UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________

FORM 10-Q

___________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~September 30, 2017~~March 31, 2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .

Commission File Number 001-33124

___________________________________________

INNOPHOS HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

___________________________________________



Delaware		20-1380758
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

259 Prospect Plains Road Cranbury, New Jersey		08512
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (609) 495-2495

____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	x	Accelerated Filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)
		Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~October 26, 2017,~~May 7, 2018, the registrant had ~~19,528,992~~19,540,584 shares of common stock outstanding.

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Table of Contents

TABLE OF CONTENTS



		Page
PART I	Financial Information

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2623
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3628
Item 4.	Controls and Procedures	3730

PART II	Other Information

Item 1.	Legal Proceedings	3832
Item 1A.	Risk Factors	3832
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3832
Item 3.	Defaults Upon Senior Securities	3832
Item 4.	Mine Safety Disclosures	3832
Item 5.	Other Information	3832
Item 6.	Exhibits	3832

Signatures		3933

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context requires otherwise, references to “Innophos,” “the Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q refer to Innophos Holdings, Inc. and its consolidated subsidiaries.

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and/or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements in this Quarterly Report on Form 10-Q may include, among other things, statements ~~about~~about: (1) global macroeconomic conditions and trends; (2) the behavior of financial markets, including fluctuations in foreign currencies, interest rates and turmoil in capital markets; (3) changes in regulatory controls regarding tariffs, duties, taxes and income tax rates; (4) our ~~plans, objectives, goals, strategies, future events, future revenues or~~ability to implement and refine our Vision 2022 growth plan; (5) our ability to successfully identify and complete acquisitions in line with our Vision 2022 growth plan and effectively operate and integrate acquired businesses to realize the anticipated benefits of those acquisitions; (6) our ability to realize expected cost savings and efficiencies from our performance ~~capital expenditures, financing needs, plans or intentions relating~~improvement and other optimization initiatives; (7) our ability to ~~acquisitions, the~~effectively compete in our markets, and to successfully develop new and competitive products that appeal to our customers; (8) changes in consumer preferences and demand for our products or a decline in consumer confidence and ~~services,~~spending; (9) our ability to benefit from our investments in assets and human capital and the ~~markets~~ability to complete projects successfully and on budget; (10) economic, regulatory and political risks associated with our international operations, most notably Mexico and China; (11) volatility and increases in the price of raw materials, energy and transportation, and fluctuations in the quality and availability of raw materials and process aids; (12) the impact of a disruption in our supply chain or our relationship with our suppliers; (13) our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws; (14) our ability to meet quality and regulatory standards in the various jurisdictions in which we ~~compete~~have operations or conduct business; and (15) other information that is not historical ~~information~~information.

You should refer to “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, filed with the Securities and Exchange Commission on ~~February 28, 2017,~~March 1, 2018, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete discussion of all potential risks or uncertainties that may substantially impact our business. Moreover, we operate in a competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all of these factors on our business, financial condition or results of operations.

Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this Quarterly Report on Form 10-Q and any documents that we reference in this report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I - FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	32,732		$	53,487		$	40,722		$	28,782
Accounts receivable, net of allowance for doubtful accounts ($483 and $164)	102,162			77,692
Accounts receivable, net of allowance for doubtful accounts ($751 and $445)							106,675			100,820
Inventories	148,536			128,295			154,474			145,685
Other current assets	25,479			23,894			24,672			24,969
Total current assets	308,909			283,368			326,543			300,256
Property, plant and equipment, net	211,601			205,459			220,567			219,297
Goodwill	139,459			84,373			152,700			152,700
Intangibles and other assets, net	110,797			69,811			109,945			112,916
Total assets	$	770,766		$	643,011		$	809,755		$	785,169
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital leases	$	4		$	—		$	4		$	4
Accounts payable, trade and other	59,969			51,611			63,975			70,445
Other current liabilities	47,945			43,605			37,300			43,084
Total current liabilities	107,918			95,216			101,279			113,533
Long-term debt and capital leases	295,006			185,000			345,004			310,005
Other long-term liabilities	14,072			15,569			27,259			28,072
Total liabilities	$	416,996		$	295,785		$	473,542		$	451,610
Commitments and contingencies (note 14)
Common stock, par value $.001 per share; authorized 100,000,000; issued 22,863,478 and 22,777,690; outstanding 19,528,932 and 19,455,011 shares	20			19
Commitments and contingencies (note 15)
Common stock, par value $.001 per share; authorized 100,000,000; issued 22,889,601 and 22,884,588; outstanding 19,536,038 and 19,537,872 shares							20			20
Paid-in capital	136,598			134,694			138,561			137,617
Common stock held in treasury, at cost (3,334,546 and 3,322,679 shares)	(175,789		)	(175,051		)
Common stock held in treasury, at cost (3,353,563 and 3,346,716 shares)							(176,497		)	(176,246		)
Retained earnings	394,645			389,048			375,938			374,366
Accumulated other comprehensive loss	(1,704		)	(1,484		)	(1,809		)	(2,198		)
Total stockholders' equity	353,770			347,226			336,213			333,559
Total liabilities and stockholders' equity	$	770,766		$	643,011		$	809,755		$	785,169

See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)


