities
Tax losses
Total deferred tax assets
Deferred tax liabilities:
Gain on bond retirement
Intangibles
Fixed assets
Total deferred tax liabilities
Total valuation allowances
Net deferred tax assets (liabilities)
Year Ended December 31,
2014
2013
$
$
4,306 $
12,097
5,278
21,681
(1,072)
(11,400)
(15,814)
(28,286)
(5,148)
(11,753) $
5,443
11,335
10,296
27,074
(1,338)
(11,172)
(20,010)
(32,520)
(4,586)
(10,032)
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,
2014
2013
2012
2,635 $
1,401
(832)
(406)
—
2,798
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
$
1,042 $
2,116
$
715
The U.S. operations do not have any Federal tax loss carry forwards as of December 31, 2014. The Company realized tax
benefits of $1,071 and $2,849 from stock options exercised in 2014 and 2013, respectively.
The Company maintained a $5.1 million and $4.6 million valuation allowance at December 31, 2014 and 2013,
respectively, primarily related to foreign 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 2015 through 2032.
As of December 31, 2014, taxes have not been provided on approximately $232.6 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
Page 73 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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 2007 through 2012. In addition, Innophos Canada, Inc. was
assessed approximately $3.5 million at current exchange rates for the tax years 2007, and 2008 by the Canadian tax authorities.
After lengthy discussions, the Canadian tax authorities have reassessed these amounts in August 2014 and the Company filed a
Notice of Objection with the Canada Revenue Agency Appeals Board in November 2014. The Company believes that its tax
position is more likely than not to be sustained. Also, certain state income tax assessments are under protest and the Company
believes its financial position is sustainable. The Company estimates the liability for unrecognized tax benefits will not
materially change during the next twelve months as a result of possible settlements of income tax authority examinations. The
Company has recorded $0.2 million of interest and penalties in the statement of financial position. Other than the items
mentioned above, as of December 31, 2014, 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 $30,327, $9,402 and $45,080 for 2014, 2013 and 2012, 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 2014, 2013 and 2012 was $6,670, $6,324 and $6,172, respectively. Minimum annual rentals for all
operating leases are:
Year Ending
2015
2016
2017
2018
2019
Thereafter
Lease Payments
6,349
$
4,650
3,903
3,080
2,619
7,790
Purchase Commitments and Supplier Concentration
The Company has multiple raw material supply contracts one of which with an initial term through 2018 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 $96.3 million for 2015.
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.
Page 74 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Environmental efforts are difficult to assess for numerous reasons, including the discovery of new remedial sites,
discovery of new information and scarcity of reliable information pertaining to certain sites, improvements in technology,
changes in environmental laws and regulations, numerous possible remedial techniques and solutions, difficulty in assessing
the involvement of and the financial capability of other potentially responsible parties and the extended time periods over
which remediation occurs. Other than the items listed below, the Company is not aware of material environmental liabilities
which are probable and estimable. As the Company's environmental contingencies are more clearly determined, it is reasonably
possible that amounts may need to be accrued. However, management does not believe, based on current information, that
environmental remediation requirements will have a material impact on the Company's results of operations, financial position
or cash flows.
Future environmental spending is probable at our site in Nashville, TN, the eastern portion of which had been used
historically as a landfill, and a western parcel previously acquired from a third party, which reportedly had housed, but no
longer does, a fertilizer and pesticide manufacturing facility. We have an estimated liability with a range of $0.9-$1.3 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, 2014.
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 to replace the closed system and allow the removal and separate handling of the
Filter Material. We built that unit, which has been operating since 2012.
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
Page 75 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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. Based
upon our receipt of a draft consent decree from the Government Parties in June 2014 and subsequent discussions with them, we
have established an accrual of $0.9 million for settlement of civil penalties. However, further discussions among all parties will
be necessary to determine if the matter can be resolved by settlement.
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
phosphoric 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.
In July 2013, Innophos, Inc. was 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:
Pension and
Other
Postretirement
Adjustments
Changes in
Fair Value of
Effective Cash
Flow Hedges
Total
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
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
(5,313) $
3,026
—
3,026
(2,287)
(888)
—
Net current period other comprehensive income (loss)
Balance at December 31, 2014
(888)
(3,175) $
$
(623) $
1,345
—
1,345
722
(360)
—
(360)
362 $
(5,936)
4,371
—
4,371
(1,565)
(1,248)
—
(1,248)
(2,813)
Page 76 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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
29%, 30% and 35%, respectively, of net sales for 2014, 2013 and 2012. No customer accounted for more than 10% of our sales
in the last three years.
19. Valuation Allowances:
Valuation allowances as of December 31, 2014, 2013 and 2012, and the changes in the valuation allowances for the year
ended December 31, 2014, 2013 and 2012 are as follows:
Balance,
January 1,
2014
Charged/
(credited)
to costs
and
expenses
Deferred taxes valuation allowances
$
4,586 $
562
Deductions
(Bad debts)
(Credited)
to Goodwill
Balance,
December 31,
2014
$
5,148
Balance,
January 1,
2013
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Balance,
December 31,
2013
Deferred taxes valuation allowances
$
4,031 $
555 $
— $
— $
4,586
Balance,
January 1,
2012
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Balance,
December 31,
2012
Deferred taxes valuation allowances
$
6,549 $
(2,518) $
— $
— $
4,031
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.
