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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC, 20549
_______________________________________________________________________________________________  
FORM 10-K
_______________________________________________________________________________________________  
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
  _______________________________________________________________________________________________  
INNOPHOS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
  _______________________________________________________________________________________________  
Delaware
(state or other jurisdiction
 of incorporation)
 
001-33124
(Commission File number)
 
20-1380758
(IRS Employer
Identification No.)
259 Prospect Plains Road
Cranbury, New Jersey 08512
(Address of Principal Executive Officer, including Zip Code)
(609) 495-2495
(Registrants’ Telephone Number, Including Area Code)
Not Applicable
(Former name or former address, if changed since last report)
_______________________________________________________________________________________________  
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, par value $.001 per share
 
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.     ý   Yes     ¨   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.     ¨   Yes     ý   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.     ý   Yes     ¨   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   ý     No   ¨
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.   ý
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   ý     Accelerated Filer   ¨     Non-accelerated filer   ¨     Smaller reporting company   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     ý   No
The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $0.8 billion as of June 30, 2016, 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 17, 2017, the registrant had 19,458,064 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Incorporated By Reference In Part No.
Portions of Innophos Holdings, Inc. Proxy Statement to be filed for its Annual Meeting of Stockholders to be held May 16, 2017
 
III (Items 10, 11, 12, 13 and 14)
 

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TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
 
 
 
Item 15.
 
 
 
Item 16.
 
 
 
 
 


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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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 Annual Report on Form 10-K may include, among other things, statements about our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, the demand for our products and services, the markets in which we compete and other information that is not historical information
You should refer to “Part I, Item 1A. Risk Factors” of this Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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.
_______________________________________________________________________________________________  
Unless the context otherwise indicates, all references in this Annual Report on Form 10-K 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 on July 15, 2004.
_______________________________________________________________________________________________  
This Annual Report on Form 10-K includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this Annual Report on Form 10-K are the property of their respective owners.


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PART I
 
ITEM 1.
BUSINESS
Our Company
Innophos is a leading international producer of specialty ingredient solutions that deliver versatile benefits for the food, health, nutrition and industrial markets. We leverage our expertise in the science and technology of blending and formulating phosphate, mineral, enzyme and botanical based ingredients to help our customers offer products that are tasty, healthy, nutritious and economical. Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations across the United States, in Canada, Mexico and China.
Innophos combines more than a century of experience in specialty phosphate manufacturing with a broad range of other specialty nutritional ingredients. Utilizing our capabilities in consumer insight, research and product development and application expertise, we partner with our customers to provide differentiated product offerings that respond to consumer preferences and megatrends. We utilize this collaborative approach in order to attempt to generate market share gains for our customers.
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 and cleaning agents in toothpaste, and they also provide a wide range of nutritional fortification solutions for food, beverage and nutritional supplement manufacturers.
Over the past six years, Innophos has expanded its product offering to include botanical, enzyme and mineral based nutritional ingredients. Bioactive mineral ingredients are mineral based ingredients for food, beverage and dietary supplement end markets that are manufactured to be readily digestible. Innophos has always enjoyed a strong position in “macronutrients,” such as calcium, magnesium and potassium that are required in relatively large amounts for a balanced diet. More recently, Innophos has built a strong position in “micronutrients”, such as chromium, selenium, zinc and iron, small quantities of which are also essential to the human diet. As with the bioactive mineral ingredients, botanical and enzyme based specialty nutritional ingredients are important to Innophos' customers for their nutritional value, and mineral, botanical and specialty phosphate ingredients are often formulated together.
Innophos commenced operations as an independent company in August 2004 after purchasing its 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, Innophos completed an initial public offering and listed its common stock for trading on the Nasdaq Global Select Market under the symbol “IPHS”.
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, or STPP, & Detergent Grade PPA and (iv) Granular Triple Super Phosphate, or GTSP, & Other. The first three product lines comprise our two Specialty Phosphates reporting segments, US & Canada and Mexico, with GTSP & Other reported separately in a third reporting segment.
In 2016, we achieved sales of $725 million of which 93% can be attributed to our two Specialty Phosphates reporting segments, US & Canada and Mexico, and the remaining 7% to the GTSP & Other segment.
Specialty Ingredients
Specialty Ingredients are the most highly engineered products in our portfolio. Specialty ingredients consist of specialty phosphate salts, specialty phosphoric acids and a range of other mineral, enzyme and botanical based specialty ingredients. 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.

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The table below presents a list of the principal Specialty Ingredients sold by us in 2016:
 
Product
 
Description/End-Use Application
 
 
 
Sodium Aluminum Phosphate, Acidic and Basic (SALP)
 
Premier leavening agent for baking mixes, cakes, self-rising flours, baking powders, batter and breadings (acidic). Improves melting properties of cheese (basic).
 
 
 
Sodium Acid PyroPhosphate (SAPP)
 
Leavening agent for baking powders, doughnuts, and biscuits; inhibits browning in potatoes; provides moisture and color retention in poultry and meat.
 
 
 
Sodium HexaMetaPhosphate (SHMP)
 
Water treatment applications; anti-microbial and sequestrant utility in beverages; cheese emulsifier; improves tenderness in meat, seafood and poultry applications.
 
 
 
Monocalcium Phosphate (MCP)
 
Leavening agent in double-acting baking powder; acidulant; buffering agent.
 
 
 
Calcium Acid Pyrophosphate (CAPP)
 
Calcium based, slow acting, multifunctional leavening acid used in a wide variety of baked goods
 
 
 
Dicalcium Phosphate (DCP)
 
Toothpaste abrasive; leavening agent; calcium fortification.
 
 
 
Tricalcium Phosphate (TCP)
 
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 ® , TriTab ® , Nutra Tab TM )
 
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 tenderness in meat, seafood and poultry applications; horticulture applications.
 
 
Specialty Acids (e.g., Polyacid) (including INNOVALT ® )
 
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))
 
Baking powders; gelling agent in puddings; cheese emulsifiers.
 
 
 
Organic mineral salts and blends including calcium, chromium, copper, iron, lithium, magnesium, manganese, phosphorous, potassium, selenium, strontium, vanadium, and zinc
 
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. We often work directly with customers to tailor products to their required specifications.
The phosphates industry is highly competitive. Many of our products are viewed as basic ingredients that compete with virtually identical products and derivatives manufactured by other companies in the industry. The United States is a competitive market with several competitors importing products from overseas. Our major competitor in the downstream Specialty Ingredients market is Israel Chemicals Limited, or ICL, which is our principal competitor in the specialty phosphates industry. We also compete in the specialty phosphates industry with imports from Germany, Belgium, Israel, Russia, North Africa and China. Our nutritional ingredients business faces competition from a number of competitors as the industries in which we compete in connection with this business are less consolidated than the specialty phosphates industry.

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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. We also compete with imports from China, Belgium and Israel.
STPP & Detergent Grade PPA
STPP is a specialty phosphate derived from reacting PPA 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 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.
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 United States and Canada. STPP use was essentially eliminated in consumer automatic dishwashing applications in the United States and Canada in 2010. The industrial and institutional cleaner market has also reformulated some of its products to reduce STPP content in an effort to market a reduced phosphate content product line.
GTSP & Other
GTSP is generated at our Coatzacoalcos facility in Mexico as a co-product of our purified wet acid manufacturing process described further below under “Our Industry”. GTSP is a fertilizer product used throughout Latin America for increasing crop yields in a wide range of agricultural sectors.
For financial information about our segments and geographic areas, please see Note 20 (Segment Reporting) of the Notes to Financial Statements in “Part II, Item 8. Consolidated Financial Statements and Supplemental Data” included elsewhere in this Annual Report on Form 10-K.
Our Industry
Overview
The North American marketplaces for each of our product lines have experienced consolidation to two primary producers and several secondary suppliers, distributors and importers. We consider the two key producers in each product category to be: (i) Innophos and ICL in Specialty Ingredients; (ii) Innophos and PCS in Food and Technical Grade PPA; and (iii) Innophos 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 PPA; or (ii) the purified wet acid method, or PWA, in which mined phosphate rock is reacted with a strong acid (most often sulfuric acid) to produce MGA, which is then purified through solvent-based extraction into PPA. The conversion of MGA 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 PPA 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, which are electricity and metallurgical or petroleum 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 as required. We currently use PPA manufactured via the wet 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.

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We also produce a wide range of botanical, enzyme and mineral based ingredients as part of our nutrition business through a variety of customized production processes resulting in an extensive suite of product formulations. The North American botanical, enzyme and mineral industries are less consolidated than the specialty phosphates industry with Albion Minerals, acquired by Balchem Corporation in 2016, and Jost Chemical Company considered the leading competitors in mineral chelates, and Naturex Inc. and BI Nutraceuticals Inc. considered the leading competitors in botanical ingredients, alongside a number of smaller producers in each of these markets.
Penetration of North American Market 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 19-22% of the North American specialty phosphate market. This market share has slightly increased over the last three years. In addition, in 2016, we experienced pricing pressure from manufacturing overcapacity outside of North America, which we expect to continue for the foreseeable future.
For a discussion of the risks associated with the competition that we face in our markets, see “Part I, Item 1A. Risk Factors-Risks Related to Our Business Operations-Competition -The success of our business depends on our ability to successfully compete in extremely competitive markets.” appearing elsewhere in this Annual Report on Form 10-K.
Our Customers
We supply a broad range of customers in over 70 countries worldwide. No customer accounted for more than ten percent of our net sales in 2016, 2015 or 2014. For the years ended December 31, 2016, 2015 and 2014, we generated net sales of $725.3 million, $789.1 million and $839.2 million, respectively.
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 ingredient products are often critical ingredients in the formulation of our customers’ product, 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 can in some instances outweigh the potential gains.
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, MGA, PPA, natural gas and electricity. To help secure supply, we purchase several of our key raw materials under long-term contracts generally providing for fixed or minimum quantities of materials, or purchase of our full requirements, and predetermined pricing formulae based on various market indices and other factors. We do not engage in any significant futures or other derivative contracts to hedge against fluctuations of raw materials. 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 “Part I, Item 1A. Risk Factors - Raw Materials Availability and Pricing - The success of our business depends on our ability to successfully source sufficient amounts of the raw materials used in our products at competitive prices, often from a limited number of suppliers, some of whom with we do not have a long-term contract in place.” in this Annual Report on Form 10-K for a discussion of the risks associated with our sourcing raw materials.
Phosphate Rock and MGA. MGA, which is purified to produce PPA, is the main raw material for the creation of our downstream salts and acids. We purchase MGA for processing at our Geismar, Louisiana facility through a long-term agreement for MGA 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. In addition to our primary sources, we have 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 MGA 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 supplied to our Geismar, Louisiana facility is supplied by Solvay. Our U.S. needs for sulfuric acid and our Mexican needs for sulfur are handled through contracts with Solvay and Pemex-Gas y Petroquimica Basica, respectively.

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Purified Phosphoric Acid. The key raw material input for all of our downstream specialty phosphate salt and specialty phosphoric acid operations is PPA. In addition to purifying MGA to produce PPA internally, we also 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 supply contract for PPA (distinct from the supply contract for MGA) which will expire in July 2018. In 2016, Innophos produced approximately three quarters and purchased approximately one quarter of its total PPA supply.
Natural Gas and Electricity. Natural gas and electricity are used to operate our facilities and generate heat and steam for the various manufacturing processes. We typically purchase natural gas and electricity on the North American open market at so-called “spot rates.” From time to time, we will enter into longer term natural gas and electricity supply contracts in an effort to eliminate some of the volatility in our energy costs. We did not enter into any economic hedges in the past three years.
Research and Development
Our product application 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, enzyme 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 and applicable law;
•
developing more efficient and lower cost manufacturing processes; and
•
expanding existing, and developing new, relationships with customers to meet their product application needs.
Our research expenditures were $3.7 million, $4.5 million and $4.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Environmental and Regulatory Compliance
Certain of our operations involve manufacturing and marketing ingredients for use in food, nutritional supplement and pharmaceutical excipient products, and therefore must comply with U.S. Food and Drug Administration, or FDA, or the U.S. Department of Agriculture, or USDA, regulatory controls and similar regulatory controls of foreign jurisdictions where we operate, as well as good manufacturing practices and the quality requirements of our customers. The regulation of, and legal requirements for, the manufacture and sale of our products is a changing environment, and those changes may require increased operating costs to develop and implement additional product safety measures. Although there is some harmonization among the regulatory requirements of various jurisdictions, each country’s specific regulatory requirements apply to products imported and sold in that country. Regulatory systems throughout the world vary in complexity and transparency, as well as the time required to navigate such system in order to enter the subject market. Our growth that involves expansion of existing products into new markets or new products into current or new markets is affected by our ability to obtain necessary regulatory approvals and achieve and maintain compliance with regulatory requirements. In addition, public perception in the United States, Europe and other markets of phosphate products in relation to their safety and other market and legal trends related to “natural”, “organic“ and “clean labeling” in foods also may affect our sales and operations.
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, but not limited to, the U.S. Environmental Protection Agency and the U.S. Federal Railroad Administration, or FRA, as well as regulatory authorities with jurisdiction over our operations in 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

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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, cleanups and other obligations, as well as the ongoing nature of the investigations, cleanups and other obligations 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 "Part II, Item 8. Consolidated Financial Statements and Supplementary Data" and in “Part I, Item 1A. Risk Factors - Legal and Regulatory Risks - We are subject to a wide variety of laws, regulations and government policies, including with respect to product quality and labeling and the environment, which may change in significant ways.” appearing elsewhere in this Annual Report on 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 seek to 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.
Insurance
In the normal course of business, we are subject to numerous operating risks, including risks associated with environmental contamination, health and safety while manufacturing, developing and supplying products and potential damage to a customer.
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 customers with whom we do business. Where appropriate for the protection of our property and interests, 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, 2016, we had 1,319 employees at our facilities worldwide, of whom 758 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, 2020 at the Chicago Heights facility; International Union of Operating Engineers, Local No. 369 through April 21, 2019 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 (next scheduled for June 2018).

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Executive Officers
The following table and biographical material present information about the persons serving as our executive officers:
 
Name
 
Age
 
Position
Kim Ann Mink
 
57

 
Chairman, Chief Executive Officer and President
Han Kieftenbeld
 
51

 
Senior Vice President and Chief Financial Officer
Charles Brodheim
 
53

 
Vice President, Corporate Controller and Information Technology
Sherry Duff
 
49

 
Senior Vice President, Chief Marketing and Technology Officer
Amy Hartzell
 
41

 
Vice President, Supply Chain and Purchasing
Joshua Horenstein
 
40

 
Vice President, Chief Legal Officer and Corporate Secretary
Jean Marie Mainente
 
53

 
Senior Vice President, Chief Human Resources Officer
Yasef Murat
 
62

 
Senior Vice President, Global Manufacturing
Biographical Material
Kim Ann Mink, Ph.D. has been the Chief Executive Officer and President of Innophos since December 2015, a director of Innophos since February 2016 and Chairman since February 2017. Prior to joining Innophos, she served as Business President of Elastomers, Electrical and Telecommunications at The Dow Chemical Company, or Dow Chemical, from September 2012 to December 2015. Dr. Mink joined Dow Chemical in April 2009 as Global General Manager, Performance Materials and President and Chief Executive Officer of ANGUS Chemical Co. (then a fully owned subsidiary of Dow Chemical). Prior to joining Dow Chemical, Dr. Mink was Corporate Vice President and Global General Manager, Ion Exchange Resins at the Rohm and Haas Company (now a fully owned subsidiary of Dow Chemical), where she spent more than 20 years serving in numerous senior roles with increasing responsibilities. From September 2012 to December 2015, Dr. Mink served as a member of the Board of Advisors of Catalyst Inc. From November 2012 to December 2016, she served as a member of the National Board of Trustees of the ALS Association. In addition, in 2014, Dr. Mink was named to STEMconnector's 100 Diverse Corporate Leaders in STEM. Dr. Mink received her B.A. in Chemistry from Hamilton College and a Ph.D. in Analytical Chemistry from Duke University. She is a graduate of the Wharton School of Business Management Program.
Han Kieftenbeld has been the Senior Vice President and Chief Financial Officer of Innophos since April 2016. From June 2014 to July 2015, Mr. Kieftenbeld served as the Global Chief Financial Officer at AB Mauri, a worldwide leader in bakery ingredients. From December 2010 to June 2014, Mr. Kieftenbeld served as the Global Chief Procurement Officer of Ingredion Incorporated, a leading global ingredient solutions provider. Prior to that, Mr. Kieftenbeld served as Chief Financial Officer at Akzonobel N.V. from 2007 to 2010 and, before that, at ICI PLC from 1997 to 2007. Currently, Mr. Kieftenbeld serves as a non-executive advisor and board member at Themis Analytics, an international sales and marketing decision analytics solutions provider to the pharmaceutical industry. Mr. Kieftenbeld earned a master’s degree from New York University Stern School of Business, London School of Economics and Political Science, as well as the HEC School of Management, Paris. He holds a B.S. in Business Economics and Accounting from Windesheim University in the Netherlands.
Charles Brodheim is the 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 to 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.

Sherry Duff is the Senior Vice President, Chief Marketing and Technology Officer of Innophos, a position that she has held since July 2016. Previously, from November 2011 to June 2015, Ms. Duff served as the President and Managing Director of Arista Laboratories, Inc., a U.S. subsidiary of Molins, PLC that provides tobacco testing services. From 1997 to October 2011, Ms. Duff held a series of positions of increasing responsibility at Arch Chemicals, Inc., global biocides company, including most recently as its Director, Strategic Planning, Business Development & Government Affairs. Ms. Duff received BS degree in Chemistry from the University of Connecticut and her MBA degree from Rensselaer Polytechnic Institute at Hartford.

Amy Hartzell is the Vice President, Supply Chain and Purchasing at Innophos, a position that she has held since April 2016. She worked at Dow Chemical Company from 2009 to March 2016, serving in positions of increasing responsibility, including most recently as its Global Director, Corporate Supply Chain Center of Excellence. Ms. Hartzell began her career at

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Rohm and Haas Company in 1997, serving in positions of increasing responsibility until Rohm and Haas Company was acquired by Dow Chemical Company. Ms. Hartzell earned a BS from Lehigh University and an MBA from La Salle University.

Joshua Horenstein is the Vice President, Chief Legal Officer and Corporate Secretary of Innophos, a position he held since March 2016. Mr. Horenstein joined Innophos in 2010 as Corporate Counsel and M&A Attorney and has since held various legal positions of increasing responsibility. Before joining Innophos, Mr. Horenstein practiced law at several leading law firms, including Ballard Spahr, LLP, Pepper Hamilton, LLP and Flaster/Greenberg P.C. and was also Vice President and Chief Legal Officer at Rock Your Phone, Inc., a technology start-up company. Mr. Horenstein received his law degree from the University of Pennsylvania Law School and he holds bachelor degrees in Economics and Political Science from Penn State University.
Jean Marie Mainente is the Senior Vice President, Chief Human Resources Officer for Innophos. Ms. Mainente joined Innophos in July 2015. Previously, from 2010 to 2015, Ms. Mainente served as Senior Vice President at Hudson Gain, a leadership solutions firm, leading the talent development practice. In her role at Hudson Gain, she partnered with Innophos on various talent initiatives, including succession planning, executive coaching and team development. Prior to joining Hudson Gain, Ms. Mainente held a variety of human resources and marketing roles, including at Bayer Corporation, formerly Sterling Drug, from 1988 to 1998 and again from 2006 to 2010, Avaya Inc. from 2004 to 2005 and Bristol-Myers Squibb from 1998 to 2004. Ms. Mainente earned an M.B.A. in Marketing from Pace University and a B.S. in Management & Organizational Behavior and Industrial Relations from Rider University.
Yasef Murat is the Senior Vice President, Global Manufacturing of Innophos. Mr. Murat joined Innophos in 2009 and has held various positions of increasing responsibility. Prior to joining Innophos, Mr. Murat served as General Manager and Director of the board at each of Nilefos Chemie NV, a mineral company, and Misa Eco NV, a recycling company, from 2005 to 2009, General Manager for Rhodia Chemie NV from 2003 to 2005 and Head of Operations of Rhodia Chemie NV’s specialty phosphates business from 2001 to 2003. Mr. Murat has degrees in Chemical Engineering and Electrochemistry from Institut de Chimie de Besancon (in France) and Institut National Polytechnique de Grenoble (in France), respectively, and he holds an MBA from the Vlerick School for Management (in Belgium).
Available Information
The Securities and Exchange Commission, or the SEC, maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including Innophos, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. Innophos files annual reports, quarterly reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended, or the 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) its 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 Innophos electronically files such material with, or furnishes it to, the SEC.The information contained on Innophos’ website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.

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ITEM 1A.
RISK FACTORS
The following discussion of risk factors contains "forward-looking statements," as discussed in the Forward-Looking Statements section of this Annual Report on Form 10-K.  Investing in Innophos involves a significant degree of risk.  We are providing the following cautionary discussion of risk factors, uncertainties and assumptions that we believe are relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results and our forward-looking statements. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider this section 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.
Risks Related to Our Business Operations
External Factors Impacting Profitability - Our profitability may be affected by factors beyond our control.
Our operating income and ability to increase profitability depend to a large extent upon our ability to price finished products at a level that will cover manufacturing and raw material costs and provide an acceptable profit margin. Our ability to maintain appropriate price levels is determined by a number of factors largely beyond our control, such as the economic conditions of the geographic regions in which we conduct our operations, raw materials availability and pricing, competitive factors, adoption of new regulations (in the U.S. and any other jurisdiction in which we do business) and customer preferences, each of which is discussed further below.
Raw Materials Availability and Pricing - The success of our business depends on our ability to successfully source sufficient amounts of the raw materials used in our products at competitive prices, often from a limited number of suppliers, some of whom with we do not have a long-term contract in place.
The success of our business depends on our ability to source sufficient amounts of the raw materials used in our products at competitive prices. Our principal raw materials consist of phosphate rock, sulfur and sulfuric acid, MGA, PPA and energy (principally natural gas and electricity). We are not currently integrated vertically back to our success of supply of these raw materials, and we do not engage in any significant futures or other derivative contracts to hedge against fluctuations of raw materials.
Our raw materials are purchased under supply contracts that vary from long-term multi-year supply arrangements to annual agreements. We also rely on spot suppliers.  Because we do not have long-term agreements in place to cover all of our raw materials, we are subject to risks that we may not be not be able to secure the raw materials needed for our products on favorable terms, or at all. We cannot be sure that the annual or other periodic contracts we have in place for our raw materials can be renewed at all or on similar terms to the current terms. In addition, with respect to those suppliers with whom we do have long-term agreements, we cannot be certain that our suppliers will not seek to terminate, modify or disrupt performance under such agreements. For example, in 2016, PCS notified us that it is terminating our supply agreement for PPA effective July 2018. As a result of such termination, we are continuing to qualify and develop additional sources for future PPA supply needs after July 2018, which could increase our operating costs or curtail our ability to manufacture products and adversely impact the competitive positions of our products.
Pricing within our supply contracts is typically set according to predetermined formulae dependent on price indices or market prices with pricing for some shorter term contracts set by negotiation with reference to market conditions. The prices we pay under these contracts will generally lag the underlying market prices of the raw material, which exposes us to risks in the event the cost of the raw materials decreases quickly. Approximately 25% of our supply of these principal raw materials is bought under fixed annual pricing arrangements, which provides us price certainty but exposes us to risks of the cost of such materials decreasing. Pricing for our remaining supply of raw materials typically adjusts in line with changes in market prices or with approximately a three month lag to market price changes.
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 have experienced periodic significant increases and decreases over the past ten years. Increased raw material pricing may adversely affect our

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margins if we are not able to offset costs with sales price increases. See “Competition - The success of our business depends on our ability to successfully compete in extremely competitive markets” below.
Although there are multiple available global suppliers to supply phosphate rock to our Coatzacoalcos, Mexico site, in 2017, we expect the majority of our phosphate rock requirements to come from a limited number of these suppliers. Although our Coatzacoalcos facility was upgraded 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. Process efficiency issues may arise over longer time periods as the plant processes rock from various sources, necessitating further investment or changes in rock suppliers to maintain and improve our current plant processing capabilities or to meet evolving needs. 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 phosphate rock supply base has reduced our dependence on any one supplier, tight demand conditions overall in the fertilizer market would mean that our purchases could be constrained should any major supplier experience a significant disruption in its ability to supply, for example, as a result of capacity constraints, political unrest, or adverse weather conditions in the areas where that supplier operates.
We are also subject to risks stemming from local social and political conditions in those jurisdictions where the phosphate rock that supports our operations is sourced. The phosphate rock that it utilized by PCS to supply MGA to our Geismar, Louisiana facility is subject to those social and political conditions in Western Sahara, where PCS sources the phosphate rock, which territory has had a long history of social and political upheaval. If PCS is unable to source phosphate rock or sufficient amounts of phosphate rock, our MGA supply would be disrupted and our ability to manufacture our products could be materially adversely affected.
Although natural gas prices have remained relatively steady in the past several years, wide fluctuations in natural gas prices, which have occurred historically, 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 own supplier’s performance failures or force majeure conditions, such as disaster or political unrest, may prevent them from continuing to supply raw materials as we require them, or at all. Our inability to obtain sufficient quantities of sole or limited source raw materials or to develop alternative sources on a timely basis if required could result in increased costs, which may be material, in our operations or our inability to properly maintain our existing level of operations.
Competition - The success of our business depends on our ability to successfully compete in extremely competitive markets.
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, transaction risks associated with foreign currency exchange fluctuations, excess industry capacity and consolidation among our customers and competitors. These developments, and particularly future expansions by one or more competitors, have had and are expected to continue to have a negative effect on our pricing abilities. Our operations are subject to currency fluctuation transaction risks.  We may from time to time be at a competitive disadvantage as a result of the strengthening of the U.S. Dollar, which can place us at a competitive disadvantage with respect to our foreign competitors selling competing products into the markets to which we sell our products.  We believe that the strength of the U.S. Dollar in 2016 had a negative impact on our competitive position and our revenues, and we believe that a strong U.S. Dollar will continue to have a negative impact on our competitive position and revenues. In addition, in the specialty ingredients 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. Our competitors continue to seek to develop improvements to the purified wet acid method to produce PPA, the method utilized by Innophos, which, if developed, may hurt our competitive position.   In addition, new technologies are being developed to attempt to produce PPA at a cheaper cost than the thermal acid method or the purified wet acid method, including a kiln-based thermal method. Any such new or improved technology that is developed would be expected to reduce the barriers to entry and/or significantly increase competition in the markets in which we compete, all of which would be expected to harm our competitive position and our business. Although we have a number of product quality improvement and product enhancement initiatives underway, we cannot assure that our efforts in maintaining differentiation will be successful.

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From time to time, including throughout 2016, we have experienced pricing pressure, particularly from significant customers. In addition, in 2016, we experienced pricing pressure resulting from manufacturing overcapacity outside of North America, including manufacturing overcapacity in China, which we expect to continue for the foreseeable future. We have also faced increased pricing pressure as a result of the Chinese government continuing to encourage export activity by rolling over its low export tariff on solid fertilizers and eliminating its export tariff on phosphoric acid, which pressure is expected to continue for the foreseeable future. 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, including in 2016, 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.
We have experienced and are continuing to experience 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 pricing pressure has occurred most frequently in markets such as South America where we do 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, although several producers have arisen in China using the wet process. Both North African and some Chinese producers are integrated back to phosphate rock, which also may provide cost advantages to them depending on the markets in which they choose to compete. The relative competitiveness of Belgium, Chinese, Russian and North African producers increased in 2016.We faced significant competition from importers of PPA products and derivatives into North America, including Prayon. If the relative competitiveness of competing producers continues to increase, or they are successful in extending their product lines to more specialized product applications, pricing pressure on Innophos could continue to increase significantly, which would negatively impact our sales and margins.
Legal and Regulatory Risks - We are subject to a wide variety of laws, regulations and government policies, including with respect to product quality and labeling and the environment, which may change in significant ways
Our business is subject to regulation under a wide variety of laws, rules and regulations in each jurisdiction in which we have operations or conduct business, including the United States, Canada, Mexico and China. There can be no assurance that laws, regulations and policies will not be changed in ways that will require us to modify our business models and objectives or affect our returns on investments by restricting existing activities and products, subjecting them to escalating costs or prohibiting them outright. Inability to comply with these regulations could adversely affect our status in these projects and adversely affect our results of operations, financial position and cash flows.
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 with jurisdiction over our operations and product markets, including, but not limited to the U.S. Environmental Protection Agency, or EPA, U.S. Food and Drug Administration, or FDA, the U.S. Department of Agriculture, U.S. Customs, the Occupational Safety & Health Administration, or OSHA, foreign counterparts to each of the foregoing agencies, and other U.S. and foreign regulatory authorities. Worldwide regulatory trends towards increasing regulation of food safety factors to reduce risks, adoption of increased food defense measures and prevention of economic adulteration of food particular through supply chain management may increase our operating costs.
Moreover, as we increase operations in foreign jurisdictions, such as China where a new facility was operational in 2013, and export existing products into new markets or new products into markets where they have not previously been sold, we are subject to a variety of regulatory requirements in jurisdictions that may have unique challenges, or slow processes.
Additional laws or regulations focused on phosphate-based products may be implemented in the future. Regulators in the United States and other jurisdictions may choose to no longer allow phosphates as a synthetic ingredient in products labeled with “organic” claims.
A number of states within the United States, and Canada (countrywide), have effectively banned 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 United States and Canada, with non-phosphate legislation becoming effective in Canada and many states in the United States in July 2010. In addition, the European Union enacted legislation to effectively ban phosphates in consumer detergents with a first phase beginning 2013, and in Australia an industry-led voluntary phosphate ban took effect in 2014. These trends and related changes in consumer preferences have already reduced our requirements for automatic dish markets and we have responded with a shift in our capabilities to serve other food

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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 or that additional customers will not reformulate their products to reduce STPP content in an effort to market a reduced phosphate content product line. We expect some detergent grade STPP reformulation in 2017, which will adversely affect our financial results.
Additional laws, regulations or distribution policies focused on reduced use of other phosphate-based products could occur in the future. For example, some jurisdictions have increased restrictions or banned the use of polyphosphoric acid in asphalt road construction while others have eased restrictions or are in the process of allowing its use. Over the past ten years, several states in the United States have implemented new or updated regulations relating to the use of polyphosphoric acid in asphalt road construction, many of which restrict such or require approvals (which may include trials) before such use is permitted. If restrictions are instituted in multiple jurisdictions or throughout the United States 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.
We, our representatives, and the industries in which we operate are subject to continuing scrutiny by regulators and other governmental authorities, which may, in certain circumstances, lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages. 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. Although we believe that we have adopted appropriate risk management and compliance programs, legal and compliance risks will continue to exist and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, may arise from time to time.
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 or denial of operating permits, third-party claims for property damage or personal injury, or other costs.
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, which may expose us to liability. 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, which could expose us to liability. For example, future environmental spending is probable at our site in Nashville, Tennessee, as discussed further in Note 16 (Commitments and Contingencies) of the audited financial statements appearing elsewhere in this Annual Report on Form 10-K. We continue to investigate, monitor and/or clean-up contamination at most of these sites. In addition, we recently reached an agreement with federal and Louisiana authorities with respect to alleged non-compliance at our Geismar, Louisiana facility, as discussed further in Note 16 (Commitments and Contingencies) of the audited financial statements appearing elsewhere in this Annual Report on Form 10-K. This settlement agreement contained a fine and subjects us to ongoing compliance obligations, including with respect to our development and implementation of a government-approved deep well injection system at the plant to handle the co-product separated at the site. If we fail to fully develop, complete and operate this deep well injection system, we could be forced to develop alternative solutions for handling the subject co-product, which alternatives may be costly and time-consuming, and we could face additional fines and other penalties. Due to the uncertainties associated with environmental investigations, clean-ups and other obligations, as well as the ongoing nature of the investigations, clean-ups and other obligations at our sites, we cannot predict precisely the nature, cost, and timing of our future remedial obligations with respect to our sites.
Consumer Preferences - Changes in consumer preferences and perceptions may lessen the demand for our products, which could reduce our sales and profitability and harm our business.

Food products are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. For instance, changes in prevailing health or dietary preferences causing consumers to avoid food products containing phosphates in favor of foods that are perceived as being healthier could reduce our sales and profitability, and such reductions could be material. Increasing concern among consumers, public health professionals and government agencies about the potential health concerns associated with obesity and inactive lifestyles (reflected, for instance, in taxes designed to combat

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obesity which have been imposed recently in North America) represent a significant challenge to some of our customers, including those engaged in the food and soft drink industries.

Public perception in the United States, Europe and other markets, which may be driven by public opinions and publications concerning phosphate products in relation to their safety, may affect our sales and operations. Regulators in the United States and other jurisdictions may choose to change recommended daily intake levels for total phosphate in the diet or added phosphates in food. In addition, U.S. class action trends related to “natural” and “clean labeling” in foods also may affect our sales and operations. Public interest organization spotlighting, through public awareness and publications, regarding the contribution of meat-based diets to phosphate life cycle concerns in the environment may also affect our sales in Europe and other jurisdictions. Additional demand restrictions may arise from producers reformulating to reduce or eliminate phosphate content, as has been announced over the past few years by major consumer packaged goods manufacturers and major food chains.
International Operations - We are subject to a variety of risks with respect to our foreign operations.
We have significant production operations in Mexico and Canada, and a smaller blending facility for food ingredients in China. 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 United States 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. Our risks in those regards are likely to be greatest as we continue to implement our business in China, where we are subject to risks associated with complying with China’s regulatory requirements, changes in local economic conditions, currency devaluations and potential disruption from socio-political activities in that country. 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 United States. Risks to our Canadian operations include a differing federal and provincial regulatory environment from that in the United States, currency fluctuations and devaluations. In the event that we establish operations in additional regions, our exposures to risks from the noted causes and from other as yet unknown causes may increase.
In addition, we are required to comply with the laws of each jurisdiction in which we have operations or sell our products, including safety and quality laws, product and facility registration laws, marketing laws, environmental laws, antitrust laws and import and export control laws. The laws of these jurisdictions vary significantly, and we have limited experience in complying with the laws of certain such jurisdictions, including China. Violations of such laws may result in restrictions being imposed on our operating activities, substantial fines, civil or criminal penalties, damages, the rescission of operating permits, third-party claims for property damage or personal injury, or other costs.
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 are also subject to the comparable anti-corruption laws of other countries in which we operate. We sell many of our products in developing countries through sales agents and distributors whose personnel are not subject to our disciplinary procedures. Although 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 foreign regulations at all times. Violations of the FCPA or similar anti-corruption laws by us or our distributors or agents may result in severe criminal or civil sanctions, could disrupt our business, and could adversely affect our reputation.
Labor Relations - Our profitability could be negatively impacted if we fail to maintain satisfactory labor relations.
Approximately 42% percent of our U.S. and 76% percent of our non-U.S. employees are members of unions. Strikes, lockouts or other work stoppages or slowdowns involving our unionized employees could have a material adverse effect on our business.