	Three months ended					Nine months ended						Three months ended
	September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016			March 31, 2018			March 31, 2017
Net sales	$	183,839		$	186,037	$	528,923		$	557,555		$	205,440		$	165,944
Cost of goods sold	142,870			145,497		412,335			440,149			163,213			129,401
Gross profit	40,969			40,540		116,588			117,406			42,227			36,543
Operating expenses:
Selling, general and administrative	20,894			17,749		60,069			51,716			22,520			19,322
Research & development expenses	1,065			896		2,713			2,913			1,411			830
Total operating expenses	21,959			18,645		62,782			54,629			23,931			20,152
Operating income	19,010			21,895		53,806			62,777			18,296			16,391
Interest expense, net	1,630			1,915		4,435			5,627			2,904			1,353
Foreign exchange loss (gain)	100			110		(35		)	426			(196		)	(57		)
Other income (loss), net												(15		)	(14		)
Income before income taxes	17,280			19,870		49,406			56,724			15,603			15,109
Provision for income taxes	5,698			6,227		15,678			18,135			4,688			4,186
Net income	$	11,582		$	13,643	$	33,728		$	38,589		$	10,915		$	10,923
Net income attributable to participating common shareholders	$	11,513		$	13,548	$	33,540		$	38,356		$	10,893		$	10,873
Per share data (note 3):
Income per participating share:
Basic	$	0.59		$	0.70	$	1.73		$	1.99		$	0.56		$	0.56
Diluted	$	0.58		$	0.69	$	1.70		$	1.96		$	0.55		$	0.55
Weighted average participating shares outstanding:
Basic	19,412,474			19,294,070		19,395,317			19,255,143			19,501,346			19,376,258
Diluted	19,699,052			19,670,159		19,695,530			19,572,003			19,711,112			19,694,751

Other comprehensive (loss) income, net of tax:
Change in interest rate swaps, (net of tax of $31, ($126), ($22), and $143)	$	(52	)	$	204	$	35		$	(234	)
Change in pension and post-retirement plans, (net of tax of $43, ($24), $111, and $10)	(103		)	78		(255		)	(12		)
Other comprehensive loss, net of tax	$	(155	)	$	282	$	(220	)	$	(246	)
Other comprehensive income (loss), net of tax:
Change in interest rate swaps, (net of tax of $0 and ($56))												$	—		$	92
Change in pension and post-retirement plans, (net of tax of $243 and ($10))												389			(5		)
Other comprehensive income (loss), net of tax												$	389		$	87
Comprehensive income	$	11,427		$	13,925	$	33,508		$	38,343		$	11,304		$	11,010

See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine months ended						Three months ended
	September 30, 2017			September 30, 2016			March 31, 2018			March 31, 2017
Cash flows provided from operating activities
Cash flows used for operating activities
Net income	$	33,728		$	38,589		$	10,915		$	10,923
Adjustments to reconcile net income to net cash provided from operating activities:
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization	29,009			28,607			11,364			9,581
Amortization of deferred financing charges	322			505			108			107
Deferred income tax (benefit) provision	(14		)	363
Gain on sale of building	(153		)	—			—			(153		)
Share-based compensation	2,996			2,329			998			717
Changes in assets and liabilities:
Increase in accounts receivable	(13,024		)	(107		)	(5,841		)	(6,748		)
Decrease in inventories	2,873			33,092
Decrease in other current assets	151			2,102
Increase in inventories							(8,772		)	(9,228		)
Decrease (increase) in other current assets							308			(4,194		)
Decrease in accounts payable	(7,566		)	(2,545		)	(6,581		)	(5,973		)
Increase (decrease) in other current liabilities	1,666			(16,145		)
Decrease in other current liabilities							(5,856		)	(3,827		)
Changes in other long-term assets and liabilities	(3,331		)	(4,986		)	(837		)	(1,884		)
Net cash provided from operating activities	46,657			81,804
Net cash used for operating activities							(4,194		)	(10,679		)
Cash flows used for investing activities:
Capital expenditures	(24,650		)	(25,675		)	(9,399		)	(8,553		)
Proceeds from sale of building	1,028			—			—			1,028
Acquisition of Novel Ingredients, net of cash acquired	(124,984		)	—
Net cash used for investing activities	(148,606		)	(25,675		)	(9,399		)	(7,525		)
Cash flows provided by (used for) financing activities:
Proceeds from exercise of stock options	—			9
Long-term debt borrowings	146,000			36,000			40,000			14,000
Long-term debt repayments	(36,000		)	(49,002		)	(5,000		)	(10,000		)
Excess tax deficiency from exercise of stock options	—			(346		)
Restricted stock forfeitures	(738		)	(331		)	(251		)	(360		)
Dividends paid	(28,095		)	(27,891		)	(9,380		)	(9,349		)
Net cash provided by (used for) financing activities	81,167			(41,561		)	25,369			(5,709		)
Effect of foreign exchange rate changes on cash and cash equivalents	27			323			164			226
Net change in cash	(20,755		)	14,891			11,940			(23,687		)
Cash and cash equivalents at beginning of period	53,487			17,905			28,782			53,487
Cash and cash equivalents at end of period	$	32,732		$	32,796		$	40,722		$	29,800

See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Statement of Stockholders’ Equity (Unaudited)

(Dollars and shares in thousands)


	Number of Common Shares		Common Stock		Retained Earnings (Deficit)			Paid-in Capital / Treasury Stock			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders' Equity			Number of Common Shares		Common Stock		Retained Earnings (Deficit)			Paid-in Capital / Treasury Stock			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders' Equity
Balance, December 31, 2015	19,290		$	19	$	378,321		$	(42,286	)	$	(2,794	)	$	333,260
Balance, December 31, 2016																	19,455		$	19	$	389,048		$	(40,357	)	$	(1,484	)	$	347,226
Net income					47,971									47,971							22,445									22,445
Other comprehensive income, (net of tax $(725))											1,310			1,310
Other comprehensive income, (net of tax $241) (a)																											(714		)	(714		)
Effects of U.S. enacted Tax Cuts and Jobs Act (a)																					293									293
Proceeds from stock award exercises and issuances	192							(1,428		)				(1,428		)	108		1					(900		)				(899		)
Share-based compensation								3,732						3,732										3,823						3,823
Excess tax deficiency from exercise of stock options								(9		)				(9		)														—
Restricted stock forfeitures	(27	)						(366		)				(366		)	(25	)						(1,195		)				(1,195		)
Dividends declared					(37,244		)							(37,244		)					(37,420		)							(37,420		)
Balance, December 31, 2016	19,455		$	19	$	389,048		$	(40,357	)	$	(1,484	)	$	347,226
Balance, December 31, 2017																	19,538		$	20	$	374,366		$	(38,629	)	$	(2,198	)	$	333,559
Net income					33,728									33,728							10,915									10,915
Other comprehensive loss, (net of tax $89)											(220		)	(220		)
Other comprehensive loss, (net of tax $243) (a)																											389			389
Effects of U.S. enacted Tax Cuts and Jobs Act (a)																					(293		)							(293		)
Effects of adoption of ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory																					360									360
Proceeds from stock award exercises and issuances	87		1					(1,092		)				(1,091		)	5							(54		)				(54		)
Share-based compensation								2,996						2,996										998						998
Restricted stock forfeitures	(13	)						(738		)				(738		)	(7	)						(251		)				(251		)
Dividends declared					(28,131		)							(28,131		)					(9,410		)							(9,410		)
Balance, September 30, 2017	19,529		$	20	$	394,645		$	(39,191	)	$	(1,704	)	$	353,770
Balance, March 31, 2018																	19,536		$	20	$	375,938		$	(37,936	)	$	(1,809	)	$	336,213

