Company Quick10K Filing
Innophos Holdings
Price34.44 EPS1
Shares20 P/E32
MCap681 P/FCF28
Net Debt309 EBIT49
TEV991 TEV/EBIT20
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-10-31
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-10-31
10-Q 2016-06-30 Filed 2016-08-02
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-07-29
10-Q 2015-03-31 Filed 2015-04-28
10-K 2014-12-31 Filed 2015-02-19
10-Q 2014-09-30 Filed 2014-10-29
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-04-29
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-30 Filed 2013-10-30
10-Q 2013-06-30 Filed 2013-07-31
10-Q 2013-03-31 Filed 2013-04-30
10-K 2012-12-31 Filed 2013-02-20
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-02
10-K 2011-12-31 Filed 2012-02-29
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-02
10-Q 2011-03-31 Filed 2011-05-04
10-K 2010-12-31 Filed 2011-02-28
10-Q 2010-09-30 Filed 2010-11-03
10-Q 2010-06-30 Filed 2010-08-03
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-08
8-K 2020-02-07
8-K 2020-01-22
8-K 2020-01-15
8-K 2019-11-06
8-K 2019-10-19
8-K 2019-08-06
8-K 2019-05-14
8-K 2019-04-30
8-K 2019-04-01
8-K 2019-03-15
8-K 2019-02-20
8-K 2018-11-19
8-K 2018-10-29
8-K 2018-10-16
8-K 2018-09-27
8-K 2018-07-30
8-K 2018-06-29
8-K 2018-05-15
8-K 2018-05-01
8-K 2018-04-02
8-K 2018-03-26
8-K 2018-02-21
8-K 2018-02-08

IPHS 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 iphs10q093019ex311.htm
EX-31.2 iphs10q093019ex312.htm
EX-32.1 iphs10q093019ex321.htm
EX-32.2 iphs10q093019ex322.htm

Innophos Holdings Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
0.90.70.50.40.20.02012201420172020
Assets, Equity
0.30.20.10.1-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

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Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________
FORM 10-Q
 ___________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to               .
Commission File Number 001-33124
 ___________________________________________
INNOPHOS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
 ___________________________________________
 
Delaware
 
20-1380758
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
259 Prospect Plains Road
Cranbury
New Jersey
08512
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (609) 495-2495
 ____________________________________________
Securities registered pursuant to section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of exchange on which registered
Common Stock, $0.001 par value
 
IPHS
 
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
Accelerated Filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 1, 2019, the registrant had 19,690,774 shares of common stock outstanding.
 

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TABLE OF CONTENTS
 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Unless the context requires otherwise, references to “Innophos,” “the Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q refer to Innophos Holdings, Inc. and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and/or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.
Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. The forward-looking statements in this Quarterly Report on Form 10-Q may include, among other things, statements about: (1) the pending Merger discussed herein; (2) global macroeconomic conditions and trends; (3) the behavior of financial markets, including fluctuations in foreign currencies, interest rates and turmoil in capital markets; (4) changes in regulatory controls regarding tariffs, duties, taxes and income tax rates; (5) our ability to implement and refine our Vision 2022 growth plan; (6) our ability to successfully identify and complete acquisitions in line with our Vision 2022 growth plan and effectively operate and integrate acquired businesses to realize the anticipated benefits of those acquisitions; (7) our ability to realize expected cost savings and efficiencies from our performance improvement and other optimization initiatives; (8) our ability to effectively compete in our markets, and to successfully develop new and competitive products that appeal to our customers; (9) changes in consumer preferences and demand for our products or a decline in consumer confidence and spending; (10) our ability to benefit from our investments in assets and human capital and the ability to complete projects successfully and on budget; (11) economic, regulatory and political risks associated with our international operations, most notably Mexico and China; (12) volatility and increases in the price of raw materials, energy and transportation, and fluctuations in the quality and availability of raw materials and process aids; (13) the impact of a disruption in our supply chain or our relationship with our suppliers; (14) our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws; (15) our ability to meet quality and regulatory standards in the various jurisdictions in which we have operations or conduct business; and (16) other information that is not historical information.
You should refer to “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 27, 2019, and this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements.  As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete discussion of all potential risks or uncertainties that may substantially impact our business. Moreover, we operate in a competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations.
Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this Quarterly Report on Form 10-Q and any documents that we reference in this report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I - FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
 