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Product Liability Exposure - We may be subject to costly product liability claims with respect to our products.
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 our customers’ products. Although we endeavor to 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 or other products supplied to us by third parties that we resell. In addition, we could be subject to claims by end-users of our customers’ products that incorporate our products that our customers have mislabeled or misrepresented the benefits of their products sold to such end-users. 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. Any product liability claim brought against us, with or without merit, could result in: decreased demand for our products; regulatory investigations that could require costly recalls or product modifications; loss of revenues; substantial costs of litigation; liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves; an increase in our product liability insurance rates; and damage to our reputation and the reputation of our products.
Production Facility Operating Hazards - We may be subject to liability with respect to the operations of our production facilities.
Our production facilities are subject to hazards associated with the manufacturing, handling, storage, and transportation of chemical substances 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. Although 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 and we insure our facilities to protect against a range of risks, these potential hazards continue to 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 - If we are unable to protect our intellectual property rights, our position in the market may be materially and adversely affected.
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, that any issued or registered patents or trademarks will not be challenged, invalidated, circumvented or rendered unenforceable or that our confidentiality procedures will maintain the confidentiality of our confidential information. 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 intellectual property rights can be asserted in all cases, particularly in an international context, or that we can defend ourselves successfully or cost-effectively against the assertion of rights by others.
Contingency Planning - We may face operational challenges that could have a material adverse effect on our business.
We operate a number of manufacturing facilities in the United States, Mexico, Canada and China, and we coordinate company activities, including our sales, customer service, information technology systems and administrative services and the like, through headquarters operated in those countries.
Our sites and those of others who provide services to them are subject to varying risks of disaster and follow on consequences, both manmade and natural, that could degrade or render inoperable one or more of our facilities for an extended period of time. Such disaster related risks and effects are not predictable with certainty and, although they can be mitigated, they cannot be completely prevented. 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

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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.
We depend on our information technology systems for the efficient functioning of our business, including accounting, data storage, compliance, purchasing and inventory management. Although we attempt to mitigate interruptions, we may experience difficulties in implementing certain upgrades, which would impact our business operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt our operations, including our ability to timely ship and track product orders, project inventory requirements, manage our supply chain and otherwise adequately service our customers. In the event that we experience significant disruptions as a result of the implementation of our information technology systems, we may not be able to repair our systems in an efficient and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation.
Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose a risk to the security of Innophos’ and our customers', partners', suppliers' and third-party service providers' respective products, systems and networks and the confidentiality, availability and integrity of our and our customers' data. Although we attempt to mitigate these risks by employing a number of measures, we remain potentially vulnerable to additional known or unknown threats. We may have access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations and customer-imposed controls. Despite our efforts to protect sensitive, confidential or personal data or information, we may be vulnerable to material security breaches, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions. In addition, a cyber-related attack could result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.
Acquisition Risks - Any acquisitions or divestitures we make could disrupt our business and not produce the expected benefits of such transaction.
We will continue from time to time to consider certain acquisitions or divestitures. Acquisitions and divestitures involve numerous risks, including identifying attractive target acquisitions, undisclosed risks affecting the target, difficulties integrating acquired businesses, the assumption of unknown liabilities, potential adverse effects on existing business relationships with current customers and suppliers, the diversion of our management’s attention from other business concerns, and decreased geographic diversification.
We cannot provide assurance that any acquisitions or divestitures will perform as planned or prove to be beneficial to our operations and cash flow, or that we will be able to successfully integrate any acquisitions that we undertake. Any such failure could seriously harm our financial condition, results of operations and cash flows.
Certain Financial Risks
Impairment Charges - The recognition of impairment charges on goodwill or long-lived assets could adversely impact our future financial position and results of operations.

We have approximately $130 million of total intangible assets at December 31, 2016, consisting of $84 million of goodwill and $46 million of other intangible assets. Additionally, we have approximately $205 million of long-lived assets at December 31, 2016.

We perform an annual impairment assessment for goodwill and our indefinite-lived intangible assets, and as necessary, for other long-lived assets. If the results of such assessments were to show that the fair value of these assets were less than the carrying values, we could be required to recognize a charge for impairment of goodwill and/or long-lived assets and the amount of the impairment charge could be material. Based on the results of the annual assessment, we concluded that as of December 31, 2016, the fair value of all of our reporting units was greater than their carrying value.

Even though it was determined that there was no additional long-lived asset impairment as of December 31, 2016, the future occurrence of a potential indicator of impairment, such as a significant adverse change in the business climate that would require a change in our assumptions or strategic decisions made in response to economic or competitive conditions, could require us to perform an assessment prior to the next required assessment date during the fourth quarter of 2017.

Tax Rates - Changes in our tax rates or exposure to additional income tax liabilities could impact our profitability.


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We are subject to income taxes in the United States and in various other foreign jurisdictions. Our effective tax rates could be adversely affected by changes in the mix of earnings by jurisdiction, changes in tax laws or tax rates including potential tax reform in the US to broaden the tax base and reduce deductions or credits, changes in the valuation of deferred tax assets and liabilities, and material adjustments from tax audits.

The recoverability of deferred tax assets, which are predominantly in the U.S., are dependent upon our ability to generate future taxable income in these jurisdictions. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a material assessment by a governing tax authority could affect our profitability.
Interest Rates - Increased interest rates could increase our borrowing costs.
From time to time we may issue securities or seek additional borrowings to finance acquisitions, capital expenditures, working capital and for other general corporate purposes. An increase in interest rates in the general economy could result in an increase in our borrowing costs for these financings, as well as under any existing debt that bears interest at an un-hedged floating rate.
Contingencies Affecting Dividends - Our ability to pay dividends in the future may be compromised.
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, to make dividend payments on our common stock. The amounts available to us to pay cash dividends are restricted by provisions of Delaware law and historically, and we expect for the future, also by limitations in our debt facilities. As allowed by existing debt instruments, we may incur additional indebtedness that may restrict to an even greater degree, or prohibit, the payment of dividends on stock. We cannot be sure the level of our operations or agreements governing our current or future indebtedness will permit us to adhere to our current dividend policy, increase dividends, or pay any dividends at all, or that continued payment of dividends will remain prudent for our business in the future judgment of our Board of Directors.
Credit Facility Risks - Our credit facility restricts our current and future operations.
In December 2016, we entered into a credit agreement with a group of lenders to establish a credit facility, which credit facility essentially replaced our existing credit facility at that time. This credit facility imposes operating and financial restrictions on us, including affirmative and negative covenants that prohibit or limit a variety of actions by Innophos generally without the lenders’ approval. These include covenants that affect our ability, among other things, to: incur or guarantee indebtedness; create liens; enter into mergers, recapitalizations or assets purchases or sales; change names; make certain changes to our business; make restricted payments that include dividends, purchases and redemptions of equity; make advances, investments or loans; effect sales and leasebacks; enter into transactions with affiliates; allow negative pledges or limitations on the repayment abilities of subsidiaries; or amend subordinated debt. In addition to these restrictions and covenants, our credit facility requires us to comply with specified financial maintenance covenants. We cannot guarantee that we will be able to maintain compliance with these covenants. In addition, any of these restrictions or covenants could limit our ability to plan for or react to market conditions or meet certain capital needs and could otherwise restrict our corporate activities. For example, our results of operations may limit our borrowing base to a level below that which we seek to establish. Any such limitation could harm our business.

Additional Funding - We may not have access to the funds required for future growth and expansion.
We may need additional funds to grow and expand our operations. We expect to fund our capital expenditures from operating cash flow to the extent we are able to do so and from our credit facility. If our operating cash flow is insufficient to fund our capital expenditures, we may either reduce our capital expenditures or further utilize our credit facility. For further strategic growth through mergers or acquisitions, we may also seek to generate additional liquidity, including beyond our existing credit facility, through the sale of debt or equity securities in private or public markets, through the sale of non-productive assets or through additional borrowings under our existing credit facility and/or additional facilities. We cannot provide any assurance that our cash flows from operations and our existing credit facility will be sufficient to fund anticipated capital expenditures or that we will be able to obtain additional funds from financial markets or from the sale of assets at terms favorable to us or at all. If we are unable to generate sufficient cash flows or raise sufficient additional funds to cover our capital expenditures or other strategic growth opportunities, we may not be able to achieve our desired operating efficiencies and expansion plans, which may adversely impact our competitiveness and, therefore, our results of operations.

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ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
 

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. All of our properties located in the United States, Canada, China and Brazil are utilized in our Specialty Phosphates US & Canada  and GTSP & Other reporting segments. All of our properties located in Mexico are utilized in our Specialty Phosphates Mexico and GTSP & Other reporting segments.
Facility Type
 
Location
 
Owned or Leased
Corporate Headquarters / Research & Development
 
Cranbury, NJ
 
Leased
Manufacturing
 
Coatzacoalcos, Veracruz, Mexico
 
Owned
Manufacturing
 
Chicago Heights, IL
 
Owned
Manufacturing
 
Nashville, TN
 
Owned
Manufacturing
 
Port Maitland, Ontario, Canada
 
Owned
Manufacturing
 
Geismar, LA
 
Owned
Manufacturing
 
Ogden, UT
 
Leased
Manufacturing / Research & Development / Administrative
 
North Salt Lake, UT
 
Owned
Manufacturing
 
Salt Lake City, UT
 
Owned
Manufacturing
 
Green Pond, SC
 
Owned
Manufacturing
 
Chicago (Waterway), IL
 
Owned
Manufacturing
 
Mission Hills, Guanajuato, Mexico
 
Leased
Manufacturing
 
Taicang City, China
 
Leased
Warehouse
 
Chicago Heights, IL
 
Owned
Administrative
 
Mexico City, Mexico
 
Leased
Administrative
 
Mississauga, Ontario, Canada
 
Leased
Administrative
 
Sao Paulo, Brazil
 
Leased

 
ITEM 3.
LEGAL PROCEEDINGS
The information set forth in Note 16 of the Notes to Consolidated Financial Statements, “Commitments and Contingencies,” in “Part II, Item 8. Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K is incorporated herein by reference.
 
ITEM 4.
MINE SAFETY DISCLOSURES
None.

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PART II
 
ITEM 5.
MARKET FOR THE REGISTRANT'S 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:
 
 
2016
 
2015
Quarter
 
High
 
Low
 
Dividends
Paid
Per Share
 
High
 
Low
 
Dividends
Paid
Per Share
First
 
$
31.79

 
$
23.12

 
$
0.48

 
$
62.62

 
$
53.92

 
$
0.48

Second
 
42.21

 
31.10

 
0.48

 
59.55

 
49.54

 
0.48

Third
 
44.28

 
37.26

 
0.48

 
53.84

 
39.53

 
0.48

Fourth
 
57.16

 
38.17

 
0.48

 
44.17

 
28.98

 
0.48

The Company declared a $0.48 per share dividend in the first quarter of 2017.The number of holders of record of our common stock at February 21, 2017 was 7,808.
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 of Directors, 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 certain restrictions in the credit agreement governing our credit facility.
Because 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 “Part II, Item 8. Consolidated Financial Statements and Supplementary Data” and Part I, Item 1A. Risk Factors - Certain Financial Risks - Contingencies Affecting Dividends - Our ability to pay dividends in the future may be compromised." appearing elsewhere in this Annual Report on Form 10-K.
Issuer Purchases of Equity Securities
The Company did not have any share repurchases on the open market during 2016.From time to time, the Company reacquires shares from employees in connection with the vesting, exercise and forfeiture of awards under its equity compensation plans. In March 2016, the Company reacquired an aggregate of 2,475 shares at a price of $30.91 per share in connection with the surrender of restricted shares by employees for tax purposes. In December 2016, the Company reacquired an aggregate of 1,964 shares at a price of $52.26 per share in connection with the surrender of restricted shares by employees for tax purposes.

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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 Annual Report on Form 10-K.
 
 
(Dollars in thousands, except per share amounts, share amounts or where
otherwise noted)
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Statement of operations data:
 
 
 
 
 
 
 
 
 
Net sales
$
725,345

 
$
789,147

 
$
839,186

 
$
844,129

 
$
862,399

Cost of goods sold
574,953

 
645,818

 
651,722

 
685,830

 
684,979

Gross profit
150,392

 
143,329

 
187,464

 
158,299

 
177,420

Operating expenses:

 
 
 
 
 
 
 
 
Selling, general and administrative
67,555

 
87,304

 
76,020

 
70,501

 
64,320

Research and development
3,739

 
4,502

 
4,649

 
3,928

 
3,107

Total operating expenses
71,294

 
91,806

 
80,669

 
74,429

 
67,427

Operating income
79,098

 
51,523

 
106,795

 
83,870

 
109,993

Interest expense, net
7,669

 
7,518

 
4,354

 
4,426

 
5,977

Foreign exchange losses (gains), net
1,111

 
3,882

 
5,085

 
3,197

 
(1,957
)
Income before income taxes
70,318

 
40,123

 
97,356

 
76,247

 
105,973

Provision for income taxes
22,347

 
13,777

 
32,895

 
26,741

 
31,783

Net income
$
47,971

 
$
26,346

 
$
64,461

 
$
49,506

 
$
74,190

Allocation of net income to common shareholders
$
47,683

 
$
26,274

 
$
64,324

 
$
49,442

 
$
74,150

Per share data:

 
 
 
 
 
 
 
 
Income (loss) per share:

 
 
 
 
 
 
 
 
Basic
$
2.47

 
$
1.31

 
$
2.96

 
$
2.25

 
$
3.40

Diluted
$
2.44

 
$
1.29

 
$
2.91

 
$
2.21

 
$
3.30

Cash dividends declared
$
1.92

 
$
1.92

 
$
1.76

 
$
1.45

 
$
0.89

Weighted average shares outstanding:

 
 
 
 
 
 
 
 
Basic
19,271,448

 
20,032,300

 
21,753,270

 
21,933,843

 
21,795,155

Diluted
19,581,476

 
20,323,385

 
22,121,903

 
22,345,980

 
22,475,881

 
(Dollars in thousands)
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Other data:
 
 
 
 
 
 
 
 
 
Cash flows provided from (used in):
 
 
 
 
 
 
 
 
 
Operating activities
$
139,109

 
$
98,926

 
$
126,781

 
$
91,677

 
$
100,535

Investing activities
(36,599
)
 
(31,699
)
 
(29,398
)
 
(37,840
)
 
(104,766
)
Financing activities
(67,072
)
 
(86,018
)
 
(94,042
)
 
(47,519
)
 
(5,066
)
Capital expenditures
36,599

 
31,699

 
27,955

 
33,415

 
33,060

Ratio of earnings to fixed charges (1)
8.0x

 
5.1x

 
15.7x

 
11.1x

 
14.1x

(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.

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(Dollars in thousands)
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Balance sheet data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
53,487

 
$
17,905

 
$
36,207

 
$
32,755

 
$
26,815

Accounts receivable
77,692

 
79,743

 
90,551

 
88,434

 
94,033

Inventories
128,295

 
172,667

 
184,621

 
181,467

 
163,606

Property, plant & equipment, net
205,459

 
199,494

 
198,988

 
201,985

 
195,723

Total assets
643,011

 
669,553

 
728,411

 
745,666

 
738,511

Total debt
185,000

 
213,002

 
136,005

 
163,009

 
176,000

Total stockholders’ equity
$
347,226

 
$
333,260

 
$
463,007

 
$
463,419

 
$
444,323

Items included in the preceding tables which had a significant impact on results are summarized as follows:
2016 included restructuring costs of approximately $1.5 million before tax ($0.2 million in cost of goods sold and $1.3 million in selling, general and administrative expense). 2015 included management transition expenses and restructuring costs of approximately $20.4 million before tax ($3.3 million in cost of goods sold and $17.1 million in selling, general and administrative expense) and the Company's stock repurchase program which increased financing activities by $125.0 million, which was partially offset by increased borrowings; 2013 included the acquisition of Chelated Minerals International, Inc. (now part of our nutritional ingredients business), 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 Mexican Comision National del Agua, or CNA Fresh Water Claims. 2012 included the acquisitions of AMT Labs, Inc. and Triarco Industries, Inc. (now part of our nutritional ingredients business), increasing investing activities by approximately $71.7 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.

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 Annual Report on Form 10-K.

Background
Innophos is a leading international producer of specialty ingredient solutions that deliver versatile benefits for the food, health, nutrition and industrial markets. Innophos combines more than a century of experience in specialty phosphate manufacturing with a broad range of other specialty nutritional ingredients. 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 and cleaning agents in toothpaste, and they also provide a wide range of nutritional fortification solutions for food, beverage and nutritional supplement manufacturers.
2016 Overview
Our financial performance in 2016 was highlighted by:
•
Net sales of $725.3 million compared to $789.1 million for 2015, a decrease of $63.8 million mostly attributable to:
◦
Selling price decreases of $23.9 million of which $15.3 million was largely from GTSP due to weak fertilizer market conditions; for Specialty Phosphates, the $8.6 million decline in price is mostly from competitive pressures due to the strength of the U.S. Dollar against the euro and Chinese-based competitors, due to lower export tariffs, with respect to PPA and products for the specialty horticulture markets; and
◦
Volume decreases of $39.9 million mostly recognized in the United States and Canada Specialty Phosphates segment due to reduced sales in lower margin, less differentiated applications and reduced demand across product

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lines in core markets served. GTSP reported stronger volumes of $10.9 million to offset the lower prices during 2016;
•
Reduced input and operating costs by $44.0 million during 2016 due to cost reduction actions to offset negative margin impact due to revenue decreases;
•
Net income of $48.0 million, an 82% increase versus 2015;
•
Capital expenditures of $36.6 million with approximately 65% spent on plant maintenance and 35% spent on strategic initiatives;
•
Earnings per share of $2.44 (diluted), up 89% versus 2015;
•
Total year dividends of $1.92 per share paid on the common stock in 2016, a payout ratio of 78%;
•
Delivered 690 basis point reduction in working capital as a percent of sales through improvements in planning processes and a disciplined focus on slow-moving inventory;
•
Operating cash flow of $139.1 million, up 41% year-over-year, reducing net debt by 33% and leverage to 1.1x EBITDA;
•
Entered into a new senior secured credit facility increasing the Company's borrowing capacity by 39% to $450.0 million.
•
Entered two-year tolling agreement for GTSP co-product business effective December 1, 2016 which is expected to significantly reduce earnings volatility in this product.
Recent Trends and Outlook
Specialty Phosphates volumes declined by 7% for full year 2016 compared with 2015, in line with expectations, primarily driven by reduced sales in lower margin, less differentiated applications and weak end market demand due to continued pressures on packaged foods.
2017 is expected to be another year of transition with a focus on protecting earnings and delivering cash while continuing to build on the Company's commercial excellence, operational excellence and strategic growth initiatives.
Overall market conditions and competitive landscape for 2017 are expected to be similar to the prior year. Full year earnings are therefore expected to be broadly in line with 2016. Management continues to pursue cost actions and productivity initiatives given the challenging market conditions.
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):
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
Net sales
$
725.3

 
100.0

 
789.1

 
100.0

 
839.2

 
100.0

Cost of goods sold
574.9

 
79.3

 
645.8

 
81.8

 
651.7

 
77.7

Gross profit
150.4

 
20.7

 
143.3

 
18.2

 
187.5

 
22.3

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
67.6

 
9.3

 
87.3

 
11.1

 
76.0

 
9.1

Research & development
3.7

 
0.5

 
4.5

 
0.6

 
4.7

 
0.6

Income from operations
79.1

 
10.9

 
51.5

 
6.5

 
106.8

 
12.7

Interest expense, net
7.7

 
1.1

 
7.5

 
1.0

 
4.4

 
0.5

Foreign exchange losses (gains), net
1.1

 
0.2

 
3.9

 
0.5

 
5.0

 
0.6

Provision for income taxes
22.3

 
3.1

 
13.8

 
1.7

 
32.9

 
3.9

Net income
$
48.0

 
6.6

 
$
26.3

 
3.3

 
64.5

 
7.7



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Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
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, 2016 were $725.3 million, a decrease of $63.8 million, or 8.1% , as compared to $789.1 million for 2015. Specialty Phosphates sales were down 8.1%, or $59.4 million, with volumes lower by 6.9%, or $50.8 million, and selling prices lower by 1.2%, or $8.6 million. The volume decrease was mostly recognized in the United States and Canada Specialty Phosphates segment due to reduced sales in lower margin, less differentiated applications, and reduced demand across product lines in core markets served. GTSP & Other sales were down 7.8%, or $4.4 million, with prices lower by 27.1%, or $15.3 million, but volumes higher by 19.3%, or $10.9 million.
The Company calculates pure selling price dollar variances as the selling price for the current year period minus the selling price for the prior year period, and then multiplies the resulting selling price difference by the prior year 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, 2016 the percentage changes in net sales by reportable segment compared with the prior year, including the effect of price and volume/mix changes upon revenue:
 
 
Price
 
Volume/Mix
 
Total
Specialty Phosphates US & Canada
(0.7
)%
 
(9.3
)%
 
(10.0
)%
Specialty Phosphates Mexico
(2.9
)%
 
1.4
 %
 
(1.5
)%
Total Specialty Phosphates
(1.2
)%
 
(6.9
)%
 
(8.1
)%
GTSP & Other
(27.1
)%
 
19.3
 %
 
(7.8
)%
Total
(3.0
)%
 
(5.1
)%
 
(8.1
)%
The following table illustrates for the year ended December 31, 2016 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:
 
 
Price
 
Volume/Mix
 
Total
Specialty Ingredients
(0.2
)%
 
(8.2
)%
 
(8.4
)%
Food & Technical Grade PPA
(4.6
)%
 
(6.2
)%
 
(10.8
)%
STPP & Detergent Grade PPA
(1.4
)%
 
1.4
 %
 
—
 %

Gross Profit
Gross profit represents net sales less cost of goods sold. Gross profit for the year ended December 31, 2016 was $150.4 million, an increase of $7.1 million, or 5.0% , as compared to $143.3 million for 2015. Gross profit percentage increased to 20.7 % for the year ended December 31, 2016 versus 18.2 % for 2015. Gross profit in 2016 was favorably affected by $21.7 million lower raw material costs, largely phosphate rock and sulfur, $9.4 million lower manufacturing costs due to savings from the 2015 restructuring program and focus on cost controls, $6.2 million favorable exchange effects from our Mexican peso and Canadian dollar based costs, and $1.1 million lower depreciation. These favorable effects were partially offset by $23.9 million lower selling prices and $16.1 million lower sales volume. Included in 2015 gross profit was $3.4 million increase in inventory reserves, $3.3 million restructuring and management transition costs, and $2.0 million cost due to a supplier revision of their 2014 costs.
Operating Expenses and Research and Development
Operating expenses consist primarily of selling, general and administrative expenses and research and development expenses. Operating expenses for the year ended December 31, 2016 were $71.3 million, a decrease of $20.5 million, or 22.3 %, as compared to $91.8 million for 2015. The decrease was primarily due to $8.9 million lower costs related to savings from the 2015 restructuring program, $4.5 million lower restructuring costs, and $1.1 million favorable exchange rate from Mexican peso based costs, partially offset by $3.7 million higher employee related expenses for short-term incentive accruals and stock compensation expense, $1.0 million of strategy consulting fees and first quarter 2016 CEO transition costs, and $0.6 million costs from the refinancing of our credit facility. Included in 2015 was $11.3 million management transition costs.

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Operating Income
Operating income for the year ended December 31, 2016 was $79.1 million, an increase of $27.6 million, or 53.6 %, as compared to $51.5 million for 2015. Operating income percentages increased to 10.9 % for 2016 from 6.5 % for 2015.
Interest Expense, net
Net interest expense, including deferred financing amortization expense, for the year ended December 31, 2016 was $7.7 million, an increase of $0.2 million, or 2.7% , as compared to $7.5 million for 2015. The increase was primarily due to higher average interest rates on borrowings, mostly offset by lower interest charges from U.S. federal and state amended tax returns from prior periods.
Foreign Exchange
Foreign exchange for the year ended December 31, 2016 was a loss of $1.1 million as compared to a loss of $3.9 million for 2015. 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 U.S. Dollar strengthened throughout 2016 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 2016. Consequently, foreign exchange gain or loss is recorded on remeasurement of non-U.S. Dollar denominated monetary assets and liabilities. Such gains and losses fluctuate from period to period as the foreign currencies strengthen or weaken against the U.S. Dollar and the amount of non-U.S. Dollar denominated assets and liabilities increases or decreases.
Provision for Income Taxes
The effective income tax rate was 32% for the year ended December 31, 2016 compared to 34% for 2015. The more significant variances in the effective tax rate included a Mexican de-consolidation deferred tax liability adjustment in 2016 which decreased the tax rate by 4% year over year, partially offset by lower domestic production activities deduction on the U.S. federal return which increased the tax rate by 2% year over year.
Net Income
Net income for the year ended December 31, 2016 was $48.0 million, an increase of $21.7 million, as compared to $26.3 million for 2015, due to the factors described above.

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014
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, 2015 were $789.1 million, a decrease of $50.1 million, or 6.0% , as compared to $839.2 million for 2014. Specialty Phosphates sales were down 3.8%, or $29.1 million, with selling prices lower by 2.8%, or $21.1 million, and volumes lower by 1.0%, or $8.0 million. The price decrease was seen across all product lines with increased selling price pressures, largely from foreign competitors. Decreased Specialty Ingredients and STPP & Detergent Grade PPA volumes were partially offset by increased Food & Tech Grade PPA volumes that recovered from U.S. PPA supply issues experienced in the fourth quarter of 2014. GTSP & Other sales were down 27.1%, or $21.0 million, with volumes lower by 26.5% , or $20.6 million, due to weak fertilizer market demand, and prices lower by 0.6%, or $0.4 million.

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The Company calculates pure selling price dollar variances as the selling price for the current year period minus the selling price for the prior year period, and then multiplies the resulting selling price difference by the prior year 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, 2015 the percentage changes in net sales by reportable segment compared with the prior year, including the effect of price and volume/mix changes upon revenue:
 
 
Price
 
Volume/Mix
 
Total
Specialty Phosphates US & Canada
(2.9
)%
 
(1.5
)%
 
(4.4
)%
Specialty Phosphates Mexico
(2.4
)%
 
0.6
 %
 
(1.8
)%
Total Specialty Phosphates
(2.8
)%
 
(1.0
)%
 
(3.8
)%
GTSP & Other
(0.6
)%
 
(26.5
)%
 
(27.1
)%
Total
(2.6
)%
 
(3.4
)%
 
(6.0
)%
The following table illustrates for the year ended December 31, 2015 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:
 
 
Price
 
Volume/Mix
 
Total
Specialty Ingredients
(2.9
)%
 
(3.0
)%
 
(5.9
)%
Food & Technical Grade PPA
(3.2
)%
 
9.3
 %
 
6.1
 %
STPP & Detergent Grade PPA
(0.7
)%
 
(6.3
)%
 
(7.0
)%

Gross Profit
Gross profit represents net sales less cost of goods sold. Gross profit for the year ended December 31, 2015 was $143.3 million, a decrease of $44.2 million, or 23.6% , as compared to $187.5 million for 2014. Gross profit percentage decreased to 18.2 % for the year ended December 31, 2015 versus 22.3 % for 2014. Gross profit in 2015 was adversely affected by $21.5 million lower selling prices, $10.7 million increased cost of goods sold due to changes in fixed costs in inventory, $7.2 million higher manufacturing costs, $5.1 million higher raw material costs, mainly PPA and MGA, $3.4 million increase in inventory reserves, $3.3 million restructuring and management transition costs recorded in the period, $2.7 million higher depreciation, $2.0 million due to a supplier revision of their 2014 costs, $0.9 million for a GTSP lower of cost or market reserve, and a combined net $0.9 million increase in planned maintenance outage expense at our Coatzacoalcos, Mexico, Geismar, Louisiana, and Waterway, Illinois manufacturing facilities. These unfavorable effects were partially offset by $9.0 million favorable exchange rate from Mexican peso and Canadian dollar based costs, and $3.6 million favorable sales volume effects. Included in 2014 was $0.9 million for the accrual of Geismar, Louisiana plant contingent liabilities.
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, 2015 were $91.8 million, an increase of $11.1 million, or 13.8 %, as compared to $80.7 million for 2014. The increase was primarily due to $11.3 million management transition costs and $5.8 million restructuring costs, partially offset by $4.6 million lower employee related expenses for short-term incentive and stock compensation, $1.7 million favorable exchange rate from Mexican peso based costs, and $0.9 million lower expenses in China.
Operating Income
Operating income for the year ended December 31, 2015 was $51.5 million, a decrease of $55.3 million, or 51.8 %, as compared to $106.8 million for 2014. Operating income percentages decreased to 6.5 % for 2015 from 12.7% for 2014.
Interest Expense, net
Net interest expense, including deferred financing amortization expense, for the year ended December 31, 2015 was $7.5 million, an increase of $3.1 million, or 70.5% as compared to $4.4 million for 2014. The increase was primarily due to higher average debt levels, largely driven by the share repurchase program, and a $1.2 million interest charge in 2015 related to the anticipated filing of amended U.S. federal and state tax returns to claim foreign tax credits.

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Foreign Exchange
Foreign exchange for the year ended December 31, 2015 was a loss of $3.9 million as compared to a loss of $5.0 million for 2014. 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 U.S. Dollar strengthened throughout 2015 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 2015. 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, 2015 compared to 34% for 2014. The more significant variances in the effective tax rate include a change in the Mexican de-consolidation deferred tax liability adjustment which increased the tax rate by 3%, additional uncertain tax position reserves which increased the tax rate by 2%, benefits related to the repatriation of foreign earnings which decreased the tax rate by 2% and increased income, including non-taxable interest income, in lower tax rate jurisdictions which decreased the tax rate by 3%.
Net Income
Net income for the year ended December 31, 2015 was $26.3 million, a decrease of $38.2 million as compared to $64.5 million for 2014, due to the factors described above.