(a) Includes the impact of ASU 2018-02, which transferred those amounts from accumulated other comprehensive income (loss) to retained earnings. See Notes 1 and 17 to the Consolidated Financial Statements.

See notes to condensed consolidated financial statements

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)

1. Basis of Statement Presentation

Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Innophos have been prepared in accordance with generally accepted accounting principles in the United States of America ~~(US GAAP)~~("US GAAP") for interim financial reporting and do not include all disclosures required by US 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, ~~2016~~2017 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, ~~2016~~2017 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP.

Recently Issued Accounting Standards

Adopted

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. The adoption of this standard did not have a material impact 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. The adoption of this standard did not have a material impact on our financial position, results of operations and related disclosures.

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 have elected to early adopt for testing dates after January 1, 2017 and the adoption of this standard 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~~Financial Accounting Standards Board ("FASB") issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. 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

~~Page 8 of 40~~

~~Table of Contents~~

~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

either a retrospective or modified retrospective transition method. ~~We will adopt~~The Company adopted the standard using the modified retrospective transition method on January 1, 2018. ~~Based on the results of the assessment performed to date, the~~The Company ~~has preliminarily~~ concluded that revenues ~~are expected to~~ remain ~~substantially~~materially unchanged from the ~~current~~prior revenue recognition ~~model. The Company will continue to assess~~model and therefore, the ~~new~~adoption of this standard ~~and the potential~~did not have a material impact ~~to our~~on its 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 Please see Note 3, "Revenues", 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. While we are continuing to assess the effect of adoption, we currently believe the most significant changes relate to the recognition of new right-of-use assets and lease liabilities on our balance sheet for railcar and tank operating leases. We will continue to evaluate the impact of adoption of the ASU on our financial position, results of operations and relatedfurther disclosures.

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~~The Company's adoption of this standard did not have a material impact on its financial position, results of ~~adopting this new accounting guidance on our consolidated financial statements.~~operations and related disclosures.

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. ~~We are currently~~The Company adopted this standard as of January 1, 2018 on a modified retrospective basis in ~~the process of evaluating the impact of adoption of the ASU on our financial position, results of operations~~this interim period and ~~related disclosures.~~recorded an immaterial cumulative adjustment to retained earnings.

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

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

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~~The Company's adoption of ~~the new accounting rules will~~this standard did not have a material impact on ~~our~~its 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~~The Company's adoption of this ~~guidance to applicable transactions after the adoption date.~~standard did not have a material impact on its financial position, results of operations and related disclosures.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic ~~Postretirement~~Post-retirement Benefit Cost, which requires that only the service cost component of net periodic benefit costs be recorded as compensation cost in the operating expense section of the income statement. All other components of net periodic benefit cost (interest cost, expected return on plan assets and amortization of net loss) will be presented in other income -(loss), net.

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

This standard update is effective beginning with the first quarter 2018 and must be applied retrospectively. ~~We are evaluating the~~The Company's adoption of this standard did not have a material impact on its financial position, results of ~~adopting this new accounting guidance on our consolidated financial statements.~~operations and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Stock Compensation - Scope of Modification Accounting, which requires all modifications to be accounted for as a modification unless the fair value, vesting conditions and classification of the award as equity or liability are the same as the classification of the original award immediately before the original award is modified. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017 and for interim periods therein. The Company's adoption of this ~~guidance is~~standard did not ~~expected to~~ have a material impact on its financial position, results of operations and related disclosures.

In March 2018, the FASB issued ASU 2018-05 associated with the accounting and disclosures around the enactment of the Act and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which the Company has adopted. See Note 14 for the disclosures related to this amended guidance.

Issued but not yet 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 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. While the Company is continuing to assess the effect of adoption, it currently believes the most significant ~~effect~~changes relate to the recognition of new right-of-use assets and lease liabilities on ~~our~~its balance sheet for railcar and tank operating leases. The Company will continue to evaluate the impact of adoption of the ASU on its financial position, results of operations and related 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. We do not anticipate the adoption of this standard will have a material impact on our financial position, results of operations and related disclosures.~~

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

early adoption 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. Acquisitions

On August 25, 2017, the Company acquired ~~100 percent~~100% of the outstanding shares of GenNx Novel Holding, Inc. (together with its direct and indirect wholly-owned subsidiaries, "Novel Ingredients"). Novel Ingredients was a privately-held specialty ingredients supplier of botanicals, proteins, amino acids and other healthy ingredients, as well as branded ingredient and custom formulated solutions, headquartered in East Hanover, NJ. The Company made aan initial $125 million cash payment, ~~subject to~~subsequently adjusted lower by $1.3 million for post-closing working capital adjustments, ~~which~~for total consideration of $123.7 million. The acquisition was funded by borrowings under its existing credit facility. The addition of Novel Ingredients grows Innophos' Food, Health, and Nutrition ("FHN") portfolio, expanding its presence in high-growth nutrition end-markets and positioning the Company to more effectively develop innovative ingredient solutions that better serve its customers. Novel Ingredients serves attractive end-markets driven by health and wellness consumer trends such as immune health, sports nutrition, and cognitive health.