 
September 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
30,731

 
$
20,197

Accounts receivable, net of allowance for doubtful accounts ($884 and $688)
106,219

 
102,564

Inventories
170,290

 
180,203

Other current assets
35,136

 
24,094

Total current assets
342,376

 
327,058

Property, plant and equipment, net
237,803

 
240,235

Lease right-of-use assets
55,597

 

Goodwill
152,767

 
152,767

Intangibles and other assets, net
87,301

 
95,094

Total assets
$
875,844

 
$
815,154

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable, trade and other
$
57,850

 
$
80,007

Other current liabilities
58,655

 
49,993

Total current liabilities
116,505

 
130,000

Long-term debt
340,000

 
300,000

Long-term lease liabilities
49,077

 

Other long-term liabilities
32,364

 
49,639

Total liabilities
$
537,946

 
$
479,639

Commitments and contingencies (Note 14)


 


Common stock, par value $.001 per share; authorized 100,000,000; issued 23,042,492 and 22,984,608; outstanding 19,690,774 and 19,613,085 shares
$
20

 
$
20

Paid-in capital
147,727

 
142,558

Common stock held in treasury, at cost (3,351,718 and 3,371,523 shares)
(177,097
)
 
(176,862
)
Retained earnings
372,885

 
372,815

Accumulated other comprehensive loss
(5,637
)
 
(3,016
)
Total stockholders' equity
337,898

 
335,515

Total liabilities and stockholders' equity
$
875,844

 
$
815,154


See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
 
 
Three months ended
 
Nine months ended
 
September 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Net sales
$
189,349

 
$
196,934

 
$
565,801

 
$
609,099

Cost of goods sold
156,685

 
161,706

 
460,333

 
495,259

Gross profit
32,664

 
35,228

 
105,468

 
113,840

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
17,803

 
19,525

 
57,505

 
64,548

Research & development expenses
1,179

 
1,240

 
3,751

 
3,989

Total operating expenses
18,982

 
20,765

 
61,256

 
68,537

Operating income
13,682

 
14,463

 
44,212

 
45,303

Interest expense, net
3,990

 
3,428

 
11,580

 
9,530

Foreign exchange loss (gain)
373

 
(531
)
 
(478
)
 
409

Other (income), net
(5
)
 
(14
)
 
(16
)
 
(42
)
Income before income taxes
9,324

 
11,580

 
33,126

 
35,406

Provision (benefit) for income taxes
2,873

 
(2,510
)
 
16,580

 
4,155

Net income
$
6,451

 
$
14,090

 
$
16,546

 
$
31,251

Net income attributable to participating common shareholders
$
6,417

 
$
14,033

 
$
16,474

 
$
31,139

 
 
 
 
 
 
 
 
Per share data (Note 3):
 
 
 
 
 
 
 
Income per participating share:
 
 
 
 
 
 
 
Basic
$
0.33

 
$
0.72

 
$
0.84

 
$
1.60

Diluted
$
0.32

 
$
0.71

 
$
0.83

 
$
1.57

Weighted average participating shares outstanding:
 
 
 
 
 
 
 
Basic
19,583,316

 
19,525,284

 
19,575,764

 
19,511,097

Diluted
19,785,045

 
19,838,962

 
19,740,262

 
19,790,570

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in interest rate swaps, (net of tax of $41, $0, $732, and $0)
$
(122
)
 
$

 
$
(2,195
)
 
$

Change in pension and post-retirement plans, (net of tax of ($19), $16, $13, and $228)
288

 
(47
)
 
(426
)
 
436

Other comprehensive income (loss), net of tax
$
166

 
$
(47
)
 