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Segment Reporting
The Company reports its core Specialty Phosphates business separately from GTSP & Other. Specialty Phosphates consists of three products lines: Specialty Ingredients; Food & Technical Grade PPA; and STPP & Detergent Grade PPA. Our nutritional ingredients business is 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 EBITDA. The following table sets forth the historical results of these indicators by segment for the years ended December 31, 2016, 2015 and 2014:
 
2016
 
2015
 
2014
Segment Net Sales
 
 
 
 
 
Specialty Phosphates US & Canada
$
511,304

 
$
568,332

 
$
594,446

Specialty Phosphates Mexico
162,095

 
164,489

 
167,423

Total Specialty Phosphates
673,399

 
732,821

 
761,869

GTSP & Other
51,946

 
56,326

 
77,317

Total
$
725,345

 
$
789,147

 
$
839,186

Net Sales % Growth
 
 
 
 
 
Specialty Phosphates US & Canada
(10.0
)%
 
(4.4
)%
 
 
Specialty Phosphates Mexico
(1.5
)%
 
(1.8
)%
 
 
Total Specialty Phosphates
(8.1
)%
 
(3.8
)%
 
 
GTSP & Other
(7.8
)%
 
(27.1
)%
 
 
Total
(8.1
)%
 
(6.0
)%
 
 
Segment EBITDA
 
 
 
 
 
Specialty Phosphates US & Canada
$
68,457

 
$
73,031

 
$
104,617

Specialty Phosphates Mexico
49,408

 
30,723

 
35,905

Total Specialty Phosphates
117,865

 
103,754

 
140,522

GTSP & Other (a) (b)
(2,399
)
 
(17,578
)
 
(3,351
)
Total
$
115,466

 
$
86,176

 
$
137,171

Segment EBITDA % of net sales
 
 
 
 
 
Specialty Phosphates US & Canada
13.4
 %
 
12.9
 %
 
17.6
 %
Specialty Phosphates Mexico
30.5
 %
 
18.7
 %
 
21.4
 %
Total Specialty Phosphates
17.5
 %
 
14.2
 %
 
18.4
 %
GTSP & Other (a) (b)
(4.6
)%
 
(31.2
)%
 
(4.3
)%
Total
15.9
 %
 
10.9
 %
 
16.3
 %
Depreciation and amortization expense
 
 
 
 
 
Specialty Phosphates US & Canada
$
25,752

 
$
26,442

 
$
24,264

Specialty Phosphates Mexico
7,940

 
9,558

 
9,416

Total Specialty Phosphates
$
33,692

 
36,000

 
33,680

GTSP & Other
3,787

 
2,535

 
1,781

Total
$
37,479

 
$
38,535

 
$
35,461

(a)
The year ended December 31, 2015 includes a $11.8 million charge to earnings for management transition expenses and $8.6 million charge to earnings for restructuring reserves.
(b)
The year ended December 31, 2016 includes $1.5 million charge to earnings for restructuring costs.
A reconciliation of net income to EBITDA follows:
 
 
2016
 
2015
 
2014
Net income
 
$
47,971

 
$
26,346

 
$
64,461

Provision for income taxes
 
22,347

 
13,777

 
32,895

Interest expense, net
 
7,669

 
7,518

 
4,354

Depreciation and amortization
 
37,479

 
38,535

 
35,461

EBITDA
 
$
115,466

 
$
86,176

 
$
137,171


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Segment Net Sales:
Specialty Phosphates US & Canada net sales decreased 10.0% for the year ended December 31, 2016 compared with the same period in 2015. Average selling prices decreased by 0.7% and volumes decreased 9.3% due to reduced sales of lower margin, less differentiated applications, and reduced demand across product lines in core markets served. Net sales decreased 4.4% for the year ended December 31, 2015 when compared with the same period in 2014. Average selling prices decreased by 2.9%, mainly due to increased competitive pressures from European and Chinese competitors following the strengthening of the U.S. dollar in late 2014. Overall volumes decreased 1.5%, with decreases in Specialty Ingredients partially offset by increased Food & Technical Grade PPA volumes which recovered from weak 2014 levels.
Specialty Phosphates Mexico net sales decreased 1.5% for the year ended December 31, 2016 compared with the same period in 2015. Average selling prices decreased 2.9% , primarily due to competitive pressures on PPA and specialty horticulture markets, while volumes increased 1.4% . Net sales decreased 1.8% for the year ended December 31, 2015 when compared with the same period in 2014. Selling prices decreased 2.4%, primarily due to increased Chinese competitive pricing pressures in part due to reductions in governmental export tariffs on solid fertilizers. Overall volumes increased 0.6%, with increases in Food & Technical Grade PPA volumes partially offset by decreases in Specialty Ingredients and STPP & Detergent Grade PPA volumes.
GTSP & Other net sales decreased 7.8% for the year ended December 31, 2016 compared with the same period in 2015. Average selling prices decreased 27.1% due to the weakest fertilizer market conditions in seven years, while volumes increased 19.3% . Net sales decreased 27.1% for the year ended December 31, 2015 when compared with the same period in 2014. Volumes decreased 26.5% due to very weak market demand, particularly in the fourth quarter 2015, and selling prices decreased 0.6%.
Segment EBITDA Percentage of Net Sales:
The 50 basis point increase in Specialty Phosphates US & Canada EBITDA margins for the year ended December 31, 2016 compared with 2015 is due to lower sales volume/mix which decreased margins by 220 basis points, lower average selling prices which decreased margins by 60 basis points, increased raw material costs, primarily PPA and MGA, which decreased margins 50 basis points, and costs related to the refinancing of our credit facility which decreased margins by 10 basis points. This decrease was partially offset by lower manufacturing and operating cost which increased margins by 260 basis points and favorable exchange rate and translation effects which increased margins by 30 basis points. Included in 2015 was higher inventory reserves which increased margins by 60 basis points in 2016 and cost for low production rates in late 2014 that caused higher cost to be recorded in 2015 which increased margins by 40 basis points in 2016. The 470 basis point decrease in Specialty Phosphates US & Canada EBITDA margins for the year ended December 31, 2015 compared with 2014 is due to lower average selling prices which decreased margins by 240 basis points, increased raw material costs, primarily PPA and MGA, which decreased margins 100 basis points, low production rates in late 2014 that caused higher cost to be recorded in 2015 which decreased margins by 100 basis points, higher inventory reserves which decreased margins by 60 basis points, higher manufacturing cost which decreased margins by 90 basis points, and increased cost due to timing on fixed cost in inventory which decreased margins by 50 basis points. This decrease was partially offset by lower operating expenses which increased margins by 100 basis points, higher sales volume/mix which increased margins by 40 basis points, favorable exchange rate effects which increased margins by 20 basis points, and lower turnaround costs which increased margins by 10 basis points.
The 1,180 basis point increase in Specialty Phosphates Mexico EBITDA margins for the year ended December 31, 2016 compared with the same period in 2015 is due to lower raw material costs which increased margins by 1,020 basis points, favorable exchange rate and translation effects which increased margins by 400 basis points, and lower manufacturing and operating cost which increased margins by 40 basis points. This increase was partially offset by lower average selling prices which decreased margins by 250 basis points and lower sales volume/mix which decreased margins by 30 basis points. The 270 basis point decrease in Specialty Phosphates Mexico EBITDA margins for the year ended December 31, 2015 compared with the same period in 2014 is due to higher manufacturing and operating cost which decreased margins by 400 basis points, lower average selling prices which decreased margins by 190 basis points, higher raw material costs, primarily sulfur, which decreased margins by 110 basis points, and higher turnaround costs which decreased margins by 80 basis points. This decrease was partially offset by favorable exchange rate and translation effects which increased margins by 480 basis points and higher sales volume/mix which increased margins by 30 basis points.
The 2,660 basis point increase in GTSP & Other EBITDA margins for the year ended December 31, 2016 compared with the same period in 2015 is due to lower restructuring/management transition costs which increased margins by 3,360 basis points, higher sales volume/mix which increased margins by 2,650 basis points, lower raw material costs which increased margins by 1,440 basis points, and favorable exchange rate and translation effects which increased margins by 360 basis points. This increase was partially offset by lower selling prices which decreased margins 4,890 basis points and higher manufacturing

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costs which decreased margins 260 basis points. The 2,690 basis point decrease in GTSP & Other EBITDA margins for the year ended December 31, 2015 compared with the same period in 2014 is due to restructuring/management transition costs recorded in the period which decreased margins by 2,640 basis points, lower sales volume/mix which decreased margins by 600 basis points, increased cost due to changes in inventory which decreased margins by 290 basis points, a lower of cost or market reserve which decreased margins by 120 basis points, lower selling prices which decreased margins 60 basis points, and higher turnaround costs which decreased margins by 50 basis points. This decrease was partially offset by lower manufacturing and operating costs which increased margins 580 basis points and favorable exchange rate and translation effects which increased margins by 370 basis points. Included in 2014 was the accrual of Geismar, Louisiana plant contingent liabilities which increased margins by 120 basis points in 2015.
Innophos has presented the segment disclosure information under the reporting structure in place during 2016. During the first quarter of 2017, Innophos will change the way information will be regularly reviewed by our CODM to a market view, which will reflect the way we will manage and operate the business. Our measure of segment profitability will continue to be EBITDA. We will recast all prior periods in future filings to conform to the new presentation.
Liquidity and Capital Resources
Cash Flow Summary
The following table sets forth a summary of the Company’s cash flows for the periods indicated.
 
(Dollars in millions)
Year Ended December 31,
 
2016
 
2015
 
2014
Operating Activities
$
139.1

 
$
98.9

 
$
126.8

Investing Activities
(36.6
)
 
(31.7
)
 
(29.4
)
Financing Activities
(67.1
)
 
(86.0
)
 
(94.0
)
Effect of foreign exchange rate changes
0.1

 
0.5

 
0.1


Year Ended December 31, 2016 compared to the Year Ended December 31, 2015
Net cash provided by operating activities was $139.1 million for the year ended December 31, 2016 as compared to $98.9 million for 2015, an increase of $40.2 million. The increase in operating activities cash resulted from favorable changes of $21.7 million in net income as described earlier and $41.3 million in non-cash adjustments to income, primarily changes in deferred income tax provision, partially offset by unfavorable changes of $16.4 million in working capital and $6.4 million in other long term assets and liabilities.
The unfavorable change in working capital is derived from it being a source of cash of $41.2 million in 2016 compared to a source of $57.6 million in 2015, a decrease in cash of $16.4 million. The unfavorable change in working capital was due to unfavorable changes in other current liabilities of $46.8 million, largely due to U.S. income tax payments of $18.6 million for immediate recognition of revenue for income tax purposes which is not expected to recur and severance payments of $8.5 million, other current assets of $23.9 million due to lower VAT balances and vendor deposits in 2015 compared to 2014, and accounts receivable of $8.7 million. These unfavorable effects were mostly offset by favorable changes in inventory of $31.9 million due to lower raw material costs and adjusted inventory levels to align with lower customer demand, and accounts payable of $31.1 million, which will be paid in the first quarter of 2017. Accounts receivable as a percent of quarterly sales, when adjusted for GTSP open accounts receivable of $0.1 million, $0.2 million, $1.8 million, $1.3 million, and $0.3 million as of December 31 2016, September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015, respectively, was consistent with the last four quarters' average.
Total inventories as of December 31, 2016 decreased $44.0 million from December 31, 2015 levels, due to lower raw material costs and adjusted inventory levels to align with lower customer demand, resulting in days of inventory on hand decreasing to 81 days as of December 31, 2016. The following chart shows its historical performance:
 
 
2016
 
2015
 
2014
Inventory Days on Hand
81

 
98

 
103

Net cash used for investing activities was $36.6 million for the year ended December 31, 2016, compared to $31.7 million for 2015, an increase in spending of $4.9 million.

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Approximately 65% of the 2016 capital spending was for plant maintenance projects and the remaining 35% was for strategic growth initiatives. The majority of the strategic growth investments were focused on improving the capacity and capability of our North Salt Lake, UT and Chicago (Waterway), IL facilities as well as the preliminary engineering and equipment investment for the the deep well injection system project at our Geismar, LA facility. The company expects to spend $16 million on the project with most of the spending occurring in 2017.
Net cash from financing activities for the year ended December 31, 2016, was a use of $67.1 million, compared to a use of $86.0 million in 2015, an increase in cash of $18.9 million. This increase in cash was largely due to $125.0 million decreased stock repurchases and $13.0 million decreased loan repayments, partially offset by $118.0 million decreased loan borrowings. The loan borrowings in 2015 were largely used to fund the share repurchases in that year.

Year Ended December 31, 2015 compared to the Year Ended December 31, 2014
Net cash provided by operating activities was $98.9 million for the year ended December 31, 2015 as compared to $126.8 million for 2014, a decrease of $27.9 million. The decrease in operating activities cash resulted from unfavorable changes of $38.1 million in net income as described earlier and $33.0 million in non-cash adjustments to income, primarily due to a change in deferred income tax provision for timing differences for immediate recognition of revenue for U.S. income tax purposes versus deferred revenue for U.S. GAAP purposes of $27.7 million, partially offset by favorable changes of $36.6 million in working capital, primarily due to increased current income taxes of $22.3 million, and $6.6 million in other long term assets and liabilities.
The favorable change in working capital is derived from it being a source of cash of $57.6 million in 2015 compared to a source in 2014 of $21.0 million, an increase in cash of $36.6 million. The favorable change in working capital was due to favorable changes in other current liabilities of $27.7 million, primarily driven by a change in current income taxes payable in the U.S. of $27.7 million for the immediate recognition of income for U.S. income tax purposes, inventory of $15.1 million, due to increases in inventory reserves and lower PPA on hand for year-end 2015, accounts receivable of $12.9 million, and other current assets of $11.5 million as a result of VAT collections and reduction in prepaid income taxes in Mexico, partially offset by an unfavorable change in accounts payable of $30.6 million due to larger than usual vendor payables at year end 2014 which were paid in the first quarter of 2015. Accounts receivable as a percent of quarterly sales, when adjusted for GTSP open accounts receivable of $0.3 million, $0.9 million, $0.9 million, $0.8 million, and $0.9 million as of December 31, 2015, September 30, 2015, June 30, 2015, March 31, 2015, and December 31, 2014, respectively, was consistent with the last four quarters' average.
Total inventories as of December 31, 2015 decreased $12.0 million from December 31, 2014 levels resulting in days of inventory on hand decreasing to 98 days as of December 31, 2015. The following chart shows its historical performance:
 
 
2015
 
2014
 
2013
Inventory Days on Hand
98

 
103

 
96

Net cash used for investing activities was $31.7 million for the year ended December 31, 2015, compared to $29.4 million for 2014, an increase in spending of $2.3 million.
Approximately 75% of the 2015 capital spending was for plant maintenance projects and the remaining 25% was for strategic growth initiatives. The majority of the strategic growth investments were focused on improving the capacity and capability of our Coatzacoalcos, Mexico facility and automating packaging at our Port Maitland, Canada facility.
Net cash from financing activities for the year ended December 31, 2015, was a use of $86.0 million, compared to a use of $94.0 million in 2014, an increase in cash of $8.0 million. This increase in cash was largely due to $150.0 million increased loan borrowings, partially offset by $46.0 million increased loan repayments and $95.7 million increased stock repurchases. The loan borrowings were largely used to fund the share repurchases.
Liquidity
Indebtedness
Total debt was $185.0 million as of December 31, 2016. Short term and long term debt net of cash was $131.5 million as of December 31, 2016, a decrease of $63.6 million, or 32.6% from the December 31, 2015 level.

In December 2016, Innophos entered into a new senior secured credit facility, or Credit Agreement, with a group of lenders, or the Lenders, increasing the Company's borrowing capacity. The Credit Agreement replaced the term loan of

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$100.0 million and revolving line of credit under the old facility with a $450.0 million revolving line of credit, including a $20.0 million letter of credit sub-facility and a $20.0 million swingline loan facility, all maturing on December 22, 2021. Interest accruing on amounts borrowed under the revolving line is based on an applicable margin over LIBOR (London Interbank Offered Rate) or bank base rate, ranging from 100 to 225 basis points for LIBOR and 0 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 12.5 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 175 , 75 and 27.5 basis points, respectively.
The Credit Agreement also provides for possible additional revolving indebtedness under an incremental facility of up to $150.0 million (for an aggregate of revolving capacity up to $600.0 million ) upon future request by the Company 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, than those in effect for the original revolving commitments under the Credit Agreement. Refer to Note 9 of Notes to Consolidated Financial Statements in “Item 8. Consolidated Financial Statements and Supplementary Data”.
In December 2012, Innophos entered into an interest rate swap, swapping the LIBOR exposure on $100.0 million of floating rate debt, which is currently outstanding under our current Credit Agreement, 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 $14 thousand as of December 31, 2016.
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. Refer to Note 9 of Notes to Consolidated Financial Statements in “Item 8. Consolidated Financial Statements and Supplementary Data”.
Capital Expenditures
    
Capital expenditures were $36.6 million for 2016. Approximately 65% of the 2016 capital spending was for plant maintenance projects and the remaining 35% was for strategic growth initiatives. The majority of the strategic growth investments were focused on improving the capacity and capability of our North Salt Lake, UT and Chicago (Waterway), IL facilities as well as the preliminary engineering and equipment investment for the the deep well injection system project at our Geismar, LA facility to handle the raffinate separated at the plant. The company expects to spend $16 million on the project with most of the spending occurring in 2017. Overall, 2017 capital expenditures are forecast to be between $45 million and $50 million.
Other Liquidity Matters
As indicated elsewhere, the Company 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 and "Risk Factors - Certain Financial Risks - Contingencies Affecting Dividends - Our ability to pay dividends in the future may be compromised."
On December 31, 2016, the Company had cash and cash equivalents outside the United States of $38.0 million, or 71% of the Company's balance. The foreign cash amounts are not restricted by law to be used in other countries. In connection with a review of the Company’s overall cash position and anticipated cash needs, during the fourth quarter of 2015, we made a $266 million distribution of certain foreign earnings in the form of an intercompany note. This distribution resulted in an immaterial net tax impact. Our current operating plan does not include any other repatriation of any additional 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 in addition to the $266 million, we may be required to accrue and pay United States taxes to repatriate these funds.
The Company has incurred costs associated with involuntary termination benefits associated with its corporate-related initiatives, as well as the management transition. During 2015, the Company incurred restructuring and management transition costs of $8.6 million and $11.8 million, respectively. The amounts recorded within selling, general and administrative expenses in the statements of operations were $17.1 million and cost of goods sold were $3.3 million. During

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2016, we incurred additional amounts in connection with continued restructuring of $1.6 million (including accelerated stock compensation of $0.3 million ) within selling, general and administrative expenses and $0.1 million within cost of goods sold. The Company expects to make $4.7 million of payments associated with these actions within the next twelve months.
The Company’s available financial resources allow for the continuation of dividend payments, 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 in the Credit Agreement, 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, our future operating cash flows and our existing revolving line of credit. 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.
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.

Contractual Obligations and Commercial Commitments
The following table sets forth our long-term contractual cash obligations as of December 31, 2016 (dollars in thousands):
 
 
 
Years ending December 31,
Contractual Obligations
 
Total
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
Revolver borrowings (1)
 
$
185,000

 
$
—

 
$
—

 
$
—

 
$
—

 
$
185,000

 
$
—

Future Service Pension Benefits
 
10,153

 
684

 
790

 
859

 
936

 
1,006

 
5,878

Other (2)
 
131,266

 
77,153

 
54,113

 
—

 
—

 
—

 
—

Operating Leases
 
38,789

 
6,344

 
5,732

 
5,117

 
4,154

 
3,969

 
13,473

Total contractual cash obligations
 
$
365,208

 
$
84,181

 
$
60,635

 
$
5,976

 
$
5,090

 
$
189,975

 
$
19,351

 ______________________
(1)
Amounts exclude interest payments. Interest on the $185.0 million current balance of the revolver borrowings at current rates would be approximately $4.7 million annually.
(2)
Represents minimum annual purchase commitments to buy raw materials from suppliers.

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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 Part I, Item 3. "Legal Proceedings" and the section entitled “Commitments and Contingencies” in Note 16 of Notes to Consolidated Financial Statements in “Part II, Item 8. Consolidated Financial Statements and Supplementary Data” for additional information about such estimates.
Deferred Taxes
Deferred taxes are accounted for by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements. Accordingly, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Deferred tax assets are assessed for recoverability and a valuation allowance is considered necessary if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. We continue to analyze our current and future profitability and probability of the realization of our net deferred tax assets in future periods. Please refer to the section entitled “Income Taxes” (contained in Note 15) of Notes to Consolidated Financial Statements in “Part II, Item 8. Consolidated 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 growth rates, to the latest year for which a forecast exists.
Our market capitalization during fourth quarter of 2016 exceeded the book value of our equity.
Our reporting units for goodwill purposes are Specialty Phosphates United States, Specialty Phosphates Canada, Specialty Phosphates Mexico, Innophos Nutrition and GTSP & Other. As of October 31, 2016, the Company performed step one of the annual goodwill impairment test for each reporting unit and concluded that the fair values of all the reporting units, excluding Innophos Nutrition, were in excess of their carrying values by more than 25%. We used discount rates which commensurate with the risks inherent to each reporting unit and in our cash flow forecasts. Discount rates used in our 2016 reporting unit valuations ranged from 10% to 11%.

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Based on the current management estimates, the fair value of Innophos Nutrition is approximately 20% greater than the carrying value. An increase in the discount rate of 2% used in the goodwill impairment testing calculation would result in an estimated fair value below the carrying value for this reporting unit. If revenue levels decline or remain flat, and management does not take other compensating actions, there is an increased likelihood that the fair value may be below the carrying value for this reporting unit. The goodwill assigned to Innophos Nutrition is $32.7 million.
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, impairment losses may occur in future periods.
Long-lived assets
Under ASC 360, “ Property, Plant, and Equipment ,” long-lived assets including property, plant and equipment and amortized intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The review of these long-lived assets is performed at the individual asset level, asset group level, or the product group level depending on the lowest level for which identifiable cash flows are largely independent. The Company’s asset groupings or product groupings vary based on the interrelationship of the long-lived assets and the identifiable cash flows. For example, in certain instances, multiple manufacturing units may work with one another to produce the lowest identifiable cash flows or in other instances a stand-alone unit may produce the lowest level of identifiable cash flows. There are other instances where a stand-alone unit may produce multiple products and the lowest level of identifiable cash flows is at the product group level. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the undiscounted future cash flows expected to be generated by the asset, asset group or product group. When this comparison indicates that impairment must be recorded, the impairment recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets.
The determination of whether or not assets are impaired and the corresponding useful lives of these long-lived assets requires significant judgment. The development of future cash flow projections requires management estimates related to forecasted sales and expected costs trends. To the extent that changes in business conditions occur or other management decisions are made that result in adjusted management projections or alternative use of the assets, impairment losses or accelerated depreciation may occur in future periods.
Stock-Based Compensation Expense
Our compensation programs can include share-based payments. The primary share-based awards and their general terms and conditions currently in effect are as follows:
•
Stock options, which entitle the holder to purchase, after the end of a vesting term, a specified number of shares of Innophos common stock at an exercise price per share set equal to the market price of Innophos common stock on the date of grant.
•
Restricted stock grants, which entitle the holder to receive, at the end of each vesting term, a specified number of shares of Innophos common stock, and which also entitle the holder to receive dividends paid on such grants throughout the vesting period.
•
Performance share awards which entitle the holder to receive, at the end of a 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.


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The fair value of the options granted during 2016, 2015 and 2014 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
 
Year Ended
December 31,
2016
 
Year Ended
December 31,
2015
 
Year Ended
December 31,
2014
Expected volatility
 
33.8
%
 
40.8
%
 
50.1
%
Dividend yield
 
6.6
%
 
4.3
%
 
3.2
%
Risk-free interest rate
 
1.4
%
 
1.7
%
 
2.0
%
Expected term in years
 
6.6

 
6.0

 
6.0

Weighted average grant date fair value of stock options
 
$
4.62

 
$
12.14

 
$
20.15

The expected volatility and the expected term are based on the Company's historical data. 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, 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 $38 thousand. A 1% decrease in our expected rate of return on plan assets would increase our pension plan expense by $177 thousand.
Recently Issued Accounting Standards
New accounting standards effective in 2016 are described in the Recent Accounting Pronouncements section in Note 1 of Notes to Consolidated Financial Statements in “Part II, Item 8. Consolidated Financial Statements and Supplementary Data.”
 

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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 Credit 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, 2016, we had a $450.0 million revolving credit facility, of which $185.0 million was outstanding, which approximates fair value (determined using level 2 inputs within the fair value hierarchy), under the credit facility established by our Credit Agreement. Total remaining availability was $264.0 million, taking into account $1.0 million in face amount of letters of credit issued under the sub-facility. In December of 2012, we entered into an interest rate swap, swapping the LIBOR exposure on $100 million of floating rate debt, which is currently outstanding under our current Credit Agreement, 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 $14 thousand as of December 31, 2016.
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 $85.0 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 $0.9 million per year.
From time to time, we will enter into longer term natural gas and electricity supply contracts in an effort to eliminate some of the volatility in our energy costs. We did not enter into any economic hedges in the past three years.
We do not currently, but may from time to time, hedge our currency rate risks.
We believe that our concentration of credit risk related to trade accounts receivable is limited since these receivables are spread among a number of customers and are geographically dispersed. No customer accounted for more than 10% of our sales in the last 3 years.
Foreign Currency Exchange Rates
The U.S. Dollar is the functional currency of the Canadian and Mexican operations. Accordingly, these operations’ monetary assets and liabilities are 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. See “Part I, Item 1A. Risk Factors - Raw Materials Availability and Pricing - The success of our business depends on our ability to successfully source sufficient amounts of the raw materials used in our products at competitive prices, often from a limited number of suppliers, some of whom with we do not have a long-term contract in place.” in this Annual Report on Form 10-K for a discussion of the risks associated with our sourcing raw materials.

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ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
 
 
Page
Consolidated Financial Statements
 
 
 

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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Innophos Holdings, Inc:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Innophos Holdings, Inc. and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 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, 2016, based on criteria established in Internal Control - Integrated Framework (2013) 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. 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 28, 2017

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
 
 
December 31,
 
2016
 
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
53,487

 
$
17,905

Accounts receivable, net
77,692

 
79,743

Inventories
128,295

 
172,667

Other current assets
23,894

 
23,514

Total current assets
283,368

 
293,829

Property, plant and equipment, net
205,459

 
199,494

Goodwill
84,373

 
84,373

Intangibles and other assets, net
69,811

 
91,857

Total assets
$
643,011

 
$
669,553

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
—

 
$
4,002

Accounts payable, trade and other
51,611

 
36,898

Other current liabilities
43,605

 
63,204

Total current liabilities
95,216

 
104,104

Long-term debt
185,000

 
209,000

Other long-term liabilities
15,569

 
23,189

Total liabilities
$
295,785

 
$
336,293

Commitments and contingencies (note 16)

 

Common stock, par value $.001 per share; authorized 100,000,000; issued 22,777,690 and 22,586,016; outstanding 19,455,011 and 19,290,025 shares
19

 
19

Paid-in capital
134,694

 
132,399

Common stock held in treasury, at cost (3,322,679 and 3,295,991 shares)
(175,051
)
 
(174,685
)
Retained earnings
389,048

 
378,321

Accumulated other comprehensive loss
(1,484
)
 
(2,794
)
Total stockholders' equity
347,226

 
333,260

Total liabilities and stockholders' equity
$
643,011

 
$
669,553


See notes to consolidated financial statements

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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)
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Net sales
$
725,345

 
$
789,147

 
$
839,186

Cost of goods sold
574,953

 
645,818

 
651,722

Gross profit
150,392

 
143,329

 
187,464

Operating expenses:
 
 
 
 
 
Selling, general and administrative
67,555

 
87,304

 
76,020

Research & development expenses
3,739

 
4,502

 
4,649

Total operating expenses
71,294

 
91,806

 
80,669

Operating income
79,098

 
51,523

 
106,795

Interest expense, net
7,669

 
7,518

 
4,354

Foreign exchange losses
1,111

 
3,882

 
5,085

Income before income taxes
70,318

 
40,123

 
97,356

Provision for income taxes
22,347

 
13,777

 
32,895

Net income
$
47,971

 
26,346

 
64,461

Net income attributable to common shareholders
$
47,683

 
$
26,274

 
$
64,324

Per share data (see Note 12):
 
 
 
 
 
Income per share:
 
 
 
 
 
Basic
$
2.47

 
$
1.31

 
$
2.96

Diluted
$
2.44

 
$
1.29

 
$
2.91

Weighted average shares outstanding:
 
 
 
 
 
Basic
19,271,448

 
20,032,300

 
21,753,270

Diluted
19,581,476

 
20,323,385

 
22,121,903

 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
Change in interest rate swaps, (net of tax $24, $192, and $221)
$
(39
)
 
$
(314
)
 
$
(360
)
Change in pension and post-retirement plans, (net of tax ($749), ($194), and $377)
1,349

 
333

 
(888
)
Other comprehensive (loss) income, net of tax
$
1,310

 
$
19

 
$
(1,248
)
Comprehensive income
$
49,281

 
$
26,365

 
$
63,213


See notes to consolidated financial statements

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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, 2013
21,893

 
$
22

 
$
364,515

 
$
100,447

 
$
(1,565
)
 
$
463,419

Net income
 
 
 
 
64,461

 
 
 
 
 
64,461

Other comprehensive loss, (net of tax $598)
 
 
 
 
 
 
 
 
(1,248
)
 
(1,248
)
Proceeds from stock award exercises and issuances
119

 
 
 
 
 
160

 
 
 
160

Share-based compensation
 
 
 
 
 
 
3,280

 
 
 
3,280

Excess tax benefits from exercise of stock options
 
 
 
 
 
 
1,071

 
 
 
1,071

Common stock repurchases
(528
)
 
(1
)
 
 
 
(29,482
)
 
 
 
(29,483
)
Restricted stock forfeitures
(4
)
 
 
 
 
 
(202
)
 
 
 
(202
)
Dividends declared
 
 
 
 
(38,451
)
 
 
 
 
 
(38,451
)
Balance, December 31, 2014
21,480

 
$
21

 
$
390,525

 
$
75,274

 
$
(2,813
)
 
$
463,007

Net income
 
 
 
 
26,346

 
 
 
 
 
26,346

Other comprehensive income, (net of tax ($2))
 
 
 
 
 
 
 
 
19

 
19

Proceeds from stock award exercises and issuances
139

 

 
 
 
246

 
 
 
246

Share-based compensation
 
 
 
 
 
 
6,618

 
 
 
6,618

Excess tax benefits from exercise of stock options
 
 
 
 
 
 
975

 
 
 
975

Common stock repurchases
(2,319
)
 
(2
)
 
 
 
(124,998
)
 
 
 
(125,000
)
Restricted stock forfeitures
(10
)
 
 
 
 
 
(401
)
 
 
 
(401
)
Dividends declared
 
 
 
 
(38,550
)
 
 
 
 
 
(38,550
)
Balance, December 31, 2015
19,290

 
$
19

 
$
378,321

 
$
(42,286
)
 
$
(2,794
)
 
$
333,260

Net income
 
 
 
 
47,971

 
 
 
 
 
47,971

Other comprehensive income, (net of tax ($725))
 
 
 
 
 
 
 
 
1,310

 
1,310

Proceeds from stock award exercises and issuances
192

 


 
 
 
(1,428
)
 
 
 
(1,428
)
Share-based compensation
 
 
 
 
 
 
3,732

 
 
 
3,732

Excess tax benefits from exercise of stock options
 
 
 
 
 
 
(9
)
 
 
 
(9
)
Restricted stock forfeitures
(27
)
 
 
 
 
 
(366
)
 
 
 
(366
)
Dividends declared
 
 
 
 
(37,244
)
 
 
 
 
 
(37,244
)
Balance, December 31, 2016
19,455

 
$
19

 
$
389,048

 
$
(40,357
)
 
$
(1,484
)
 
$
347,226


See notes to consolidated financial statements

Page 43 of 84


Table of Contents

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Cash flows from operating activities
 
 
 
 
 
Net income
$
47,971

 
$
26,346

 
$
64,461

Adjustments to reconcile net income to net cash provided from operating activities:
 
 
 
 
 
Depreciation and amortization
37,479

 
38,535

 
35,461

Amortization of deferred financing charges
680

 
615

 
526

Deferred income tax provision (benefit)
9,534

 
(36,637
)
 
2,846

Share-based compensation
2,822

 
6,618

 
3,280

Changes in assets and liabilities:
 
 
 
 
 
Decrease (increase) in accounts receivable
2,058

 
10,784

 
(2,087
)
Decrease (increase) in inventories
44,012

 
12,071

 
(3,054
)
(Increase) decrease in other current assets
(634
)
 
23,264

 
11,761

Increase (decrease) in accounts payable
14,703

 
(16,436
)
 
14,195

(Decrease) increase in other current liabilities
(18,926
)
 
27,932

 
213

Changes in other long-term assets and liabilities
(590
)
 
5,834

 
(821
)
Net cash provided from operating activities
139,109

 
98,926

 
126,781

Cash flows used for investing activities:
 
 
 
 
 
Capital expenditures
(36,599
)
 
(31,699
)
 
(27,955
)
Acquisition of intangible assets
—

 
—

 
(1,443
)
Net cash used for investing activities
(36,599
)
 
(31,699
)
 
(29,398
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from exercise of stock options
17

 
246

 
160

Long-term debt borrowings
41,000

 
159,000

 
9,000

Long-term debt repayments
(69,002
)
 
(82,003
)
 
(36,004
)
Deferred financing costs
(1,495
)
 
(277
)
 
(191
)
Excess tax benefits from exercise of stock options
(9
)
 
975

 
1,071

Common stock repurchases
(366
)
 
(125,401
)
 
(29,684
)
Dividends paid
(37,217
)
 
(38,558
)
 
(38,394
)
Net cash used for financing activities
(67,072
)
 
(86,018
)
 
(94,042
)
Effect of foreign exchange rate changes on cash and cash equivalents
144

 
489

 
111

Net change in cash
35,582

 
(18,302
)
 
3,452

Cash and cash equivalents at beginning of period
17,905

 
36,207

 
32,755

Cash and cash equivalents at end of period
$
53,487

 
$
17,905

 
$
36,207


See notes to consolidated financial statements

Page 44 of 84


Table of Contents

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 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 and cleaning agents in toothpaste, and they also provide a wide range of nutritional fortification solutions for food, beverage and nutritional supplement manufacturers.
More recently, Innophos' focus has expanded to include 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,” such as calcium, magnesium and potassium that are required in relatively large amounts for a balanced diet. Innophos is now continuing to build a strong position in “micronutrients”, such as chromium, selenium, zinc and iron, small quantities of which are also essential to the human diet. Innophos continues to target growth 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 Innophos' customers for their nutritional value, and mineral, botanical and specialty phosphate ingredients are often formulated together. Innophos' more recent focus on the botanical and enzyme based specialty nutrional ingredients sector, together with Innophos’ existing strength in specialty phosphates, has created a strong position for Innophos in the attractive and higher growth specialty nutritional ingredients market.
Innophos commenced operations as an independent company in August 2004 after purchasing its 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, Innophos completed an initial public offering and listed its common stock for trading on the Nasdaq Global Select Market under the symbol “IPHS”.
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.
Certain prior year balances have been restated 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 impairment testing 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

Page 45 of 84


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

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 is evaluated based on the length of time the receivables are past due, historical experience and financial wherewithal of the customer. In circumstances when it is probable that a specific customer is unable to meet its financial obligations, an allowance is recorded to reduce the receivable to the amount that is reasonably expected to be collected.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on the basis of the first-in, first-out method. These costs include raw materials, direct labor, manufacturing overhead and depreciation. Spare parts are included in inventory and are initially recorded at cost.
Inventories, including spare parts, are evaluated for excess quantities, obsolescence or shelf-life expiration. This evaluation includes an analysis of historical sales levels by product and projections of future demand. To the extent management determines there are excess, obsolete or expired inventory quantities, valuation reserves are recorded against all or a portion of the value of the related products with the appropriate charge to cost of goods sold.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Major renewals and improvements are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. The cost and related accumulated depreciation of all property, plant and equipment retired or otherwise disposed of are eliminated from the accounts and any resulting gain or loss is reflected in net income. Interest is capitalized in connection with the construction of major renewals and improvements. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Depreciation is calculated on the straight-line basis over the estimated useful lives of the related assets, typically ranging from ten to forty years for buildings and improvements, three to twenty years for machinery and equipment, and three to seven years for capitalized software. Leasehold improvements are amortized over the lease term or the estimated useful life of the improvement, whichever is less.
External direct costs in developing or obtaining internal use computer software and payroll, and payroll-related costs for employees dedicated solely to the project, to the extent of the time spent directly on the project and which they meet the requirements of ASC 350-40, are capitalized.
Long-Lived Assets
Under ASC 360,” Property, Plant, and Equipment ,” long-lived assets including property, plant and equipment and amortizable intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The review of these long-lived assets is performed at the individual asset level, asset group level, or the product group level depending on the lowest level for which identifiable cash flows are largely independent. The Company’s asset groupings or product groupings vary based on the interrelationship of the long-lived assets and the identifiable cash flows. For example, in certain instances, multiple manufacturing units may work with one another to produce the lowest identifiable cash flows or in other instances a stand-alone unit may produce the lowest 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

Page 46 of 84


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

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. 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, impairment losses may occur in future periods. 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. 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 .

Page 47 of 84


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

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 filed consolidated Mexico tax returns from 2011 through 2015, but changed to filing separate tax returns in 2016, the Company's Canadian subsidiary which files a separate Canadian tax return and the Netherlands which files a fiscal unity return. The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases using enacted tax rates applied to those differences.
Deferred tax assets are assessed for realizability and a valuation allowance is provided if a portion of the associated tax benefit is not expected to be realized.
If any material uncertain tax positions arise, the Company’s policy is to accrue associated penalties in selling, general and administrative expenses and to accrue interest as part of net interest expense. Other than the assessments disclosed in Note 15, Income Taxes, as of December 31, 2016, 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.