On November 3, 2017, the Company acquired 100% of the outstanding equity interests of NutraGenesis LLC, Icon Group LLC, and Tradeworks Group, Inc. (collectively referred to as "NutraGenesis"). NutraGenesis was a privately-held Vermont-based marketer of proprietary, branded and science-backed nutraceutical ingredients. The Company made a $27.4 million cash payment, subject to post-closing working capital adjustments, which was funded by borrowings under its existing credit facility. NutraGenesis is highly complementary to the Novel Ingredients acquisition and the Company's branded ingredients portfolio. NutraGenesis serves attractive high-growth end-markets, including stress reduction, weight management, joint health, brain health and metabolic wellness, that are driven by health and wellness consumer trends.

During the three months ended ~~September 30, 2017,~~March 31, 2018, the Company's results of operations included revenues of ~~$10.2~~$33.6 million and a ~~$0.6~~$0.9 million net ~~loss~~income attributable to Novel ~~Ingredients. Acquisition related costs of $2.4 million (excluding integration costs of $0.6 million) were expensed as incurred~~Ingredients and ~~were included in selling, general and administrative expenses.~~NutraGenesis.

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition and will be included in the Food, Health and Nutrition operating segment. The goodwill of ~~$55.1~~$68.3 million arising from the ~~acquisition~~acquisitions consists of expected revenue and cost synergies, operational know-how, and acquired workforce. Approximately $24.0 million of the goodwill is deductible for U.S. income tax purposes.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed (in thousands):


	Novel Ingredients			Novel Ingredients			NutraGenesis
Cash	$	105		$	105		$	82
Accounts receivable, net of allowances of $319	11,447
Inventory, including fair value adjustment of $4,300	23,121
Accounts receivable, net of allowances of $511 and $0 for Novel Ingredients and NutraGenesis, respectively				11,255			850
Inventory, including fair value adjustment of $4,300 for Novel Ingredients				23,121			—
Other current assets	1,655			1,655			638
Property, plant and equipment	4,261			4,261			—
Other non-current assets	187			187			—
Goodwill	55,086			54,008			14,320
Intangible assets	52,900			52,900			13,699
Accounts payable	(15,854		)	(14,726		)	(793		)
Accrued expenses	(2,782		)	(3,910		)	(524		)
Deferred income taxes	(5,037		)	(5,067		)	—
Customer Deposits				—			(875		)
Total	$	125,089		$	123,789		$	27,397

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

In preparing the preliminary fair value estimates of the intangible assets and certain tangible assets acquired, management consulted with an independent third party. The purchase price and related allocation to assets acquired and liabilities assumed is preliminary pending finalization of the fair values assigned to the intangible assets and the valuation of the working capital components acquired as of the acquisition date.

From previous asset acquisitions, Novel Ingredients has amortizable goodwill and intangible assets that will continue to provide tax amortization deductions in future years. However, the excess of purchase price over the corresponding tax basis resulting from this acquisition will not be deductible for tax purposes. In addition, Novel Ingredients has Net Operating Loss ("NOL") carryforwards of $16.4 million that are expected to be utilized in future periods. The deferred income tax balances are preliminary pending management's final analysis and preparation of the final period tax return.

The intangible assets acquired with Novel Ingredients and NutraGenesis include the following (in thousands):



	Useful life (years)	Novel Ingredients		NutraGenesis
Customer relationships	15-20	$	46,200	$	10,499
Trade names	5-10	6,700		3,200
		$	52,900	$	13,699

The weighted average useful life (years) of the intangible assets included in the above table is 17.4 years. The weighted average useful life (years) of the trade names included in the above table is 7.9 years. The weighted average useful life (years) of the customer relationships included in the above table is 19.1 years.

The three months ended March 31, 2018 includes non-recurring integration costs of approximately $0.8 million in selling, general and administrative expense.

3. Revenue Recognition

Adoption of ASC Topic 606, "Revenue from Contracts with Customers"

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Based on the results of the analysis performed on the Company's effective contracts as of the initial application, the Company has concluded that revenues are expected to remain substantially unchanged from the previous revenue recognition model, and therefore, the adoption of the new standard does not have a material impact on the Company's financial position, results of operations or related disclosures.

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. The Company believes there will not be significant changes to its estimates of variable consideration.

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

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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)



	Quarter Ended March 31, 2018
	U.S.		Canada		Mexico		Other Countries		Total
Specialty Products	$	114,784	$	5,838	$	7,617	$	19,404	$	147,643
Core Ingredients	16,415		2,000		17,643		9,759		45,817
Co-Products & Other	8,707		65		3,208		—		11,980
Total	$	139,906	$	7,903	$	28,468	$	29,163	$	205,440



	Quarter Ended March 31, 2017
	U.S.		Canada		Mexico		Other Countries		Total
Specialty Products	$	81,817	$	5,109	$	7,636	$	17,346	$	111,908
Core Ingredients	15,095		2,084		18,613		7,256		43,048
Co-Products & Other	3,813		66		2,305		4,804		10,988
Total	$	100,725	$	7,259	$	28,554	$	29,406	$	165,944

Revenues for the geographic information are attributed to geographic areas based on the destination of the sale.

The ~~intangible assets acquired~~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 ~~Novel~~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 ~~include~~and Core Ingredients product lines.

Specialty Ingredients are the ~~following (in thousands):~~most value adding products in the Company's 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, such as flavor enhancers in beverages, electrolytes in sports drinks, and excipients in vitamins, minerals, nutritional supplements and pharmaceuticals, among others.

