Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
1. Basis of Statement Presentation
Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Innophos have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, for interim financial reporting and do not include all disclosures required by U.S. GAAP for annual financial reporting, and should be read in conjunction with the audited consolidated and combined financial statements of the Company at December 31, 2018 and for the three years then ended.
The accompanying unaudited condensed consolidated financial statements of the Company reflect all adjustments which management considers necessary for a fair statement of the results of operations for the interim periods and is subject to year-end adjustments. The results of operations for the interim periods are not necessarily indicative of the results for the full year. The December 31, 2018 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.
Merger Agreement with One Rock Capital Partners
On October 20, 2019, Innophos Holdings, Inc., Iris Parent LLC, a Delaware limited liability company (“Parent”), and Iris Merger Sub 2019, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will be merged with and into the Innophos Holdings, Inc. (the “Merger”), with Innophos Holdings, Inc. surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub were formed by affiliates of One Rock Capital Partners II, LP, a Delaware limited partnership (“ORC Fund II”).
At the time of the Merger, each share of Company common stock, par value $0.001 per share issued and outstanding will be automatically converted into the right to receive cash in an amount equal to $32.00 per share. The final purchase price is expected to be valued at approximately $932 million, including the assumption of debt.
The transactions contemplated by the Merger Agreement are subject to the satisfaction of certain customary conditions, including the approval of the Merger Agreement by the Company's stockholders, the receipt of regulatory approvals, the absence of any legal prohibitions, the accuracy of the representations and warranties of the parties, and compliance by the parties with their respective obligations under the Merger Agreement.
Under certain circumstances defined within the Merger Agreement, in the event that the Merger Agreement is terminated, the Company would be required to pay Parent a fee of $10.3 million or $20.6 million, depending on the circumstance. Further, under certain circumstances defined within the Merger Agreement, in the event that the Merger Agreement is terminated by the Parent, the Parent would be required to pay the Company a fee of $40.0 million.
The closing of the transaction is expected to occur in the first quarter of 2020. Upon the completion of the transaction, Innophos will become a privately held company and shares of the Company's common stock will no longer be listed on any public market.
Annual Goodwill Impairment Test
Goodwill is tested for impairment annually and whenever events and circumstances indicate that impairment may have occurred. During the third quarter of 2019, the Company changed the measurement date of the annual goodwill impairment test from the first month of the fourth quarter to the second month of the third quarter, which was a change in accounting principle. This change did not result in the delay, acceleration or avoidance of an impairment charge. We believe this timing is preferable as it better aligns the goodwill impairment test with the Company's strategic business planning process, which is a key component of the test. The change to the goodwill measurement date was applied prospectively, as retrospective application would have been impractical because the Company is unable to objectively select assumptions that would have been used in previous periods without the benefit of hindsight. The Company completed the required annual testing of goodwill for impairment and has determined that goodwill is not impaired.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Error Correction
During the fourth quarter of 2018, the Company identified an error associated with disclosing 2018 accrued capital expenditures and adjusting for them as non-cash investing activities in the Condensed Consolidated Statements of Cash Flows. The Company has evaluated the materiality of the error and concluded it was not material to any of the previously issued consolidated financial statements. However, the Company has elected to revise its consolidated cash flow statement for the period ending September 30, 2018 to correct the error.
The following table presents the effect of the revision on the selected line items previously reported in the consolidated cash flows statement for the nine months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
|
September 30, 2018
|
|
Consolidated Statement of Cash Flows
|
As reported
|
|
Adjustment
|
|
As revised
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts payable
|
$
|
(5,664
|
)
|
|
$
|
4,497
|
|
|
$
|
(1,167
|
)
|
|
Net cash provided by (used for) operations
|
$
|
30,867
|
|
|
$
|
4,497
|
|
|
$
|
35,364
|
|
|
|
|
|
|
|
|
|
Cash flows used for investing activities
|
|
|
|
|
|
|
Capital expenditures
|
$
|
(43,303
|
)
|
|
$
|
(4,497
|
)
|
|
$
|
(47,800
|
)
|
|
Net cash (used for) investing activities
|
$
|
(43,303
|
)
|
|
$
|
(4,497
|
)
|
|
$
|
(47,800
|
)
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
Accrued additions to plant assets
|
|
|
$
|
5,073
|
|
|
$
|
5,073
|
|
These accompanying notes to the consolidated financial statements reflect the impact of this revision.
During the second quarter of 2019, the Company identified and corrected errors related to the valuation of its inventory located at one of its domestic subsidiaries and the translation of Accumulated other comprehensive income (loss) related to pension and post retirement obligations at a foreign subsidiary. The adjustments decreased Cost of goods sold by $3.1 million and Foreign exchange (gain) loss by $0.7 million resulting in an increase to income before income taxes of approximately $3.8 million in the three month period ended June 30, 2019 and increased the Inventory balance by $3.1 million and decreased Accumulated other comprehensive income before income taxes by $0.7 million as of June 30, 2019. Approximately $1.2 million of the cumulative adjustment should have been recorded during the first quarter of 2019 and the remaining $2.6 million related to prior periods. Management has concluded that these adjustments are not material to the periods presented or any of its previously issued financial statements, and are not expected to be material to the full year 2019 results.