Page 48 of 84


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

Recently Issued Accounting Standards
Adopted
In June 2014, the Financial Accounting Standard Board (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. The adoption of this standard did not 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 ending after December 15, 2016; early adoption is permitted. The adoption of the new accounting rules did not have a material effect 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 were effective for us in the first quarter of 2016. The adoption of the new accounting rules did not have a material impact on our financial position, results of operations and related disclosures.
In February 2015, the FASB issued amendments to the criteria for determining which entities are considered variable interest entities (VIEs) and to the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2015. The adoption of this standard did not have a material impact on our financial position, results of operations and related disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and in August 2015 issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Under ASU 2015-03, debt issuance costs reported on the consolidated balance sheet would be reflected as a direct deduction from the related debt liability rather than as an asset. While ASU 2015-03 addresses costs related to term debt, ASU No. 2015-15 provides clarification regarding costs to secure revolving lines of credit, which are, at the outset, not associated with an outstanding borrowing. ASU No. 2015-15 provides commentary that the SEC staff would not object to an entity deferring and presenting costs associated with line-of-credit arrangements as an asset and subsequently amortizing them ratably over the term of the revolving debt arrangement. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2015, and early adoption is permitted. The adoption of the new accounting rules did not have a material impact on our financial position, results of operations and related disclosures.
In September 2015, the FASB issued guidance which eliminates the requirement to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated.  Measurement period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined.  Additional disclosures are required about the impact on current-period income statement line items of adjustments that would have been recognized in prior periods if prior-period information had been revised. The guidance is effective for annual periods beginning after December 15, 2015 and is to be applied prospectively to adjustments of provisional amounts that occur after the effective date.  Early application is permitted. The adoption of the new accounting rules did not have a material impact on our financial position, results of operations and related disclosures.
Issued but not yet adopted
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

Page 49 of 84


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

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. In July 2015, the FASB approved the deferral of the effective date of this guidance by one year (with an option to early adopt at the original effective date), making it effective for the interim and annual periods beginning on or after December 15, 2017. As a result, this guidance will be effective for the Company beginning in fiscal year 2018, with an option to early adopt in fiscal year 2017. The guidance permits the use of either a retrospective or modified retrospective transition method. We will adopt the standard using the modified retrospective transition method on January 1, 2018 and are currently evaluating the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures. Our ongoing evaluation of the impact of the guidance includes the revenue recognition of certain free on board destination point sales across all of our businesses.
In July 2015, the FASB issued guidance which requires entities to measure most inventory “at the lower of cost and net realizable value (“NRV”),” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. Under the new guidance, inventory is “measured at the lower of cost and net realizable value,” which eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV less a normal profit margin). The guidance defines NRV as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” The guidance is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We do not anticipate the adoption of the new accounting rules will have a material impact on our financial position, results of operations and related disclosures.
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 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. We are currently in the process of evaluating the impact of adoption of the ASU on our financial position, results of operations and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation.  ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-15, Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows. ASU 2016-15 clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which reduces the complexity in the accounting standards by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs. Historically, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. This amendment should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. There are no new disclosure requirements. This ASU is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted in the first interim period of 2017. The adoption of this guidance is not expected to have a significant effect on our financial position, results of operations and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. Under the ASU, changes in restricted cash and restricted cash equivalents would be included along with those of cash and cash equivalents in the statement of cash flows. As a result, entities

Page 50 of 84


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

would no longer present transfers between cash/equivalents and restricted cash/equivalents in the statement of cash flows. In addition, a reconciliation between the balance sheet and the statement of cash flows would be disclosed when the balance sheet includes more than one line item for cash/equivalents and restricted cash/equivalents. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We do not anticipate the adoption of the new accounting rules will have a material impact on our financial position, results of operations and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business , which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We would apply this guidance to applicable transactions after the adoption date.
  In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment . Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. We are currently in the process of evaluating the impact of adoption of the ASU on our financial position, results of operations and related disclosures.

Page 51 of 84


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


2. Restructuring and Management Transition Costs:
During 2015 management evaluated several initiatives to improve the overall operating efficiency of the organization. As a result of this evaluation we launched an initiative to reduce our cost structure by implementing various staff reduction actions during the third quarter of 2015.
In addition, during the fourth quarter of 2015, the Company experienced a management transition of certain high-level positions, most notably the Chief Executive Officer and the Chief Financial Officer.
During the third and fourth quarters of 2015, we incurred restructuring and management transition costs of $8.6 million and $11.8 million , respectively. The amounts recorded within selling, general and administrative expenses in the statements of operations were $17.1 million and cost of goods sold were $3.3 million .
During 2016, we incurred additional amounts in connection with continued restructuring of $1.6 million (including accelerated stock compensation of $0.3 million ) within selling, general and administrative expenses and $0.1 million within cost of goods sold. The Company expects to make $4.7 million of payments associated with these actions within the next twelve months.
The following table summarizes the activities related to severance and benefits for restructuring and management transition costs:
 
2016
 
2015
Balance at beginning of year
$
13,389

 
$
—

Total expense recorded
1,718

 
20,410

Accelerated share-based compensation expense (a)
(254
)
 
(4,194
)
Payments made
(8,497
)
 
(2,827
)
Balance at end of year
$
6,356

 
$
13,389

(a) Accelerated stock-based compensation expense adjustments due to management transition.


3. Inventories:
Inventories consist of the following:
 
 
2016
 
2015
Raw materials
$
33,185

 
$
44,391

Finished products
81,369

 
115,305

Spare parts
13,741

 
12,971

 
$
128,295

 
$
172,667


Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of December 31, 2016 and December 31, 2015 were $13,422 and $16,946 , respectively. In 2015, as a result of current deteriorating market conditions, including demand and price erosion, in 2015 the Company increased its obsolescence and net realizable value reserves by approximately $3,033 for Specialty Phosphate products and $1,280 for GTSP.

Page 52 of 84


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


4. Other Current Assets:
Other current assets consist of the following:
 
 
2016
 
2015
Creditable taxes (value added taxes)
$
9,722

 
$
8,235

Vendor inventory deposits (prepaid)
3,750

 
7,977

Prepaid income taxes
4,659

 
2,668

Prepaid insurance
2,248

 
2,070

Other
3,515

 
2,564

 
$
23,894

 
$
23,514



5. Property, Plant and Equipment, net:
Property, plant and equipment, at cost, consist of the following:
 
 
 
2016
 
2015
 
Useful life (years)
 
Gross
 
Accumulated Depreciation
 
Net Book Value
 
Gross
 
Accumulated Depreciation
 
Net Book Value
Land
-
 
$
19,053

 
$
—

 
$
19,053

 
$
19,213

 
$
—

 
$
19,213

Land improvements -
3-15
 
11,303

 
9,495

 
1,808

 
10,920

 
9,119

 
1,801

Buildings and improvements -
2-9
 
9,486

 
9,419

 
67

 
9,486

 
9,354

 
132

 
10
 
15,526

 
9,079

 
6,447

 
13,636

 
7,758

 
5,878

 
14-16
 
12,105

 
8,915

 
3,190

 
12,094

 
8,112

 
3,982

 
20
 
39,128

 
15,451

 
23,677

 
37,796

 
13,515

 
24,281

 
25-34
 
21,687

 
6,741

 
14,946

 
22,177

 
6,096

 
16,081

Machinery & Equipment -
1-4
 
24,515

 
17,801

 
6,714

 
20,847

 
15,241

 
5,606

 
5
 
46,545

 
34,824

 
11,721

 
42,734

 
30,297

 
12,437

 
6
 
49,493

 
49,216

 
277

 
49,201

 
49,180

 
21

 
7
 
52,785

 
44,781

 
8,004

 
52,822

 
40,695

 
12,127

 
8
 
167,938

 
150,883

 
17,055

 
166,649

 
147,798

 
18,851

 
9
 
26,413

 
26,140

 
273

 
26,523

 
26,181

 
342

 
10
 
15,920

 
5,964

 
9,956

 
9,545

 
4,954

 
4,591

 
11
 
11,852

 
11,847

 
5

 
11,946

 
11,941

 
5

 
12-13
 
9,478

 
9,419

 
59

 
9,478

 
8,950

 
528

 
15
 
106,587

 
36,571

 
70,016

 
89,753

 
30,836

 
58,917

 
16-21
 
1,657

 
1,060

 
597

 
1,657

 
973

 
684

Construction-in-progress
-
 
11,594

 
—

 
11,594

 
14,017

 
—

 
14,017

 
 
 
$
653,065

 
$
447,606

 
$
205,459

 
$
620,494

 
$
421,000

 
$
199,494


Depreciation expense, excluding depreciation expense in changes of inventory, was $30,142 , $31,594 and $31,156 in 2016 , 2015 and 2014 , respectively. Depreciation expense in changes of inventory was $113 , $(292) and $(2,866) , in 2016 , 2015 and 2014 , respectively. The carrying value of capitalized software, included in machinery and equipment, was $8,141 , $10,919 and $12,302 for the years ended December 31, 2016 , December 31, 2015 and December 31, 2014 , respectively.

Page 53 of 84


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

 
6. Goodwill:
 
 
Specialty
Phosphates
US
 
Nutrition
 
Specialty
Phosphates
Canada
 
Specialty
Phosphates
Mexico
 
GTSP &
Other
 
Total
Balance, December 31, 2016, 2015 and 2014
$
7,237

 
$
32,667

 
$
2,530

 
$
38,584

 
$
3,355

 
$
84,373

 

7. Intangibles and Other Assets, net:
Intangibles and other assets consist of the following:
 
Useful life
(years)
 
2016
 
2015
Developed technology and application patents, net of accumulated amortization of $27,778 for 2016 and $24,840 for 2015
7-20
 
18,497

 
21,435

Customer relationships, net of accumulated amortization of $18,569 for 2016 and $15,812 for 2015
5-15
 
20,243

 
23,000

Trade names and license agreements, net of accumulated amortization of $10,315 for 2016 and $8,944 for 2015
5-20
 
7,346

 
8,717

Non-compete agreement, net of accumulated amortization of $1,268 for 2016 and $1,112 for 2015
3-10
 
65

 
221

Total intangibles
 
 
$
46,151

 
$
53,373

Deferred income taxes
 
 
$
18,432

 
$
28,842

Deferred financing costs, net of accumulated amortization of $3,473 for 2016 and $2,793 for 2015 (see note 9)
 
 
2,150

 
1,335

Other tax assets
 
 
997

 
6,014

Other assets
 
 
2,081

 
2,293

Total other assets
 
 
$
23,660

 
$
38,484

 
 
 
$
69,811

 
$
91,857


Amortization expense for intangibles was $7,222 , $7,233 and $7,171 in 2016 , 2015 and 2014 , respectively. Anticipated amortization expense for the next five years related to intangibles is as follows:
 
 
2017
 
2018
 
2019
 
2020
 
2021
Intangible amortization expense
$
7,008

 
$
6,865

 
$
6,325

 
$
5,707

 
$
5,069


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.

Page 54 of 84


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


8. Other Current Liabilities:
Other current liabilities consist of the following:
 
 
2016
 
2015
Payroll related
$
11,852

 
$
9,513

Taxes other than income taxes
2,624

 
5,779

Benefits and pensions
5,419

 
5,764

Freight and rebates
3,579

 
4,606

Income taxes
9,278

 
23,609

Restructuring reserve
4,737

 
9,335

Other
6,116

 
4,598

 
$
43,605

 
$
63,204


9. Short-term Borrowings, Long-Term Debt, and Interest Expense:
Short-term borrowings and long-term debt consist of the following:
 
2016
 
2015
Term loan
$
—

 
$
88,000

Revolver borrowings under the credit facility due 2022
185,000

 
125,000

Capital leases
—

 
2

Total borrowings
$
185,000

 
$
213,002

Less current portion
—

 
4,002

Long-term debt
$
185,000

 
$
209,000


In December 2016, Innophos Holdings, Inc. and certain of its directly and/or indirectly wholly-owned subsidiaries (referred to in this note as the "Company") entered into a new senior secured credit facility, or Credit Agreement, with a group of lenders, or the Lenders, increasing the Company's borrowing capacity. The Credit Agreement replaces the term loan of $100.0 million and revolving line of credit under the prior facility with a $450.0 million revolving line of credit, including a $20.0 million letter of credit sub-facility and a $20.0 million swingline loan facility, all maturing on December 22, 2022. Interest accruing on amounts borrowed under the revolving line is based on an applicable margin over LIBOR (London Interbank Offered Rate) or bank base rate, ranging from 100 to 225 basis points for LIBOR and 0 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 12.5 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 175 , 75 and 27.5 basis points, respectively.
The Credit Agreement also provides for possible additional revolving indebtedness under an incremental facility of up to $150.0 million (for an aggregate of revolving capacity up to $600.0 million ) upon future request by the Company 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 Company's foreign subsidiaries.
The Credit Agreement contains representations given to the Lenders about the nature and status of the Company's business that serve as conditions to future borrowings, and affirmative, as well as negative, covenants typical of credit facilities of this kind that prohibit or limit a variety of actions by the Company and its 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 55 of 84


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 Company retains flexibility under the Credit Agreement to develop its 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 $213.0 million and can increase with ongoing cash generation up to as high as $425.0 million .
Among its affirmative covenants, the Credit Agreement requires the Company 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 3.50 to 1.00 .
(b) “Interest Coverage Ratio” greater than or equal to 3.00 to 1.00 .
As of December 31, 2016 , the Accessible Borrowing Availability was $264.0 million and the Total Leverage Ratio and Interest Coverage Ratio calculated in accordance with the agreement were 1.51 and 17.60 , respectively.
As of December 31, 2016 , 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 credit 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 2016 with the Credit Agreement were approximately $1.5 million . This amount was recorded as deferred financing costs and are being amortized over the term of the Credit Agreement using the effective interest method.
As of December 31, 2016 , $185.0 million was outstanding under the revolving line of credit, which approximates fair value (determined using level 2 inputs within the fair value hierarchy), with total availability at 264.0 million , taking into account $1.0 million in face amount of letters of credit issued under the sub-facility. The current weighted average interest rate for all debt is 2.8% .
In December 2012, Innophos entered into an interest rate swap, swapping the LIBOR exposure on $100.0 million floating rate debt, which is currently outstanding under the Credit Facility, to a fixed rate to maturity obligation of 0.9475% 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 $14 thousand as of December 31, 2016 .
We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt to the extent practicable consistent with our credit status.
Innophos and its subsidiaries and affiliates may from time to time seek to acquire or otherwise retire outstanding debt through 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 2016 , 2015 and 2014 was $8.0 million , $5.9 million and $4.1 million .
 


Page 56 of 84


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

Interest expense, net consists of the following:
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Interest expense
$
7,210

 
$
7,079

 
$
3,977

Deferred financing cost
680

 
615

 
526

Interest income
(53
)
 
(65
)
 
(40
)
Less: amount capitalized for capital projects
(168
)
 
(111
)
 
(109
)
Total interest expense, net
$
7,669

 
$
7,518

 
$
4,354


10. Other Long-Term Liabilities:
Other long-term liabilities consist of the following:
 
 
2016
 
2015
Deferred income taxes
$
1,282

 
$
2,135

Pension and post retirement liabilities
7,689

 
9,612

Restructuring reserve
1,618

 
4,054

Uncertain tax positions
1,974

 
2,416

Environmental liabilities
1,100

 
1,100

Other liabilities
1,906

 
3,872

 
$
15,569

 
$
23,189


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 equivalent to dividends will accrue over the performance period and are paid on performance share awards when vested and distributed.
•
Annual stock retainer grants, which entitle independent members of the Board of Directors to receive a number of shares of the Company’s common stock, which immediately vest, equal to a fixed retainer value.

Page 57 of 84


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

The following table summarizes the components of stock-based compensation expense, all of which has been classified as selling, general and administrative expense:
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Stock options
$
994

 
$
2,521

 
$
1,346

Restricted stock
1,490

 
2,080

 
1,066

Performance shares
(257
)
 
1,507

 
598

Stock grants
595

 
510

 
270

Total stock-based compensation expense (a)
$
2,822

 
$
6,618

 
$
3,280

 (a) 2016 and 2015 include accelerated stock-based compensation expense adjustments of $(254) and $4,194 , respectfully due to management transition.

A summary of restricted stock activity during the three years ended December 31, 2016 , is presented below:

 
Number
of Shares
 
Weighted
Average
Grant
Date Fair
Value
Outstanding at January 1, 2014
33,064

 
$
53.22

Granted
26,995

 
55.49

Released
(5,894
)
 
52.89

Forfeited / Surrendered
(3,829
)
 
53.13

Outstanding at December 31, 2014
50,336

 
$
54.49

Outstanding at January 1, 2015
50,336

 
$
54.49

Granted
92,433

 
34.40

Released
(7,066
)
 
53.84

Forfeited / Surrendered
(10,372
)
 
53.27

Outstanding at December 31, 2015
125,331

 
$
40.85

Outstanding at January 1, 2016
125,331

 
$
40.85

Granted
88,836

 
31.47

Released
(7,796
)
 
53.18

Forfeited / Surrendered
(29,920
)
 
40.79

Outstanding at December 31, 2016
176,451

 
$
35.27




Page 58 of 84


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, 2016 , is presented below:
 
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014
668,728

 
$
25.34

 
 
Granted
77,391

 
55.49

 
20.15

Forfeited / Expired / Surrendered
(33,387
)
 
21.58

 
 
Exercised
(87,412
)
 
14.52

 
 
Outstanding at December 31, 2014
625,320

 
$
30.87

 
 
Exercisable at December 31, 2014
498,719

 
$
24.91

 
 
Outstanding at January 1, 2015
625,320

 
$
30.87

 
 
Granted
157,961

 
42.38

 
12.14

Forfeited / Expired / Surrendered
(37,364
)
 
31.62

 
 
Exercised
(53,995
)
 
19.78

 
 
Outstanding at December 31, 2015
691,922

 
$
34.33

 
 
Exercisable at December 31, 2015
543,905

 
$
31.87

 
 
Outstanding at January 1, 2016
691,922

 
$
34.33

 
 
Granted
400,215

 
31.18

 
4.62

Forfeited / Expired / Surrendered
(260,913
)
 
33.17

 
 
Exercised
(91,029
)
 
19.55

 
 
Outstanding at December 31, 2016
740,195

 
$
34.84

 
 
Exercisable at December 31, 2016
368,159

 
$
37.06

 
 

The fair value of the options granted during 2016 , 2015 and 2014 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
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
Expected volatility
 
33.8
%
 
40.8
%
 
50.1
%
Dividend yield
 
6.6
%
 
4.3
%
 
3.2
%
Risk-free interest rate
 
1.4
%
 
1.7
%
 
2.0
%
Expected term in years
 
6.6

 
6.0

 
6.0

Weighted average grant date fair value of stock options
 
$
4.62

 
$
12.14

 
$
20.15


The expected volatility and the expected term are based on the Company's historical data. The dividend yield is the expected annual dividend payments divided by the average stock price up to the date of grant. The risk-free interest rates are derived from the U.S. Treasury securities in effect on the date of grant whose maturity period equals the options expected term. The Company applies an expected forfeiture rate to stock-based compensation expense. The estimate of the forfeiture rate is based primarily upon historical experience of employee turnover. As actual forfeitures become known, stock-based compensation expense is adjusted accordingly.


Page 59 of 84


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:
 
 
Number
of Shares
 
Weighted
Average
Grant
Date Fair
Value
Outstanding at January 1, 2014
12,389

 
54.59

Granted (at targeted return on invested capital and contribution margin growth)
44,698

 
55.49

Forfeited
—

 
—

Vested
—

 
—

Adjustment to estimate of shares to be earned
(12,389
)
 
54.59

Outstanding at December 31, 2014
44,698

 
$
55.49

Outstanding at January 1, 2015
44,698

 
$
55.49

Granted (at targeted return on invested capital and contribution margin growth)
62,225

 
42.31

Forfeited
—

 
—

Vested
(37,835
)
 
53.05

Adjustment to estimate of shares to be earned
(36,671
)
 
51.48

Outstanding at December 31, 2015
32,417

 
$
37.58

Outstanding at January 1, 2016
32,417

 
$
37.58

Granted (at targeted return on invested capital and contribution margin growth)
—

 
—

Forfeited
—

 
—

Vested
(12,401
)
 
54.46

Adjustment to estimate of shares to be earned
(20,016
)
 
27.12

Outstanding at December 31, 2016
—

 
$
—


The total intrinsic value of options exercised and stock grants during 2016 , 2015 and 2014 was $5.9 million , $4.9 million and $5.2 million , respectively. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2016 was $12.9 million and $5.6 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
 
$
4,323

 
$
2,216

 
$
—

Weighted-average years to be recognized
 
1.9

 
1.4

 
1.1

The Board of Directors authorized a stock repurchase program, commencing January 1, 2015, pursuant to which the Registrant was authorized to acquire for cash in open market or private transactions from time to time up to $125.0 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 depended upon market conditions and other factors. The repurchase program was funded through existing liquidity, including borrowings from the Senior Credit Facility, and cash from operations. Treasury stock was recognized at the cost to reacquire the shares. During 2015, the Company repurchased 2,318,720 shares of its common stock on the open market at an average price of $53.91 per share or $125.0 million .
 

Page 60 of 84


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



12. Earnings per share (EPS)
The Company accounts for earnings per share in accordance with ASC 260 and related guidance, which requires two calculations of earnings per share (EPS) to be disclosed: basic EPS and diluted EPS. Under ASC Subtopic 260-10-45, as of January 1, 2009 unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock, are considered participating securities for purposes of calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock, as shown in the table below.
The numerator for basic and diluted earnings per share is net earnings attributable to shareholders reduced by dividends attributable to unvested shares. The denominator for basic earnings per share is the weighted average number of common stock outstanding during the period. The denominator for diluted earnings per share is weighted average shares outstanding adjusted for the effect of dilutive outstanding stock options, performance share awards and restricted stock awards.
The following is a reconciliation of the weighted average basic number of common shares outstanding to the diluted number of common and common stock equivalent shares outstanding and the calculation of earnings per share using the two-class method:
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Net income
47,971

 
26,346

 
64,461

Less: earnings attributable to unvested shares
(288
)
 
(72
)
 
(137
)
Net income available to common shareholders
$
47,683

 
$
26,274

 
$
64,324

Weighted average number of common and potential common shares outstanding:
 
 
 
 
 
Basic number of common shares outstanding
19,271,448

 
20,032,300

 
21,753,270

Dilutive effect of stock equivalents
310,028

 
291,085

 
368,633

Diluted number of weighted average common shares outstanding
19,581,476

 
20,323,385

 
22,121,903

Earnings per common share:
 
 
 
 
 
Earnings per common share—Basic
$
2.47

 
$
1.31

 
$
2.96

Earnings per common share—Diluted
$
2.44

 
$
1.29

 
$
2.91


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 445,303 , 444,334 and 313,794 for the years ended 2016 , 2015 and 2014 , respectively.

Page 61 of 84


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 2016 , 2015 and 2014 :
 
 
2016
 
Quarters ended
 
March 31
 
June 30
 
September 30
 
December 31
 
Total
Dividends declared – per share
$
0.48

 
$
0.48

 
$
0.48

 
$
0.48

 
$
1.92

Dividends declared – aggregate
9,256

 
9,308

 
9,327

 
9,326

 
37,217

Dividends paid – per share
0.48

 
0.48

 
0.48

 
0.48

 
1.92

Dividends paid – aggregate
9,256

 
9,308

 
9,327

 
9,326

 
37,217

 
 
 
 
 
 
 
 
 
 
 
2015
 
Quarters ended
 
March 31
 
June 30
 
September 30
 
December 31
 
Total
Dividends declared – per share
$
0.48

 
$
0.48

 
$
0.48

 
$
0.48

 
$
1.92

Dividends declared – aggregate
10,198

 
9,863

 
9,261

 
9,236

 
38,558

Dividends paid – per share
0.48

 
0.48

 
0.48

 
0.48

 
1.92

Dividends paid – aggregate
10,198

 
9,863

 
9,261

 
9,236

 
38,558

 
 
 
 
 
 
 
 
 
 
 
2014
 
Quarters ended
 
March 31
 
June 30
 
September 30
 
December 31
 
Total
Dividends declared – per share
$
0.40

 
$
0.40

 
$
0.48

 
$
0.48

 
$
1.76

Dividends declared – aggregate
8,766

 
8,780

 
10,477

 
10,371

 
38,394

Dividends paid – per share
0.40

 
0.40

 
0.48

 
0.48

 
1.76

Dividends paid – aggregate
8,766

 
8,780

 
10,477

 
10,371

 
38,394


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 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

Page 62 of 84


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

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 $38 . A 1% decrease in our expected rate of return on plan assets would increase our pension plan expense by $177 .
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 2017 are as follows:
 
 
Pension
 
Other
Benefits
 
Total
Prior service cost
$
104

 
$
—

 
$
104

Net actuarial loss (gain)
170

 
(199
)
 
(29
)
Transition obligation
—

 
23

 
23


The changes in benefit obligations and fair value of plan assets recognized in other comprehensive loss during 2016 and 2015 are as follows:
 
 
Pension Benefits
 
Other Benefits
 
Total
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Change in accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
Amortization of net gain
$
(208
)
 
$
(226
)
 
$
100

 
$
48

 
$
(108
)
 
$
(178
)
Amortization of prior service cost / transition obligation
(106
)
 
(110
)
 
(23
)
 
(24
)
 
(129
)
 
(134
)
Net loss (gain)
(340
)
 
72

 
(1,521
)
 
(286
)
 
(1,861
)
 
(214
)
Total change in accumulated other comprehensive income
(654
)
 
(264
)
 
(1,444
)
 
(262
)
 
(2,098
)
 
(526
)
Deferred taxes
203

 
92

 
546

 
101

 
749

 
193

Net amount recognized
$
(451
)
 
$
(172
)
 
$
(898
)
 
$
(161
)
 
$
(1,349
)
 
$
(333
)


Page 63 of 84


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
 
 
Pension Benefits
 
Other Benefits
 
2016
 
2015
 
2016
 
2015
Accumulated benefit obligation at end of year
$
2,473

 
$
2,670

 
$
2,974

 
$
4,285

Change in benefit obligation
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
2,670

 
$
2,904

 
$
4,285

 
$
4,308

Service cost
—

 
—

 
172

 
292

Interest cost
114

 
114

 
165

 
163

Actuarial (gain) loss
(250
)
 
(297
)
 
(1,523
)
 
(316
)
Benefits paid
(61
)
 
(51
)
 
(125
)
 
(162
)
Benefit obligation at end of year
$
2,473

 
$
2,670

 
$
2,974

 
$
4,285

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
2,124

 
$
2,098

 
$
—

 
$
—

Actual return on plan assets
200

 
(23
)
 
—

 
—

Employer contributions
—

 
100

 
125

 
162

Benefits paid
(61
)
 
(51
)
 
(125
)
 
(162
)
Fair value of plan assets at end of year
$
2,263

 
$
2,124

 
$
—

 
$
—

Funded status of the plan
$
(210
)
 
$
(546
)
 
$
(2,974
)
 
$
(4,285
)
Amounts recognized in the consolidated balance sheets
 
 
 
 
 
 
 
Noncurrent assets
$
—

 
$
—

 
$
—

 
$
—

Current liabilities
—

 
—

 
(120
)
 
(220
)
Noncurrent liabilities
(210
)
 
(546
)
 
(2,854
)
 
(4,065
)
Net amounts recognized
$
(210
)
 
$
(546
)
 
$
(2,974
)
 
$
(4,285
)
Amounts recognized in accumulated other comprehensive income
 
 
 
 
 
 
 
Prior service (credit) cost
$
—

 
$
—

 
$
—

 
$
—

Net actuarial loss (gain)
114

 
418

 
(2,274
)
 
(850
)
Total amount recognized
$
114

 
$
418

 
$
(2,274
)
 
$
(850
)
Deferred taxes
(43
)
 
(159
)
 
864

 
323

Net amount recognized
71

 
259

 
(1,410
)
 
(527
)


Page 64 of 84


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

 
Pension Benefits
 
Other Benefits
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
172

 
$
292

 
$
289

Interest cost
114

 
114

 
119

 
165

 
163

 
168

Expected return on plan assets
(145
)
 
(140
)
 
(122
)
 
—

 
—

 
—

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
—

 
—

 
—

 
—

 
—

 
—

Actuarial loss (gain)
—

 
68

 
—

 
(100
)
 
(48
)
 
(69
)
Net periodic benefit cost
$
(31
)
 
$
42

 
$
(3
)
 
$
237

 
$
407

 
$
388

Weighted average assumptions for benefit obligation
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.16
%
 
4.50
%
 
4.00
%
 
4.22
%
 
4.25
%
 
4.00
%
Expected long-term rate of return on plan assets
6.20
%
 
6.51
%
 
6.65
%
 
NA

 
NA

 
NA

Rate of compensation increase
NA

 
NA

 
NA

 
3.75
%
 
3.75
%
 
3.00
%
Weighted average assumptions for net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.50
%
 
4.00
%
 
5.00
%
 
4.25
%
 
4.00
%
 
4.50
%
Expected long-term rate of return on plan assets
6.51
%
 
6.65
%
 
6.30
%
 
NA

 
NA

 
NA

Rate of compensation increase
NA

 
NA

 
NA

 
3.75
%
 
3.00
%
 
3.00
%
 
Estimated Future Benefit Payments
 
Pension Benefits
 
Other Benefits
Fiscal 2017
 
$
75

 
$
120

Fiscal 2018
 
89

 
149

Fiscal 2018
 
100

 
178

Fiscal 2020
 
110

 
180

Fiscal 2021
 
119

 
184

Fiscal Years 2022-2026
 
720

 
890


Innophos expects to make no contributions to its U.S. defined benefit pension plan in 2017.
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 2017 fiscal year are $0 , $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 2017 fiscal year are $199 , $0 and $0 , respectively.
Assumed health care cost trend rates on the U.S. plans do not have a significant effect on the amounts reported for the health care plans as a result of limits on the Company’s share of the cost.


Page 65 of 84


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 U.S. 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, 2016 and 2015 by asset category are as follows:
 
 
Plan Assets at
December 31
 
2016
 
2015
Asset Category
 
 
 
Equity securities
92.7
%
 
90.6
%
Fixed income securities
7.3

 
9.4

Total
100.0
%
 
100.0
%

The fair values of Innophos, Inc.’s pension plan assets at December 31, 2016 by asset category are as follows:
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Equity securities
$
2,097

 
$
2,097

 
$
—

 
$
—

Fixed income securities
166

 
166

 
—

 
—

 
$
2,263

 
$
2,263

 
$
—

 
$
—

Defined Contribution Plan—U.S.
Innophos Inc.’s expense for the defined contribution plan was $3.0 million , $3.5 million and $3.0 million for 2016 , 2015 and 2014 , respectively.


Page 66 of 84


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
 
 
Pension Benefits
 
Other Benefits
 
2016
 
2015
 
2016
 
2015
Accumulated benefit obligation at end of year
$
13,128

 
$
12,319

 
$
1,379

 
$
1,299

Change in benefit obligation
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
12,319

 
$
13,786

 
$
1,299

 
$
1,480

Service cost
362

 
344

 
49

 
46

Interest cost
489

 
507

 
51

 
54

Past service cost
—

 
—

 
—

 
—

Actuarial (gain) loss
—

 
480

 
—

 
44

Benefits paid
(396
)
 
(510
)
 
(58
)
 
(81
)
Foreign currency exchange rate changes
354

 
(2,288
)
 
38

 
(244
)
Benefit obligation at end of year
$
13,128

 
$
12,319

 
$
1,379

 
$
1,299

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
13,864

 
$
16,727

 
$
—

 
$
—

Actual return on plan assets
931

 
331

 
—

 
—

Employer contributions
—

 
—

 
58

 
81

Benefits paid
(396
)
 
(510
)
 
(58
)
 
(81
)
Foreign currency exchange rate changes
399

 
(2,684
)
 
—

 
—

Fair value of plan assets at end of year
$
14,798

 
$
13,864

 
$
—

 
$
—

Funded status of the plan
$
1,670

 
$
1,545

 
$
(1,379
)
 
$
(1,299
)
Amounts recognized in the consolidated balance sheets
 
 
 
 
 
 
 
Noncurrent assets
$
1,670

 
$
1,545

 
$
—

 
$
—

Current liabilities
—

 
—

 
(51
)
 
(55
)
Noncurrent liabilities
—

 
—

 
(1,328
)
 
(1,244
)
Net amounts recognized
$
1,670

 
$
1,545

 
$
(1,379
)
 
$
(1,299
)
Amounts recognized in accumulated other comprehensive income
 
 
 
 
 
 
 
Net transition obligation
$
—

 
$
—

 
$
57

 
$
78

Prior service cost
104

 
202

 
—

 
—

Net actuarial loss
3,604

 
3,856

 
11

 
11

Total amount recognized
$
3,708

 
$
4,058

 
$
68

 
$
89

Deferred taxes
(927
)
 
(1,015
)
 
(17
)
 
(22
)
Net amount recognized
2,781

 
3,043

 
51

 
67



Page 67 of 84


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

 
Pension Benefits
 
Other Benefits
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
362

 
$
344

 
$
315

 
$
49

 
$
46

 
$
68

Interest cost
489

 
507

 
570

 
51

 
54

 
85

Expected return on plan assets
(768
)
 
(773
)
 
(925
)
 
—

 
—

 
—

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Actuarial loss
207

 
158

 
99

 
—

 
—

 
14

Prior service cost
106

 
110

 
94

 
—

 
—

 
—

Net transition obligation
—

 
—

 
—

 
23

 
24

 
28

Net periodic benefit cost
$
396

 
$
346

 
$
153

 
$
123

 
$
124

 
$
195

Weighted average assumptions for balance sheet liability at end of year
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.75
%
 
3.75
%
 
4.00
%
 
3.75
%
 
3.75
%
 
4.00
%
Rate of compensation increase
NA

 
NA

 
NA

 
NA

 
NA

 
NA

Weighted average assumptions for net periodic benefit cost at end of year
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.75
%
 
4.00
%
 
4.75
%
 
3.75
%
 
4.00
%
 
4.75
%
Expected long-term rate of return
5.50
%
 
5.50
%
 
6.00
%
 
NA

 
NA

 
NA

Rate of compensation increase
NA

 
NA

 
NA

 
NA

 
NA

 
NA

Accrued health care cost trend rates at end of year
 
 
 
 
 
 
 
 
 
 
 
Health care cost trend rate assumed for next year (initial rate)
 
 
 
 
 
 
9
%
 
9
%
 
8
%
Rate to which the cost trend rate is assumed to decline (ultimate rate)
 
 
 
 
 
 
5
%
 
5
%
 
5
%
Year that the rate reaches the ultimate rate
 
 
 
 
 
 
2033

 
2033

 
2033


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:
 
 
Other Benefits
 
2016
 
2015
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
$
15

 
$
13

Postretirement benefit obligation
$
175

 
$
157

Effect of a 1% decrease on:
 
 
 
Total of service cost and interest cost
$
(12
)
 
$
(11
)
Postretirement benefit obligation
$
(143
)
 
$
(128
)

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 2017 fiscal year are $170 , $104 and $0 , respectively.
The estimated actuarial loss, prior service cost, and transition obligation (asset) for the postretirement plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the 2017 fiscal year are $0 , $0 and $23 , respectively.