The Company's Core Ingredients product line includes food grade purified phosphoric acid ("PPA"), technical grade PPA, sodium tripolyphosphate ("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 ("GTSP"), and merchant green phosphoric acid ("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.

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Useful life (years) Novel Ingredients
Customer relationships 20 $ 46,200
Trade name 5-10 6,700
$ 52,900

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The weighted average useful life (years) of the intangible assets included in the above table is 18.4 years. The weighted average useful life (years) of the trade names included in the above table is 7.5 years.INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

~~The following unaudited pro forma information has been prepared as if the acquisition had occurred on January 1, 2016 (amounts~~Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, ~~excluding EPS figures). The unaudited pro forma results do not reflect any material adjustments, operating efficiencies and other synergies which may result from the consolidation of operations.~~except per share amounts, share amounts or where otherwise noted)

Practical Expedients and Exemptions

Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016 2017 2016
Revenues $ 196,873
$ 205,023
$ 588,331
$ 616,489
Net income $ 9,229
$ 12,744
$ 31,165
$ 32,456
Income per common share - Basic $ 0.48
$ 0.66
$ 1.61
$ 1.69
Income per common share - Diluted $ 0.47
$ 0.65
$ 1.58
$ 1.66

~~These amounts have been calculated after applying~~Management reviewed the ~~Company's accounting policies and adjusting~~practical expedients which a Company may utilize when implementing Topic 606. As such, the ~~results of Novel Ingredients to reflect~~Company has applied the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on January 1, 2016. Interest expensepractical expedient related to significant financing components and does not disclose the ~~borrowing~~value of unsatisfied performance obligations for ~~the acquisition was applied on January 1, 2016. Depreciation and amortization~~contracts with an original expected length of approximately $3.0 million and interest expense of approximately $2.6 million related to the above were included in the nine months ended September 30, 2017 and September 30, 2016. Further, the above pro forma amounts include a fair value adjustment to inventory of $4.3 million and was applied on January 1, 2016. The three and nine months ended September 30, 2017 include non-recurring transaction costs of approximately $2.4 million.

one year or less.

3.4. Earnings per Share (EPS)

The Company accounts for earnings per share in accordance with ASC 260, which requires two calculations of earnings per share ~~(EPS)~~("EPS") to be disclosed: basic EPS and diluted EPS. Under ASC Subtopic 260-10-45, unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as ~~our~~the Company's 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.

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

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:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2018			March 31, 2017
Net income	$	11,582		$	13,643		$	33,728		$	38,589		$	10,915		$	10,923
Less: earnings attributable to unvested shares	(69		)	(95		)	(188		)	(233		)	(22		)	(50		)
Net income available to participating common shareholders	$	11,513		$	13,548		$	33,540		$	38,356		$	10,893		$	10,873
Weighted average number of participating common and potential common shares outstanding:
Basic number of participating common shares outstanding	19,412,474			19,294,070			19,395,317			19,255,143			19,501,346			19,376,258
Dilutive effect of stock equivalents	286,578			376,089			300,213			316,860			209,766			318,493
Diluted number of weighted average participating common shares outstanding	19,699,052			19,670,159			19,695,530			19,572,003			19,711,112			19,694,751
Earnings per participating common share:
Earnings per participating common share—Basic	$	0.59		$	0.70		$	1.73		$	1.99		$	0.56		$	0.56
Earnings per participating common share—Diluted	$	0.58		$	0.69		$	1.70		$	1.96		$	0.55		$	0.55

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	395,850			461,193			382,215			520,422			383,380			347,354

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

4.5. Dividends

The following is the dividend activity for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016~~March 31, 2017:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30				September 30				March 31
	2017		2016		2017		2016		2018		2017
Dividends declared – per share	$	0.48	$	0.48	$	1.44	$	1.44	$	0.48	$	0.48
Dividends declared – aggregate	9,373		9,327		28,095		27,891		9,380		9,349
Dividends paid – per share	0.48		0.48		1.44		1.44		0.48		0.48
Dividends paid – aggregate	9,373		9,327		28,095		27,891		9,380		9,349

Innophos Holdings, Inc. is a holding company that does not conduct any business operations of its own. As a result, it is dependent upon cash dividends, distributions and other transfers from its subsidiaries, most directly Innophos, Inc., its primary operating subsidiary, and Innophos Investments Holdings, Inc., a direct, wholly-owned subsidiary of Innophos Holdings, Inc. and the direct parent company of Innophos, Inc., to make dividend payments on its common stock.

6. Stockholders’ Equity / Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense, all of which has been classified as selling, general and administrative expense:



	Three Months Ended
	March 31, 2018		March 31, 2017
Stock options	$	346	$	305
Restricted stock	525		440
Performance shares	127		(28		)
Total share-based compensation expense	$	998	$	717

7. Inventories

Inventories consist of the following:



	March 31, 2018		December 31, 2017
Raw materials	$	50,583	$	48,445
Finished products	90,262		83,634
Spare parts	13,629		13,606
	$	154,474	$	145,685

Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of March 31, 2018 and December 31, 2017 were $14,883 and $16,168, respectively.