Recently Issued Accounting Standards
Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset (ROU asset) representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In July 2018, the FASB issued updated guidance which allows an additional transition method to adopt the new leases standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption (the effective date method). The Company adopted this standard as of January 1, 2019, and has elected the effective date method. The Company also elected the package of practical expedients, which among other things, does not require reassessment of prior conclusions to contracts containing a lease, lease
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
classification, and initial direct costs. As an accounting policy election, the Company will exclude short-term leases (term of 12 months or less) from the balance sheet. The Company's lease agreements do not contain any residual value guarantees. Please see Note 8, "Leases", for further disclosures.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and hedging (Topic 815): Targeted improvements to accounting for hedging activities. This standard more closely aligns the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. This standard also addresses specific limitations in current GAAP by expanding hedge accounting for both nonfinancial and financial risk components and by refining the measurement of hedge results to better reflect an entity’s hedging strategies. Additionally, by aligning the timing of recognition of hedge results with the earnings effect of the hedged item for cash flow and net investment hedges, and by including the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is presented, the results of an entity’s hedging program and the cost of executing that program will be more visible to users of financial statements. The new standard is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company adopted this standard on January 1, 2019, and there was no material impact on its financial position, results of operations and related disclosures.
In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections - Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates. ASU 2019-07 clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. This ASU was effective upon issuance and did not have a material impact on the Company’s Consolidated Financial Statements.
Issued but not yet adopted
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. New disclosures include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. The new standard is effective for fiscal years beginning after December 15, 2020, and must be applied retrospectively for all periods presented. Early adoption is permitted. The Company does not anticipate the adoption of this standard will have a material impact on its financial position, results of operations and related disclosures.
2. Revenue Recognition
Revenues are recognized when control of goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Control passes either upon shipment or delivery, depending on the agreed sales terms with customers.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and reduce revenues recognized. There were no significant changes to its estimates of variable consideration upon adoption.
The Company reports its business in three operating segments: Food, Health, and Nutrition; Industrial Specialties; and Other. The Company has three principal product lines within these operating segments: (i) Specialty Ingredients; (ii) Core Ingredients; and (iii) Co-Products and Other. Revenue recognition is measured on the same basis across these segments, products, markets, and geographic countries, with the performance obligation being the transfer of control of goods at a single point in time.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
U.S.
|
|
Canada
|
|
Mexico
|
|
Other Countries
|
|
Total
|
|
Specialty Ingredients
|
$
|
98,909
|
|
|
$
|
3,773
|
|
|
$
|
8,438
|
|
|
$
|
16,534
|
|
|
$
|
127,654
|
|
|
Core Ingredients
|
15,626
|
|
|
2,137
|
|
|
23,493
|
|
|
10,097
|
|
|
51,353
|
|
|
Co-Products & Other
|
9,044
|
|
|
178
|
|
|
1,100
|
|
|
20
|
|
|
10,342
|
|
|
Total
|
$
|
123,579
|
|
|
$
|
6,088
|
|
|
$
|
33,031
|
|
|
$
|
26,651
|
|
|
$
|
189,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
U.S.
|
|
Canada
|
|
Mexico
|
|
Other Countries
|
|
Total
|
|
Specialty Ingredients
|
$
|
105,127
|
|
|
$
|
6,726
|
|
|
$
|
9,754
|
|
|
$
|
17,682
|
|
|
$
|
139,289
|
|
|
Core Ingredients
|
14,431
|
|
|
1,704
|
|
|
21,005
|
|
|
8,152
|
|
|
45,292
|
|
|
Co-Products & Other
|
10,568
|
|
|
123
|
|
|
1,517
|
|
|
145
|
|
|
12,353
|
|
|
Total
|
$
|
130,126
|
|
|
$
|
8,553
|
|
|
$
|
32,276
|
|
|
$
|
25,979
|
|
|
$
|
196,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
U.S.
|
|
Canada
|
|
Mexico
|
|
Other Countries
|
|
Total
|
|
Specialty Ingredients
|
$
|
292,772
|
|
|
$
|
12,950
|
|
|
$
|
25,904
|
|
|
$
|
55,912
|
|
|
$
|
387,538
|
|
|
Core Ingredients
|
46,694
|
|
|
6,832
|
|
|
69,471
|
|
|
21,568
|
|
|
144,565
|
|
|
Co-Products & Other
|
26,810
|
|
|
397
|
|
|
6,188
|
|
|
303
|
|
|
33,698
|
|
|
Total
|
$
|
366,276
|
|
|
$
|
20,179
|
|
|
$
|
101,563
|
|
|
$
|
77,783
|
|
|
$
|
565,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
U.S.
|
|
Canada
|
|
Mexico
|
|
Other Countries
|
|
Total
|
|
Specialty Ingredients
|
$
|
332,525
|
|
|
$
|
19,005
|
|
|
$
|
26,472
|
|
|
$
|
57,511
|
|
|
$
|
435,513
|
|
|
Core Ingredients
|
43,120
|
|
|
5,947
|
|
|
60,988
|
|
|
27,366
|
|
|
137,421
|
|
|
Co-Products & Other
|
24,764
|
|
|
256
|
|
|
10,574
|
|
|
571
|
|
|
36,165
|
|
|
Total
|
$
|
400,409
|
|
|
$
|
25,208
|
|
|
$
|
98,034
|
|
|
$
|
85,448
|
|
|
$
|
609,099
|
|
Revenues for the geographic information are attributed to geographic areas based on the destination of the sale.
The Company's payment terms vary by geography and location of its customer and the products offered. Invoices are generated upon shipment of the goods, with the term between invoicing and when payment is due being insignificant.
Food, Health, and Nutrition and Industrial Specialties
The Food, Health and Nutrition reporting segment, as well as the Industrial Specialties reporting segment, consists of products in the Specialty Ingredients and Core Ingredients product lines.