Page 68 of 84


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, 2016 and 2015 by asset category are as follows:
 
 
2016
 
2015
Asset Category
 
 
 
Equity securities
50.7
%
 
53.8
%
Fixed income securities

46.5

 
46.2

Other
2.8

 
—

Total
100.0
%
 
100.0
%

The fair values of Innophos Canada, Inc.’s pension plan assets at December 31, 2016 by asset category are as follows:
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Equity securities
$
7,506

 
$
7,506

 
$
—

 
$
—

Fixed income securities
6,882

 
—

 
6,882

 
—

Other
410

 
410

 
—

 
—

 
$
14,798

 
$
7,916

 
$
6,882

 
$
—

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 $0.1 million to its pension plan in 2016 .
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
 
Estimated Future Benefit Payments
 
Pension Benefits
 
Other Benefits
Fiscal 2017
 
$
438

 
$
51

Fiscal 2018
 
487

 
65

Fiscal 2019
 
519

 
62

Fiscal 2020
 
574

 
72

Fiscal 2021
 
612

 
91

Fiscal Years 2022-2026
 
3,766

 
502


Innophos does not plan to make contributions to its Canadian pension plan in 2017 .
Defined Contribution Plans—Canada
Innophos Canada Inc.’s expense for the defined contribution plans was approximately $0.1 million for 2016 , 2015 and 2014 , respectively.

Page 69 of 84


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

Mexico
In accordance with Mexican labor law, a Mexican employee is entitled to certain post-employment payments after reaching fifteen years of service. In addition, Mexican employees also participate in a statutory profit sharing program based on 10% of adjusted taxable income.

15. Income Taxes:
A reconciliation of the U.S. statutory rate and income taxes follows:
 
 
Year Ended December 31,
 
2016
 
2015
 
2014
 
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
$
24,727

 
$
10,989

 
$
11,574

 
$
3,474

 
$
67,288

 
$
23,275

Canada/Mexico/Europe/Asia
45,591

 
11,358

 
28,549

 
10,303

 
30,068

 
9,620

Total
$
70,318

 
$
22,347

 
$
40,123

 
$
13,777

 
$
97,356

 
$
32,895

Current income taxes
 
 
$
12,813

 
 
 
$
50,414

 
 
 
$
30,049

Deferred income taxes
 
 
9,534

 
 
 
(36,637
)
 
 
 
2,846

Total
 
 
$
22,347

 
 
 
$
13,777

 
 
 
$
32,895

 
 
Year Ended December 31,
 
2016
 
2015
 
2014
Income tax expense at the U.S. statutory rate
$
24,611

 
$
14,044

 
$
34,074

State income taxes
862

 
1,207

 
3,819

Domestic manufacturing deduction
(562
)
 
(903
)
 
(2,072
)
Non-taxable interest income
(5,582
)
 
(3,903
)
 
(2,473
)
Mexico entities tax de-consolidation adjustment
(472
)
 
1,470

 
379

Foreign tax credits carryforward
—

 
(1,406
)
 
—

Capital loss on note redemption
—

 
(1,062
)
 
—

Repatriation of foreign earnings
496

 
(645
)
 
—

Uncertain tax positions
736

 
306

 
(745
)
Foreign tax rate differential
(1,549
)
 
(1,163
)
 
(932
)
Change in valuation allowance
(168
)
 
3,482

 
562

Other non-deductible permanent items (including translation)
3,975

 
2,350

 
283

Provision for income taxes
$
22,347

 
$
13,777

 
$
32,895



Net deferred tax balances were reflected on the consolidated balance sheets as follows:
 
 
Year Ended December 31,
 
2016
 
2015
Net noncurrent deferred tax assets
$
18,432

 
$
28,842

Net noncurrent deferred tax liabilities
(1,282
)
 
(2,135
)
Net deferred tax assets
$
17,150

 
$
26,707



Page 70 of 84


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:
 
 
Year Ended December 31,
 
2016
 
2015
Deferred tax assets:
 
 
 
Inventories
$
5,089

 
$
6,386

Accrued liabilities
10,800

 
17,742

Prepaid inventory
13,987

 
28,630

Tax credits
2,535

 
2,845

Tax losses
16,187

 
4,140

Total deferred tax assets
48,598

 
59,743

Deferred tax liabilities:
 
 
 
Gain on bond retirement
(530
)
 
(809
)
Intangibles
(7,033
)
 
(10,670
)
Fixed assets
(15,423
)
 
(12,927
)
Total deferred tax liabilities
(22,986
)
 
(24,406
)
Total valuation allowances
(8,462
)
 
(8,630
)
Net deferred tax assets (liabilities)
$
17,150

 
$
26,707


A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

 
Year Ended December 31,
 
2016
 
2015
 
2014
Gross unrecognized tax benefits at January 1
$
3,121

 
$
2,798

 
$
2,635

Additions for tax positions of prior years
973

 
470

 
1,401

Reductions for tax positions of prior years
—

 
(147
)
 
(832
)
Reductions due to settlements
(1,415
)
 
—

 
(406
)
Reductions due to lapse of applicable statute of limitations
—

 
—

 
—

Gross unrecognized tax benefits at December 31
2,679

 
3,121

 
2,798

 
 
 
 
 
 
Net uncertain tax benefits, that if recognized would impact the effective tax rate, at December 31
$
1,741

 
$
1,311

 
$
1,042


The U.S. operations have federal tax loss carry forwards of $9.3 million and $0.0 million and state tax loss carry forwards of $1.1 million and $0.0 million as of December 31, 2016 and 2015 , respectively. These tax loss carry forwards will expire in the years 2026 through 2036. The Company realized tax benefits of $0.0 million and $1.0 million from stock options exercised in 2016 and 2015 , respectively.
The Company maintains full valuation allowances of $8.5 million and $8.6 million at December 31, 2016 and 2015 , respectively, on its foreign tax credits carryforward, capital loss on note redemptions and foreign net operating loss carryforwards as it is more likely than not that these tax benefits will not be realized. The decrease in valuation allowances during 2016 is primarily a result of the anticipated utilization in 2016 of Mexican net operating loss carryovers generated in prior years and United States foreign tax credit carryovers utilized on the 2015 federal tax return. Certain of these foreign tax attributes, approximately $3.6 million , do not expire, while the remaining tax attributes will expire in the years 2017 through 2035.
As of December 31, 2016 , taxes have not been provided on approximately $52.6 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.

Page 71 of 84


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

In connection with a review of the Company’s overall cash position and anticipated cash needs, we made a $266.0 million distribution of foreign earnings mainly from the Mexico and Canadian subsidiaries during the fourth quarter of 2015. This distribution resulted in an immaterial net tax impact.
The Company's Mexican subsidiaries will be de-consolidating for Mexican income tax reporting purposes effective for the 2016 tax year. As such, the Company recognized a deferred tax liability of $1.5 million in 2015 attributable to the de-consolidation which is payable over the next five years.
Business is conducted in various countries throughout the world and is subject to tax in numerous jurisdictions. A significant number of tax returns are filed and subject to examination by various federal, state and local tax authorities. Tax examinations are often complex, as tax authorities may disagree with the treatment of items reported requiring several years to resolve. As such, the Company maintains liabilities for possible assessments by tax authorities resulting from known tax exposures for uncertain income tax positions. The Company’s policy is to accrue associated penalties in selling, general and administrative expenses and to accrue interest in net interest expense. Currently, the Company is under examination, or has been contacted for examination on income tax returns for the years 2009 through 2013. 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 may decrease by approximately $0.7 million during the next twelve months as a result of possible settlements of income tax authority examinations. The Company has recorded an immaterial amount for interest and penalties in the statement of operations. Interest and penalties related to uncertain tax positions of $0.7 million and $0.9 million are accrued in other long-term liabilities as of December 31, 2016 and December 31, 2015, respectively. Other than the items mentioned above, as of December 31, 2016, 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 $27.9 million , $17.0 million and $30.3 million for 2016 , 2015 and 2014 , 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 2016 , 2015 and 2014 was $6,930 , $6,858 and $6,670 , respectively. Minimum annual rentals for all operating leases are:
 
Year Ending
 
Lease Payments
2017
 
$
6,344

2018
 
5,732

2019
 
5,117

2020
 
4,154

2021
 
3,969

Thereafter
 
13,473



Page 72 of 84


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

Purchase Commitments and Supplier Concentration
The Company has multiple raw material supply contracts which prices are established annually based on a formula. The minimum annual purchase obligation for several of these raw material supply contracts, at current prices, approximates $77.2 million for 2017 .
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. As such, on June 23, 2016, the Company received written notice from PCS Purified Phosphates, or PCSPP, an affiliate of Potash Corporation of Saskatchewan, or PCS, that PCSPP does not wish to extend the term of the Amended and Restated Purified Wet Phosphoric Acid Supply Agreement, dated March 23, 2000, beyond July 29, 2018, the end of the current renewal term. The Company currently purchases purified phosphoric acid supply from PCSPP under the agreement and it will continue to qualify and develop additional sources for future supply needs after July 29, 2018. 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, state, local and international environmental laws, rules and regulations. The Company's manufacturing sites have an extended history of industrial use, and soil and groundwater contamination have or may have occurred in the past and might occur or be discovered in the future.
Environmental efforts are difficult to assess for numerous reasons, including the discovery of new remedial sites, discovery of new information and scarcity of reliable information pertaining to certain sites, improvements in technology, changes in environmental laws and regulations, numerous possible remedial techniques and solutions, difficulty in assessing the involvement of and the financial capability of other potentially responsible parties and the extended time periods over which remediation occurs. Other than the items listed below, the Company is not aware of material environmental liabilities which are probable and estimable. As the Company's environmental contingencies are more clearly determined, it is reasonably possible that amounts may need to be accrued. However, management does not believe, based on current information, that environmental remediation requirements will have a material impact on the Company's results of operations, financial position or cash flows.
Future environmental spending is probable at our site in Nashville, TN, the eastern portion of which had been used historically as a landfill, and a western parcel therein, 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 million - $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, 2016 .
Litigation
2008 RCRA Civil Enforcement - Geismar, Louisiana plant
On January 12, 2017, the Company entered into a settlement with the United States Environmental Protection Agency, or EPA, and the Louisiana Department of Environmental Quality, or LDEQ, with respect to certain manufacturing processes at the Company’s Geismar, Louisiana plant, including the Company’s handling of (i) filter material from an enclosed intermediate filtration step to further process MGA that the Company receives as raw material via pipeline from the adjacent site operated by PCS and (ii) the Company’s raffinate co-product that is separated in connection with its PPA production at the plant. The EPA and LDEQ, collectively with the United States Department of Justice, or DOJ, are collectively referred to as the Government Parties. This settlement resulted from years of negotiations between the Company and the Government Parties following several inspections of the plant by the Government Parties in which they raised certain violations of the federal Resource, Conservation and Recovery Act. Prior to this settlement, in the course of discussions with the Government Parties, the EPA and the DOJ required that the Company undertake, as an interim measure, the construction of a new filter unit to replace the enclosed system and allow the removal and separate handling of the filter material. The Company built that unit, which has been operating since 2012. As part of the settlement, Innophos is implementing a deep well injection system, a solution approved by the EPA and LDEQ to handle the raffinate separated at the plant. Such system is expected to be completed by early 2018. The Company previously returned the raffinate to PCS under a long-term contract it has with PCS and can continue to do

Page 73 of 84


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

so until there is a resolution of the deep well system. In connection with this settlement, the Company will pay a $1.4 million civil penalty, which is accrued in other current liabilities.
Other Legal Matters
In July 2013, Innophos, Inc. was assessed approximately $1.2 million of sales and 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. The Company and the respective governmental jurisdictions have reached a settlement in the amount of $0.1 million during the first quarter of 2017.
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, 2014
$
(3,175
)
 
$
362

 
$
(2,813
)
Other comprehensive income (loss) before reclassifications
333

 
(314
)
 
19

Amounts reclassified from accumulated other comprehensive income (loss)
—

 
—

 
—

Net current period other comprehensive income (loss)
333

 
(314
)
 
19

Balance at December 31, 2015
(2,842
)
 
48

 
(2,794
)
Other comprehensive income (loss) before reclassifications
1,349

 
(39
)
 
1,310

Amounts reclassified from accumulated other comprehensive income (loss)
—

 
—

 
—

Net current period other comprehensive income (loss)
1,349

 
(39
)
 
1,310

Balance at December 31, 2016
$
(1,493
)
 
$
9

 
$
(1,484
)

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 35% , 33% and 29% , respectively, of net sales for 2016 , 2015 and 2014 . No customer accounted for more than 10% of our sales in the last three years.

Page 74 of 84




19. Valuation Allowances:
Valuation allowances as of December 31, 2016 , 2015 and 2014 , and the changes in the valuation allowances for the year ended December 31, 2016 , 2015 and 2014 are as follows:
 
 
 
Balance, January 1,
2016
 
Charged/
(credited)
to costs
and
expenses
 
Deductions
(Bad debts)
 
(Credited)
to Goodwill
 
Balance, December 31, 2016
Deferred taxes valuation allowances
 
$
8,630

 
$
(168
)
 
$
—

 
$
—

 
$
8,462

 
 
Balance, January 1,
2015
 
Charged/
(credited)
to costs
and
expenses
 
Deductions
(Bad debts)
 
(Credited)
to Goodwill
 
Balance, December 31, 2015
Deferred taxes valuation allowances
 
$
5,148

 
$
3,482

 
$
—

 
$
—

 
$
8,630

 
 
Balance, January 1,
2014
 
Charged/
(credited)
to costs
and
expenses
 
Deductions
(Bad debts)
 
(Credited)
to Goodwill
 
Balance, December 31, 2014
Deferred taxes valuation allowances
 
$
4,586

 
$
562

 
$
—

 
$
—

 
$
5,148


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. Prior to 2016, the primary performance indicators for the chief operating decision maker were sales and operating income. As of January 1, 2016, the primary performance indicators for the chief operating decision maker as of 2016 are sales and EBITDA and all prior periods have been recasted to reflect the change from operating income to EBITDA. 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). Our nutritional ingredients business is included in the Specialty Phosphates US & Canada segment and in the Specialty Ingredients product line. Specialty Phosphates consists of three 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 75 of 84


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, 2016
 
Specialty
Phosphates
US & Canada
 
Specialty
Phosphates
Mexico
 
GTSP &
Other
 
Eliminations
 
Total
Sales
 
$
511,304

 
$
162,095

 
$
51,946

 
$
—

 
$
725,345

Intersegment sales
 
10,054

 
49,944

 
132

 
(60,130
)
 
—

Total sales
 
521,358

 
212,039

 
52,078

 
(60,130
)
 
725,345

EBITDA (a)
 
$
68,457

 
$
49,408

 
$
(2,399
)
 
—

 
$
115,466

Depreciation and amortization expense
 
$
25,752

 
$
7,940

 
$
3,787

 
$
—

 
$
37,479

Other data
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
21,594

 
$
14,334

 
$
671

 
$
—

 
$
36,599

Long-lived assets
 
119,761

 
83,962

 
1,736

 
—

 
205,459

Total assets
 
620,495

 
232,672

 
1,777

 
—

 
854,944

Reconciliation of total assets to reported assets
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
620,495

 
$
232,672

 
$
1,777

 
$
—

 
$
854,944

Eliminations
 
(204,464
)
 
(7,469
)
 
—

 
—

 
(211,933
)
Reported assets (c)
 
$
416,031

 
$
225,203

 
$
1,777

 
$
—

 
$
643,011

For the year ended December 31, 2015
 
Specialty
Phosphates
US & Canada
 
Specialty
Phosphates
Mexico
 
GTSP &
Other
 
Eliminations
 
Total
Sales
 
$
568,332

 
$
164,489

 
$
56,326

 
$
—

 
$
789,147

Intersegment sales
 
11,236

 
57,396

 
—

 
(68,632
)
 
—

Total sales
 
579,568

 
221,885

 
56,326

 
(68,632
)
 
789,147

EBITDA (b)
 
$
73,031

 
$
30,723

 
$
(17,578
)
 
—

 
$
86,176

Depreciation and amortization expense
 
$
26,442

 
$
9,558

 
$
2,535

 
$
—

 
$
38,535

Other data
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
15,957

 
$
15,309

 
$
433

 
$
—

 
$
31,699

Long-lived assets
 
117,362

 
80,621

 
1,511

 
—

 
199,494

Total assets
 
645,897

 
240,514

 
1,770

 
—

 
888,181

Reconciliation of total assets to reported assets
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
645,897

 
$
240,514

 
$
1,770

 
$
—

 
$
888,181

Eliminations
 
(211,171
)
 
(7,457
)
 
—

 
—

 
(218,628
)
Reported assets (c)
 
$
434,726

 
$
233,057

 
$
1,770

 
$
—

 
$
669,553


 

Page 76 of 84


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
 
Specialty
Phosphates
US & Canada
 
Specialty
Phosphates
Mexico
 
GTSP &
Other
 
Eliminations
 
Total
Sales
 
$
594,446

 
$
167,423

 
$
77,317

 
$
—

 
$
839,186

Intersegment sales
 
4,391

 
54,797

 
117

 
(59,305
)
 
—

Total sales
 
598,837

 
222,220

 
77,434

 
(59,305
)
 
839,186

EBITDA
 
$
104,617

 
$
35,905

 
$
(3,351
)
 
—

 
$
137,171

Depreciation and amortization expense
 
$
24,264

 
$
9,416

 
$
1,781

 
$
—

 
$
35,461

Other data
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
15,432

 
$
12,201

 
$
322

 
$
—

 
$
27,955

Long-lived assets
 
120,226

 
77,403

 
1,359

 
—

 
198,988

Total assets
 
711,480

 
276,588

 
2,285

 
—

 
990,353

Reconciliation of total assets to reported assets
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
711,480

 
$
276,588

 
$
2,285

 
$
—

 
$
990,353

Eliminations
 
(244,499
)
 
(17,443
)
 
—

 
—

 
(261,942
)
Reported assets (c)
 
$
466,981

 
$
259,145

 
$
2,285

 
$
—

 
$
728,411


(a)
The year ended December 31, 2016 includes $1.5 million charge to earnings for restructuring reserves in GTSP & Other.
(b)
The year ended December 31, 2015 includes an $11.8 million charge to earnings for management transition expenses and an $8.6 million charge to earnings for restructuring reserves in GTSP & Other.
(c)
GTSP & Other reflects only direct assets. All Mexico indirect assets are included in Specialty Phosphates Mexico.
A reconciliation of net income to EBITDA follows:
 
 
2016
 
2015
 
2014
Net income
 
$
47,971

 
$
26,346

 
$
64,461

Provision for income taxes
 
22,347

 
13,777

 
32,895

Interest expense, net
 
7,669

 
7,518

 
4,354

Depreciation and amortization
 
37,479

 
38,535

 
35,461

EBITDA
 
$
115,466

 
$
86,176

 
$
137,171


 
 
Year Ended December 31,
Product Revenues
 
2016
 
2015
 
2014
Specialty Ingredients
 
$
472,839

 
$
516,034

 
$
548,583

Food & Technical Grade PPA
 
133,135

 
149,329

 
140,712

STPP & Detergent Grade PPA
 
67,425

 
67,458

 
72,574

GTSP & Other
 
51,946

 
56,326

 
77,317

Total
 
$
725,345

 
$
789,147

 
$
839,186

 
 
Year Ended December 31,
Geographic Revenues
 
2016
 
2015
 
2014
US
 
$
418,411

 
$
469,263

 
$
496,613

Mexico
 
123,885

 
119,080

 
119,514

Canada
 
32,391

 
33,456

 
36,719

Other foreign countries
 
150,658

 
167,348

 
186,340

Total
 
$
725,345

 
$
789,147

 
$
839,186


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 77 of 84


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

Innophos has presented the segment disclosure information under the reporting structure in place during 2016. During the first quarter of 2017, Innophos will change the way information will be regularly reviewed by our CODM to a market view, which will reflect the way we will manage and operate the business. Our measure of segment profitability will continue to be EBITDA. We will recast all prior periods in future filings to conform to the new presentation.

21. Quarterly information (unaudited):
 
 
2016
 
Quarters ended
 
March 31
 
June 30
 
September 30
 
December 31
 
Total
Net sales
$
189,630


$
181,888


$
186,037

 
$
167,790

 
$
725,345

Gross profit (a)
40,716


36,150


40,540


32,986


150,392

Net income (b)
12,842


12,104


13,643


9,382


47,971

Per share data:
 
 
 
 
 
 
 
 
 
Income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.67


$
0.62


$
0.70


$
0.48


 
Diluted
$
0.66


$
0.61


$
0.69


$
0.47


 
 
2015
 
Quarters ended
 
March 31
 
June 30
 
September 30
 
December 31
 
Total
Net sales
$
201,609

 
$
217,294

 
$
199,612

 
$
170,632

 
$
789,147

Gross profit (a)
40,526


40,995


37,121


24,687

 
143,329

Net income (b)
11,943


13,603


5,433


(4,633
)
 
26,346

Per share data:
 
 
 
 
 
 
 
 
 
Income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.56


$
0.66


$
0.28


$
(0.24
)
 
 
Diluted
$
0.55


$
0.65


$
0.28


$
(0.24
)
 
 
(a) The three months ended September 30, 2016 include a $0.2 million charge to earnings for restructuring costs, recorded in GTSP & Other. The three months ended September 30, 2015 includes an $2.8 million charge for restructuring reserves, recorded in GTSP & Other. The three months ended December 31, 2015 includes a $0.5 million charge for management transition expenses, recorded in GTSP & Other.
(b) The three months ended September 30, 2016 include a $1.5 million charge to earnings for restructuring costs, recorded in GTSP & Other. The three months ended September 30, 2015 includes a $8.6 million charge for restructuring reserves. The three months ended December 31, 2015 includes a $11.8 million charge for management transition expenses, recorded in GTSP & Other.


Page 78 of 84



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, 2016.
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, 2016, 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, 2016, 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 Annual 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, 2016, which is included in “Part II, Item 8. Consolidated Financial Statements and Supplementary Data”.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during or with respect to the fourth quarter of 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION
None.


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Table of Contents

PART III
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our executive officers appears in "Part 1, Item 1. Business" appearing elsewhere in this Annual Report on Form 10-K. Additional information required by this Item is incorporated herein by reference to the 2017 Proxy Statement.
 
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the 2017 Proxy Statement.
 
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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
 
Plan category
 
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)
 
Equity compensation plans approved by security holders
 
916,646

 
$
34.92

 
904,221

* 
Equity compensation plans not approved by security holders
 
—

 
$
—

 
—

 
Total
 
916,646

 
$
34.92

 
904,221

 
 ______________________
*
Includes in the total 222,247 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.
Additional information required by this Item is incorporated herein by reference to the 2017 Proxy Statement.
 
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to the 2017 Proxy Statement.
 
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the 2017 Proxy Statement.

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Table of Contents


PART IV
 
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements. The financial statements filed as part of this Annual Report on Form 10-K are listed on the Index to Financial Statements in “Part II, Item 8. Consolidated Financial Statements and Supplementary Data.”
(a)(2) Financial Statement Schedules. Schedules are omitted because they are not required or because the information is provided elsewhere in the financial statements noted in (a)(1) above.
(a)(3) Exhibits required by Item 601 of Regulation S-K. The information required by this Section (a)(3) of Item 15 is set forth on the Exhibit Index that follows the signatures page of this Annual Report on Form 10-K.


ITEM 16.
FORM 10-K SUMMARY
Optional disclosure, not included in this Annual Report on Form 10-K.


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Table of Contents

SIGNATURES
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 28th day of February, 2017 .
 
 
INNOPHOS HOLDINGS, INC.
 
 
 
 
 
By:
 
/ S / K IM  A NN  M INK
 
 
 
Kim Ann Mink
 
 
 
Chief Executive Officer and President
(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/ K IM  A NN MINK
 
Chief Executive Officer, President and Chairman
 
February 28, 2017
Kim Ann Mink
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/S/ H AN  K IEFTENBELD
 
Senior Vice President and Chief Financial Officer
 
February 28, 2017
Han Kieftenbeld
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/S/ C HARLES  B RODHEIM
 
Vice President and Corporate Controller
 
February 28, 2017
Charles Brodheim
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/S/ G ARY  C APPELINE
 
Director
 
February 28, 2017
Gary Cappeline
 
 
 
 
 
 
 
 
 
/S/ L INDA  M YRICK
 
Director
 
February 28, 2017
Linda Myrick
 
 
 
 
 
 
 
 
 
/S/ K AREN  O SAR
 
Director
 
February 28, 2017
Karen Osar
 
 
 
 
 
 
 
 
 
/S/ J OHN  S TEITZ
 
Director
 
February 28, 2017
John Steitz
 
 
 
 
 
 
 
 
 
/S/ P ETER  T HOMAS
 
Director
 
February 28, 2017
Peter Thomas
 
 
 
 
 
 
 
 
 
/S/ J AMES  Z ALLIE
 
Director
 
February 28, 2017
James Zallie
 
 
 
 
 
 
 
 
 
/S/ R OBERT  Z ATTA
 
Director
 
February 28, 2017
Robert Zatta
 
 
 
 

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Table of Contents

EXHIBIT INDEX

Exhibit No.
Description
3.1

 
Second Amended and Restated Certificate of Incorporation of Innophos Holdings, Inc. incorporated by reference to Exhibit 3.1 of Amendment No. 4 to Registration Statement 333-135851 on Form S-1 of Innophos Holdings, Inc. filed October 30, 2006
3.2

 
Amended and Restated By-Laws of Innophos Holdings, Inc. as of February 5, 2016, incorporated by reference to Exhibit 3.1 of Form 8-K of Innophos Holdings, Inc. filed February 9, 2016
4.1

 
Form of Common Stock certificate, incorporated by reference to Exhibit 4.1 of Amendment No. 4 to Registration Statement 333-135851 on Form S-1 of Innophos Holdings, Inc. filed October 30, 2006
10.1

 
Supply Agreement (Sulphuric Acid) dated as of August 13, 2004 between Rhodia, Inc. (now part of Solvay S.A.) 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. filed on March 14, 2008
10.2

 
Amended and Restated Purified Wet Phosphoric Acid Supply Agreement dated as of March 23, 2000 by and between Rhodia, Inc. (assigned to Innophos) and PCS Purified Phosphates, incorporated by reference to Exhibit 10.15 to Amendment No. 4 of Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per confidential treatment order) filed February 14, 2006
10.3

 
Amended and Restated Acid Purchase Agreement dated as of March 23, 2000 among Rhodia, Inc. (assigned to Innophos), PCS Sales (USA), Inc. and PCS Nitrogen Fertilizer L.P., incorporated by reference to Exhibit 10.16 to Amendment No. 4 of Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per confidential treatment order) filed February 14, 2006
10.4

 
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. filed on May 8, 2009
10.5

 
Assignment, Assumption, and Consent, concerning the Purchase and Sale Agreement of Anhydrous Ammonia, to be effective May 1, 2009, incorporated by reference to Exhibit 10.2 of Annual Report on Form 10-K of Innophos Holdings, Inc. filed on February 28, 2011
10.6

 
Letter Update, dated February 22, 2011, concerning the Purchase and Sale Agreement of Anhydrous Ammonia, incorporated by reference to Exhibit 10.6 of the Annual Report on Form 10-K of Innophos Holdings, Inc. filed on February 26, 2016
10.7

 
Sulfur Supply Contract dated as of January 1, 2011 by and Between Pemex Gas Y Petroquimica Basica and Innophos Fosfatados de Mexico, S. de R.L. de C.V. (filed in redacted form per confidential treatment order), incorporated by reference to Exhibit 10.7 of Annual Report on Form 10-K of Innophos Holdings, Inc. for the year ended December 31, 2011
10.8

 
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 November 9, 2012
10.9*

 
Addendum to Partial Assignment of Rights and Obligations agreement, dated May 31, 2016
10.10+

 
Innophos Holdings, Inc. Amended and Restated 2005 Executive Stock Option Plan, incorporated by reference to Exhibit 10.28 to Amendment No. 4 of Registration Statement 333-135851 on Form S-1 of Innophos Holdings, Inc. filed October 30, 2006
10.11+

 
Form of 2006 Long-Term Equity Incentive Plan, incorporated by reference to Exhibit 10.37 to Amendment No. 4 of Registration Statement 333-135851 on Form S-1 of Innophos, Inc. filed October 30, 2006
10.12+

 
Form of 2009 Long-Term Incentive Plan (2009 LTIP), incorporated by reference to Exhibit 99.1 of Form 8-K of Innophos Holdings, Inc. filed June 4, 2009
10.13+*

 
Form of Award Agreement under the 2009 LTIP
10.14+

 
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. filed March 22, 2007
10.15+

 
Innophos, Inc. 2015 Executive, Management and Sales Incentive Plan effective January 1, 2015, incorporated by reference to Exhibit 99.1 of Form 8-K of Innophos Holdings, Inc. filed May 27, 2015
10.16+

 
Form of Indemnification Agreement, by and among Innophos Holdings, Inc. and certain Directors and Executive Officers, incorporated by reference to Exhibit 99.2 of Form 8-K of Innophos Holdings, Inc. filed January 31, 2007
10.17+

 
Form of Executive Employment Agreement by and between Innophos Holdings, Inc. and certain executive officers, incorporated by reference to Exhibit 99.13 of Form 8-K of Innophos Holdings, Inc. filed May 1, 2008

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Table of Contents

10.18+

 
Executive Employment Agreement, dated November 10, 2015, by and between Innophos Holdings, Inc. and Kim Ann Mink, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K of Innophos Holdings, Inc. filed on November 16, 2015
10.19+

 
Executive Employment Agreement, dated April 1,2016, by and between Innophos Holdings, Inc. and Han Kieftenbeld, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Innophos Holdings, Inc. on April 6, 2016

10.20+*

 
Executive Employment Agreement, dated as of July 28, 2015, by and between Innophos Holdings, Inc. and Jean-Marie Mainente
10.21

 
Credit Agreement, dated December 22, 2016, between the Company and a group of Lenders, including Wells Fargo Bank, National Association, as administrative agent, incorporated by reference to exhibit 10.1 of the Current Report on Form 8-K filed by Innophos Holdings, Inc. on December 22, 2016
12.1*

 
Statement re: Calculation of Ratio of Earnings to Fixed Charges
21.1*

 
Subsidiaries of Registrant
23.1*

 
Consent of PricewaterhouseCoopers LLP
31.1*

 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*

 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**

 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**

 
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*

 
XBRL Instance Document
101.SCH*

 
XBRL Taxonomy Extension Schema Document
101.CAL*

 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*

 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*

 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*

 
XBRL Taxonomy Extension Presentation Linkbase Document
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.
* Filed herewith.
** Furnished herewith.    
+ Management contract or compensatory plan or arrangement.


Page 84 of 84




EXHIBIT 10.9

THIS AMENDMENT AGREEMENT TO A CERTAIN PARTIAL ASSIGNMENT OF RIGHTS AND DUTIES AGREEMENT APICOA01-032/2013 IS ENTERED INTO BY AND BETWEEN ADMINISTRACIÓN PORTUARIA INTEGRAL DE COATZACOALCOS S.A. DE C.V., HEREIN REPRESENTED BY DR. OVIDIO NOVAL NICOLAU, IN HIS CAPACITY AS CHIEF EXECUTIVE OFFICER, PARTY OF THE FIRST PART, AND INNOPHOS FOSFATADOS DE MÉXICO, S. DE R.L. DE C.V., HEREIN REPRESENTED BY HECTOR LUIS SERRANO SAUCEDO , ESQ., IN HIS CAPACITY AS LEGAL ATTORNEY-IN-FACT, PARTY OF THE SECOND PART, HEREINAFTER AND FOR THE PURPOSE OF THIS AGREEMENT REFERRED TO AS API AND INNOPHOS, RESPECTIVELY, IN ACCORDANCE WITH THE FOLLOWING ANTECEDENTS, REPRESENTATIONS AND ARTICLES:


A N T E C E D E N T S

1.- Agreement. The Concession Title dated October 15, 1993 granted by the Federal Government to INNOPHOS was replaced with the Partial Assignment of Rights and Duties Agreement executed between API and INNOPHOS on November 1, 2012 and registered with the Directorate General of Ports with number APICOA01-032/2013 (“THE AGREEMENT”), whereby API assigned the rights and duties to use and harness a surface of federal maritime zone to build, use and harness infrastructure in order to operate and operate a load port terminal for public use, the property of the Federal Government, to store and handle liquid and solid bulk products.

2.- Assigned Area. The assigned area in THE AGREEMENT is comprised of a total surface area of 83,434.50 square meters of federal zone, with a waterfront of 483.00 meters, composed of 4,830.00 square meters public land and 78,604.50 square meters of water area comprised of a wharf of 5,705.18 square meters, the property of the Federal Government, and 72,899.32 square meters of surface area facing water.

However, it was agreed in Antecedent 5 of THE AGREEMENT that the other strip measuring 10 meters wide INNOPHOS made use of under the initial Concession Title, equivalent to 4,830 square meters of federal maritime zone, was not included in the surface of the “assigned area” in THE AGREEMENT, and that it would subsequently be straightened up based on an enquiry to be made with competent authorities, for these authorities to determine the use and harnessing of that surface. Once that had been agreed, the parties bound themselves to amend the AGREEMENT.
 
Through document in writing DGCZ/346/2014 issued on November 13, 2014 (EXHIBIT I) a request to the Directorate General of Ports for an opinion was reiterated, which opinion related to inserting the strip measuring 10 meters wide of maritime federal zone (4,830 m2) in THE AGREEMENT. Through official communication number 7.3.-1059.15 that same Directorate answered on April 13 2015 and mentioned that no objection existed as to executing the applicable amendment agreement to include that assigned area into the surface area. (EXHIBIT II)

3.- Amendment Agreement due to Onlap.- On February 13, 2014, API and INNOPHOS executed an amendment agreement to delimit and update all the ASSIGNED AREA for INNOPHOS due to the onlap between the water areas assigned to AGRO NITROGENADOS and INNOPHOS, at the Port Facilities in Laguna de Pajaritos, specifying the total and correct surface area of assigned area included in THE AGREEMENT (effective on the day that AMENDMENT AGREEMENT was signed), and now being comprised as follows: a total surface area of 77,420.92 square meters of federal zone, with a waterfront of 483.00 meters comprised of 4,830.00 square meters of public land, and 72,590.92 square meters of water area composed of: a) a wharf of 5,705.18 square meters, the property of the Federal Government, and b) 66,885.74 square meters of water area to be used for operation in the Laguna de Pajaritos, the jurisdiction of the Port of Coatzacoalcos, Veracruz. That amendment agreement was registered with the Directorate General of Ports with number APICOA01-032/2013. M1.

In view of said amendment, the parties agreed in that same agreement to take into consideration said surface area when adjusting payment of CONSIDERATION, in accordance with a clarification to be requested from INDAABIN in regard to an appraisal issued in Opinion G-5437- VER, sequence number 05-11-0888, specifically related to the value per square meter applicable to the water area. Consequently, through official communication GCC/228/14 (EXHIBIT (III ) API requested INDAABIN the applicable clarification. With document in writing DGAA/122/2015 said Institute answered and mentioned that due to the period already elapsed the request for clarification was not justified any more. (EXHIBIT IV)
    
Therefore, THE AGREEMENT needs to be amended to agree on the terms and articles based on which it must be straightened up: a) to include the strip measuring 10 meters of federal maritime zone (4,830 m2); and b) adjust or change the consideration, due to inclusion of the above-mentioned strip and the reduction of the water area (portion of assigned area) arising from the onlap that took place with AGRONITROGENADOS, according to the agreement mentioned in Antecedent 3 hereof.