Page 77 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
For the year ended December 31, 2014
Sales
Intersegment sales
Total sales
Operating income
Depreciation and amortization expense
Other data
Capital expenditures
Long-lived assets
Total assets
Reconciliation of total assets to reported assets
Total assets
Eliminations
Reported assets (c)
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)
$
$
$
$
$
$
$
$
$
$
$
$
Specialty
Phosphates
US & Canada
Specialty
Phosphates
Mexico
GTSP &
Other
Eliminations
Total
594,446 $
4,391
598,837
81,762 $
24,264 $
15,432 $
120,226
711,480
167,423 $
54,797
222,220
28,887 $
9,416 $
12,201 $
77,403
276,588
711,480 $
(244,499)
276,588 $
(17,443)
466,981 $
259,145 $
77,317 $
117
77,434
(3,854)
1,781 $
322 $
1,359
2,285
2,285 $
—
2,285 $
— $
(59,305)
(59,305)
— $
— $
— $
—
—
— $
—
— $
839,186
—
839,186
106,795
35,461
27,955
198,988
990,353
990,353
(261,942)
728,411
Specialty
Phosphates
US & Canada
Specialty
Phosphates
Mexico
GTSP &
Other
Eliminations
Total
607,578 $
2,910
610,488
76,802 $
26,537 $
11,084 $
123,893
720,740
169,851 $
55,359
225,210
11,677 $
7,200 $
22,237 $
76,698
291,264
720,740 $
(255,928)
291,264 $
(13,080)
464,812 $
278,184 $
66,700 $
308
67,008
(4,609)
1,724 $
94 $
1,394
2,670
2,670 $
—
2,670 $
— $
(58,577)
(58,577)
$
— $
— $
—
—
— $
—
— $
844,129
—
844,129
83,870
35,461
33,415
201,985
1,014,674
1,014,674
(269,008)
745,666
Page 78 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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
Specialty
Phosphates
Mexico
GTSP &
Other
Eliminations
Total
569,816 $
1,779
571,595
86,002 $
23,214 $
11,068 $
130,869
714,753
714,753 $
(260,559)
454,194 $
187,743 $
55,830
243,573
21,913 $
14,578 $
20,481 $
63,447
296,315
296,315 $
(18,653)
277,662 $
104,840 $
409
105,249
2,078
4,542 $
1,511 $
1,407
6,655
6,655 $
—
6,655 $
— $
(58,018)
(58,018)
— $
— $
— $
—
—
— $
—
— $
862,399
—
862,399
109,993
42,334
33,060
195,723
1,017,723
1,017,723
(279,212)
738,511
(a)
(b)
(c)
The years ended December 31, 2013 and December 31, 2012 include a $7.2 million and $7.1 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 in GTSP & Other.
GTSP & Other reflects only direct assets. All Mexico indirect assets are included in Specialty Phosphates Mexico.
Product Revenues
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
GTSP & Other
Total
Geographic Revenues
US
Mexico
Canada
Other foreign countries
Total
Year Ended December 31,
2014
548,583 $
140,712
72,574
77,317
839,186 $
2013
556,223 $
145,805
75,401
66,700
844,129 $
Year Ended December 31,
2014
496,613 $
119,514
36,719
186,340
839,186 $
2013
495,276 $
132,737
36,574
179,542
844,129 $
2012
514,535
151,779
91,246
104,839
862,399
2012
471,851
131,353
38,905
220,290
862,399
$
$
$
$
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 79 of 85
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
21. Quarterly information (unaudited):
2014
Quarters ended
Net sales
Gross profit
Net income
Per share data:
Income per share:
Basic
Diluted
Net sales
Gross profit
Net income
Per share data:
Income per share:
Basic
Diluted
$
$
$
$
$
$
March 31
216,341
41,932
14,185
0.65
0.64
$
$
$
June 30
219,542
52,573
20,628
September 30
$
208,815 $
50,963
18,320
December 31
194,488 $
41,996
11,328
0.94
0.93
$
$
0.84 $
0.83 $
0.52
0.52
2013
Quarters ended
March 31
$
214,441
37,034 (a)
12,403 (a)
June 30
213,176
40,895
11,567
September 30
$
219,993 $
38,705
10,940
December 31
196,519 $
41,665
14,596
0.56 (a) $
0.55 (a) $
0.53
0.52
$
$
0.50 $
0.49 $
0.66
0.65
Total
839,186
187,464
64,461
Total
844,129
158,299
49,506
(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.
Page 80 of 85
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, 2014.
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, 2014, 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 (2013). Based on the assessment, management concluded that, as of December 31,
2014, 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, 2014, 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
2014 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 81 of 85
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 2015 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 82 of 85
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 19th day of February, 2015.