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

8. Other Current Assets

Other current assets consist of the following:



	March 31, 2018		December 31, 2017
Creditable taxes (value added taxes)	$	7,141	$	7,285
Vendor inventory deposits (prepaid)	10,979		7,807
Prepaid income taxes	3,317		3,394
Prepaid insurance	1,800		2,492
Other	1,435		3,991
	$	24,672	$	24,969

9. 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, 2018	$	129,417	$	23,283	$	—	$	152,700
Add: Goodwill from acquisition	—		—		—		—
Balance: March 31, 2018	$	129,417	$	23,283	$	—	$	152,700

10. Intangibles and Other Assets, net

Intangibles and other assets consist of the following:



	Useful life (years)	March 31, 2018		December 31, 2017
Developed technology and application patents, net of accumulated amortization of $31,713 for 2018 and $30,716 for 2017	7-20	$	14,562	$	15,559
Customer relationships, net of accumulated amortization of $23,705 for 2018 and $22,279 for 2017	5-20	71,806		73,232
Trade names and license agreements, net of accumulated amortization of $12,669 for 2018 and $12,023 for 2017	5-20	14,892		15,538
Non-compete agreements, net of accumulated amortization of $1,300 for 2018 and $1,293 for 2017	3-10	33		40
Total intangibles		$	101,293	$	104,369
Deferred income taxes		$	5,058	$	5,058
Deferred financing costs, net of accumulated amortization of $4,010 for 2018 and $3,902 for 2017 (see note 12)		1,613		1,721
Other tax assets		—		—
Other assets		1,981		1,768
Total other assets		$	8,652	$	8,547
		$	109,945	$	112,916

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

~~5. Stockholders’ Equity / Stock-Based Compensation~~

~~Restricted Stock~~

In April and May 2017, there were a total of 30,612 restricted shares granted to certain employees with a fair value of $1.6 million. These awards are classified as equity awards and vest annually over three years. The related compensation expense is based on the date of grant share prices of $52.51 and $48.42 for April and May, respectively. The compensation expense is amortized on a straight-line basis over the requisite vesting period and accelerated for those employees that are retirement eligible during the vesting period.

~~Stock Options~~

In April and May 2017, the Company granted a total of 102,607 non-qualified stock options at exercise prices of $52.51 and $48.42 for April and May, respectively, to certain employees with a fair value of $1.2 million. The non-qualified stock options vest annually over three years with April 3, 2027 and May 1, 2027 expiration dates.

The fair values of the options granted in 2017 were determined using the Black-Scholes option-pricing model. The blended assumptions used in the Black-Scholes option-pricing model were as follows for the April 3, 2017 and May 1, 2017 grants:

Non-qualified stock options
Expected Volatility 31.3 %
Dividend Yield 3.6 %
Risk-free interest rate 2.09 %
Expected term (years) 6.6
Weighted average grant date fair value of stock options $ 11.54

For the 2017 grants, 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 since announcement of the latest dividend 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.

~~Performance Share Awards~~

In April and May 2017, the Company granted 22,958 performance shares to certain employees with a fair value of $1.3 million. The performance shares vest at the end of the three years performance cycle and the number of shares distributable depends on the extent to which the Company attains pre-established performance goals. Amounts equivalent to declared dividends will accrue on the performance shares and will vest over the same period.

~~Stock Grants~~

In May 2017, the seven external members of the Board of Directors were granted a combined total of 13,916 shares of the Company's common stock with an aggregated fair value of approximately $0.6 million which immediately vested as part of their director fees.

~~Page 14 of 40~~

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

~~The following table summarizes the components of stock-based compensation expense, all of which has been classified as selling, general and administrative expense:~~

Three Months Ended Nine Months Ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016
Stock options $ 221
$ 354
$ 825
$ 439
Restricted stock 378
497
1,290
837
Performance shares 112
177
251
458
Stock grants —
—
630
595
Total share-based compensation expense (a) $ 711
$ 1,028
$ 2,996
$ 2,329

~~(a) The nine months ended September 30, 2016 includes a benefit of $524 for a change in estimate due to restructuring activities.~~

~~6. Inventories~~

~~Inventories consist of the following:~~

September 30,
2017 December 31,
2016
Raw materials $ 45,501
$ 33,185
Finished products 89,079
81,369
Spare parts 13,956
13,741
$ 148,536
$ 128,295

~~Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~were~~ ~~$18,544~~ ~~and~~ ~~$13,422, respectively.~~

~~7. Other Current Assets~~

~~Other current assets consist of the following:~~

September 30,
2017 December 31,
2016
Creditable taxes (value added taxes) $ 8,053
$ 9,722
Vendor inventory deposits (prepaid) 8,902
3,750
Prepaid income taxes 4,036
4,659
Prepaid insurance 2,126
2,248
Other 2,362
3,515
$ 25,479
$ 23,894

~~Page 15 of 40~~

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

~~8. 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, 2017 $ 61,090
$ 23,283
$ —
$ 84,373
Add: Goodwill from acquisition 55,086
—
—
55,086
Balance: September 30, 2017 $ 116,176
$ 23,283
$ —
$ 139,459

~~9. Intangibles and Other Assets, net~~

~~Intangibles and other assets consist of the following:~~

Useful life
(years)
September 30,
2017 December 31,
2016
Developed technology and application patents, net of accumulated amortization of $29,891 for 2017 and $27,778 for 2016 7-20 $ 16,294
$ 18,497
Customer relationships, net of accumulated amortization of $20,881 for 2017 and $18,569 for 2016 5-20 64,131
20,243
Trade names and license agreements, net of accumulated amortization of $11,410 for 2017 and $10,315 for 2016 5-20 12,951
7,346
Non-compete agreements, net of accumulated amortization of $1,287 for 2017 and $1,268 for 2016 3-10 46
65
Total intangibles $ 93,422
$ 46,151
Deferred income taxes $ 13,430
$ 18,432
Deferred financing costs, net of accumulated amortization of $3,795 for 2017 and $3,473 for 2016 (see note 11) 1,828
2,150
Other tax assets —
997
Other assets 2,117
2,081
Total other assets $ 17,375
$ 23,660
$ 110,797
$ 69,811

~~10.~~11. Other Current Liabilities

Other current liabilities consist of the following:

September 30,
2017 December 31,
2016
Payroll related $ 13,696
$ 11,852
Taxes other than income taxes 1,652
2,624
Benefits and pensions 5,687
5,419
Freight and rebates 3,754
3,579
Income taxes 11,695
9,278
Restructuring and management transition reserve 2,165
4,737
Other 9,296
6,116
$ 47,945
$ 43,605