$
(2,621
)
 
$
436

Comprehensive (loss) income
$
6,617

 
$
14,043

 
$
13,925

 
$
31,687


See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
 
Nine months ended
 
September 30,
2019
 
September 30,
2018
Cash flows provided by operating activities
 
 
 
Net income
$
16,546

 
$
31,251

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
31,776

 
33,317

Amortization of deferred financing charges
322

 
322

Deferred income tax provision

242

 
7,006

Share-based compensation
5,188

 
4,143

Changes in assets and liabilities:
 
 
 
Accounts receivable
(3,655
)
 
(2,272
)
Inventories
9,913

 
(23,094
)
Other current assets
(11,042
)
 
(9,362
)
Accounts payable
(18,060
)
 
(1,167
)
Other current liabilities
5,041

 
10,291

Other long-term assets and liabilities, net
(11,608
)
 
(15,071
)
Net cash provided by operating activities
24,663

 
35,364

Cash flows used for investing activities:
 
 
 
Capital expenditures
(25,576
)
 
(47,800
)
Net cash used for investing activities
(25,576
)
 
(47,800
)
Cash flows provided by financing activities:
 
 
 
Long-term debt borrowings
51,000

 
86,000

Long-term debt repayments
(11,000
)
 
(51,000
)
Restricted stock forfeitures
(235
)
 
(251
)
Dividends paid
(28,318
)
 
(28,197
)
Net cash provided by financing activities
11,447

 
6,552

Effect of foreign exchange rate changes on cash and cash equivalents

 
181

Net change in cash
10,534

 
(5,703
)
Cash and cash equivalents at beginning of period
20,197

 
28,782

Cash and cash equivalents at end of period
$
30,731

 
$
23,079

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Non-cash investing and financing activities:
 
 
 
Accrued additions to plant assets
$
5,242

 
$
5,073


See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Statement of Stockholders’ Equity (Unaudited)
(Dollars and shares in thousands)
 
Number of
Common
Shares
 
Common
Stock
 
Retained
Earnings (Deficit)
 
Paid-in
Capital / Common stock held in treasury
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
Shareholders'
Equity
Balance, December 31, 2017
19,538

 
$
20

 
$
374,366

 
$
(38,629
)
 
$
(2,198
)
 
$
333,559

Net income
 
 
 
 
31,251

 
 
 
 
 
31,251

Other comprehensive income, (net of tax $228) (a)
 
 
 
 
 
 
 
 
436

 
436

Effects of U.S. enacted Tax Cuts and Jobs Act (a)
 
 
 
 
(293
)
 
 
 
 
 
(293
)
Effects of adoption of ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
 
 
 
 
360

 
 
 
 
 
360

Equity-based compensation
75

 
 
 
 
 
3,649

 
 
 
3,649

Dividends declared ($1.44 per share) (b)
 
 
 
 
(28,293
)
 
 
 
 
 
(28,293
)
Balance, September 30, 2018
19,613

 
$
20

 
$
377,391

 
$
(34,980
)
 
$
(1,762
)
 
$
340,669

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
19,613

 
$
20

 
$
372,815

 
$
(34,304
)
 
$
(3,016
)
 
$
335,515

Net income
 
 
 
 
16,546

 
 
 
 
 
16,546

Other comprehensive loss, (net of tax $745)
 
 
 
 
 
 
 
 
(2,621
)
 
(2,621
)
Effects of adoption of ASC 842 (net of tax $3,966) (c)
 
 
 
 
11,897

 
 
 
 
 
11,897

Equity-based compensation plans
78

 
 
 
 
 
4,934

 
 
 
4,934

Dividends declared ($1.44 per share) (d)
 
 
 
 
(28,373
)
 
 
 
 
 
(28,373
)
Balance, September 30, 2019
19,691

 
$
20

 
$
372,885

 
$
(29,370
)
 
$
(5,637
)
 