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
Chief Executive Officer and Director
February 19, 2015
Randolph Gress
(Principal Executive Officer)
/S/ ROBERT HARRER
Vice President and Chief Financial Officer
February 19, 2015
Robert Harrer
(Principal Financial Officer)
/S/ CHARLES BRODHEIM
Vice President and Corporate Controller
February 19, 2015
Charles Brodheim
(Principal Accounting Officer)
February 19, 2015
February 19, 2015
February 19, 2015
February 19, 2015
February 19, 2015
February 19, 2015
/S/ GARY CAPPELINE
Director
Gary Cappeline
/S/ AMADO CAVAZOS
Director
Amado Cavazos
/S/ LINDA MYRICK
Director
Linda Myrick
/S/ KAREN OSAR
Director
Karen Osar
/S/ JOHN STEITZ
Director
John Steitz
/S/ JAMES ZALLIE
James Zallie
Director
Page 83 of 85
Exhibit No. Description
EXHIBIT INDEX
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
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
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
Amendment to Article IV, Section 13, of the Amended and Restated By-Laws of Innophos Holdings, Inc.,
effective March 3, 2014, incorporated by reference to Exhibit 3.1 of Form 8-K of Innophos Holdings, Inc.
filed March 6, 2014
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
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
First Amendment to Credit Agreement, dated December 18, 2014, among Registrant, certain domestic
subsidiaries as borrowers, certain domestic subsidiaries as guarantors, and a group of Lenders, including Wells
Fargo Bank, National Association, as administrative agent incorporated by reference to Exhibit 99.1 of Form
8-K of Innophos Holdings, Inc. filed December 23, 2014
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
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
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
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
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
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
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
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
10.9
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
Page 84 of 85
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
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
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
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
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
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
Form of Innophos, Inc. Retirement Savings Restoration Plan effective as of January 1, 2006, incorporated by
reference to Exhibit 10.29 of Annual Report on Form 10-K of Innophos Holdings, Inc. for the year ended
December 31, 2006
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
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
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
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
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
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
31.2
32.1
32.2
Certification of Principal Executive Officer dated February 19, 2015 pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 filed herewith
Certification of Principal Financial Officer dated February 19, 2015 pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 filed herewith
Certification of Principal Executive Officer dated February 19, 2015 pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 filed herewith
Certification of Principal Financial Officer dated February 19, 2015 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 85 of 85
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Management & Directors
Innophos Leadership Team
Randolph Gress
Chairman of the Board, Chief Executive
(cid:50)(cid:73)(cid:262)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
Abraham Shabot
Vice President, General Manager
Mexico and Latin America
Robert Harrer
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:262)(cid:70)(cid:72)(cid:85)
William Farran
Vice President, General Counsel &
Corporate Secretary
Mark Thurston
Vice President, Nutrition and
(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)
Susan Turner
Vice President, Quality & Regulatory
Iris Alvarado
Vice President, Purchasing, Logistics &
(cid:39)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)
Sally Wilson
Vice President, Business Analysis and
Integration
Board of Directors
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)
Gary Cappeline
(cid:47)(cid:72)(cid:68)(cid:71)(cid:3)(cid:44)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:30)(cid:3)
Chair, Compensation Committee
Amado Cavazos
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
Linda Myrick
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:30)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:15)(cid:3)(cid:49)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:9)(cid:3)
Corporate Governance Committee
Karen Osar
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:30)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:15)(cid:3)(cid:36)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:72)
John Steitz
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
James Zallie
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
Charles Brodheim
Vice President, Corporate Controller and
Information Technology
Louis Calvarin
Vice President, Strategy and
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:50)(cid:73)(cid:262)(cid:70)(cid:72)(cid:85)
Francois Delprato
Vice President, Research and Business
(cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)
Mark Feuerbach
Vice President, Investor Relations,
Treasury, Financial Planning & Analysis
Joseph Golowski
Vice President, Global Specialty
Phosphates
Gail Holler
Vice President, Human Resources
Russell Kemp
Vice President, Manufacturing Specialty
Ingredients
Michael Lovrich
Vice President, Planning & Customer
Service
Yasef Murat
Vice President, Manufacturing
Phosphates
Corporate Information
TRANSFER AGENT AND REGISTRAR
Wells Fargo
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
CORPORATE LOCATIONS
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
(cid:39)(cid:72)(cid:79)(cid:72)(cid:74)(cid:68)(cid:70)(cid:76)(cid:82)(cid:81)(cid:3)(cid:48)(cid:76)(cid:74)(cid:88)(cid:72)(cid:79)(cid:3)(cid:43)(cid:76)(cid:71)(cid:68)(cid:79)(cid:74)(cid:82)
(cid:20)(cid:20)(cid:26)(cid:19)(cid:19)(cid:3)(cid:48)(cid:72)(cid:91)(cid:76)(cid:70)(cid:82)(cid:15)(cid:3)(cid:39)(cid:17)(cid:41)(cid:17)
+ (52) 55 5322 4808
www.innophos.com
INNOPHOS MANUFACTURING
FACILITIES
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
INVESTOR RELATIONS CONTACTS
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