Specialty Ingredients are the most value adding products in our portfolio. Specialty Ingredients consist of specialty phosphate products, specialty phosphoric acids, including polyphosphoric acid, and a range of other mineral, enzyme and botanical based specialty ingredients. The Company's Specialty Ingredients products have a wide range of applications, including:
|
|
|
|
•
|
flavor enhancers in beverages;
|
|
|
|
|
•
|
electrolytes in sports drinks;
|
|
|
|
|
•
|
texture modifiers in cheeses;
|
|
|
|
|
•
|
leavening agents in baked goods;
|
|
|
|
|
•
|
calcium and phosphorus fortification in food and beverages;
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
|
|
|
|
•
|
moisture and color retention in seafood, poultry and meat;
|
|
|
|
|
•
|
mineral, enzyme and botanical sources for a wide variety of fortified foods, beverages and dietary supplements;
|
|
|
|
|
•
|
excipients in vitamins, minerals, nutritional supplements and pharmaceuticals; and
|
|
|
|
|
•
|
abrasives in toothpaste.
|
Each product typically has a number of different applications and end uses. For example, the Company's dicalcium phosphate product can be used as an excipient for pharmaceutical and dietary supplements, a leavening agent in bakery products and as an abrasive in oral care products. The Company often works directly with customers to tailor products to their required specifications for their finished product application.
The Company's Core Ingredients product line includes food grade purified phosphoric acid, or PPA, technical grade PPA, sodium tripolyphosphate, or STPP, and detergent grade PPA. Food grade PPA can be used to produce phosphate salts and has a variety of applications in food and beverages. Technical grade PPA has applications in water treatment. The Company also sells technical grade PPA in the merchant market to third-party phosphate derivative producers. STPP is a key ingredient in cleaning products, including industrial and institutional cleaners and automatic dishwashing detergents and consumer laundry detergents outside the United States. In addition to its use in cleaning products, STPP is also used in water treatment, clay processing, and copper ore processing. The end use market for STPP is largely derived from consumer product applications. Detergent Grade PPA is a lower grade form of PPA used primarily in the production of STPP.
Other
The Other reporting segment consists of products in the Co-Products and Other product line.
The Company's Co-Products and Other product line includes granular triple super phosphate, or GTSP, and merchant green phosphoric acid, or MGA. GTSP is generated at the Company's Coatzacoalcos facility in Mexico as a co-product of its purified wet acid manufacturing process. GTSP is a fertilizer product used throughout Latin America for increasing crop yields in a wide range of agricultural sectors. The Company sells MGA in the merchant market to third party manufacturers of fertilizer products.
Practical Expedients and Exemptions
Management reviewed the practical expedients which a Company may utilize when implementing Topic 606 - Revenue from Contracts with Customers. As such, the Company has applied the practical expedient related to significant financing components and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
3. Earnings per Share (EPS)
The Company accounts for earnings per share in accordance with ASC 260 and related guidance, which requires two calculations of earnings per share (EPS) to be disclosed: basic EPS and diluted EPS. Under ASC Subtopic 260-10-45, as of January 1, 2009 unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as restricted stock, are considered participating securities for purposes of calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock, as shown in the table below.
The numerator for basic and diluted earnings per share is net earnings attributable to shareholders reduced by dividends attributable to unvested shares. The denominator for basic earnings per share is the weighted average number of common stock outstanding during the period. The denominator for diluted earnings per share is weighted average shares outstanding adjusted for the effect of dilutive outstanding stock options, performance share awards and restricted stock awards.
The following is a reconciliation of the weighted average basic number of common shares outstanding to the diluted number of common and common stock equivalent shares outstanding and the calculation of earnings per share using the two-class method:
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Net income
|
$
|
6,451
|
|
|
$
|
14,090
|
|
|
$
|
16,546
|
|
|
$
|
31,251
|
|
|
Less: earnings attributable to unvested shares
|
(34
|
)
|
|
(57
|
)
|
|
(72
|
)
|
|
(112
|
)
|
|
Net income available to participating common shareholders
|
$
|
6,417
|
|
|
$
|
14,033
|
|
|
$
|
16,474
|
|
|
$
|
31,139
|
|
|
Weighted average number of participating common and potential common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic number of participating common shares outstanding
|
19,583,316
|
|
|
19,525,284
|
|
|
19,575,764
|
|
|
19,511,097
|
|
|
Dilutive effect of stock equivalents
|
201,729
|
|
|
313,678
|
|
|
164,498
|
|
|
279,473
|
|
|
Diluted number of weighted average participating common shares outstanding
|
19,785,045
|
|
|
19,838,962
|
|
|
19,740,262
|
|
|
19,790,570
|
|
|
Earnings per participating common share:
|
|
|
|
|
|
|
|
|
Earnings per participating common share—Basic
|
$
|
0.33
|
|
|
$
|
0.72
|
|
|
$
|
0.84
|
|
|
$
|
1.60
|
|
|
Earnings per participating common share—Diluted
|
$
|
0.32
|
|
|
$
|
0.71
|
|
|
$
|
0.83
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding options, performance share awards and unvested restricted stock not included in the calculation of diluted earnings per share as the effect would be anti-dilutive