$
337,898

(a) Includes the impact of ASU 2018-02, which transferred those amounts from accumulated other comprehensive income (loss) to retained earnings. See Note 16 to the Condensed Consolidated Financial Statements.
(b) $0.48 per share declared February 2018, May 2018, and July 2018
(c) On the transition to ASC 842 effective January 1, 2019, a deferred gain (net of taxes) related to a sale leaseback transaction was credited to Retained Earnings. See Note 8 to the Condensed Consolidated Financial Statements.
(d) $0.48 per share declared February 2019, April 2019, and August 2019


See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(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
The accompanying unaudited condensed consolidated financial statements of Innophos have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, for interim financial reporting and do not include all disclosures required by U.S. GAAP for annual financial reporting, and should be read in conjunction with the audited consolidated and combined financial statements of the Company at December 31, 2018 and for the three years then ended.
The accompanying unaudited condensed consolidated financial statements of the Company reflect all adjustments which management considers necessary for a fair statement of the results of operations for the interim periods and is subject to year-end adjustments. The results of operations for the interim periods are not necessarily indicative of the results for the full year. The December 31, 2018 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.
Merger Agreement with One Rock Capital Partners
    
On October 20, 2019, Innophos Holdings, Inc., Iris Parent LLC, a Delaware limited liability company (“Parent”), and Iris Merger Sub 2019, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will be merged with and into the Innophos Holdings, Inc. (the “Merger”), with Innophos Holdings, Inc. surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub were formed by affiliates of One Rock Capital Partners II, LP, a Delaware limited partnership (“ORC Fund II”).

At the time of the Merger, each share of Company common stock, par value $0.001 per share issued and outstanding will be automatically converted into the right to receive cash in an amount equal to $32.00 per share. The final purchase price is expected to be valued at approximately $932 million, including the assumption of debt.

The transactions contemplated by the Merger Agreement are subject to the satisfaction of certain customary conditions, including the approval of the Merger Agreement by the Company's stockholders, the receipt of regulatory approvals, the absence of any legal prohibitions, the accuracy of the representations and warranties of the parties, and compliance by the parties with their respective obligations under the Merger Agreement.

Under certain circumstances defined within the Merger Agreement, in the event that the Merger Agreement is terminated, the Company would be required to pay Parent a fee of $10.3 million or $20.6 million, depending on the circumstance. Further, under certain circumstances defined within the Merger Agreement, in the event that the Merger Agreement is terminated by the Parent, the Parent would be required to pay the Company a fee of $40.0 million.

The closing of the transaction is expected to occur in the first quarter of 2020. Upon the completion of the transaction, Innophos will become a privately held company and shares of the Company's common stock will no longer be listed on any public market.
Annual Goodwill Impairment Test 
    
Goodwill is tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. During the third quarter of 2019, the Company changed the measurement date of the annual goodwill impairment test from the first month of the fourth quarter to the second month of the third quarter, which was a change in accounting principle. This change did not result in the delay, acceleration or avoidance of an impairment charge. We believe this timing is preferable as it better aligns the goodwill impairment test with the Company's strategic business planning process, which is a key component of the test. The change to the goodwill measurement date was applied prospectively, as retrospective application would have been impractical because the Company is unable to objectively select assumptions that would have been used in previous periods without the benefit of hindsight. The Company completed the required annual testing of goodwill for impairment and has determined that goodwill is not impaired.

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

Error Correction 

During the fourth quarter of 2018, the Company identified an error associated with disclosing 2018 accrued capital expenditures and adjusting for them as non-cash investing activities in the Condensed Consolidated Statements of Cash Flows. The Company has evaluated the materiality of the error and concluded it was not material to any of the previously issued consolidated financial statements. However, the Company has elected to revise its consolidated cash flow statement for the period ending September 30, 2018 to correct the error.