R E P R E S E N T A T I O N S

1.-      API represents that:

1.
Capacity. It has been duly evidenced and detailed in THE AGREEMENT.

1.
Representation. Dr. Ovidio Noval Nicolau is its Chief Executive Officer, and has sufficient power to deliver this agreement, which power has not been revoked nor amended in any manner whatsoever, as evidenced in notarial instrument No. 12,963, dated August 1, 2013, executed in the presence of and certified by Fidel Gómez Rodríguez, Esq., Notary Public number 18 in and for this city of Coatzacoalcos, Veracruz, and registered in a final manner in the Public Registry of Property and Commerce in Coatzacoalcos, Veracruz, under electronic commercial folio number 10484*21 on August 2, 2013.

2.
Concession. It holds a concession granted by the Federal Government, through the Ministry of Communications and Transportation (SCT), to Administración Integral del Puerto de Coatzacoalcos, Ver., as published in the Federal Official Gazette on November 21, 1994. In addition, through the Second Addendum to Concession Title for Administración Portuaria Integral del Puerto de Coatzacoalcos, granted to API, as published in the Federal Official Gazette on November 5, 2008, the Federal Government, through SCT, performed amendments, including, Condition One of said Concession Title, to also grant a concession for Management of the Port Premises in Laguna de Pajaritos, Veracruz.

3.
Address. For the purpose of this agreement API states its address at: Interior del Recinto Fiscal s/n, colonia Centro, Coatzacoalcos, Veracruz. C.P. 96400.

2.- INNOPHOS represents that:

2.1
Capacity. Capacity duly proven in THE AGREEMENT, as a business company incorporated under Mexican laws..

2.2
Representation.- Mr. Héctor Luis Serrano Saucedo, Esq. is the attorney-in-fact of INNOPHOS, as evidenced in notarial instrument number 25,368 dated February 23, 2008, and executed in the presence of and certified by Arturo Talavera Autrique, Esq., Notary Public number 122 in and for the Federal District, and registered in the Public Registry of Property and Commerce in the Federal District, under Commercial Folio 103,384 on July 30, 2008 in Mexico, City, whereby Mr. Serrano was granted the power to execute this agreement, which power has not been revoked nor amended in any manner whatsoever, and which power is sufficient to sign this agreement and is attached as EXHIBIT TWELVE BIS to THE AGREEMENT

2.3
Address. - For the purpose of THE AGREEMENT and this AMENDMENT AGREEMENT, INNOPHOS states its address at Domicilio Conocido S/N, Complejo Industrial Pajaritos, Coatzacoalcos, Veracruz, C.P. 96384.


3.
The parties represent that:

3.1
Capacity. They mutually acknowledge the capacity they appear herewith and the statements in the antecedents hereof.

3.2
Fulfillment of the articles of THE AGREEMENT. INNOPHOS has met the articles and obligations set forth in THE AGREEMENT and the Amendment Agreement provided for in Antecedent 3 hereof.

3.3      Purpose and Aim of this Amendment Agreement. The purpose of this agreement is as follows:

•
To include a strip measuring 10 meters wide and 483 meters of federal zone that still remained to be defined in THE AGREEMENT, based on official communication 7.3.-1059.15 dated April 13, 2015, issued by Alejandro Hernández Cervantes, Esq., Director General of Ports; that specifically is equal to adding 4,830 square meters to the assigned area, therefore that area, beginning on the day this Agreement is signed, is of: 82,250.92 m2 as TOTAL ASSIGNED AREA.





•
Consequently, to consider that surface to adjust payment of CONSIDERATION made by INNOPHOS, with retroactive effect to the day when THE AGREEMENT was initially signed on November 1, 2012, in accordance with Antecedent number 5 of THE AGREEMENT. That adjustment will be performed in accordance with Determination of consideration by adding an area attached as EXHIBIT V hereto.

•
In the absence of an accurate answer or clarification by INDAABIN regarding the value per square meter in the water area that comprises the assigned area; following article TWO of the amendment agreement mentioned in antecedent number 3 hereof (APICOA01-032/2013. M1.), in order to determine the consideration value of ASSIGNED AREA, the parties decide and agree to consider the square meter value of the water area, with the same value as the land area assigned in appraisal attached as exhibit sixteen to the original AGREEMENT.

Change of amount of CONSIDERATION due to reduction in assigned area originated from onlap in water area (6,013.58 of maritime zone) with firm Agro Nitrogenados, SA de C.V. is hereby straightened up with retroactive effect to February 13, 2014, as detailed in Determination of consideration due to reduction in water area, the matter of onlap (EXHIBIT V) ;


In view of the foregoing, API and INNOPHOS agree with the following:


A R T I C L E S


ARTICLE ONE. Amendment of MEANING OF ASSIGNED AREA. API and INNOPHOS agree to amend, in the DEFINITIONS section, the meaning of ASSIGNED AREA for the purpose of the AGREEMENT, in accordance with the following terms:

ASSIGNED AREA: Surface of the federal maritime zones delimited and specified in plan attached as EXHIBIT TWO TER hereto called API-COA-P-05-16, and granted to INNOPHOS for it to use and harness a total surface of 82,250.92 square meters of federal zone, with a waterfront of 483.00 meters comprised of 9,660 square meters of public land and 72,590.92 square meters of water area composed of: a) a wharf of 5,705.18 square meters, the property of the Federal Government, and b) 66,885.74 square meters of area facing water used for the operation in Laguna de Pajaritos, jurisdiction of the Port of Coatzacoalcos, Veracruz, to operate and make use of port premises specialized in load for public use, the property of the Federal Government, to store and handle liquid and solid bulk products.

Through this amendment agreement, API acknowledges that the width of strip of public land changes from 10 meters to 20 meters.

ARTICLE TWO.- Consideration adjustment: Deriving from amendment of the ASSIGNED AREA, both from adding 4,830 square meters of public land, and adjusting the assigned area due to onlap, which amendment was straightened up in agreement mentioned in antecedent number 3 hereof (APICOA01-032/2013. M1.); the parties decide and agree to adjust the consideration amount, in accordance with details included in EXHIBIT V attached hereto, whereof a balance payable by INNOPHOS results in the amount of ONE HUNDRED NINETEEN THOUSAND TWO HUNDRED FIVE PESOS AND 13/100, LEGAL TENDER OF MEXICO ( $119,205.13) plus applicable V.A.T.

That balance shall be paid by INNOPHOS in one installment within 30 days following signature of this amendment agreement, and submittal by API of applicable invoice .

Both parties agree that once the amount set forth in the first paragraph of this article has been paid, total payment of the consideration from for assigned area under this amendment agreement shall be deemed as straightened up. API reserves no right or legal action, whether present or future, to claim from INNOPHOS, due to this consideration, any issue related to adjustments in assigned area as herein set forth .

As a consequence of adjustments mentioned in the first paragraph, and beginning in June, 2016, amount of the monthly consideration payable by INNOPHOS is adjusted to TWO HUNDRED SEVENTY-FOUR THOUSAND, SIX HUNDRED ELEVEN PESOS AND 78/100, LEGAL TENDER OF MEXICO ($274,611.78), which consideration shall be paid and adjusted under what is provided in THE AGREEMENT.





ARTICLE THREE. Addition of article Twenty-Nine Bis : As a consequence of the adjustments, both in addition of AREA and in the consideration due to reduction of assigned area of THE AGREEMENT due to onlap, inclusion of article Twenty-Nine Bis, related with the CONSIDERATION is justified, in accordance with the following terms:

“TWENTY-NINE BIS. In view of amendments made in ASSIGNED AREA, both in amendment agreement number APICOA01-032/2013. M1., and in this agreement, the parties bind themselves to deem THE AGREEMENT is subject to the ASSIGNED AREA as defined in this Amendment Agreement; therefore, beginning on the date following the day this agreement is signed, Payment for the CONSIDERATION to be made by INNOPHOS shall be subject to the surface herein defined, that is, June 1, 2016, and for all purposes of the AGREEMENT, the parties agree to fulfill and observe as ASSIGNED AREA that provided in article One of this amendment agreement, and as detailed in plan API-COA-P-05-16 (EXHIBIT TWO TER)

ARTICLE FOUR. Binding Effect . This legal instrument is an integral part as to THE AGREEMENT APICOA01-032/2013 , dated November 1, 2012, and all articles and obligations provided therein remain in effect, except for those contravening the changes agreed upon in this amendment agreement. The parties mutually acknowledge the binding effect of THE AGREEMENT, the Amendment Agreement APICOA01-032/2013. M1., and the provisions in this AMENDMENT AGREEMENT beginning on the day it is executed.

Having been duly informed of the scope of this agreement, the parties sign it in agreement and in triplicate in the city and port of Coatzacoalcos, Veracruz, on May 31, 2016 .


BY ADMINISTRACIÓN PORTUARIA INTEGRAL DE COATZACOALCOS S.A. DE C.V.
BY INNOPHOS FOSFATADOS DE MÉXICO, S. DE R.L. DE C.V.
/s/ Ovidio Noval Nicolau



DR. OVIDIO NOVAL NICOLAU
Chief Executive Officer
/s/ Hector Luis Serrano Saucedo



HECTOR LUIS SERRANO SAUCEDO, ESQ.
Legal Attorney-in-Fact





EXHIBIT 10.13



LONG TERM INCENTIVE AWARD AGREEMENT
This LONG TERM INCENTIVE AWARD AGREEMENT (“Agreement”) made as of the date shown below by and between Innophos Holdings, Inc ., a Delaware corporation (the “Company”), and the individual named on the signature page hereof (“the Participant”).
Introductory Statement
This Agreement sets forth the terms and conditions under which the Participant is awarded (i) options to purchase (referred to individually as an “Option” and collectively as the “Options”) shares of the Company’s Common Stock, par value $0.001 per share (“Common Stock”) and (ii) Restricted Shares, in each case pursuant to the Company’s 2009 Long-Term Incentive Plan (the “Plan”). Shares of Common Stock issued upon exercise of Options are referred to as “Option Shares.” Collectively, Option Shares and Restricted Shares are sometimes referred to as “Shares.” The Options and/or Restricted Shares granted hereunder are collectively referred to as the “Awards.”
Capitalized terms used in this Agreement without definition therein are intended to have the meanings given to those terms in the Plan.
Agreements:
1.
Grant of Awards.
a.
Option Grants . The Company grants to the Participant Options as set forth on Schedule A attached to this Agreement and made a part hereof.
b.
Award of Restricted Shares . The Company awards to the Participant the number of Restricted Shares set forth on Schedule B attached to this Agreement and made a part hereof.
2. Certain Definitions. For purposes of this Agreement:
a.
“Good Reason” shall mean, in the absence of a written consent of the Participant, that term (or its functional equivalent) only as defined in any employment or severance agreement between the Participant and the Company or any Subsidiary in effect at the applicable time.
b.
“Constructive Termination Event” shall mean, in the absence of a written consent of the Participant, and notwithstanding the applicability at the time of any employment or severance agreement between the Participant and the Company or any Subsidiary, so long as such agreement does not contain a definition of “Good Reason,” any one or more of the following:  (i) a significant and non-temporary change in the Participant’s general job description or duties of a magnitude that changes the fundamental character of the Participant’s job to such an extent as to constitute a de facto demotion, excluding for this purpose any action not taken in bad faith that (x) results from the evaluation of individual job performance, (y) is part of any overall restructuring involving similarly situated employees generally, or (z) is remedied on the part of the employer promptly after receipt of notice thereof;  (ii) any material reduction in the Participant’s base salary or target bonus outside the range of percentages for the respective position, excluding reductions (x) due to economic exigency affecting the Company and/or its subsidiaries, (y) that result from the evaluation of individual job performance or (z) that are made generally applicable to the classification or grade of employees of whom the Participant is a member, other than a reduction not occurring in bad faith and which is remedied on the part of the employer promptly after receipt of notice thereof; or  (iii)  requiring  the Participant to relocate his or her principal business location more than 50 miles from the farther of his residence or his or her principal business location as of the date of the Change in Control.




3. Schedules Form Part of Agreement. Schedules attached to this Agreement (including their respective attachments, if any) form an integral part of this Agreement and are incorporated herein by reference. In the event of any inconsistency between any schedule and the remainder of this Agreement, the text of the schedule in question (including any calculation) shall be deemed to control. The Awards are being made in consideration, among other things, of the Participant’s compliance with the terms of the schedules. Notwithstanding the foregoing, this Agreement and all schedules are governed by the terms of the Plan; provided, however , where the Plan permits the terms of this Agreement to differ from any Plan provision, the terms of this Agreement shall be deemed control the rights of the parties as to that provision.
4. Continuity of Shares and Adjustments. For all purposes of this Agreement, Option Shares include shares of Common Stock and the Company’s capital stock of any class or series issued with respect to Common Stock by way of a stock split, stock dividend, reclassification or other recapitalization to the fullest extent permitted by the Plan. The exercise price of Options granted under this Agreement and the number of Option Shares issuable in respect of Options shall be subject to equitable adjustment by the Company as a result of any of the events referred to in this section or those determined in the absolute discretion of the Company to be analogous thereto.
5. Non-Transferability Awards. The Awards are personal to the Participant and may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a “Transfer”) other than by will or by the laws of descent and distribution, except to the extent specifically provided in the Plan. Only the Participant or the Participant’s permitted representatives are entitled to exercise Options or any similar right. If any non-permitted Transfer, whether voluntary or involuntary, of an Award is made or attempted, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon any Award, the Participant’s right to such property shall be forfeited immediately to the Company, and this Agreement shall lapse as to such property. Notwithstanding the previous sentence, the Participant’s obligations under this Agreement shall survive any such forfeiture and lapse.
No Rights as to Relationship. This Agreement shall not confer upon the Participant any right to continuation of employment by the Company or any Subsidiary, nor will this Agreement interfere in any way with any such employer’s rights to terminate the Participant’s employment at any time. Awards, except where Common Stock is already issued, shall confer no rights on the Participant as a stockholder until such time as the related Shares are issued. For employees of subsidiaries in non-U.S. jurisdictions, the additional following language applies to this section:
6.
“ By signing this Agreement, any Participant who is employed by a Subsidiary and renders personal services to that Subsidiary agrees that this Agreement and the Plan do not create any form of labor relationship between such Participant and the Company, as the rights granted under this Agreement is a consequence of the personal relationship between the Participant and the Subsidiary .”
7. Tax and Stock Withholding. The Company shall have the power and the right to deduct or withhold, or require the Participant or the Participant’s beneficiary to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Agreement. With respect to withholding required upon any taxable event arising as a result of Awards granted hereunder, the Company may satisfy the tax withholding requirement by withholding Shares having a Fair Market Value equal to the total minimum statutory tax required to be withheld on the transaction. The Participant agrees to pay to the Company and/or its Subsidiaries any amount of tax that the Company or such Subsidiary may be required to withhold as a result of the Participant’s participation in the Plan that is not or cannot be satisfied by the means previously described. For any Participant who is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code who is entitled to a payment or settlement of Award that constitutes “nonqualified deferred compensation” for purposes of Section 409A of the Code as a result of the such Participant’s “separation from service” from the Company within the meaning of Treas. Reg. 1.409A-1(h), such payment or settlement shall be made upon the later of (a) the payment or settlement date set forth in the applicable schedule or (b) the date that is six months after such separation from service” from the Company or, if earlier, the Participant’s date of death.
8. Share Issuances and Sales Subject to Requirements of Law.
a.
The Awards under the Plan and the issuance of Shares shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance




and sale of any Shares hereunder, shall relieve the Company of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
b.
The Participant understands and acknowledges that federal and state securities laws govern and restrict the Participant’s right to offer, sell or otherwise dispose of Shares, unless that offer, sale or other disposition thereof is registered under the Securities Act of 1933 (the “1933 Act”) and state securities laws or, in the opinion of the Company’s counsel, such offer, sale or other disposition is exempt from registration thereunder. The Participant agrees that he or she will not offer, sell or otherwise dispose of Shares in any manner that would: (i) require the Company to file any registration statement (or similar filing under state law) with the Securities and Exchange Commission or to amend or supplement any such filing or (ii) violate or cause the Company to violate the 1933 Act, the rules and regulations promulgated thereunder or any other state or federal law. The Participant further understands that the certificates for Shares that the Participant receives will bear such legends as the Company deems necessary or desirable in connection with the 1933 Act or other rules, regulations or laws.
9. Amendments to Agreement. The Company may terminate, amend, or modify this Agreement; provided, however, that any amendment and/or termination of this Agreement will not subject amounts payable under this Agreement to penalties and interest under Code Section 409A. Additionally, no such termination, amendment, or modification of this Agreement may in any way adversely affect the Participant’s rights under this Agreement, without the Participant’s written approval.
10. Administration. This Agreement and the Participant’s rights hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement.
11. Notices. Any notice given in connection with this Agreement must be in writing and must be personally delivered, received by certified mail, return receipt requested, or sent by guaranteed overnight delivery service to the parties at the addresses indicated below:
If to the Company/Committee, to:
Innophos Holdings, Inc.
259 Prospect Plains Road, Building A
Cranbury, NJ 08512
Attn: Senior Vice President-Human Resources

If to the Participant, to:
The address set forth on the signature page of this Agreement

or such other addresses or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice will be deemed to have been given when so delivered or mailed. Notwithstanding any other provision of this Agreement, notices to Participants may be given effectively hereunder to the extent and at the time materials are posted on a website pursuant to a system maintained by the Company for purposes of administering the Plan to which Participants are afforded individual, secure access and are notified from such website or system of events pertaining to them.

12.
Participant’s Representations and Warranties. The Participant represents and warrants to the Company that:
a.
This Agreement and all schedules constitute the legal, valid and binding obligation of the Participant, enforceable against the Participant in accordance with its terms, and the execution, delivery and performance of this Agreement by the Participant does not and will not conflict with, violate or cause




a breach of any agreement, contract or instrument to which the Participant is a party or any judgment, order or decree to which the Participant is subject;
b.
Giving effect to all equity securities of the Company owned beneficially by the Participant, the Participant, as of the date hereof, does not own stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or Subsidiary of the Company; and
c.
The Participant will review all disclosure materials provided by the Company in connection with the offering of Shares to the Participant under the 1933 Act.
13. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any such provision is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction.
14. Complete Agreement and Certain Priorities. This Agreement and the Plan embody the complete agreement and understanding between the parties with respect to the Awards and supersede and preempt any prior understandings or agreements between the parties, written or oral, with regard to that subject matter. In the event any Schedule to this Agreement pertains to obligations of the Participant as an employee, other agent or contractor regarding confidentiality or restrictions relating to employment, proprietary rights, competition and other employment-related practices, this Agreement shall be deemed to supersede any prior or subsequent understanding or agreement between the Company and the Participant as to that subject matter only to the extent that the provisions, if any, set forth in this Agreement are more restrictive upon the Participant than such other understanding or agreement.
15. Counterparts. This Agreement may be executed in separate counterparts (including by means of facsimile or electronically by a method deemed reliable by the Company), each of which will be deemed to be an original and all of which taken together will constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Participant and the Company and their respective successors and assigns, including without limitation as to the Company whether the existence of such successor or assign is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company and as to the Participant whether such successor or assign results from the laws of descent and distribution; provided , that the Participant may not assign any of his or her rights or obligations, except as expressly provided by the terms of the Agreement or the Plan.
17. Governing Law. The corporate law of the State of Delaware will govern all issues concerning the relative rights of the Company and its stockholders. All other issues concerning the enforceability, validity and binding effect of this Agreement will be governed by, and construed in accordance with, the laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the law of any jurisdiction other than the State of New Jersey.
18. Enforcement Matters.
a.
Except as may be otherwise provided in this Agreement, all disputes and controversies arising under or in connection with this Agreement shall be settled by arbitration conducted in accordance with the arbitration procedures described in this section. Except as otherwise provided in the JAMS’ Comprehensive Arbitration Rules and Procedures as in effect from time to time (the “JAMS Rules”), the arbitration procedures described in this section and any Final Arbitration Award (as defined below) will be governed by, and will be enforceable pursuant to, the Uniform Arbitration Act as in effect in the State of New Jersey from time to time. Arbitral proceedings initiated hereunder shall take place in Cranbury, NJ, or another place agreeable to the parties to the dispute, before a single arbitrator who is agreeable to such parties. If the parties are unable to agree on an arbitrator within a reasonable period of time, an arbitrator shall be selected in accordance with the JAMS Rules. The arbitration (including discovery) will be conducted under the JAMS Rules, as the same may be modified by any written agreement between the parties to the dispute. The arbitrator will conduct the arbitration in a manner so




that the final result, determination, finding, judgment or award determined by the arbitrator (the “Final Arbitration Award”) is made or rendered as soon as practicable, and the parties to the dispute will use reasonable efforts to cause a Final Arbitration Award to occur within ninety (90) days after the arbitrator is selected. Any Final Arbitration Award will be final and binding upon the parties to the dispute, and there will be no appeal from or reexamination of any Final Arbitration Award, except in the case of fraud or perjury or misconduct by the arbitrator prejudicing the rights of any party to the dispute or to correct manifest clerical errors. A Final Arbitration Award may be enforced in any state or federal court having jurisdiction over the subject matter of the dispute. Each party to the dispute shall bear and be solely responsible for all costs and expenses (including fees and disbursements of counsel) incurred by such party in connection with any arbitration conducted hereunder, and the costs and expenses of the arbitrator shall be borne 50% by the Company and 50% by the Participant.
b.
Except to the extent required by subsection a., for the purpose of litigating disputes that arise under this Agreement, the parties hereby consent to exclusive jurisdiction and agree that such litigation will be conducted in the federal or state courts of the State of New Jersey sitting in and for the county wherein the headquarters of the Company is located at the time. To effect the foregoing, the Participant hereby subjects himself or herself to the in personam jurisdiction of such courts and waives all objections as to improper venue for such forum posited as provided in the preceding sentence.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written below.
Date:
 
 
INNOPHOS HOLDINGS, INC.
 
 
By:
 
 
Name:
 
Title:
 
 
 
PARTICIPANT
 
 
Name:
 
 
 
 




Signature
 
 
 
 
Address:
 
 
 
 
 
 
 
 
 
 
 
 
Telephone:
 
 
 
 
E-mail:
 
 


SCHEDULE A
to
Long Term Incentive Award Agreement

(OPTIONS)





Name of Participant:     
1.
Name of Governing Plan: 2009 Long-Term Incentive Plan
2. Number of Option Shares:
3. Option Price:
4. Grant Date:
5. Type:
6. Vesting/Exercisability:
One-third of the Options shall vest and become exercisable on each of March 31, _____, _____, and ____, provided the Participant has been employed by, or served in the designated position with, the Company or any of its Subsidiaries from the date of this Agreement continuously (excepting agreed upon leaves of absence and short-term disabilities not constituting a break in service) through each such vesting date. In the case of any Participant whose Option Shares continue to vest after termination of employment (such as upon certain retirements) such continued vesting shall be conditioned on and subject to continued satisfaction of the obligations set forth in Schedule C and additionally, if applicable, in Attachment A.
7.
Change in Control
If (i) the Participant has been in active service with the Company or a Subsidiary from the date of this Agreement until the occurrence of a Change in Control and (ii) either (A) (x) the Participant’s service is terminated by the Company or a Subsidiary other than for Cause, (y) the Participant’s service is terminated by the Participant for Good Reason, or (z) there occurs a Constructive Termination Event with respect to the Participant’s employment, in any case within two years after the effective date of such Change in Control, or (B) the Company is not the surviving entity following the Change in Control and the surviving entity does not directly or through another entity assume or retain all outstanding obligations under the Plan upon consummation of the restructuring plan resulting in the disappearance of the Company, all Options that have not yet become vested or exercisable shall become vested and exercisable at the first to occur of such events under (A) or (B).
8.
Expiration Date(s) : The Options will expire on the earliest to occur of:
a.
The tenth (10 th ) anniversary of the Grant Date
b.
Post-termination Days for Exercise: See Attachment A
c.
Change in Control Period: See Attachment A
9. Rules and Procedures for Exercise:
Any exercise of an Option must comply with the terms and conditions respecting exercise set forth in the Plan, this Agreement and any forms and other documents established by the Committee for use in exercising Options.
Attachment A
Option Terms






 
Provision
Terms of Grant
Option Price
Fair Market Value (closing price) on date of grant.
Option Type
Non-qualified (non-statutory) stock option.
Expiration Date
10 year term from date of grant, unless otherwise specified. No vesting or timing of exercise provision can extend the term.
Vesting
1/3, 1/3, 1/3 on March 31st of each year following the year of the date of grant, subject to continuous service, except as noted for special circumstances herein or as otherwise required by any employment contract. Unvested options will be forfeited.
Exercise
Any time after vesting during the term.
Death
Immediate full vesting of all options. Options expire and must be exercised within one year of death.
Disability
Immediate full vesting of all options. Options expire and must be exercised within one year of disability termination.
Retirement
Vesting continues over the normal period specified in the grant. Options expire and must be exercised within three years of retirement.
"Good Reason" and other
non- cause terminations
Vesting ends with effective date of termination. Options expire and must be exercised within 90 days of termination.
Termination
for Cause
Vesting ends with effective date of termination. Options expire and must be exercised within 30 days of termination.
Exception for
Continued
Vesting
The conditions of the non-compete (see below) and availability for assistance in legal proceedings will extend throughout the vesting cycle. Violations of the non-compete or failure to assist will result in forfeiture of all options that are not vested.
Change in
Control
Modified “Double Trigger Basis.” All options accelerated to vest as of the date of a (A) a “Change in Control” as defined in the 2009 LTIP, plus either (i) actual termination without cause or (ii) “good reason” termination which is to be made available to all participants for purposes of 2009 LTIP awards, or (B) a “Change in Control” as defined in the 2009 LTIP in the event that an acquirer does not assume all outstanding obligations under the 2009 LTIP. Options remain exercisable over the full term.
Disposition
Options are non-transferable. Stock received upon exercise may be sold or disposed of as permitted by law or Company policy applicable to the employee.
Non-Compete
12 month non-compete period following termination

SCHEDULE B
to
Long Term Incentive Award Agreement
(RESTRICTED SHARES)

Name of Participant:     
1.
Name of Governing Plan: 2009 Long-Term Incentive Plan
2. Number of Restricted Shares :     
3. Conditions to Vesting, Lapse of Forfeiture or Delivery:
One-third of the Restricted Shares vest on each of March 31, __________, _______ and ______, provided the Participant has been employed by, or served in the designated position with, the Company or any of its Subsidiaries from the date of this Agreement continuously (excepting agreed upon leaves of absence and short-term disabilities not constituting a break in service) through each such vesting date. In the case of any Participant




whose Restricted Shares continue to vest after termination of employment (such as upon certain retirements), such continued vesting shall be conditioned on and subject to continued satisfaction of the obligations set forth in Schedule C and additionally, if applicable, in Attachment B.
4.
Change in Control:
If (i) the Participant has been in active service with the Company or a Subsidiary from the date of this Agreement until the occurrence of a Change in Control and (ii) (x) the Participant’s service is terminated by the Company or a Subsidiary other than for Cause, (y) the Participant’s service is terminated by the Participant for Good Reason, or (z) there occurs a Constructive Termination Event with respect to the Participant’s employment, in any case within two years after the effective date of such Change in Control, then all other conditions to vesting of Restricted Shares shall be deemed to have been satisfied, all forfeiture restrictions shall lapse, and all Restricted Shares covered by this Agreement, to the extent not previously vested, shall vest in the Participant.
5.
Issuance of Shares:
Restricted Shares shall be issued to the Participant as soon as practicable following the award, and, upon issuance, shall constitute duly and validly issued and outstanding Shares of the Company, fully paid and non-assessable, subject only to the effectiveness of this Agreement. Shares for which restrictions do not so lapse as and when provided in this Schedule B shall be forfeited back to the Company, and, thereafter, the Participant shall have no further property rights in, or claims to, such Shares.
6.
Record Holder:
Restricted Shares shall be issued and registered in the name of the Participant. Prior to any forfeiture of Restricted Shares, the Participant shall be treated as the holder of record of such Shares for all purposes under applicable corporate law, including receiving all dividends and other distributions to which such holders are entitled and receiving notice of, and voting on or consenting to, all matters which are properly submitted to the stockholders of the Company for determination by them.
7.
Shares Held in Escrow:
Unless otherwise permitted by the Committee, Restricted Shares shall be held by the Company or its agents in escrow for delivery to the Participant upon the lapse of all risks of forfeiture relating to such Shares (or portions thereof) and the satisfaction of all other conditions, if any, to delivery of such Shares. Delivery of such Shares from escrow shall be in such form and with such further restrictions as the Company may reasonably require as necessary to comply with applicable law.
The Participant acknowledges that the Participant may be eligible to file an election with the Internal Revenue Service under Section 83(b) of the Internal Revenue Code within 30 days following the date of grant of Restricted Shares, and that failure to do so may irrevocably affect the tax treatment of the Restricted Shares granted to the Participant.
Attachment B
Restricted Stock Terms






 
Provision
Terms of Grant
Escrow
Shares will be issued as of date of grant and held in escrow until vested. Generally, distribution will be made after vesting.
Stockholder Rights
Voting and dividend rights extend to all shares regardless of vesting while held in escrow. Cash dividends will be passed through as declared and paid, and other dividends and property resulting from shares will be held in escrow with shares pending distribution. Property not distributed prior to any forfeiture will be forfeited along with shares.
Vesting
1/3, 1/3, 1/3 on March 31st of each year following the year of the date of grant, subject to continuous service to date of vesting, except as noted for special circumstances herein and any specific requirements of employment agreements. Shares that do not vest will be forfeited.
Retirement
Vesting continues over the normal course.
Termination without Cause or Termination for “Good Reason”
Vesting continues until the end of the calendar year in which the event occurs.
Death and
Disability
Immediate vesting as of the date of the event.
Voluntary Termination
(Quit) or Termination for Cause
Vesting ceases with effective date of event.
Exception for Continued Vesting
The conditions of the non-compete (see below) and availability for assistance in legal proceedings will extend throughout the vesting cycle. Violations of the non-compete or failure to assist will result in forfeiture of all shares that are not vested.
Change in Control
Modified “Double Trigger Basis.” Unvested shares vest upon the date of a (A) a “Change in Control” as defined in the 2009 LTIP, plus either (i) actual termination without cause or (ii) “good reason” termination which is to be made available to all participants for purposes of 2009 LTIP awards, or (B) a “Change in Control” as defined in the 2009 LTIP in the event that an acquirer does not assume all outstanding obligations under the 2009 LTIP.
Restriction on Disposition
Generally, for active employees, stock sales or pledges/liens are restricted for one year after vesting, net of permitted sales for required taxes. Sales also may be made to the extent employees subject to the Company’s Executive Stock Ownership Policy remain in compliance with the applicable guidelines, and for employees not covered by that Policy, if total stock ownership values of a minimum of 0.5X of base salary is held.
Non-Compete
12 month noncompete period following termination.
Clawback
All awards, regardless of vesting or distribution, will be subject to any “clawback” required by law or adopted by the Board of Directors.


SCHEDULE C
to
Award Agreement
Restrictive Covenants and Enforcement

1.
Noncompete Period.




The term “Noncompete Period” shall mean the period (i) commencing on the date the Participant’s employment or similar relationship with the Company and its Subsidiaries or other entities controlled directly or indirectly by either (collectively, “controlled affiliates”) began and (ii) ending twelve months after the date on which the Participant’s employment or similar relationship with the Company or any of its controlled affiliates is effectively terminated by either party and for any reason.
2.
Confidential Information.
a.
The Participant acknowledges that the information, observations and data, including trade secrets, obtained by the Participant while employed or retained by the Company and its controlled affiliates concerning their business and affairs (collectively, “Confidential Information”) are the property of those entities. Therefore, the Participant agrees that, except as required by law, court order or other legal process, including, but not limited to, depositions, interrogatories, court testimony, arbitration, and the like, the Participant shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Company’s Board of Directors (which may delegate to an authorized officer authority to give such consent), unless and to the extent that: (i) the Confidential Information becomes generally known to and available for use by the public or generally known in the industry other than as a result of the Participant’s acts or omissions or (ii) the Participant discloses such information to third parties with whom the Company or its affiliates have entered into a non-disclosure agreement and such disclosure is made in the ordinary course performance of the Participant’s duties and responsibilities to the Company and its affiliates. The Participant shall deliver to the Company at the termination of his employment or other similar relationship, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) embodying or relating to the Confidential Information, Work Product (as defined below) or the business of the Company and its controlled affiliates which the Participant may then possess or control, provided that the Participant may retain a copy of contact information consisting of names, telephone numbers and other contact details relating to outside parties so long as the Participant does not use such material in a manner that is otherwise prohibited by this Agreement.
b.
The Participant represents and warrants to the Company that the Participant took nothing with him that belonged to any former employer when the Participant left his prior position or that the Participant has nothing that contains any information which belongs to any former employer that the Participant is not entitled to have or use for the benefit of the Company and its controlled affiliates. If at any time the Participant discovers that the foregoing statement is incorrect, the Participant shall promptly return any such materials to the Participant’s former employer or obtain any necessary consent. The Participant understands that Company does not want any such materials, and that the Participant will not be permitted to use or refer to any such materials in the performance of the Participant’s duties.
3. Intellectual Property, Inventions and Patents
The Participant acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not including any confidential information) and all registrations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) which (i) relate to the Company’s or any of its controlled affiliate’s actual or anticipated business, research and development or existing or future products or services and (ii) are conceived, developed or made by the Participant (whether individually or jointly with others) while employed by the Company or its affiliates or their predecessors in interest (collectively, “Work Product”), belong to the Company or such affiliate, as the case may be. The Participant shall disclose Work Product promptly to the Company or the applicable affiliate in the manner required under procedures established by those entities and, at the expense of the Company or applicable affiliate, as the case may be, perform all actions reasonably requested on behalf of any such entity (whether during or after any period of employment or engagement) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).