|
966,943
|
|
|
431,751
|
|
|
982,049
|
|
|
465,956
|
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
4. Stockholders’ Equity / Share-Based Compensation
The following table summarizes the components of share-based compensation expense, all of which has been classified as selling, general and administrative expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
2019
|
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Stock options
|
$
|
366
|
|
|
$
|
398
|
|
|
$
|
1,168
|
|
|
$
|
1,282
|
|
|
Restricted stock
|
606
|
|
|
580
|
|
|
1,878
|
|
|
1,860
|
|
|
Performance shares
|
649
|
|
|
173
|
|
|
1,442
|
|
|
422
|
|
|
Stock grants
|
—
|
|
|
—
|
|
|
700
|
|
|
579
|
|
|
Total share-based compensation expense
|
$
|
1,621
|
|
|
$
|
1,151
|
|
|
$
|
5,188
|
|
|
$
|
4,143
|
|
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Raw materials
|
$
|
47,789
|
|
|
$
|
46,147
|
|
|
Finished products
|
106,561
|
|
|
119,407
|
|
|
Spare parts
|
15,940
|
|
|
14,649
|
|
|
|
$
|
170,290
|
|
|
$
|
180,203
|
|
Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of September 30, 2019 and December 31, 2018 were $14.8 million and $14.3 million, respectively.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
6. Other Current Assets
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Creditable taxes (value added taxes)
|
$
|
15,895
|
|
|
$
|
11,944
|
|
|
Vendor inventory deposits (prepaid)
|
3,434
|
|
|
454
|
|
|
Prepaid income taxes
|
11,378
|
|
|
6,658
|
|
|
Prepaid insurance
|
1,548
|
|
|
2,605
|
|
|
Other
|
2,881
|
|
|
2,433
|
|
|
|
$
|
35,136
|
|
|
$
|
24,094
|
|
7. Goodwill
The following table provides a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food, Health and Nutrition
|
Industrial Specialties
|
Other
|
Total
|
|
Balance: January 1, 2019
|
$
|
129,484
|
|
$
|
23,283
|
|
$
|
—
|
|
$
|
152,767
|
|
|
Balance: September 30, 2019
|
$
|
129,484
|
|
$
|
23,283
|
|
$
|
—
|
|
$
|
152,767
|
|
8. Leases
The Company determines if an arrangement is a lease at inception. Lease Right of Use, or ROU, assets and noncurrent lease liabilities are presented as distinct accounts in the Condensed Consolidated Balance Sheet. Current lease liabilities are included within Other current liabilities in the Condensed Consolidated Balance Sheet. The Company does not have any Finance leases. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments, as the implicit rate is not readily determinable. The Company gives consideration to publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Certain leases include one or more options to renew, with renewal terms that can extend the lease up to five years and certain leases also include options to purchase the leased property. We include options that we are reasonably certain to exercise in our evaluation of the lease term after considering all relevant economic and financial factors. We have lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.
The Company primarily leases rail cars, inventory tanks, buildings, equipment, and fleet cars. The Company recorded ROU assets of $48.8 million and lease liabilities of $48.9 million, respectively at January 1, 2019. The impact to the Company's Condensed Consolidated Statement of Comprehensive Income and Condensed Consolidated Statement of Cash Flows was not material. As of September 30, 2019, the Company had 45 leases, with remaining terms ranging from less than 1 year to 20 years.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Under one of its warehousing agreements with third-party service providers, the Company controls the amount, timing, placing, and removing of items for the entire capacity of the warehouse. Therefore the Company controls the asset, and the warehouse is deemed to be leased for accounting purposes. For this warehousing agreement, the Company accounts for the lease and non-lease components separately. The lease component consists of the warehouse and the non-lease components consist of services, such as loading, unloading, and maintenance. The Company allocates the consideration in the warehousing agreement to the lease and non-lease components using their relative standalone prices.
In December 2018, the Company sold its Chicago Heights, IL warehouse for $23.0 million. Under the agreement, the Company is leasing back the property from the purchaser over a period of 20 years. The Company is accounting for the leaseback as an operating lease. The annual rent for the initial period of 5 years is approximately $1.5 million plus taxes and subsequently will increase 10% every 5 years through the end of the lease. Prior to the adoption of the new lease standard, gains on sale-leaseback transactions were deferred and recognized in the statement of comprehensive income over the lease term. Under the new lease standard, gains on sale-leaseback transactions (subject to adjustment for off-market terms) are recognized immediately. Therefore, the sale-leaseback gain of $11.9 million (net of tax of $4.0 million) was deferred as of December 31, 2018 and on the transition to ASC 842 effective January 1, 2019, was reclassed to retained earnings.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30, 2019
|
|
September 30, 2019
|
|
Operating lease expense:
|
|
|
|
|
Cost of goods sold
|
$
|
1,538
|
|
|
$
|
4,529
|
|
|
Selling, general and administrative
|
902
|
|
|
2,711
|
|
|
Total lease expense
|
$
|
2,440
|
|
|
$
|
7,240
|
|
Supplemental balance sheet information related to the leases were as follows:
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Operating lease ROU assets
|
$
|
55,597
|
|
|
|
|
|
Current operating lease liabilities
|
$
|
6,830
|
|
|
Noncurrent operating lease liabilities
|
49,077
|
|
|
Total operating lease liabilities
|
$
|
55,907
|
|