~~Page 16 of 40~~

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~



	March 31, 2018		December 31, 2017
Payroll related	$	10,248	$	15,684
Taxes other than income taxes	1,571		2,804
Benefits and pensions	5,058		7,730
Freight and rebates	6,004		3,937
Income taxes	7,102		4,933
Restructuring and management transition reserve	253		1,719
Other	7,064		6,277
	$	37,300	$	43,084

~~11.~~12. Short-Term Borrowings, Long-Term Debt, and Interest Expense

Short-term borrowings and long-term debt consist of the following:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Revolver borrowings under the credit facility due 2021	$	295,000	$	185,000	$	345,000	$	310,000
Capital leases	10		—		8		9
Total borrowings	$	295,010	$	185,000	$	345,008	$	310,009
Less current portion of capital leases	4		—		4		4
Long-term debt	$	295,006	$	185,000	$	345,004	$	310,005

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, 2017~~March 31, 2018, ~~$295.0~~$345.0 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 ~~$153.9~~$103.9 million, taking into account $1.1 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%~~4.0%.

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.

As of ~~September 30, 2017,~~March 31, 2018, the Company was in full compliance with all debt covenant requirements.

~~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 agreement, to a fixed rate to maturity obligation of 0.9475% expiring in December 2017. This interest rate swap has been designated as a cash flow hedge (Level 2) with the changes in value recorded through other comprehensive income. The fair value of this interest rate swap of approximately ~~$0.1 million~~ ~~is recorded in other long-term assets as of~~ ~~September 30, 2017~~. Based on ~~$195.0~~$345.0 million outstanding borrowings as floating rate debt, ~~(amount not covered by the swap),~~ an immediate increase of one percentage point would cause an increase to interest expense of approximately ~~$2.0~~$3.5 million per year.

~~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.~~

~~Total interest paid by the Company for all indebtedness for the nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~September 30, 2016~~ ~~was~~ ~~$4.3 million~~ ~~and~~ ~~$5.3 million, respectively.~~

Page 1716 of 4034

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

Total interest paid by the Company for all indebtedness for the three months ended March 31, 2018 and March 31, 2017 was $3.1 million and $1.3 million, respectively.

Interest expense, net consists of the following:


	Three months ended						Nine months ended						Three months ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2018			March 31, 2017
Interest expense	$	1,667		$	1,796		$	4,432		$	5,297		$	3,096		$	1,315
Deferred financing cost	107			168			322			505			108			107
Interest income	(21		)	(14		)	(41		)	(38		)	(20		)	(9		)
Less: amount capitalized for capital projects	(123		)	(35		)	(278		)	(137		)	(280		)	(60		)
Total interest expense, net	$	1,630		$	1,915		$	4,435		$	5,627		$	2,904		$	1,353

~~12.~~13. Other Long-Term Liabilities

Other long-term liabilities consist of the following:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Deferred income taxes	$	467	$	1,282	$	2,111	$	2,354
Long term portion of U.S. transition tax					12,095		12,095
Pension and post retirement liabilities	8,979		7,689		9,287		8,886
Restructuring and management transition reserve	210		1,618		—		210
Uncertain tax positions	1,974		1,974		1,094		1,974
Environmental liabilities	1,100		1,100		1,100		1,100
Other liabilities	1,342		1,906		1,572		1,453
	$	14,072	$	15,569	$	27,259	$	28,072

~~13.~~14. Income Taxes

The effective income tax rate on income before taxes was approximately ~~32%~~30% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to approximately ~~32%~~28% for the comparable period in ~~2016.~~2017. The change in the components of the effective tax rate are primarily due to the ~~adoption~~enactment of ~~ASU No. 2016-09, Improvements~~the Tax Act and changes in excess tax benefit from stock-based compensation. The reduction in the statutory U.S. Federal corporate tax rate and a change of mix of U.S. to ~~Employee Share-Based Payment Accounting, changing~~foreign earnings resulted in an 8% decrease in the ~~accounting for~~effective tax ~~benefits from stock option exercises and vesting of restricted stock and performance awards, which decreased~~rate. This was offset by the incremental U.S. tax on global intangible low-taxed income (“GILTI”) resulting in an increase to the effective tax rate by ~~2%,~~4%. Further, the rate increased 5% resulting from a ~~permanent adjustment attributable~~smaller excess tax benefit from stock-based compensation.

On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017 and transitioning U.S. international taxation from a worldwide tax system to a territorial tax system.

Beginning in 2018, the Tax Act includes two new U.S. provisions, namely the GILTI provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an ~~inventory obsolescence reserve in Mexico~~allowable return on the foreign subsidiary’s tangible assets. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

The BEAT provisions in the ~~prior~~Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company does not expect to have any material tax

Page 17 of 34

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

impacts of BEAT and therefore has not recorded any related tax impacts in its consolidated financial statements for the period ended March 31, 2018.

On December 22, 2017, the Securities and Exchange Commission issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118 and ASU 2018-05, the Company has recognized the provisional tax impacts related to the re-measurement of our deferred income tax assets and liabilities and the one-time, mandatory transition tax on deemed repatriation during the year ~~which decreased~~ended December 31, 2017. As of March 31, 2018, we have not made any additional measurement-period adjustments related to these items. Such adjustments may be necessary in future periods due to, among other things, the ~~effective tax rate~~significant complexity of the Act and anticipated additional regulatory guidance that may be issued by 1%the Internal Revenue Service (“IRS”), changes in analysis, interpretations and assumptions the Company has made and actions the Company may take as ~~compared~~a result of the Act. Any subsequent adjustment to ~~last~~these amounts will be recorded within the one year ~~and prior year tax return true-ups which increased the effective tax rate~~measurement period allowed by ~~3% as compared to last year.~~SAB 118.

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 2015. Also, certain state income tax assessments are under protest and the Company believes its financial position is sustainable. The Company estimates the liability for unrecognized tax benefits may decrease by approximately ~~$0.7~~$2.4 million during the next twelve months as a result of possible settlements of income tax authority examinations. Other than the items mentioned above, as of ~~September 30, 2017,~~March 31, 2018, 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 $~~14.0~~3.4 million and $~~34.8~~5.4 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016~~March 31, 2017, respectively.