The following table presents the effect of the revision on the selected line items previously reported in the consolidated cash flows statement for the nine months ended September 30, 2018:
 
September 30, 2018
 
 
 
September 30, 2018
Consolidated Statement of Cash Flows
As reported
 
Adjustment
 
As revised
Cash flows from operating activities
 
 
 
 
 
Changes in assets and liabilities:
 
 
 
 
 
Accounts payable
$
(5,664
)
 
$
4,497

 
$
(1,167
)
Net cash provided by (used for) operations
$
30,867

 
$
4,497

 
$
35,364

 
 
 
 
 
 
Cash flows used for investing activities
 
 
 
 
 
Capital expenditures
$
(43,303
)
 
$
(4,497
)
 
$
(47,800
)
Net cash (used for) investing activities
$
(43,303
)
 
$
(4,497
)
 
$
(47,800
)
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
Non-cash investing and financing activities
 
 
 
 
 
Accrued additions to plant assets
 
 
$
5,073

 
$
5,073



These accompanying notes to the consolidated financial statements reflect the impact of this revision.

During the second quarter of 2019, the Company identified and corrected errors related to the valuation of its inventory located at one of its domestic subsidiaries and the translation of Accumulated other comprehensive income (loss) related to pension and post retirement obligations at a foreign subsidiary. The adjustments decreased Cost of goods sold by $3.1 million and Foreign exchange (gain) loss by $0.7 million resulting in an increase to income before income taxes of approximately $3.8 million in the three month period ended June 30, 2019 and increased the Inventory balance by $3.1 million and decreased Accumulated other comprehensive income before income taxes by $0.7 million as of June 30, 2019. Approximately $1.2 million of the cumulative adjustment should have been recorded during the first quarter of 2019 and the remaining $2.6 million related to prior periods. Management has concluded that these adjustments are not material to the periods presented or any of its previously issued financial statements, and are not expected to be material to the full year 2019 results.
Recently Issued Accounting Standards
Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset (ROU asset) representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In July 2018, the FASB issued updated guidance which allows an additional transition method to adopt the new leases standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption (the effective date method). The Company adopted this standard as of January 1, 2019, and has elected the effective date method. The Company also elected the package of practical expedients, which among other things, does not require reassessment of prior conclusions to contracts containing a lease, lease

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

classification, and initial direct costs. As an accounting policy election, the Company will exclude short-term leases (term of 12 months or less) from the balance sheet. The Company's lease agreements do not contain any residual value guarantees. Please see Note 8, "Leases", for further disclosures.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and hedging (Topic 815): Targeted improvements to accounting for hedging activities. This standard more closely aligns the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. This standard also addresses specific limitations in current GAAP by expanding hedge accounting for both nonfinancial and financial risk components and by refining the measurement of hedge results to better reflect an entity’s hedging strategies. Additionally, by aligning the timing of recognition of hedge results with the earnings effect of the hedged item for cash flow and net investment hedges, and by including the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is presented, the results of an entity’s hedging program and the cost of executing that program will be more visible to users of financial statements. The new standard is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company adopted this standard on January 1, 2019, and there was no material impact on its financial position, results of operations and related disclosures.
In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates. ASU 2019-07 clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. This ASU was effective upon issuance and did not have a material impact on the Company’s Consolidated Financial Statements.
Issued but not yet adopted
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. New disclosures include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. The new standard is effective for fiscal years beginning after December 15, 2020, and must be applied retrospectively for all periods presented. Early adoption is permitted. The Company does not anticipate the adoption of this standard will have a material impact on its financial position, results of operations and related disclosures.

2. Revenue Recognition
Revenues are recognized when control of goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Control passes either upon shipment or delivery, depending on the agreed sales terms with customers.

Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and reduce revenues recognized. There were no significant changes to its estimates of variable consideration upon adoption.

The Company reports its business in three operating segments: Food, Health, and Nutrition; Industrial Specialties; and Other. The Company has three principal product lines within these operating segments: (i) Specialty Ingredients; (ii) Core Ingredients; and (iii) Co-Products and Other. Revenue recognition is measured on the same basis across these segments, products, markets, and geographic countries, with the performance obligation being the transfer of control of goods at a single point in time.



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Table of Contents
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

 
Three Months Ended September 30, 2019
 
U.S.
 