Supplemental cash flow and other information related to the leases were as follows:
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
September 30, 2019
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
7,103
|
|
|
ROU assets obtained in exchange for new operating lease liabilities
|
$
|
11,844
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Weighted average remaining lease term of operating leases (in years)
|
11
|
|
|
Weighted average discount rate of operating leases
|
5.29
|
%
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
2019
|
$
|
2,403
|
|
|
2020
|
9,455
|
|
|
2021
|
8,625
|
|
|
2022
|
8,068
|
|
|
2023
|
7,475
|
|
|
2024 and thereafter
|
39,521
|
|
|
Total lease payments
|
$
|
75,547
|
|
|
Less: imputed interest
|
19,640
|
|
|
Total lease obligations
|
$
|
55,907
|
|
|
Less: current obligations
|
6,830
|
|
|
Long-term lease obligations
|
$
|
49,077
|
|
As required by ASC 842, the future minimum operating lease payments on non-cancelable leases as of December 31, 2018 under the accounting standards in effect as of that period were as follows:
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
2019
|
$
|
8,259
|
|
|
2020
|
7,130
|
|
|
2021
|
6,490
|
|
|
2022
|
6,032
|
|
|
2023
|
5,467
|
|
|
2024 and thereafter
|
33,957
|
|
|
Long-term lease obligations
|
$
|
67,335
|
|
9. Intangibles and Other Assets, net
Intangibles and other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life
(years)
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Developed technology and application patents, net of accumulated amortization of $36,636 for 2019 and $34,669 for 2018
|
7-20
|
|
$
|
9,639
|
|
|
$
|
11,606
|
|
|
Customer relationships, net of accumulated amortization of $32,265 for 2019 and $28,032 for 2018
|
5-20
|
|
63,247
|
|
|
67,479
|
|
|
Trade names and license agreements, net of accumulated amortization of $16,506 for 2019 and $14,599 for 2018
|
5-20
|
|
11,055
|
|
|
12,962
|
|
|
Non-compete agreements, net of accumulated amortization of $1,333 for 2019 and $1,319 for 2018
|
3-10
|
|
—
|
|
|
14
|
|
|
Total intangibles, net
|
|
|
$
|
83,941
|
|
|
$
|
92,061
|
|
|
Deferred financing costs, net of accumulated amortization of $4,654 for 2019 and $4,331 for 2018 (see Note 11)
|
|
|
$
|
969
|
|
|
$
|
1,291
|
|
|
Other assets
|
|
|
2,391
|
|
|
1,742
|
|
|
Total other assets, net
|
|
|
$
|
3,360
|
|
|
$
|
3,033
|
|
|
|
|
|
$
|
87,301
|
|
|
$
|
95,094
|
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
10. Other Current Liabilities
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Payroll related
|
$
|
14,967
|
|
|
$
|
15,656
|
|
|
Operating lease liabilities
|
6,830
|
|
|
—
|
|
|
Taxes other than income taxes
|
1,677
|
|
|
3,071
|
|
|
Benefits and pensions
|
4,981
|
|
|
5,680
|
|
|
Freight and rebates
|
4,233
|
|
|
6,431
|
|
|
Income taxes
|
3,333
|
|
|
1,355
|
|
|
Restructuring reserve
|
—
|
|
|
217
|
|
|
Deferred gain on sale leaseback transaction (a)
|
—
|
|
|
790
|
|
|
Deferred contract termination (b)
|
9,623
|
|
|
9,489
|
|
|
Interest rate hedge
|
1,553
|
|
|
—
|
|
|
Other
|
11,458
|
|
|
7,304
|
|
|
|
$
|
58,655
|
|
|
$
|
49,993
|
|
(a) See Note 8 to the Consolidated Financial Statements for further details.
(b) See Note 18 to the Consolidated Financial Statements for further details.
11. Short-Term Borrowings, Long-Term Debt, and Interest Expense
Short-term borrowings and long-term debt consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Revolver borrowings under the credit facility due 2021
|
$
|
340,000
|
|
|
$
|
300,000
|
|
|
Long-term debt
|
$
|
340,000
|
|
|
$
|
300,000
|
|
The Company's credit facility includes a revolving line of credit from the lenders of up to $450.0 million, including a $20.0 million letter of credit sub-facility and a $20.0 million swingline loan facility, all maturing on December 22, 2021. The credit agreement governing this facility 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.
As of September 30, 2019, $340.0 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 $109.5 million, taking into account $0.5 million in face amount of letters of credit issued under the sub-facility. The current weighted average interest rate for all debt is 4.4%.
Among its affirmative covenants, the credit agreement governing this credit facility 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.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
As of September 30, 2019, the Company was in full compliance with all debt covenant requirements.
Based on $190.0 million outstanding borrowings as floating rate debt, an immediate increase of one percentage point would cause an increase to interest expense of approximately $1.9 million per year.
Total interest paid by the Company for all indebtedness for the nine months ended September 30, 2019 and September 30, 2018 was $11.5 million and $10.4 million, respectively.
Interest expense, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
2019
|
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Interest expense
|
$
|
3,967
|
|
|
$
|
3,703
|
|
|
$
|
11,592
|
|
|
$
|
10,281
|
|
|
Deferred financing cost
|
107
|
|
|
107
|
|
|
322
|
|
|
322
|
|
|
Interest income
|
(30
|
)
|
|
(18
|
)
|
|
(93
|
)
|
|
(50
|
)
|
|
Less: amount capitalized for capital projects
|
(54
|
)
|
|
(364
|
)
|
|
(241
|
)
|
|
(1,023
|
)
|
|
Total interest expense, net
|
$
|
3,990
|
|
|
$
|
3,428
|
|
|
$
|
11,580
|
|
|
$
|
9,530
|
|
In December 2018, the Company entered into an interest rate swap, swapping the LIBOR exposure of $150.0 million of floating rate debt, which is currently outstanding under our Credit Agreement, to a fixed rate to maturity obligation of 2.677% expiring in November 2021.
The Company manages interest rate risk by balancing the amount of fixed-rate and floating-rate debt to the extent practicable consistent with the credit status.