4.
Non-competition; Non-solicitation.
a.
Non-competition. The Participant acknowledges that, during the course of the Participant’s employment or similar engagement with the Company and its controlled affiliates (including their respective predecessors in interest), the Participant has or will become familiar with the trade secrets of, and other Confidential Information concerning, those entities and that the Participant’s services have been, and are reasonably expected to be, of special, unique and extraordinary value to the Company and its affiliates. As a result, the Participant agrees that, during the Noncompete Period, the Participant shall not directly or indirectly own any interest in, manage, control, participate in, be employed by, consult with, render services for, or in any manner engage in any Competing Business within any geographical area in which the Company or any of its controlled affiliates engage or plan to engage in such businesses. Nothing herein shall prohibit the Participant from owning beneficially not more than 2% of any class of outstanding equity securities or other comparable interests of any issuer that is publicly traded, so long as the Participant has no active participation in the business of such issuer. For purposes hereof, the term “Competing Business” means any business that is engaged in the production, distribution or sale of products that compete with the products produced, distributed or sold by the Company or its controlled affiliates (or are in the process of being developed by such entities) as of the date on which the Participant’s employment or similar relationship with the Company or any of its controlled affiliates is effectively terminated. This restriction shall not prevent the Participant from working for a subsidiary, division, venture or other business unit (collectively a “Unit”) of a Competing Business so long as (i) such Unit is not itself a Competing Business, (ii) the Participant does not manage or participate in business activities or projects of any Unit that is a Competing Business, and (iii) the Participant otherwise strictly complies with the restrictive covenants contained in this schedule.
b.
Non-solicitation . During the Noncompete Period, the Participant shall not directly or indirectly through another person or entity: (i) induce or attempt to induce any executive or other key employee of the Company or any controlled affiliate to leave the employ of any of those entities, or in any way interfere with the relationship between the Company or any such affiliate and any such person; (ii) hire or offer to hire any person who was an executive or other key employee of the Company or any controlled affiliate at any time within the one year period prior to an offer of employment to such person; or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any controlled affiliate to cease doing business with any Company-affiliated entity, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and Company-affiliated entity. The foregoing restriction will not preclude the Participant from (a) providing customary business references for Company executives or other key employees at their request, (b) being involved in a general solicitation to the public of general advertising, or (c) engaging or participating in solicitations by recruiting consultants not specifically targeted at the Company or its Subsidiaries or Affiliates.
5. Nature of Restrictive Covenants; Enforcement.
a.
For purposes of enforcement, the restrictive covenants contained in this schedule are independent of any other provision of this Agreement. As a result, the existence of any claim or right of set-off that the Participant may have or allege against the Company, whether based on this Agreement or otherwise, shall not prevent the enforcement of the covenants or be deemed to mitigate any harm suffered by the Company.
b.
Because the Participant’s services are unique (resulting in the Company’s need for the restrictions in this schedule) and because the Participant has access to Confidential Information, Work Product and other proprietary resources representing valuable assets of the Company, the parties agree that the Company and its affiliates would suffer irreparable harm from a breach or threatened breach by the Participant of the restrictions set forth in this schedule and that money damages would not be an adequate remedy for any such non-compliant conduct. Therefore, notwithstanding the methods prescribed elsewhere in this Agreement for the enforcement of its provisions, in the event of a breach




or threatened breach of the restrictive covenants in this schedule, the Company (including its affected affiliates and their respective successors or assigns) in addition to other rights and remedies existing in their favor, shall be entitled to specific performance and/or injunctive or other equitable relief from a court of competent jurisdiction in order to enforce, or prevent any violations of, the provisions in this schedule (without posting a bond or other security, any requirement of which is waived by the Participant). In the event of any breach by the Participant of the restrictions set forth in this schedule, the Noncompete Period shall be tolled until such breach has been cured. If, at the time of enforcement, a court holds that restrictions contained in this schedule are unreasonable under circumstances then existing, the parties agree that the maximum period, scope or geographical area reasonable under such circumstances (or as otherwise allowed by governing law) are to be substituted for the stated period, scope or area provided in this schedule, and the restrictions are to be deemed reformed to that extent.
The Participant acknowledges that the restrictions contained in this schedule are reasonable and that the Participant has had the opportunity to review them and the other provisions of this Agreement with legal counsel and such other advisors as the Participant deems appropriate.
6.
Additional Post-employment Covenant(s)
The Participant acknowledges that the Option Grants and Awards of Restricted Shares under the Agreement comprise items of enduring and long-term value being issued by the Company to the Participant. Accordingly, to protect that long term value and in recognition of vesting terms of the Option Grants and Awards of Restricted Shares that, under circumstances provided in the Agreement, may extend beyond the actual service of the Participant as an employee, the Participant shall be obligated for any remaining vesting period applicable to Grants and Awards after the date of the Participant’s termination of service, at the Company’s request made reasonably in advance, to: (a) (i) maintain readiness for and cooperate with the Company and its Subsidiaries in connection with any legal proceedings in which the Participant is not (and is not likely to become) an adverse party individually, such cooperation to include, but not be limited to, meeting with attorneys, accountants and other experts, preparing for and attending depositions and attending hearings, trials or similar procedures to which the Company or any Subsidiary is a party (collectively, the “Proceedings”), and (ii) comply with the Company’s or such Subsidiary’s reasonable requests in connection with the Proceedings, and (b) during the pendency of the Proceedings, not to have any discussions, communications, or other contacts with any party or entity adverse to the Company or any Subsidiary or with the media, except (i) with the express written consent of the Company, or (ii) as otherwise required by judicial process, in which case the Participant shall be obligated to notify the Company in writing as much in advance as practicable of any such disclosure; provided , (a) the Participant shall be reasonably compensated by the Company for services to be provided (with rates not less than the hourly rate in effect for the Participant at the time of the Participant’s termination of service presumptively being deemed reasonable), (b) the reasonable expenses incurred by the Participant with respect to the Proceedings shall be fully reimbursed by the Company, and (c ) the number of hours of such service as are required in connection with the Proceedings shall not be unduly burdensome to the Participant (it being presumed that less than 20 hours in any one calendar month are not unduly burdensome).
The Participant acknowledges that failure to comply with the above covenants in this Schedule C can result, among other things, in risk of forfeiture of Option Grants and Awards of Restricted Shares not yet vested.





EXHIBIT 10.20
EXECUTIVE EMPLOYMENT AGREEMENT

AGREEMENT , dated as of the Effective Date specified below (this “Agreement”) by and between Innophos Holdings, Inc. , a Delaware corporation (the “Company”), and Jean Marie Mainente (the “Executive”).
Recitals
1. The Executive has been employed by the Company since July 28, 2015.
2. The Executive has been duly appointed and is serving as the Company’s Vice President, Human Resources.
3. It is in the best interests of the Company and its subsidiaries to provide the Executive with the compensation and benefits as provided herein in order to retain the services of the Executive and to permit the Executive to focus on the interests of the Company, its subsidiaries and its stockholders.
Agreement
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Executive and the Company agree as follows.
1.
Effective Date . The “Effective Date” shall mean July 27, 2015. As of the Effective Date, any prior written or unwritten employment agreement between the Company and the Executive shall be deemed terminated and superseded by this Agreement, and shall thereafter be of no further force or effect, except that any existing equity award, long-term incentive award, deferred compensation agreement, indemnification agreement and any other benefit or entitlement to which the Executive is entitled by reason of her employment with the Company prior to the Effective Date and not specifically covered by this Agreement (including without limitation, those awards, agreements and benefits set forth on Exhibit A attached hereto) will remain in full force and effect in accordance with their terms, except as provided herein.
2. Employment Period . The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to be employed by the Company, on the terms and subject to the conditions of this Agreement, for the period commencing on the Effective Date and ending on July 26, 2016 (the “Initial Period”). Following the Initial Period, this Agreement shall automatically renew for successive one-year periods (“Renewal Period”), unless either party gives written notice of non-renewal to the other party at least 90 days prior to the end of the Initial Period or any Renewal Period, as applicable. For purposes of this Agreement, the “Employment Period” shall include the Initial Period and any subsequent Renewal Period.
3. Terms of Employment .
a. Position and Duties .
i. Position . During the Employment Period, the Executive shall serve as the Company’s Vice President, Human Resources, with duties, powers and responsibilities provided in the Company’s Bylaws for such offices and otherwise commensurate with such title and office. She shall report to such officers as may be designated by the Company from time to time.
ii. Exclusivity . During the Employment Period, and excluding any periods of disability, vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of her attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the Executive’s responsibilities hereunder, to use the




Executive’s reasonable best efforts to perform such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to: (A) serve on corporate, civic or charitable boards or committees; (B) deliver lectures, fulfill speaking engagements or teach at educational institutions; and (C) manage personal and family investments, all so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement; and, in the case of the Executive’s management of her personal and family investments, so long as all such investment management activities comply with the Company’s personal trading policies and with applicable law.
iii. Place of Business . The Executive’s place of business shall be at the Company’s headquarters location, subject to temporary assignment (not to exceed 30 days in any calendar year) and business travel as may be reasonably necessary to conduct the Company’s business.
b. Compensation .
i. Base Salary . During the Employment Period the Executive shall receive an annual base salary (“Annual Base Salary”) of $250,000. The Annual Base Salary shall be reviewed by the Compensation Committee (the “Committee”) of the Board no less frequently than every 12 months during the Employment Period and may be increased (but not decreased) at the discretion of the Committee or the Board. If the Executive’s Annual Base Salary is increased, the increased amount shall be the new Annual Base Salary for the remainder of the Employment Period, subject to continued annual review and adjustment. The Annual Base Salary shall be payable in installments subject to legally required tax withholdings, consistent with the Company’s payroll procedures in effect from time to time, provided that such installments shall be no less frequent than monthly.
ii. Annual Bonus . In addition to the Annual Base Salary, the Executive shall be eligible to earn, for each calendar year ending during the Employment Period, an annual bonus (an “Annual Bonus”) on terms and conditions, including performance goals, as set forth from time to time in the Company’s Executive, Management and Sales Incentive Plan or such other short-term written bonus plan in effect during the Employment Period (collectively, the “Bonus Plan”). The Executive’s annual target bonus (the “Target Bonus”) initially shall be 35% (the “Target Percentage”) of the Annual Base Salary and the percentage of Annual Base Salary constituting the Target Bonus shall be reviewed by the Committee no less frequently than every 12 months during the Employment Period and may be increased (but not decreased) at the discretion of the Committee or the Board. Provided that the Executive is employed by the Company at the end of the applicable calendar year (except as provided in Section 5 below), the Executive’s Annual Bonus shall be fully vested upon the close of the calendar year to which it relates, and unless deferred by the written agreement of the Company and the Executive, shall be paid promptly after the close of such year but in any event on or before March 15 of the calendar year following the calendar year for which the Annual Bonus is to be paid.
iii. Long-Term Incentive Compensation . During the Employment Period, the Executive shall be entitled to participate in the Company’s long term incentive compensation arrangements, including without limitation the Company’s 2009 Long Term Equity Incentive Plan and successor plans, if any (collectively, the “LTI”), as such arrangements are in effect from time to time, on terms and conditions generally applicable to the Company’s United States-based executive employees. The Executive’s target awards for LTI purposes shall be 40% of base salary for the LTI award to be made in March 2016. For future awards the target shall be determined separately for each new performance measurement period by the Committee within 90 days of the commencement of each performance measurement period and, subject to the performance measurement cycle(s) established by the Committee, no less frequently than every 12 months during the Employment Period. LTI awards in the Committee’s or the Board’s discretion may be granted in the form of stock options, restricted stock, phantom stock, cash, stock appreciation rights or units, performance shares or any combination thereof, or other form approved by the Committee or the Board (collectively, “LTI Awards”), as provided in the LTI. Provided the Executive is employed by the Company at the end of the applicable calendar year (except as otherwise provided in Section 5 below), the Executive’s LTI Awards shall




be fully vested upon the close of the performance period to which they relate, and unless deferred by the written agreement of the Company and the Executive, shall be paid promptly after the close of such performance period but in any event on or before March 15 of the calendar year following the calendar year in which the Executive first acquires a vested right to receive such LTI Award.
iv. Additional Awards . Notwithstanding the granting of LTI Awards to the Executive, nothing in this Agreement shall prohibit the Company from granting to the Executive other LTI Awards or other property which shall be subject to such terms and conditions as may be set forth in such further agreement as the Company may provide.
v. Incentive, Pension, Savings and Retirement Plans . During the Employment Period, the Executive shall be entitled to participate in all other compensation and incentive plans, practices, policies and programs, and all savings and retirement plans, practices, policies and programs, including any pension programs and the retirement savings restoration plan maintained by the Company, in each case on terms and conditions no less favorable than the terms and conditions generally applicable to the Company’s United States-based executive employees.
vi. Welfare Benefit Plans . During the Employment Period, the Executive and the Executive’s spouse and eligible dependents, as the case may be, shall participate in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliates (including, without limitation, medical, prescription, dental, disability, individual and group life, accidental death and travel accident insurance plans and programs) on terms and conditions no less favorable than the terms and conditions generally applicable to the Company’s United States-based executive employees. Following the Employment Period, the Executive and the Executive’s spouse and eligible dependents shall participate in, and shall receive all benefits under, any retiree health plan of the Company subject to the terms of such plan, unless such plan is modified or terminated by the Company with respect to the Company’s executive employees generally.
vii. Service Credit.      For purposes of eligibility to participate and vesting in employee benefits, to the extent permitted by law, Executive shall receive credit for time devoted by the Executive in consulting for Company beginning February 22, 2010 until her first day as an employee: July 27, 2015.
viii. Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the Company’s policies, practices and procedures in effect from time to time for executive employees.
ix. Fringe Benefits . During the Employment Period, in addition to the other benefits and entitlements as provided herein, the Executive shall be entitled to fringe benefits on the same basis as those provided generally to the Company’s United States-based executive employees. This provision shall not be construed to require the Company to establish any welfare, compensation or incentive plans, or to prevent the modification or termination of any plan once established, and no action or inaction with respect to any plan shall affect this Agreement.
x. Vacation . During the Employment Period, the Executive shall be entitled to five weeks’ paid vacation in accordance with the plans, policies, programs and practices of the Company, but in no event shall the Executive’s paid vacation for calendar year 2015 and for subsequent calendar years beginning during the Employment Period be less than the number of weeks as provided in the Company’s vacation policy as in effect on the Effective Date.
xi. Relocation Benefit . Without limiting the Executive’s rights pursuant to Paragraph 4(e) below, in the event the Company’s corporate headquarters is relocated more than 50 miles distant from the Executive’s principal residence and more than 20 miles farther from the Executive’s principal residence than the corporate headquarters prior to such relocation, the Executive shall be eligible for an after-tax voluntary relocation benefit under the Company’s executive relocation program, if any is then in force, or if no program is then in force, a reasonable after-tax allowance to defray the costs of moving the Executive and her household to a new residence located within 50 miles of the relocated corporate headquarters.




xii. Section 162(m) Performance Criteria . The parties acknowledge and agree that compensation payable to the Executive under bonus and incentive plans referred to in Paragraphs 3(b)(ii) and (iii) of this Agreement for any calendar year for which she is treated as a “covered employee” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) will be subject to the attainment of such corporate and/or individual performance goals as the applicable bonus or incentive compensation plan may provide, or as the Committee or the Board may establish in its discretion in accordance with the terms of such plan, with the intent of having the compensation so payable treated as qualified performance-based compensation for purposes of Code Section 162(m).
xiii. Satisfaction of Withholding Requirements . All grants and payments to the Executive under this Agreement are subject to and conditioned upon satisfaction of all required tax withholding requirements. The Executive shall execute all documents and take all action reasonably deemed necessary by the Company to ensure compliance with all such withholding requirements.
4. Termination of Employment .
a. Death or Disability . The Employment Period and the Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may provide to the Executive written notice in accordance with Paragraph 4(g) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), if, within the 30 days after the receipt of such notice, the Executive shall not have returned to full-time performance of the Executive’s duties and shall not have presented reasonable evidence that she has not incurred a Disability. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive days as a result of mental or physical incapacity, which qualifies the Executive for benefits under the Company’s long-term disability program covering the Executive and which is reasonably believed by the Company based on the facts available at the time to be total and permanent.
b. Termination by the Company with or without Cause . The Company may terminate the Employment Period and the Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:
i. the continued and willful failure of the Executive at any time to attempt in good faith to perform the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, but including a continued and willful failure by the Executive for any other reason to attempt in good faith to meet reasonable, material performance expectations that are not measured by Company economic performance), after a written demand for performance is delivered to the Executive by the Company or its representative, which specifically identifies the manner in which the Company believes that the Executive has not attempted in good faith to perform the Executive’s duties and which gives the Executive no fewer than 60 days to cure the deficiency noted therein; or
ii. the willful engaging by the Executive in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company; or
iii. conviction of the Executive of a felony (other than a traffic-related felony) or a guilty or nolo contendere plea by the Executive with respect thereto; or
iv. a material breach by the Executive of any material provision of this Agreement; provided that, if such breach is curable, the Company shall not have the right to terminate the Executive’s employment for Cause pursuant to this Paragraph 4(b)(iv) unless the Executive, having received written notice of the breach, fails to cure the breach within 60 days; or
v. a willful violation by the Executive of a material legal requirement, or of any material written Company policy or procedure that is materially and demonstrably injurious to the Company; or




vi. the Executive’s failure to obtain or maintain, or inability to qualify for, any license (other than a driver’s license) required by law for the performance of the Executive’s material job responsibilities, or the suspension or revocation of any such license held by the Executive as a result of an action or inaction by the Executive; provided that, if such failure, suspension or revocation is curable, the Company shall not have the right to terminate the Executive’s employment for Cause pursuant to this Paragraph 4(b)(vi) unless the Executive, having received written notice of the failure, does not cure the failure within a reasonable time (not less than 60 days after the receipt of such notice), provided, in no event shall Cause exist under this clause (vi) so long as the Executive is diligently pursuing a cure of such failure, suspension or revocation in good faith and the failure is cured within 120 days after receipt of notice.
c. Willfulness . For purposes of Paragraph 4(b), no act or failure to act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive without the reasonable, good faith belief that the Executive’s act or omission was in accordance with, or not contrary to, the duties and responsibilities of Executive’s position. Any act, or failure to act, based upon express authority given by the Company with respect to such act or omission or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in the best interests of the Company.
d. Termination Procedures . If the Company desires to terminate the Executive’s employment for Cause pursuant to Paragraph 4(b)(i), (iii), (iv) or (v) above, the cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (not including the Executive) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in Paragraph 4(b)(i), (iii), (iv), or (v) above, and specifying the particulars thereof in detail.
e. Termination by Executive with or without Good Reason . The Executive may terminate the Employment Period and her employment with or without Good Reason. Termination with Good Reason shall be treated for purposes of this Agreement as a termination by the Company “without Cause.” For purposes of this Agreement, “Good Reason” shall mean, in the absence of a written consent of the Executive:
i. a material reduction in the Executive’s authority, title or duties, or the assignment to the Executive of duties that are inconsistent in a significant way with the Executive’s position, and in any case excluding for this purpose any action not taken in bad faith and that is remedied by the Company within 10 business days after receipt of written notice thereof given by the Executive; or
ii. the Executive’s removal from any of her positions; or
iii. any material reduction by the Company in the overall value of the Executive’s compensation and benefits package, other than (a) a reduction not occurring in bad faith and which is remedied by the Company within 30 business days after receipt of written notice thereof given by the Executive, (b) a reduction solely attributable to a decline in the share price of the Company’s stock and not by reason of any action by the Company intended to reduce the overall value of the Executive’s compensation and benefits package, (c) a reduction applicable equally or ratably to the Company’s executive employees following an extraordinary decline in the Company’s earnings, share price or public image or (d) a reduction in the number or value of LTI Awards, so long as the Executive remains eligible for LTI Awards under the Company’s LTI Plan, policies and practices as in effect with respect to the Executive on the Effective Date; or
iv. any material failure by the Company to comply with and satisfy any material provision of this Agreement (including Paragraphs 5(f)(ii) or 10(c)), excluding for this purpose any action not taken in bad faith and which is remedied by the Company within 30 business days after receipt of written notice thereof given by the Executive; or




v. continuing, in effect and not revoked after 30 business days’ written notice of objection from the Executive, any order from any person to whom the Executive reports, directing the Executive to take any action or to refrain from taking any action, in any case, that in Executive’s good-faith, considered and informed judgment violates any applicable legal or regulatory requirement; or
vi. requiring the Executive to relocate to an office which is at a location more than 50 miles from the Company’s corporate headquarters and more than 20 miles farther from the Executive’s principal residence than the headquarters prior to such relocation.
The Executive’s mental or physical incapacity following the occurrence of an event described above in clauses (i) through (vi) shall not affect the Executive’s ability to terminate employment for Good Reason.
f. Sunset on Right to Terminate for Good Reason . If circumstances arise giving the Executive the right to terminate the Employment Period and her employment for Good Reason, the Executive shall, within 120 days of learning of such circumstances, notify the Company in writing of the existence of such circumstances, and the Company shall have an additional 30 days within which to investigate and remedy the circumstances, immediately after which 30 days the Company shall provide the Executive with a written determination setting forth the results of such investigation, after the receipt of which, if the circumstances have not been fully cured by the Company, the Executive shall have an additional 60 days within which to exercise the right to terminate for Good Reason. The Executive shall be conclusively deemed to have learned of such circumstances on the date of any written notice to the Executive concerning such circumstances. If the Executive does not timely do so, the right to terminate for Good Reason shall lapse and be deemed waived, and the Executive shall not thereafter have the right to terminate for Good Reason unless further circumstances occur which themselves give rise to a right to terminate for Good Reason, in which case the provisions of this Paragraph 4(f) shall once again apply, based on such further circumstances.
g. Notice of Termination . Any termination by the Company with or without Cause, or by the Executive with or without Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Paragraph 13(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which: (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined in subparagraph (h) below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not constitute a waiver of any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
h. Date of Termination . Except as otherwise provided in Paragraph 12(a) hereof, “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date, specified therein, that is within 30 days of such notice, as the case may be, (ii) if the Executive’s employment is terminated by the Company without Cause, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, (iv) if the Executive’s employment is terminated by the Executive other than for Good Reason, the Date of Termination shall be the date of receipt of the Notice of Termination or any later date, specified therein, that is within 30 days of such notice, subject to the Company’s acceptance of such proposed later Date of Termination; and (v) if the Executive’s employment is terminated upon the




expiration of the Employment Period under Paragraph 2, the Date of Termination shall be the last day of the Employment Period.
5. Obligations of the Company upon Termination .
a. Upon any termination of the Executive’s employment, the Company shall pay or provide to the Executive (or her estate, in the case of the Executive’s death), the “Obligations,” which shall consist of:
i. the Executive’s Annual Base Salary through the Date of Termination;
ii. any earned but as-yet unpaid Annual Bonus and/or LTI Awards with respect to any calendar year or performance period ended prior to the Date of Termination;
iii. any unreimbursed business expenses incurred by the Executive prior to the Date of Termination but which remain unpaid on the Date of Termination;
iv. any accrued and unpaid vacation and sick days; and
v. other benefits, if any, to which the Executive is entitled under other applicable plans, programs, agreements and arrangements of the Company or its affiliates.
vi. Except as otherwise provided herein, the amounts payable to the Executive (or her estate) pursuant to clauses (i), (iii) and (iv) above shall be paid in a single cash lump sum within 30 days after the Date of Termination. Any amounts to be paid or provided pursuant to clause (ii) above shall be provided as set forth in Paragraph 3(b)(ii) or (iii), as applicable. Any benefits to be paid or provided to the Executive (or her estate) pursuant to clause (v) above shall be paid or provided in the manner and at the time or times provided under the terms of applicable plan, program, agreement or arrangement.
b. Severance Pay, Etc. Notwithstanding any severance plan or policy (“Severance Policy”) generally in effect during the Employment Period for employees of the Company or its subsidiaries, if, during the Employment Period, the Company terminates the Executive’s employment without Cause, or the Executive terminates her employment for Good Reason, or the Executive’s employment terminates at the end of the Employment Period following a non-renewal by the Company under Paragraph 2, then, in addition to the Obligations to be paid or provided to the Executive as provided in Paragraph 5(a) above, but conditioned upon the Executive’s execution (and, if applicable, non-revocation) of a mutual release in the form of the Release attached hereto as Exhibit B (the “Release”):
i. the Company shall pay to the Executive severance compensation in an amount equal to the Annual Base Salary and Annual Bonus amounts that the Executive would have earned under Paragraphs 3(b)(i) and 3(b)(ii), above, (A) if the Executive had remained employed for 12 months following the Date of Termination (such period of assumed continuing employment is hereinafter referred to as the “Severance Period”) and (B) if, for each calendar year or portion thereof within the Severance Period, she had earned, based on the assumed attainment of all applicable performance goals for such year, an Annual Bonus in an amount equal to (1) the Target Bonus in effect for her immediately prior to her Date of Termination, multiplied by (2) a fraction, the numerator of which is the number of days in the Severance Period that fall within such calendar year, and the denominator of which is 365. The Annual Base Salary payments to be made pursuant to the preceding sentence shall be paid in equal monthly installments, and each Annual Bonus amount payable pursuant to the preceding sentence shall be paid at the same time following the close of the calendar year to which it relates as it would have been paid pursuant to Paragraph 3(b)(ii) if the Executive had remained employed at the close of such year. If for the year in which the Executive’s employment terminates and for the immediately preceding calendar year, the Bonus Plan provides for the payment of an Annual Bonus the amount of which is determined entirely on a discretionary basis and not solely on the basis of the attainment of pre-established performance goals, then the Annual Bonus amount treated as earned during each calendar year or portion thereof for purposes of this Paragraph 5(b)(i) shall be the amount paid or payable as an Annual Bonus for the most recently closed year preceding the Date of Termination.
ii. for the period commencing on the Date of Termination and concluding 12 months after the Date of Termination (“Coverage Period”), the Company shall continue to provide the benefits described in Paragraph 3(b)(vi) to the Executive and her spouse and eligible dependents on the same basis




such benefits were provided immediately prior to the Date of Termination, and, to the extent that any such benefits cannot be provided during any portion of the Coverage Period under the terms of the applicable plan or pursuant to applicable law, the Company shall pay to the Executive, within 10 days of the date as of which the Executive ceases to be eligible for continued coverage for such benefit under the Company’s applicable plans and programs, a lump sum cash payment equal to the value of such continuing benefit coverage for the balance of the Coverage Period on an after tax basis (collectively, the “Welfare Benefits”);
iii. the Company shall cause all unvested equity-based awards, cash awards, LTI Awards and other incentive awards (collectively, the “Retention Incentive Awards”) granted to the Executive (whether or not granted pursuant to this Agreement) to become immediately vested in full as of the Date of Termination, to the extent that such awards would have become vested during the 12-month period following the Date of Termination if the Executive had remained in employment with the Company until the end of such period and, in the case of any such award that was subject to attainment of any performance targets, if all targets applicable to such award were deemed to be fully attained during the applicable performance period. In the case of any cash awards that become vested pursuant to the preceding sentence, the amount thereof shall be paid to the Executive in a single cash lump sum within 30 days following the Date of Termination. Any stock options that become so vested shall remain exercisable for the lesser of (a) the remainder of their respective original terms, or (b), 12 months; and
iv. the Company shall pay to the Executive an additional severance payment in a single lump sum in cash within 10 days of the Date of Termination and in an amount equal to (a) the Target Percentage multiplied by the Annual Base Salary then in effect multiplied by (b) a fraction the numerator of which is the number of days elapsed in the calendar year to the Date of Termination and the denominator of which is 365; and
v. If the Executive is not exempted or cannot by reason of this Agreement be exempted from the Severance Policy, the amount of the severance pay described in clause (i) above shall be offset by the present value of any amount to be paid to the Executive pursuant to the Severance Policy.
c. Death . If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, the Company shall pay or provide the Executive’s estate or beneficiaries with the Obligations and shall provide the Welfare Benefits to the Executive’s spouse and eligible dependents, if any, in accordance with the provisions of Paragraph 5(b)(ii) above, for the greater of the length of time defined in the applicable benefit plan or policy in effect at the time of the Executive’s death or a 12 month period commencing as of the Date of Termination. In addition, all of the Executive’s outstanding Retention Incentive Awards shall be treated as described in Paragraph 5(b)(iii) above in respect of a 12 month period following the Date of Termination for purposes of this subparagraph (c). The Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in the manner and at the time or times provided in Paragraph 5(a) above.
d. Disability . If the Executive’s employment is terminated by reason of the Executive’s Disability during the Employment Period, the Company shall pay or provide to the Executive with the Obligations and shall provide the Welfare Benefits to the Executive, her spouse and eligible dependents, if any, in accordance with the provisions of Paragraph 5(b)(ii) above, for the greater of the length of time defined in the applicable benefit plan or policy in effect at the time the Executive becomes disabled or a 12 month period commencing as of the Date of Termination. In addition, all of the Executive’s outstanding Retention Incentive Awards shall be treated as described in Paragraph 5(b)(iii) above in respect of a 12 month period following the Date of Termination for purposes of this subparagraph (d). The Obligations shall be paid to the Executive in the manner and at the time or times provided in Paragraph 5(a) above.
e. Cause; Other than for Good Reason . If the Company terminates the Executive’s employment for Cause, or the Executive terminates her employment without Good Reason, in either case, during the Employment Period, the Company shall pay or provide the Executive with the Obligations as set forth in Paragraph 5(a). In no event shall a termination without Good Reason by the Executive, as described in Paragraph 4(e), constitute a breach of this Agreement by the Executive.




f. Change in Control . (i) If the Executive’s employment is terminated (1) by the Company without Cause, (2) by the Executive for Good Reason, or (3) at the end of the Employment Period following non-renewal under Paragraph 2, in each case within 24 months after a Change in Control, the Company shall pay or provide the Executive with the payments and benefits set forth in Paragraphs 5(b)(i)-(iii), and such payments and benefits shall be paid or provided at the time and in the manner therein provided, except that each number or period under Paragraphs 5(b)(i)-(iii) shall be extended to 18 months. If the Executive’s employment is terminated (x) by the Company without Cause, (y) by the Executive for Good Reason, or (z) at the end of the Employment Period following non-renewal under Paragraph 2, in each case within six months before a Change in Control, the Executive shall be entitled to receive the same payments and benefits as she would have received in accordance with the immediately preceding sentence had her employment with the Company terminated immediately following the occurrence of the Change in Control. To the extent that any cash amounts which the Executive is entitled to receive pursuant to such preceding sentence exceeds the amounts, if any, that were paid to the Executive under Paragraph 5(b) upon her termination of employment prior to the Change in Control, the excess amounts shall be paid to the Executive in a single cash lump sum (x) within 10 days after the date of the Change in Control or (y), in the case of any cash payment that may become payable to the Executive after that date pursuant to Paragraph 5(b)(ii) above, at the time specified therein for such payment to be made. Notwithstanding the foregoing, any payments or benefits accruing to the Executive solely as a result of a Change in Control or similarly defined event under any plan or arrangement of the Company in which the Executive participates shall accrue and be provided to the Executive in accordance with such plan or arrangement as in effect at the time of such event to the extent that such payment or benefit is more favorable to the Executive than the same or similar provision provided for herein. Anything in paragraph 5(b) to the contrary notwithstanding, in the event of any Change in Control applicable to a termination of employment as provided in this paragraph 5(f), no amount or benefit payable under paragraph 5(b) shall be pro-rated on account of a Termination Date occurring prior to the first anniversary of the Effective Date.
i. Code Section 4999 . The Executive acknowledges that payments or benefits to be made to or for the benefit of the Executive under this Agreement or under any plan or arrangement maintained by the Company or its affiliated companies may be subject to the excise tax under Code Section 4999, and that no “gross up” payments will be payable by the Company in respect thereof.
ii. Definition . For purposes of this Agreement, a “Change in Control” means the date on which the earliest of the following events occurs:
A. any Person, as defined in this Paragraph 5(f)(iii) below, becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of 50% or more of (x) the then outstanding shares of common stock of the Company or (y) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Company Voting Stock”);
B. any Person becomes the beneficial owner of 50% or more of (x) the then outstanding shares of common stock of IIH or Innophos (as defined in this Paragraph 5(f)(iii) below) or (y) the combined voting power of the then outstanding securities of IIH or Innophos entitled to vote generally in the election of directors;
C. the closing of a sale or other disposition (whether by merger, consolidation, reorganization or otherwise) of all or substantially all of the assets of the Company, or the Company, adopts a plan of liquidation providing for the distribution of all or substantially all of its assets ;
D. the Company combines with another entity and is the surviving entity but, immediately after the combination, the stockholders of the Company immediately prior to the combination hold, directly or indirectly, 50% or less of the Company Voting Stock or other ownership interests of the combined entity (there being excluded from the number of shares or other ownership interests held by such stockholders, but not from the voting stock of the combined entity, any shares or other ownership




interests received by affiliates of such other entity in exchange for stock or other ownership interests of such other entity);
E. the majority of the Board consists of individuals other than Incumbent Directors, which term means the members of the Board on the date of the employment agreement; provided that any person becoming a director subsequent to such date whose election or nomination for election was supported by two-thirds of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director;
provided, however, notwithstanding anything herein to the contrary, for purposes of this Agreement, a Change in Control shall not include any transaction, whether by bona fide public offering or private placement to institutional investors of any class or series of capital stock of the Company, determined by the Board to be effected for the purpose of equity financing, including the conversion of any debt securities of the Company into equity securities of the Company. The definition of a Change in Control under this Agreement is not intended to modify or otherwise affect the definition of such term or any similar term under any other plan or arrangement of the Company. For purposes of this Paragraph 5(f), a “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than employee benefit plans sponsored or maintained by the Company and corporations controlled by the Company; “IIH” means Innophos Investments Holdings, Inc., a Delaware corporation; and “Innophos” means Innophos, Inc., a Delaware corporation.
g. At the end of the Employment Period or Thereafter . If the Executive’s employment shall terminate at the end of the Employment Period by virtue of the expiration of this Agreement, or for any other reason thereafter (other than under Paragraphs 5(c), (d), (e) or (f)), the Company shall pay to the Executive the Obligations to the extent unpaid plus, upon the Executive’s signing a Release, the severance payments and benefits set forth in Paragraph 5(b)(i), (ii) and (iii) (in the case of cash payments under Paragraph 5(b)(i), in a lump sum in cash within 10 days after the date of termination of the Employment Period), but as if the Executive had remained employed for 12 months following the Date of Termination for purposes of this subparagraph (g).
6. Non-exclusivity of Rights . Except as otherwise specifically provided in this Agreement, nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor shall anything herein limit or otherwise negatively affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts that are vested benefits, consisting of any compensation previously deferred by the Executive, or that the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any other contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or other contract or agreement, except as explicitly modified by this Agreement.
7. Arbitration; No Set Off . Any controversy, dispute or claim arising out of or relating to this Agreement, the Executive’s employment with the Company, or the termination thereof (collectively, “Covered Claims”) shall be resolved by binding arbitration, to be held in Newark, New Jersey, before a panel of three arbitrators, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Company shall promptly advance to the Executive (and her beneficiaries) any and all costs and expenses (including without limitation attorneys’ fees) incurred by the Executive (or any of her beneficiaries) in resolving any such Covered Claim; provided, however, that to the extent that the Executive’s claims/defenses do not prevail in such arbitration, then any amounts advanced shall be repaid by the Executive (or her beneficiaries) to the Company. Pending the resolution of any Covered Claim, the Executive (and her beneficiaries) shall continue to receive all payments and benefits due from the Company and its affiliated companies under this Agreement or otherwise. Except as provided below, the Company’s obligation to make




or cause to be made the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company or any of its affiliated companies may have against the Executive or others.
8. Nature of Obligation . Except as provided in Paragraph 5(f)(ii) hereof, (i) the Company shall not be required to establish a special or separate fund or other segregation of assets to assure payments under this Agreement, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Employee shall have no right, title or interest in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments and (ii) nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and the Employee or any other person. To the extent that any person acquires a right to receive payments under this Agreement such right shall be no greater than the right of an unsecured creditor.