Canada
 
Mexico
 
Other Countries
 
Total
Specialty Ingredients
$
98,909

 
$
3,773

 
$
8,438

 
$
16,534

 
$
127,654

Core Ingredients
15,626

 
2,137

 
23,493

 
10,097

 
51,353

Co-Products & Other
9,044

 
178

 
1,100

 
20

 
10,342

Total
$
123,579

 
$
6,088

 
$
33,031

 
$
26,651

 
$
189,349


 
Three Months Ended September 30, 2018
 
U.S.
 
Canada
 
Mexico
 
Other Countries
 
Total
Specialty Ingredients
$
105,127

 
$
6,726

 
$
9,754

 
$
17,682

 
$
139,289

Core Ingredients
14,431

 
1,704

 
21,005

 
8,152

 
45,292

Co-Products & Other
10,568

 
123

 
1,517

 
145

 
12,353

Total
$
130,126

 
$
8,553

 
$
32,276

 
$
25,979

 
$
196,934


 
Nine Months Ended September 30, 2019
 
U.S.
 
Canada
 
Mexico
 
Other Countries
 
Total
Specialty Ingredients
$
292,772

 
$
12,950

 
$
25,904

 
$
55,912

 
$
387,538

Core Ingredients
46,694

 
6,832

 
69,471

 
21,568

 
144,565

Co-Products & Other
26,810

 
397

 
6,188

 
303

 
33,698

Total
$
366,276

 
$
20,179

 
$
101,563

 
$
77,783

 
$
565,801



 
Nine Months Ended September 30, 2018
 
U.S.
 
Canada
 
Mexico
 
Other Countries
 
Total
Specialty Ingredients
$
332,525

 
$
19,005

 
$
26,472

 
$
57,511

 
$
435,513

Core Ingredients
43,120

 
5,947

 
60,988

 
27,366

 
137,421

Co-Products & Other
24,764

 
256

 
10,574

 
571

 
36,165

Total
$
400,409

 
$
25,208

 
$
98,034

 
$
85,448

 
$
609,099



Revenues for the geographic information are attributed to geographic areas based on the destination of the sale.
The Company's payment terms vary by geography and location of its customer and the products offered. Invoices are generated upon shipment of the goods, with the term between invoicing and when payment is due being insignificant.

Food, Health, and Nutrition and Industrial Specialties
The Food, Health and Nutrition reporting segment, as well as the Industrial Specialties reporting segment, consists of products in the Specialty Ingredients and Core Ingredients product lines.

Specialty Ingredients are the most value adding products in our portfolio. Specialty Ingredients consist of specialty phosphate products, specialty phosphoric acids, including polyphosphoric acid, and a range of other mineral, enzyme and botanical based specialty ingredients. The Company's Specialty Ingredients products have a wide range of applications, including:
flavor enhancers in beverages;
electrolytes in sports drinks;
texture modifiers in cheeses;
leavening agents in baked goods;
calcium and phosphorus fortification in food and beverages;

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

moisture and color retention in seafood, poultry and meat;
mineral, enzyme and botanical sources for a wide variety of fortified foods, beverages and dietary supplements;
excipients in vitamins, minerals, nutritional supplements and pharmaceuticals; and
abrasives in toothpaste.

Each product typically has a number of different applications and end uses. For example, the Company's dicalcium phosphate product can be used as an excipient for pharmaceutical and dietary supplements, a leavening agent in bakery products and as an abrasive in oral care products. The Company often works directly with customers to tailor products to their required specifications for their finished product application.