The table below presents the fair value of the Company's derivative financial instruments as well as their classification in the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tabular Disclosure of Fair Values of Derivative Instruments
|
|
|
|
|
Fair value as of
|
|
Derivatives designated as hedging instruments
|
Balance Sheet Location
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Interest Rate Contract
|
Other current liabilities
|
|
$
|
1,553
|
|
|
$
|
—
|
|
|
|
Other long-term liabilities
|
|
2,397
|
|
|
1,023
|
|
|
|
|
|
$
|
3,950
|
|
|
$
|
1,023
|
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
The table below presents the effect of the Company’s derivative financial instruments in the Consolidated Statements of Operations and AOCI for the three and nine months ended September 30, 2019 and September 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tabular Disclosure of the Effect of Derivative Instruments
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Amount of Gain/(Loss) Recognized in AOCI on Derivative
|
|
Location of Gain/(Loss) Reclassified from AOCI into Income
|
|
Amount of Gain/(Loss) Reclassified from AOCI into Income
|
|
Interest Rate Contract
|
|
$
|
(164
|
)
|
|
Interest Income/(Expense)
|
|
$
|
(162
|
)
|
|
Three months ended September 30, 2019
|
|
$
|
(164
|
)
|
|
|
|
$
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
Interest Rate Contract
|
|
$
|
(2,927
|
)
|
|
Interest Income/(Expense)
|
|
$
|
(302
|
)
|
|
Nine months ended September 30, 2019
|
|
$
|
(2,927
|
)
|
|
|
|
$
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
Interest Rate Contract
|
|
$
|
—
|
|
|
Interest Income/(Expense)
|
|
$
|
—
|
|
|
Three months ended September 30, 2018
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contract
|
|
$
|
—
|
|
|
Interest Income/(Expense)
|
|
$
|
—
|
|
|
Nine months ended September 30, 2018
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
12. Other Long-Term Liabilities
Other long-term liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Deferred income taxes
|
$
|
8,421
|
|
|
$
|
5,113
|
|
|
Pension and post retirement liabilities
|
9,639
|
|
|
9,238
|
|
|
Uncertain tax positions
|
320
|
|
|
320
|
|
|
Environmental liabilities
|
1,100
|
|
|
1,100
|
|
|
Deferred gain on sale leaseback transaction (a)
|
—
|
|
|
15,073
|
|
|
Deferred contract termination fee (b)
|
8,019
|
|
|
15,371
|
|
|
Interest rate hedge
|
2,397
|
|
|
1,023
|
|
|
Other liabilities
|
2,468
|
|
|
2,401
|
|
|
|
$
|
32,364
|
|
|
$
|
49,639
|
|
(a) See Note 8 to the Consolidated Financial Statements for further details.
(b) See Note 18 to the Consolidated Financial Statements for further details.
13. Income Taxes
The effective income tax rate on income before taxes was approximately 50% for the nine months ended September 30, 2019 compared to approximately 12% for the comparable period in 2018. The change in the components of the effective tax rate is primarily due to the prior year enactment of the U.S.Tax Cuts and Jobs Act (the "Tax Act"), specifically the revision of the transition tax estimate, and the remeasurement of Net Operating Losses ("NOLs") used to offset the transition tax. These prior year revisions reduced the prior year effective income tax rate by 18%. In 2019, the Dutch income tax matter described below resulted in $6.3 million of expense which increased the effective tax rate by 19%. See Note 14 for further information.
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
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
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 2014 through 2017. During the quarter ended September 30, 2019, the Company's liability for unrecognized tax benefits was unchanged. The Company estimates the liability for unrecognized tax benefits will not change during the next twelve months. Other than the items mentioned above, as of September 30, 2019, no material 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 were $19.7 million and $16.6 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.
14. Commitments and Contingencies
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 the Company's site in Nashville, Tennessee, 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. The Company has 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 September 30, 2019.
Litigation
In 2018, following a review of its global corporate and financing structure, Innophos’ management initiated a global entity simplification plan which included a strategy to merge two of the Company’s Dutch subsidiaries by the end of 2018. The contemplated merger was not completed in 2018 due to an administrative error committed and acknowledged by the Company’s Dutch legal counsel, Heussen B.V ("Heussen"). Such merger was ultimately completed in 2019. On May 17, 2019, changes to Dutch tax law were enacted and as expected, with retroactive effect to January 1, 2018. As a result of these changes in Dutch tax law and the merger of the two Dutch subsidiaries not completed in 2018, the Company recorded in its second quarter 2019 results a Dutch corporate income tax liability of $6.6 million for its 2018 tax year. Based on the foreign exchange rate on the date of payment, the liability was settled for $6.3 million in the third quarter of 2019. On July 23, 2019, the Company initiated a malpractice legal proceeding in the Netherlands against Heussen seeking reimbursement for all costs and liabilities resulting from their administrative error, including all related tax liabilities and other associated expenses and damages. Any recovery by the Company in respect of that proceeding will be recorded gross in the period it is received.
In addition, the Company is a party to legal proceedings and contractual disputes that arise in the ordinary course of its business. Except as to the matters specifically discussed, management believes the likelihood that the ultimate disposition of these matters will have a material adverse effect on the Company's business, results of operations, financial condition and/or cash flows is remote. However, these matters cannot be predicted with certainty and an unfavorable resolution of one or more
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
of them could have a material adverse effect on the Company's business, results of operations, financial condition, and/or cash flows.
15. Pension Plans and Postretirement Benefits
Net periodic benefit expense for the United States plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
|
Three months ended September 30, 2018
|
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Service cost
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
Interest cost
|
25
|
|
|
34
|
|
|
59
|
|
|
24
|
|
|
29
|
|
|
53
|
|
|
Expected return on assets
|
(40
|
)
|
|
—
|
|
|
(40
|
)
|
|
(38
|
)
|
|
—
|
|
|
(38
|
)
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
unrecognized (gain) loss
|
—
|
|
|
(40
|
)
|
|
(40
|
)
|
|
—
|
|
|
(39
|
)
|
|
(39
|
)
|
|
net transition obligation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic (benefit) cost
|
$
|
(15
|
)
|
|
$
|
30
|
|
|
$
|
15
|
|
|
$
|
(14
|
)
|
|
$
|
26
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2018
|
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Service cost
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
109
|
|
|
$
|
109
|
|
|
Interest cost
|
76
|
|
|
102
|
|
|
178
|
|
|
71
|
|
|
87
|
|
|
158
|
|
|
Expected return on assets
|
(119
|
)
|
|
—
|
|
|
(119
|
)
|
|
(113
|
)
|
|
—
|
|
|
(113
|
)
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
unrecognized (gain) loss
|
—
|
|
|
(118
|
)
|
|
(118
|
)
|
|
—
|
|
|
(119
|
)
|
|
(119
|
)
|
|
net transition obligation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic cost
|
$
|
(43
|
)
|
|
$
|
92
|
|
|
$
|
49
|
|
|
$
|
(42
|
)
|
|
$
|
77
|
|
|
$
|
35
|
|
Innophos has no minimum contribution requirements and does not plan to make cash contributions for its U.S. defined benefit pension plan in 2019.