9. Restrictive Covenants .
a. The Executive acknowledges that her employment as an executive officer of the Company creates a relationship of confidence and trust between the Executive and the Company with respect to confidential and proprietary information applicable to the business of the Company and its clients. The Executive further acknowledges the competitive nature of the business of the Company. Accordingly, it is agreed that the restrictions contained in this Paragraph 9 are reasonable and necessary for the protection of the interests of the Company and that any violation of these restrictions could cause substantial and irreparable injury to the Company.
b. The Executive and the Company agree that provisions of Exhibit C attached to this Agreement shall be made a part hereof as if set forth at length in the body of this Agreement.
10. Successors .
a. This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive and the Executive’s legal representatives.
b. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company without the Executive’s prior written consent, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or a sale, liquidation or other disposition of all or substantially all of the assets of the Company, provided that the terms and conditions of Paragraph 10(c) below are satisfied. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and permitted assigns.
c. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly, and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, all within 10 days after the occurrence of the applicable event. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
11. Indemnification and Directors and Officers’ Insurance .
a. Scope of Indemnification .
i. General Indemnification . Without limiting or otherwise affecting the Company’s obligations under the Indemnification Agreement referred to in clause (ii) below, the Company shall, and shall cause IIH and Innophos to, indemnify and defend the Executive to the fullest extent permitted under Delaware law (including without limitation the Delaware General Corporation Law and the Company’s




(and IIH’s and Innophos’) Certificate of Incorporation and By Laws) from and against any expenses (including but not limited to attorneys’ fees, expenses of investigation and preparation and fees and disbursements of the Executive’s accountants or other experts), judgments, fines, penalties and amounts paid in settlement (collectively, the “Indemnified Liabilities”) actually and reasonably incurred by the Executive in connection with any proceeding in which the Executive was or is made party or was or is involved (for example, as a witness) by reason of the fact the Executive was or is employed by the Company or was or is an officer or director of the Company, IIH and/or Innophos, except that such obligation shall not extend to any proceeding to the extent initiated or instituted by the Executive.
ii. Special Indemnification . The Company and the Executive are parties to an Indemnification Agreement preceding the Effective Date and covering the Executive’s service on behalf of the Company and its subsidiaries. During the Employment Period and continuously for 10 years from the Date of Termination with respect to acts or omissions which occurred prior to her cessation of employment with the Company, the Company shall continue to keep such Indemnification Agreement in full force and effect for the Executive.
b. Insurance . The Company agrees to continue and maintain directors’ and officers’ liability insurance policies covering the Executive at least to the extent provided on the date hereof. Such insurance coverage shall continue as to the Executive even if she has ceased to be a director, member, employee or agent of the Company with respect to acts or omissions which occurred prior to her cessation of employment with, or service as a director of, the Company. Insurance contemplated under this Paragraph 11(b) shall inure to the benefit of the Executive’s heirs, executors and administrators.
12. Code Section 409A Compliance . The parties intend that any severance or other compensation payable to the Executive under this Agreement be paid or provided in compliance with Section 409A of the Code and all regulations, guidance, and other interpretative authority issued thereunder (“Section 409A”) such that there will be no adverse tax consequences, interest, or penalties for the Executive under Section 409A as a result of the payments and benefits so paid or provided to her. The parties agree to modify this Agreement, or the timing (but not the amount) of the payment of the severance or other compensation, or both, to the extent necessary to comply with Section 409A. In addition, notwithstanding anything to the contrary contained in any other provision of this Agreement, the payments and benefits to be provided to the Executive under this Agreement shall be subject to the provisions set forth below.
a. The date of the Executive’s “separation from service”, as defined in the regulations issued under Section 409A, shall be treated as the Executive’s Date of Termination for purpose of determining the time of payment of any amount (other than Obligations) that becomes payable to the Executive pursuant to Paragraph 5 hereof upon the termination of her employment.
b. In the case of any amounts that are payable to the Executive under this Agreement, or under any other “nonqualified deferred compensation plan” (within the meaning of Section 409A) maintained by the Company or any of its affiliated companies, in the form in the form of “a series of installment payments”, as defined in Treas. Reg. §1.409A-2(b)(2)(iii), (A) the Executive’s right to receive such payments shall be treated as a right to receive a series of separate payments under Treas. Reg. §1.409A-2(b)(2)(iii), and (B) to the extent any such plan does not already so provide, it is hereby amended to so provide, with respect to amounts payable to the Executive thereunder.
c. If the Executive is a “specified employee” within the meaning of the Section 409A at the time of the Executive’s “separation from service” within the meaning of Section 409A, then any payment otherwise required to be made to the Executive under this Agreement on account of the Executive’s separation from service, to the extent such payment (after taking in to account all exclusions applicable to such payment under Section 409A) is properly treated as deferred compensation subject to Section 409A, shall not be made until the first business day after (i) the expiration of six months from the date of the Executive’s separation from service, or (ii) if earlier, the date of the Executive’s death (the “Delayed Payment Date”). On the Delayed Payment Date, there shall be paid to the Executive or, if the Executive has died, to the Executive’s estate, in a single cash lump sum, an amount equal to aggregate amount of the payments delayed pursuant to the




preceding sentence, plus interest thereon at the Delayed Payment Interest Rate (as defined below) computed from the date on which each such delayed payment otherwise would have been made to the Executive until the Delayed Payment Date. For purposes of the foregoing, the “Delayed Payment Interest Rate” shall mean the national average annual rate of interest payable on jumbo six-month bank certificates of deposit, as quoted in the business section of the most recently published Sunday edition of The New York Times preceding the date as of which Executive is treated as having incurred a separation from service for purposes of Section 409A.
d. All expenses eligible for reimbursement hereunder shall be paid to the Executive promptly, but in any event by no later than December 31 of the calendar year following the calendar year in which such expenses were incurred. The expenses incurred by the Executive in any calendar year that are eligible for reimbursement under this Agreement shall not affect the expenses incurred by the Executive in any other calendar year that are eligible for reimbursement hereunder. The Executive’s right to receive any reimbursement hereunder shall not be subject to liquidation or exchange for any other benefit.
e. If, as of the date on which, or by which, any payment required to be made to the Executive (or her estate) under this Agreement, calculation of the amount of such payment is not administratively practicable due to events beyond the control of the Executive (or her estate) then such payment shall be made to the Executive (or her estate) within 10 business days after, but in any event by no later than December 31 next following, the date on which calculation of the amount of such payment first becomes administratively practicable.
13. Non-disparagement. Executive shall not, in any communications with the press or any other media or any customer, client, supplier, or member of the investment community criticize, ridicule, or make any statement which disparages or is derogatory of the Company, its affiliates, directors, officers or employees. The Company shall not, in any communications with the press or any other media or any employer, prospective employer, or member of the investment community criticize, ridicule, or make any statement which disparages or is derogatory of the Executive; provided, however, that the obligations of the Company shall bind its directors and its executive officers. Notwithstanding the foregoing, Executive and the Company shall not be prohibited from making truthful statements in connection with any arbitration proceeding under this agreement concerning a dispute relating to this Agreement or otherwise as may be required by law.
14. Miscellaneous .
a. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. No provision of this Agreement may be waived except by a written waiver explicitly identifying the provision and signed by the party making the waiver.
b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:        At the most recent address on file at the Company.

If to the Company:        Innophos Holdings, Inc.
259 Prospect Plains Road
Cranbury, NJ 08512
Attn: Chief Legal Officer
and
Innophos Holdings, Inc.
259 Prospect Plains Road
Cranbury, NJ 08512




Attn: Chair, Compensation Committee

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any notice, request or other communication given in connection with this Agreement shall be in writing and shall be deemed to have been given (i) when personally delivered to the recipient (provided a written acknowledgment of receipt is obtained), (ii) three business days after mailing by certified or registered mail, postage prepaid, return receipt requested or (iii) two business days after being sent by a nationally recognized overnight courier (provided that a written acknowledgment of receipt is obtained by the overnight courier), to the party concerned at the address indicated above (or such other address as the recipient shall have specified by ten (10) days’ advance written notice given in accordance with this Paragraph 13(b)).
c. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
d. The Company shall withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
e. The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
f. Definitions set forth in this Agreement and any terms of this Agreement which conflict with the provisions of any other policy, plan, contract, or other arrangement which applies to the Executive shall supersede and replace the conflicting provisions of such other policy, plan, contract or arrangement to the extent necessary to resolve the conflict.
g. (i) The interpretation and construction of this Agreement (including the Exhibits hereto) shall be governed by the internal laws of the State of New Jersey as a contract to be performed in such state and without regard to the conflict of law provisions thereof.
i. Notwithstanding Paragraph 7 above, the Company may seek equitable relief in the event of a breach by the Executive of the covenants set forth in Exhibit C hereto. In that regard, the parties hereby consent to exclusive jurisdiction and agree that such proceeding will be conducted in the federal or state courts of the State of New Jersey sitting in and for the County of Middlesex or otherwise in such state and county wherein the headquarters of the Company is located at the time; provided such other location shall be in the United States of America. To effect the foregoing, the Executive hereby subjects herself to the in personam jurisdiction of such courts and waives all objections as to improper venue for such forum posited as provided in the preceding sentence.
h. Except as otherwise expressly set forth in this Agreement, upon the expiration of the Employment Period, the respective rights and obligations of the parties shall survive such expiration to the extent necessary to carry out the intentions of the parties as embodied in the rights and obligations of the parties under this Agreement. This Agreement shall continue in effect until there are no further rights or obligations of the parties outstanding hereunder and shall not be terminated by either party without the express prior written consent of both parties.
i. The Company represents and warrants to the Executive that (i) the execution, delivery and performance of this Agreement by the Company has been fully and validly authorized by all necessary corporate action, (ii) the officer signing this Agreement on behalf of the Company is duly authorized to do so, (iii) the execution, delivery and performance of this Agreement does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document to which the Company is a party or by which it is bound and (iv) upon execution and delivery of this Agreement by the Executive and the Company, it shall be a valid and binding obligation of the Company enforceable against




it in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
 
Jean Marie Mainente, EXECUTIVE of Innophos Holdings, Inc.
INNOPHOS HOLDINGS INC.
INNOPHOS INC. and INNOPHOS INVESTMENTS HOLDINGS INC. (For the limited purposes of Section 11(a)(i) of this agreement)
Signed: /s/ Jean Marie Mainente
By: /s/ William Farran
 
Title: VP and General Counsel
 
Date: September 11, 2015
EXHIBIT A
LIST OF AWARDS, AGREEMENTS AND BENEFITS
EXHIBIT B
FORM OF MUTUAL RELEASE
1. Release of Claims.
a. The Executive recognizes that the payments and other benefits to be received by her include amounts and benefits above and beyond any amounts otherwise due her for services rendered or to be rendered or under the Company’s general policies or programs.
In consideration of, and as a condition to these payments, the Executive hereby, to the extent allowed by law, releases and forever discharges the Company and all of its affiliates, present or former officers, directors, shareholders, Executives, agents, successors or assigns (the “Releasees”) from any claim concerning past, present or future employment and benefits thereunder, and of and from all claims or causes of action or other demands whatsoever, which she ever had, now has, or hereafter can, shall or may have against the Releasees, arising out of or related to her employment relationship with the Company or the termination of that relationship (the “Claims”).
This release or giving up of the Claims is binding on the Executive, her heirs, assigns, and/or representatives.
Listed below are the statutes and legal theories from which the Executive has released and discharged the Releasees and under which the Executive will not bring any Claim. In the event that the law prohibits a release or waiver of Claims under any such statute or theory, the Executive hereby waives the right to seek or accept damages in a proceeding under the statute or theory and/or hereby acknowledges that she has no valid Claim under such statute or theory. The Claims released are any alleged violation by the Company of:
·
The National Labor Relations Act, as amended;
·
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq.;
·
Sections 1981 through 1988 of Title 42 of the United States Code, as amended;




·
The Employment Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq.;
·
The Immigration Reform Control Act, as amended;
·
The Americans with Disabilities Act;
·
The Age Discrimination in Employment Act, as amended, and including the Older Workers Benefit Protection Act, 29 U.S.C. § 621 et seq.;
·
The Fair Labor Standards Act, as amended;
·
The Occupational Safety and Health Act, as amended;
·
The Family and Medical Leave Act;
·
The Consolidated Omnibus Budget Reconciliation Act, as amended;
·
Any federal, state or local laws against discrimination or protecting whistleblowers, or any other federal, state or local law or common law relating to employment, wages, hours, or any other terms and conditions of employment.
The Claims released also are:
·
Any public policy, contract, tort, or other common law claim or cause of action, including but not limited to breach of implied or express contract, intentional or negligent infliction of emotional distress, negligent misrepresentation, defamation, wrongful discharge;
·
Any claim or cause of action for commission, back wages or other compensation, including, but not limited to, commissions, back wages or compensation, related to or arising out of any payments or sums the Company has received or may receive in the future from any source at any time;
·
Any claim or allegation for costs, fees, or other expenses, including attorneys’ fees, incurred in ay matter or proceeding.
(b)      For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, for itself and on behalf of the other Releasees, to the extent allowed by law, releases and forever discharges the Executive and all of her heirs and legal representatives from any claim concerning past, present or future employment and benefits thereunder, and of and from all claims or causes of action or other demands whatsoever, which the Company and the Releasees ever had, now have or hereafter can, shall or may have against the Executive and her heirs and legal representatives, arising out of or related to the Executive’s employment relationship with the Company or the termination of that relationship.
2.      Unknown Claims Released. The Executive and the Company understand that they are releasing claims that they may not know about. This is the Executive’s and the Company’s knowing and voluntary intent, even though the Executive and the Company recognize that someday they might learn that some or all of the facts they currently believe to be true are untrue and even though they might then regret having signed this Release. Nevertheless, the Executive and the Company assume that risk and agree that this Release shall remain effective in all respects in any such case. The Executive and the Company expressly




waive all rights they might have under any law that is intended to protect the Executive and the Company from waiving unknown claims, and they understand the significance of doing so.
3.      Claims Not Released. Anything to the contrary notwithstanding contained herein, nothing herein shall release Company or any Releasee from any claims or damages based on (i) any right the Executive may have to enforce this Release or the Employment Agreement, (ii) any right or claim that arises after the date of this Release, (iii) any right the Executive may have to benefits or entitlements under any applicable plan, agreement, program, award, policy or arrangement of Company, (iv) the Executive’s eligibility for indemnification and advancement of expenses in accordance with any agreement with the Company, applicable laws or the certificate of incorporation and by-laws of Company, or any applicable insurance policy or (v) any right the Executive may have to obtain contribution as permitted by law in the event of entry of judgment against the Executive as a result of any act or failure to act for which the Executive, on the one hand, and Company or any Releasee, on the other hand, are jointly liable. Further and anything to the contrary notwithstanding contained herein, nothing herein shall release the Executive or her heirs or legal representatives from any claims or damages based on (i) any right the Company may have to enforce this Release, (ii) any right or claim that arises after the date of this Release or (iii) any right the Company may have to obtain contribution as permitted by law in the event of entry of judgment against the Company as a result of any act or failure to act for which the Company on the one hand, and the Executive, on the other hand, are jointly liable.
4.      No Participation in Claims. The Executive understands that if this Agreement were not signed, she could have the right to voluntarily assist other individuals or entities in bringing claims against the Releasees. The Executive hereby waives that right and agrees not to provide any such assistance, other than assistance in an investigation or proceeding conducted by an agency of the United States, state or local government. To the extent that the law prohibits the Executive from waiving her right to bring and/or participate in the investigation of a claim, she nevertheless waives her right to seek or accept any damages or relief in any proceeding.
5.      Nonadmission of Liability. The Executive recognizes and agrees that this Release is not intended to imply any wrongdoing on the Releasees’ parts with respect to her employment or its termination, or any other reason, and shall not constitute evidence of the same.
6.      Voluntary Agreement. The Executive’s decision to enter into this Release is based solely on the mutual considerations described above and is wholly her free act and deed. Before signing this Release, the Executive has had the opportunity for up to twenty-one (21) days to carefully consider the terms and ramifications of this Release and the opportunity to consult with her advisors, legal or otherwise, which the Company has encouraged the Executive to do.
7.      Governing Law and Interpretation. This Release shall be governed and conformed in accordance with the laws of the State of New Jersey, without regard to its conflict of laws provisions.
8.      Separate Enforceability of Terms. If any terms of this Release are declared invalid by any court of competent jurisdiction, the Release shall be deemed amended by excluding the invalid term or terms, and all remaining terms shall continue in full force and effect. The Executive and the Company agrees to execute such amendments as may be necessary to accomplish the intent of this paragraph, which is to maintain in force all terms of this Release to the full extent permitted by law.
9.      Limitations on Changing Release. This Release may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Release.




10. Revocation; Effectiveness. The Executive may revoke this Release for a period of seven (7) days following the day she executes this Release. Any revocation within this period must be submitted, in writing, to the Company at the address listed below. The revocation must be delivered to Vice President Human Resources, Innophos Inc, 259 Prospect Plains Road, Cranbury, NJ 08512. and postmarked within seven (7) days of execution of this Release. This Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday, or legal holiday in Illinois, then the revocation period shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday.
THE EXECUTIVE HAS HAD TWENTY ONE (21) DAYS TO CONSIDER THIS RELEASE AND CONFIRMS THAT THE COMPANY ADVISED HER TO CONSULT WITH HER ATTORNEY BEFORE EXECUTING THE RELEASE.
THE EXECUTIVE AGREES THAT ANY MODIFICATIONS, MATERIAL OR OTHISWISE, MADE TO THIS RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY ONE (21) DAY CONSIDERATION PERIOD.
HAVING ELECTED TO EXECUTE THIS RELEASE, TO FULFILL THE PROMISES SET FORTH HEREIN, THE EXECUTIVE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS SHE HAS OR MIGHT HAVE AGAINST THE RELEASEES.
IN WITNESS WHEREOF, the parties knowingly and voluntarily executed this Release as of the date set forth below:
Innophos, Inc.
By: ______________________
Name:
Title:
Date: _______________________
Jean Marie Mainente
_______________________
Current personal mailing address:
_____________________________
_____________________________
Date: ________________________




EXHIBIT C

NONCOMPETITION AND NONSOLICITATION AGREEMENT
a.
General.
The terms of this Noncompetition and Nonsolicitation Agreement are made part of the Employment Agreement to which it is an exhibit, and, except as expressly provided in this Noncompetition and Nonsolicitation Agreement, shall be of unlimited duration. For purposes of this Exhibit, the “Noncompete Period” means that period commencing on the date the Executive’s employment or other service relationship with the Company and its subsidiaries or other entities controlled directly or indirectly by either (collectively, the “controlled affiliates”) began and ending 12 months after the Date of Termination. The “Nonsolicitation Period” shall be measured in the same manner and shall end 18 months after the Date of Termination. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Employment Agreement to which this Exhibit is attached.
b.
Confidential Information.
i.
The Executive acknowledges that the information, observations and data, including trade secrets, obtained by the Executive while employed or retained by the Company and its controlled affiliates concerning their business and affairs (collectively, “Confidential Information”) are the property of those entities. Therefore, the Executive agrees that, except as required by law, court order, an arbitrator, a mediator or by other legal process, including, but not limited to, depositions, interrogatories, court testimony, arbitration, and the like, and except in connection with any litigation, arbitration or mediation involving the Employment Agreement (including the Exhibits thereto), including the enforcement of the Employment Agreement (including the Exhibits thereto), the Executive shall not at any time disclose to any unauthorized person or use for her own purposes any Confidential Information without the prior written consent of the Company’s Board of Directors (which may delegate to an authorized officer authority to give such consent), unless and to the extent that: (i) the Confidential Information becomes generally known to and available for use by the public or generally known in the industry other than as a result of the Executive’s acts or omissions, (ii) the Executive discloses or uses such information in the performance of her duties as an employee and an officer of the Company (including services to its controlled affiliates) in the ordinary course of business, or (iii) the Executive discloses such information to third parties with whom the Company or its affiliates have entered into a non-disclosure agreement and such disclosure is made in the ordinary course performance of the Executive’s duties and responsibilities to the Company and its affiliates. The Executive shall deliver to the Company promptly following the termination of her employment, or at any other time the Company may reasonably request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) embodying the Confidential Information or Work Product (as defined below) which the Executive may then possess or control, provided that the Executive may retain (i) papers and other materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars and rolodexes, personal files and phone books, (ii) information showing her compensation or relating to reimbursement of expenses, (iii) information that she reasonably believes may be needed for tax purposes and (iv) copies of plans, programs and agreements relating to her employment, or termination thereof, with the Company.
ii.
The Executive represents and warrants to the Company that, to the best of her knowledge, the Executive has nothing that contains any material information which belongs to any former




employer that the Executive is not entitled to have or use for the benefit of the Company and its controlled affiliates. If at any time the Executive discovers that the foregoing statement is incorrect in any material respect, the Executive shall promptly return any such materials to the Executive’s former employer or obtain any necessary consents. The Executive understands that Company does not want any such materials, and that the Executive will not be permitted to use or refer to any such materials in the performance of the Executive’s duties.
c. Intellectual Property, Inventions and Patents.
The Executive acknowledges that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not including any confidential information) and all registrations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) which (i) relate to the Company’s or any of its controlled affiliate’s actual or anticipated business, research and development or existing or future products or services and (ii) are conceived, developed or made by the Executive (whether individually or jointly with others) while employed by the Company or its affiliates or their predecessors in interest (collectively, “Work Product”), belong to the Company or such affiliate, as the case may be. The Executive shall disclose Work Product promptly to the Company or the applicable affiliate in the manner reasonably required under procedures established by those entities and, at the expense of the Company or applicable affiliate, as the case may be, perform all actions reasonably requested on behalf of any such entity (whether during or after any period of employment or engagement) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). The Employee acknowledges and agrees that the Company’s or applicable affiliate’s ownership of Work Product includes all future rights arising from the Work Product, which rights do not yet exist, as well as new uses, media, means and forms of exploitation throughout the universe exploiting current or future technology yet to be developed.
d.
Non-competition and Non-solicitation.
i.
Non-competition . The Executive acknowledges that, during the course of the Executive’s employment or similar engagement with the Company and its controlled affiliates (including their respective predecessors in interest), the Executive has or will become familiar with the trade secrets of, and other Confidential Information concerning, those entities and that the Executive’s services have been, and are reasonably expected to be, of special, unique and extraordinary value to the Company and its affiliates. As a result, the Executive agrees that, during the Noncompete Period, the Executive shall not directly or indirectly own any interest in, manage, control, participate in, be employed by, consult with, render services for, or in any manner engage in any Competing Business within any geographical area in which the Company or any of its controlled affiliates engage or have active plans at the Date of Termination to engage in such businesses. The Executive acknowledges and agrees that this restriction is without specific geographic limitation inasmuch as the Company and its affiliates conduct business on a nationwide and international basis, that its sales and marketing prospects are for continued expansion both nationally and internationally, that access to the Company’s Confidential Information would provide any national or international competitor with an unfair competitive advantage, and that, therefore, the restrictions set forth in this section are reasonable and properly required for the adequate protection of the legitimate interests of the Company. Nothing herein shall prohibit the Executive from owning beneficially not more than 2% of any class of outstanding equity securities or other comparable interests of any issuer that is publicly traded, so long as the Executive has no active participation in the business of such issuer. For purposes hereof, the term “Competing Business” means any business that is engaged in the production or sale of phosphates or other products that compete with the products produced, distributed or sold by the Company or its controlled affiliates (or are in




the process of being actively developed by such entities) as of the Date of Termination. This restriction shall not prevent the Executive from working for a subsidiary, division, venture or other business or functional service unit (collectively a “Unit”) of a Competing Business so long as (i) such Unit is not itself a Competing Business, (ii) the Executive does not manage or participate in business activities or projects of any Unit that is a Competing Business, and (iii) the Executive otherwise strictly complies with the restrictive covenants contained in this Exhibit. The term “Competing Business” shall not include any business entity set forth on Schedule 1 to this Agreement (or any wholly-owned subsidiary thereof), which Schedule 1 may be modified by written agreement of the Company and Executive from time to time. This list is not intended to an all-inclusive list of those Businesses that are not competing Businesses and the exclusion of a business entity from this list does not itself suggest that such business entity is a Competing Business.
ii.
Non-solicitation . During the Nonsolicitation Period, the Executive shall not directly or indirectly through another person or entity: (i) induce or attempt to induce any executive or other key employee of the Company or any controlled affiliate to leave the employ of any of those entities, or in any way interfere with the relationship between the Company or any such affiliate and any such person; (ii) hire or offer to hire any person who was an executive or other key employee of the Company or any controlled affiliate at any time within the one year period prior to an offer of employment to such person ; or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any controlled affiliate to cease doing business with any Company-affiliated entity, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and Company affiliated entity. The following shall not be deemed a violation of this provision (a) providing customary business references for Company executives or other key employees at their request, (b) being involved in a general solicitation to the public of general advertising, or (c) if an entity with which the Executive is associated hires or engages any employee of the Company or any of its controlled affiliates, if the Executive was not, directly or indirectly, involved in hiring or identifying such person as a potential recruit or assisting in the recruitment of such employee. For purposes hereof, the Executive shall only be deemed to have been involved “indirectly” in soliciting, hiring or identifying an employee if the Executive (x) directs a third party to solicit or hire the Employee, (y) identifies an employee to a third party as a potential recruit or (z) aids, assists or participates with a third party in soliciting or hiring an employee.
e. Nature of Restrictive Covenants; Enforcement.
i.
For purposes of enforcement, the restrictive covenants contained in this schedule are independent of any other provision of this Exhibit. As a result, the existence of any claim or right of set-off that the Executive may have or allege against the Company, whether based on this Exhibit or otherwise, shall not prevent the enforcement of the covenants or be deemed to mitigate any harm suffered by the Company.
ii.
Because the Executive’s services are unique (resulting in the Company’s need for the restrictions in this schedule) and because the Executive has access to Confidential Information, Work Product and other proprietary resources representing valuable assets of the Company, the parties agree that the Company and its affiliates might suffer irreparable harm from a breach or threatened breach by the Executive of the restrictions set forth in this Exhibit and that money damages would not be an adequate remedy for any such non-compliant conduct. In the event of a breach or threatened breach of the restrictive covenants in this Exhibit, the Company (including its affected affiliates and their respective successors or assigns) in addition to other rights and remedies existing in their favor, shall be entitled to seek specific performance and/or injunctive or other equitable relief from a court of competent jurisdiction




in order to enforce, or prevent any violations of, the provisions in this Exhibit (without posting a bond or other security, any requirement of which is waived by the Executive). In the event of any breach by the Executive of the restrictions set forth in this Exhibit, the Noncompete Period shall be tolled until such breach has been cured. If, at the time of enforcement, a court holds that restrictions contained in this Exhibit are unreasonable under circumstances then existing, the parties agree that the maximum period, scope or geographical area reasonable under such circumstances (or as otherwise allowed by governing law) are to be substituted for the stated period, scope or area provided in this Exhibit, and the restrictions are to be deemed reformed to that extent and shall be enforceable as so reformed to the fullest extent permitted by law to provide protection to the Company.
The Executive acknowledges and agrees that (i) the restrictions contained in this Exhibit are reasonable and will not subject her to undue hardship, (ii) the Executive has had the opportunity to review these restrictions and the other provisions of this Agreement with legal counsel and such other advisors as the Executive deems appropriate, (iii) the Executive has carefully read and fully understands all of the provisions of this Exhibit, and (iv) the Executive is voluntarily entering into the Employment Agreement containing this Exhibit without any reliance upon any representations or statement made by the Company with regard to the subject matter, basis or effect of this Exhibit, other than those in writing, including those contained in the Employment Agreement and this Exhibit.




 
 
 
 
 
 
 
 
Exhibit 12.1
 
Calculation of Ratio of Earnings to Fixed Charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
(dollars in thousands)
2016

 
2015

 
2014

 
2013

 
2012

 
Earnings
 
 
 
 
 
 
 
 
 
 
Income before provision
 
 
 
 
 
 
 
 
 
 
for income taxes
$
70,318

 
$
40,123

 
$
97,356

 
$
76,247

 
$
105,973

 
Plus: fixed charges (1)
10,032

 
9,869

 
6,617

 
7,583

 
8,099

 
 
$
80,350

 
$
49,992

 
$
103,973

 
$
83,830

 
$
114,072

 
 
 
 
 
 
 
 
 
 
 
 
Fixed Charges:
 
 
 
 
 
 
 
 
 
 
Gross interest expense
7,722

 
7,583

 
4,394

 
5,475

 
6,042

 
Estimate of the interest
 
 
 
 
 
 
 
 
 
 
within operating leases
2,310

 
2,286

 
2,223

 
2,108

 
2,057

 
 
$
10,032

 
$
9,869

 
$
6,617

 
$
7,583

 
$
8,099

 
 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to
 
 
 
 
 
 
 
 
 
 
fixed charges
8.0

x
5.1

x
15.7

x
11.1

x
14.1

x
 
 
 
 
 
 
 
 
 
 
 
(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.



EXHIBIT 21.1

SUBSIDIARIES OF INNOPHOS HOLDINGS, INC.

Company
 
Ownership*
 
Jurisdiction
 
Innophos Investments Holdings, Inc.
Innophos Holdings, Inc.
Delaware
Innophos, Inc.
Innophos Investments Holdings, Inc.
Delaware
Woody IV, LLC
Innophos Investments Holdings, Inc.
Utah
Innophos Nutrition, Inc.
Innophos, Inc.
Delaware
Innophos (Gibraltar) Investments Holdings Limited
Innophos, Inc.
Gibraltar
Innophos (Gibraltar) Investments Limited
Innophos (Gibraltar) Investments Holdings Limited
Gibraltar
Innophos Investments IV, LLC
Innophos (Gibraltar) Investments Limited
Delaware
Innophos (Gibraltar) Holdings Limited
Innophos, Inc.
Gibraltar
Innophos (Gibraltar) Limited
Innophos (Gibraltar) Holdings Limited
Gibraltar
Innophos Netherlands Investments
Holdings C.V.
Innophos (Gibraltar) Holdings Limited
Netherlands
Innophos Investments III, LLC
Innophos Netherlands Investments Holdings C.V.
Delaware
Innophos Netherlands Holdings B.V.
Innophos Netherlands Investments Holdings C.V.
Netherlands
Innophos Brasil Importacão, Exportacão e Comercializacão Produtos Quimicos Ltda
Innophos Netherlands Holdings B.V.
Brazil
Innophos, SRL
Innophos Netherlands Holdings B.V.
Argentina
Innophos Germany GmbH
Innophos Netherlands Holdings B.V.
Germany
Innophos Canada Holdings B.V.
Innophos Netherlands Holdings B.V.
Netherlands
Innophos Canada, Inc.
Innophos Canada Holdings B.V.
Ontario, Canada
Innophos (Hong Kong) Limited
Innophos Netherlands Holdings B.V.
Hong Kong (China)
Innophos (Taicang) Food Ingredients Manufacturing Co., Ltd.
Innophos (Hong Kong) Limited
China
Innophos (Taicang) Trading Co., Ltd.
Innophos (Hong Kong) Limited
China
Innophos International Holdings B.V.
Innophos Netherlands Holdings B.V.
Netherlands
Innophos Mexico Holdings, LLC
Innophos International Holdings B.V.
Delaware
Innophos Mexicana, S. de R.L. de C.V.
Innophos Mexico Holdings, LLC
Mexico
Innophos TGI, S. R.L. de C.V.
Innophos Mexicana, S. de R.L. de C.V.
Mexico
Innophos Fosfatados De Mexico,
S. de R.L. de C.V.
Innophos TGI, S. R.L. de C.V.
Mexico
Innophos Servicios de Mexico,
S. de R.L. de C.V.
Innophos Mexicana, S. de R.L. de C.V.
Mexico
•
*100% by direct parent, except in Mexico, Innophos Netherlands Investments Holdings C.V. and Innophos, SRL where minority qualifying interests are held by other affiliates.


Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No.s 333-159973 and 333-139623) of Innophos Holdings, Inc. of our report dated February 24, 2017 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
 
 
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 24, 2017




Exhibit 31.1
CERTIFICATIONS
I, Kim Ann Mink, certify that:
1. I have reviewed this Annual Report on Form 10-K of Innophos Holdings, Inc. (“the registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Dated: February 28, 2017
By:
/S/    K IM  A NN  M INK        
 
 
Kim Ann Mink
 
 
Chief Executive Officer and President
(Principal Executive Officer)




Exhibit 31.2
I, Han Kieftenbeld, certify that:
1. I have reviewed this Annual Report on Form 10-K of Innophos Holdings, Inc. (“the registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Dated: February 28, 2017
By:
/S/    H AN  K IEFTENBELD
 
 
Han Kieftenbeld
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)




Exhibit 32.1
Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
I, Kim Ann Mink, certify that:
1. the accompanying Annual Report on Form 10-K for the year ended December 31, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Innophos Holdings, Inc. at the dates and for the periods indicated.
A signed original of this written statement required by Section 906 has been provided Innophos Holdings, Inc. and will be retained by Innophos Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
Date: February 24, 2017
 
/S/    K IM  A NN  M INK        
Kim Ann Mink
Chief Executive Officer and President
(Principal Executive Officer)

The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.




Exhibit 32.2
Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
I, Han Kieftenbeld, certify that:
1. the accompanying Annual Report on Form 10-K for the year ended December 31, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Innophos Holdings, Inc. at the dates and for the periods indicated.
A signed original of this written statement required by Section 906 has been provided Innophos Holdings, Inc. and will be retained by Innophos Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
Date: February 24, 2017
 
/S/    H AN  K IEFTENBELD        
Han Kieftenbeld
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to the requirements of 18 U.S.C. § 1350 and is not being filed as a part of the Report or as a separate disclosure document.