The Company's Core Ingredients product line includes food grade purified phosphoric acid, or PPA, technical grade PPA, sodium tripolyphosphate, or STPP, and detergent grade PPA. Food grade PPA can be used to produce phosphate salts and has a variety of applications in food and beverages. Technical grade PPA has applications in water treatment. The Company also sells technical grade PPA in the merchant market to third-party phosphate derivative producers. STPP is a key ingredient in cleaning products, including industrial and institutional cleaners and automatic dishwashing detergents and consumer laundry detergents outside the United States. 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.
Other
The Other reporting segment consists of products in the Co-Products and Other product line.
The Company's Co-Products and Other product line includes granular triple super phosphate, or GTSP, and merchant green phosphoric acid, or MGA. GTSP is generated at the Company's Coatzacoalcos facility in Mexico as a co-product of its purified wet acid manufacturing process. GTSP is a fertilizer product used throughout Latin America for increasing crop yields in a wide range of agricultural sectors. The Company sells MGA in the merchant market to third party manufacturers of fertilizer products.

Practical Expedients and Exemptions

Management reviewed the practical expedients which a Company may utilize when implementing Topic 606 - Revenue from Contracts with Customers. As such, the Company has applied the practical expedient related to significant financing components and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

3. 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 restricted stock, are considered participating securities for purposes of calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock, as shown in the table below.

The numerator for basic and diluted earnings per share is net earnings attributable to shareholders reduced by dividends attributable to unvested shares. The denominator for basic earnings per share is the weighted average number of common stock outstanding during the period. The denominator for diluted earnings per share is weighted average shares outstanding adjusted for the effect of dilutive outstanding stock options, performance share awards and restricted stock awards.
    
The following is a reconciliation of the weighted average basic number of common shares outstanding to the diluted number of common and common stock equivalent shares outstanding and the calculation of earnings per share using the two-class method:

 

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Net income
$
6,451

 
$
14,090

 
$
16,546

 
$
31,251

Less: earnings attributable to unvested shares
(34
)
 
(57
)
 
(72
)
 
(112
)
Net income available to participating common shareholders
$
6,417

 
$
14,033

 
$
16,474

 
$
31,139

Weighted average number of participating common and potential common shares outstanding:
 
 
 
 
 
 
 
Basic number of participating common shares outstanding
19,583,316

 
19,525,284

 
19,575,764

 
19,511,097

Dilutive effect of stock equivalents
201,729

 
313,678

 
164,498

 
279,473

Diluted number of weighted average participating common shares outstanding
19,785,045

 
19,838,962

 
19,740,262

 
19,790,570

Earnings per participating common share:
 
 
 
 
 
 
 
Earnings per participating common share—Basic
$
0.33

 
$
0.72

 
$
0.84

 
$
1.60

Earnings per participating common share—Diluted
$
0.32

 
$
0.71

 
$
0.83

 
$
1.57

 
 
 
 
 
 
 
 
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
966,943

 
431,751

 
982,049

 
465,956




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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)


4. Stockholders’ Equity / Share-Based Compensation
The following table summarizes the components of share-based compensation expense, all of which has been classified as selling, general and administrative expense:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Stock options
$
366

 
$
398

 
$
1,168

 
$
1,282

Restricted stock
606

 
580

 
1,878

 
1,860

Performance shares
649

 
173

 
1,442

 
422

Stock grants

 

 
700

 
579

Total share-based compensation expense
$
1,621

 
$
1,151

 
$
5,188

 
$
4,143



5. Inventories
Inventories consist of the following:
 
 
September 30,
2019
 
December 31,
2018
Raw materials
$
47,789

 
$
46,147

Finished products
106,561

 
119,407

Spare parts
15,940

 
14,649

 
$
170,290

 
$
180,203



Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of September 30, 2019 and December 31, 2018 were $14.8 million and $14.3 million, respectively.