Innophos had no minimum contribution requirements and did not make cash contributions for its U.S. defined benefit pension plan in 2018.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
Net periodic benefit expense for the Canadian plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
|
Three months ended September 30, 2018
|
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Service cost
|
$
|
95
|
|
|
$
|
16
|
|
|
$
|
111
|
|
|
$
|
110
|
|
|
$
|
15
|
|
|
$
|
125
|
|
|
Interest cost
|
134
|
|
|
15
|
|
|
149
|
|
|
128
|
|
|
14
|
|
|
142
|
|
|
Expected return on assets
|
(202
|
)
|
|
—
|
|
|
(202
|
)
|
|
(199
|
)
|
|
—
|
|
|
(199
|
)
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial loss (gain)
|
52
|
|
|
—
|
|
|
52
|
|
|
47
|
|
|
1
|
|
|
48
|
|
|
prior service cost
|
13
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|
net transition obligation
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
6
|
|
|
6
|
|
|
Exchange rate changes
|
47
|
|
|
(17
|
)
|
|
30
|
|
|
(97
|
)
|
|
32
|
|
|
(65
|
)
|
|
Net periodic cost
|
$
|
139
|
|
|
$
|
17
|
|
|
$
|
156
|
|
|
$
|
2
|
|
|
$
|
68
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2018
|
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Pension benefits
|
|
Other benefits
|
|
Total
|
|
Service cost
|
$
|
285
|
|
|
$
|
46
|
|
|
$
|
331
|
|
|
$
|
332
|
|
|
$
|
47
|
|
|
$
|
379
|
|
|
Interest cost
|
402
|
|
|
45
|
|
|
447
|
|
|
389
|
|
|
43
|
|
|
432
|
|
|
Expected return on assets
|
(605
|
)
|
|
—
|
|
|
(605
|
)
|
|
(602
|
)
|
|
—
|
|
|
(602
|
)
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
|
|
|
actuarial loss (gain)
|
154
|
|
|
—
|
|
|
154
|
|
|
142
|
|
|
3
|
|
|
145
|
|
|
prior service cost
|
38
|
|
|
—
|
|
|
38
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|
net transition obligation
|
—
|
|
|
9
|
|
|
9
|
|
|
—
|
|
|
18
|
|
|
18
|
|
|
Exchange rate changes
|
(120
|
)
|
|
42
|
|
|
(78
|
)
|
|
121
|
|
|
(41
|
)
|
|
80
|
|
|
Net periodic cost
|
$
|
154
|
|
|
$
|
142
|
|
|
$
|
296
|
|
|
$
|
421
|
|
|
$
|
70
|
|
|
$
|
491
|
|
Innophos Canada, Inc. plans to make cash contributions to its Canadian defined benefit plan of approximately $0.3 million in 2019.
Innophos Canada, Inc. made cash contributions to its Canadian defined benefit plan of approximately $0.7 million in 2018.
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
16. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
Pension and Other Postretirement Adjustments
|
|
Changes in Fair Value of Effective Cash Flow Hedges
|
|
Total
|
|
Balance at June 30, 2019
|
$
|
(2,963
|
)
|
|
$
|
(2,840
|
)
|
|
$
|
(5,803
|
)
|
|
Other comprehensive (loss) before reclassifications
|
—
|
|
|
(244
|
)
|
|
(244
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
288
|
|
|
122
|
|
|
410
|
|
|
Net current period other comprehensive (loss)
|
288
|
|
|
(122
|
)
|
|
166
|
|
|
Balance at September 30, 2019
|
$
|
(2,675
|
)
|
|
$
|
(2,962
|
)
|
|
$
|
(5,637
|
)
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
Pension and Other Postretirement Adjustments
|
|
Changes in Fair Value of Effective Cash Flow Hedges
|
|
Total
|
|
Balance at June 30, 2018
|
$
|
(1,715
|
)
|
|
$
|
—
|
|
|
$
|
(1,715
|
)
|
|
Other comprehensive income before reclassifications
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
Net current period other comprehensive income
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
|
Balance at September 30, 2018
|
$
|
(1,762
|
)
|
|
$
|
—
|
|
|
$
|
(1,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
Pension and Other Postretirement Adjustments
|
|
Changes in Fair Value of Effective Cash Flow Hedges
|
|
Total
|
|
Balance at December 31, 2018
|
$
|
(2,249
|
)
|
|
$
|
(767
|
)
|
|
$
|
(3,016
|
)
|
|
Other comprehensive (loss) before reclassifications
|
—
|
|
|
(2,422
|
)
|
|
(2,422
|
)
|
|
Amounts reclassified from accumulated other comprehensive income
|
(426
|
)
|
|
227
|
|
|
(199
|
)
|
|
Net current period other comprehensive (loss)
|
(426
|
)
|
|
(2,195
|
)
|
|
(2,621
|
)
|
|
Balance at September 30, 2019
|
$
|
(2,675
|
)
|
|
$
|
(2,962
|
)
|
|
$
|
(5,637
|
)
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018
|
Pension and Other Postretirement Adjustments
|
|
Changes in Fair Value of Effective Cash Flow Hedges
|
|
Total
|
|
Balance at December 31, 2017
|
$
|
(2,198
|
)
|
|
$
|
—
|
|
|
$
|
(2,198
|
)
|
|
Other comprehensive income before reclassifications
|
143
|
|
|
—
|
|
|
143
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
293
|
|
|
—
|
|
|
293
|
|
|
Net current period other comprehensive income
|
436
|
|
|
—
|
|
|
436
|
|
|
Balance at September 30, 2018
|
$
|
(1,762
|
)
|
|
$
|
—
|
|
|
$
|
(1,762
|
)
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
17. Segment Reporting
The Company discloses certain financial and supplementary information about its reportable segments, revenue by products and revenues by geographic area. Operating segments are defined as components of an enterprise about which separate discrete financial information is evaluated regularly by the chief operating decision maker, in order to decide how to allocate resources and assess performance. The primary performance indicators for the chief operating decision maker are sales and EBITDA (defined as net income (loss) before interest, income taxes, depreciation and amortization). All references to sales in this Quarterly Report on Form 10-Q 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 chief executive officer is the chief operating decision maker and has determined to assess the Company's performance and allocate the appropriate resources based on the following operating segments: (1) Food, Health and Nutrition; (2) Industrial Specialties; and (3) Other. These reporting segments accurately reflect the underlying business dynamics and align with the strategic direction of the Company.
During the second quarter of 2019, the Company adjusted the EBITDA allocation for certain transactions to align it with the underlying business. As a result, EBITDA in the Other segment decreased by $1.4 million with corresponding increases to Food, Health and Nutrition of $1.0 million and Industrial Specialties of $0.4 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
|
Food, Health and Nutrition
|
|
Industrial Specialties
|
|
Other
|
|
Total
|
|
Net sales
|
|
$
|
105,174
|
|
|
$
|
73,141
|
|
|
$
|
11,034
|
|
|
$
|
189,349
|
|
|
EBITDA
|
|
$
|
14,791
|
|
|
$
|
8,861
|
|
|
$
|
792
|
|
|
$
|
24,444
|
|
|
Depreciation and amortization expense
|
|
$
|
6,959
|
|
|
$
|
3,768
|
|
|
$
|
403
|
|
|
$
|
11,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2018
|
|
Food, Health and Nutrition
|
|
Industrial Specialties
|
|
Other
|
|
Total
|
|
Net sales
|
|
$
|
115,132
|
|
|
$
|
65,667
|
|
|
$
|
16,135
|
|
|
$
|
196,934
|
|
|
EBITDA
|
|
$
|
14,563
|
|
|
$
|
8,885
|
|
|
$
|
2,424
|
|
|
$
|
25,872
|
|
|
Depreciation and amortization expense
|
|
$
|
7,142
|
|
|
$
|
3,153
|
|
|
$
|
569
|
|
|
$
|
10,864
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Food, Health and Nutrition
|
|
Industrial Specialties
|
|
Other
|
|
Total
|
|
Net sales
|
|
$
|
326,783
|
|
|
$
|
204,064
|
|
|
$
|
34,954
|
|
|
$
|
565,801
|
|
|
EBITDA
|
|
$
|
48,758
|
|
|
$
|
23,891
|
|
|
$
|
3,833
|
|
|
$
|
76,482
|
|
|
Depreciation and amortization expense
|
|
$
|
20,128
|
|
|
$
|
10,714
|
|
|
$
|
934
|
|
|
$
|
31,776
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Food, Health and Nutrition
|
|
Industrial Specialties
|
|
Other
|
|
Total
|
|
Net sales
|
|
$
|
367,159
|
|
|
$
|
195,767
|
|
|
$
|
46,173
|
|
|
$
|
609,099
|
|
|
EBITDA
|
|
$
|
48,494
|
|
|
$
|
26,772
|
|
|
$
|
2,987
|
|
|
$
|
78,253
|
|
|
Depreciation and amortization expense
|
|
$
|
21,677
|
|
|
$
|
10,257
|
|
|
$
|
1,383
|
|
|
$
|
33,317
|
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
A reconciliation of net income to EBITDA follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Net income
|
|
$
|
6,451
|
|
|
$
|
14,090
|
|
|
Provision for income taxes
|
|
2,873
|
|
|
(2,510
|
)
|
|
Interest expense, net
|
|
3,990
|
|
|
3,428
|
|
|
Depreciation and amortization
|
|
11,130
|
|
|
10,864
|
|
|
EBITDA
|
|
$
|
24,444
|
|
|
$
|
25,872
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Net income
|
|
$
|
16,546
|
|
|
$
|
31,251
|
|
|
Provision for income taxes
|
|
16,580
|
|
|
4,155
|
|
|
Interest expense, net
|
|
11,580
|
|
|
9,530
|
|
|
Depreciation and amortization
|
|
31,776
|
|
|
33,317
|
|
|
EBITDA
|
|
$
|
76,482
|
|
|
$
|
78,253
|
|
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)
18. Supply Agreement Termination
In June 2018, the Company agreed to terminate a previously long-term supply agreement and replaced it with a short-term agreement. In December 2018, as a result of the termination, the Company received consideration of $24.9 million which included $21.3 million in cash as well as receipt of certain tangible assets with a fair value of $3.6 million. The consideration was recorded as a deferred liability with $9.5 million in Other current liabilities and the remaining $15.4 million recorded in Other long-term liabilities. Beginning in January 2019, the deferred liability is being amortized on a straight-line basis through July 2021, which is the end of the new supply agreement, as a reduction of Cost of goods sold. For the three and nine months ended September 30, 2019 amortization of the deferred liability was $2.4 million and $7.2 million, respectively.