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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)



6. Other Current Assets
Other current assets consist of the following:
 
 
September 30,
2019
 
December 31,
2018
Creditable taxes (value added taxes)
$
15,895

 
$
11,944

Vendor inventory deposits (prepaid)
3,434

 
454

Prepaid income taxes
11,378

 
6,658

Prepaid insurance
1,548

 
2,605

Other
2,881

 
2,433

 
$
35,136

 
$
24,094




7. Goodwill

The following table provides a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period (in thousands):

 
Food, Health and Nutrition
Industrial Specialties
Other
Total
Balance: January 1, 2019
$
129,484

$
23,283

$

$
152,767

Balance: September 30, 2019
$
129,484

$
23,283

$

$
152,767




8. Leases

The Company determines if an arrangement is a lease at inception. Lease Right of Use, or ROU, assets and noncurrent lease liabilities are presented as distinct accounts in the Condensed Consolidated Balance Sheet. Current lease liabilities are included within Other current liabilities in the Condensed Consolidated Balance Sheet. The Company does not have any Finance leases. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments, as the implicit rate is not readily determinable. The Company gives consideration to publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Certain leases include one or more options to renew, with renewal terms that can extend the lease up to five years and certain leases also include options to purchase the leased property. We include options that we are reasonably certain to exercise in our evaluation of the lease term after considering all relevant economic and financial factors. We have lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

The Company primarily leases rail cars, inventory tanks, buildings, equipment, and fleet cars. The Company recorded ROU assets of $48.8 million and lease liabilities of $48.9 million, respectively at January 1, 2019. The impact to the Company's Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Statement of Cash Flows was not material. As of September 30, 2019, the Company had 45 leases, with remaining terms ranging from less than 1 year to 20 years.


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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

Under one of its warehousing agreements with third-party service providers, the Company controls the amount, timing, placing, and removing of items for the entire capacity of the warehouse. Therefore the Company controls the asset, and the warehouse is deemed to be leased for accounting purposes. For this warehousing agreement, the Company accounts for the lease and non-lease components separately. The lease component consists of the warehouse and the non-lease components consist of services, such as loading, unloading, and maintenance. The Company allocates the consideration in the warehousing agreement to the lease and non-lease components using their relative standalone prices.
    
In December 2018, the Company sold its Chicago Heights, IL warehouse for $23.0 million. Under the agreement, the Company is leasing back the property from the purchaser over a period of 20 years. The Company is accounting for the leaseback as an operating lease. The annual rent for the initial period of 5 years is approximately $1.5 million plus taxes and subsequently will increase 10% every 5 years through the end of the lease. Prior to the adoption of the new lease standard, gains on sale-leaseback transactions were deferred and recognized in the statement of comprehensive income over the lease term. Under the new lease standard, gains on sale-leaseback transactions (subject to adjustment for off-market terms) are recognized immediately. Therefore, the sale-leaseback gain of $11.9 million (net of tax of $4.0 million) was deferred as of December 31, 2018 and on the transition to ASC 842 effective January 1, 2019, was reclassed to retained earnings.
    
The components of lease expense were as follows:
 
Three months ended
 
Nine months ended
 
September 30, 2019
 
September 30, 2019
Operating lease expense:
 
 
 
Cost of goods sold
$
1,538

 
$
4,529

Selling, general and administrative
902

 
2,711

Total lease expense
$
2,440

 
$
7,240



Supplemental balance sheet information related to the leases were as follows:
 
September 30, 2019
Operating lease ROU assets
$
55,597

 
 
Current operating lease liabilities
$
6,830

Noncurrent operating lease liabilities
49,077

Total operating lease liabilities
$
55,907



Supplemental cash flow and other information related to the leases were as follows:
 
Nine months ended
 
September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
7,103

ROU assets obtained in exchange for new operating lease liabilities
$
11,844


 
September 30, 2019
Weighted average remaining lease term of operating leases (in years)
11

Weighted average discount rate of operating leases
5.29
%



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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)


Maturities of lease liabilities were as follows:
 
September 30, 2019
2019
$
2,403

2020
9,455

2021
8,625

2022
8,068

2023
7,475

2024 and thereafter
39,521

Total lease payments
$
75,547

Less: imputed interest
19,640

Total lease obligations
$
55,907

Less: current obligations
6,830

Long-term lease obligations
$
49,077



As required by ASC 842, the future minimum operating lease payments on non-cancelable leases as of December 31, 2018 under the accounting standards in effect as of that period were as follows:
 
December 31, 2018
2019
$
8,259

2020
7,130