~~Page 18 of 40~~

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

~~14.~~15. 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 ~~our~~the Company's site in Nashville, ~~TN,~~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. ~~We have~~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, 2017.~~March 31, 2018.

~~Litigation~~

~~2008 RCRA Civil Enforcement - Geismar, Louisiana plant~~

Page 18 of 34

~~On January 12, 2017, the Company entered into a settlement with the United States Environmental Protection Agency,~~

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts 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 merchant green phosphoric acid, or 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 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 so until the Company receives the necessary approvals and permits to operate its 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. The consent decree relating to this settlement was entered by the United States District Court for the Middle District of Louisiana on October 4, 2017. As such, the Company will pay the $1.4 million civil penalty on November 1, 2017.where otherwise noted)

Other Legal Matters

In addition, ~~we are~~the Company is a party to legal proceedings and contractual disputes that arise in the ordinary course of ~~our~~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 ~~our~~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 of them could have a material adverse effect on ~~our~~the Company's business, results of operations, financial condition, and/or cash flows.

16. Pension Plans and Postretirement Benefits

Net periodic benefit expense for the United States plans:



	For the three months ended March 31, 2018									For the three months ended March 31, 2017
	Pension benefits			Other benefits			Total			Pension benefits			Other benefits			Total
Service cost	$	—		$	36		$	36		$	—		$	34		$	34
Interest cost	24			29			53			25			31			56
Expected return on assets	(38		)	—			(38		)	(35		)	—			(35		)
Amortization of
prior service cost	—			—			—			—			—			—
unrecognized (gain) loss	—			(40		)	(40		)	—			(50		)	(50		)
net transition obligation	—			—			—			—			—			—
Net periodic cost	$	(14	)	$	25		$	11		$	(10	)	$	15		$	5

Innophos has no minimum contribution requirements and does not plan to make cash contributions for its US defined benefit pension plan in 2018.

Innophos made its entire cash contribution of $3.1 million for the US defined contribution plan during the first quarter of 2018 for the plan year 2017.

Page 19 of 4034

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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:



	For the three months ended March 31, 2018									For the three months ended March 31, 2017
	Pension benefits			Other benefits			Total			Pension benefits			Other benefits		Total
Service cost	$	113		$	16		$	129		$	94		$	13	$	107
Interest cost	132			15			147			127			13		140
Expected return on assets	(205		)	—			(205		)	(201		)	—		(201		)
Amortization of
actuarial loss (gain)	48			1			49			43			—		43
prior service cost	13			—			13			27			—		27
net transition obligation	—			6			6			—			6		6
Exchange rate changes	118			(39		)	79			(48		)	14		(34		)
Net periodic cost	$	219		$	(1	)	$	218		$	42		$	46	$	88

Innophos Canada, Inc. plans to make cash contributions to its Canadian defined benefit plan of approximately $0.5 million in 2018.

17. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by Component:



For the three months ended March 31, 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	96			—		96
Amounts reclassified from accumulated other comprehensive income	293			—		293
Net current period other comprehensive income	389			—		389
Balance at March 31, 2018	$	(1,809	)	$	—	$	(1,809	)

For the three months ended March 31, 2017	Pension and Other Postretirement Adjustments			Changes in Fair Value of Effective Cash Flow Hedges		Total
Balance at December 31, 2016	$	(1,493	)	$	9	$	(1,484	)
Other comprehensive (loss) income before reclassifications	(5		)	92		87
Amounts reclassified from accumulated other comprehensive income	—			—		—
Net current period other comprehensive (loss) income	(5		)	92		87
Balance at March 31, 2017	$	(1,498	)	$	101	$	(1,397	)

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

~~15. Pension Plans and Postretirement Benefits~~

~~Net periodic benefit expense for the United States plans:~~

For the three months ended September 30, 2017 For the three months ended September 30, 2016
Pension benefits Other benefits Total Pension benefits Other benefits Total
Service cost $ —
$ 34
$ 34
$ —
$ 46
$ 46
Interest cost 25
31
56
30
44
74
Expected return on assets (35 ) —
(35 ) (37 ) —
(37 )
Amortization of
prior service cost —
—
—
—
—
—
unrecognized (gain) loss —
(50 ) (50 ) 2
(13 ) (11 )
net transition obligation —
—
—
—
—
—
Net periodic cost $ (10 ) $ 15
$ 5
$ (5 ) $ 77
$ 72

For the nine months ended September 30, 2017 For the nine months ended September 30, 2016
Pension benefits Other benefits Total Pension benefits Other benefits Total
Service cost $ —
$ 101
$ 101
$ —
$ 138
$ 138
Interest cost 76
92
168
89
133
222
Expected return on assets (105 ) —
(105 ) (109 ) —
(109 )
Amortization of
prior service cost —
—
—
—
—
—
unrecognized (gain) loss —
(149 ) (149 ) 6
(39 ) (33 )
net transition obligation —
—
—
—
—
—
Net periodic cost $ (29 ) $ 44
$ 15
$ (14 ) $ 232
$ 218

~~Innophos has no minimum contribution requirements and does not plan to make cash contributions for its US defined benefit pension plan in 2017.~~

~~Innophos made its entire cash contribution of~~ ~~$2.9 million~~ ~~for the US defined contribution plan during the first quarter of 2017 for the plan year 2016.~~

~~Page 20 of 40~~

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

~~Net periodic benefit expense for the Canadian plans:~~

For the three months ended September 30, 2017 For the three months ended September 30, 2016
Pension benefits Other benefits Total Pension benefits Other benefits Total
Service cost $ 98
$ 13
$ 111
$ 92
$ 12
$ 104
Interest cost 132
14
146
125
13
138
Expected return on assets (209 ) —
(209 ) (195 ) —
(195 )
Amortization of
actuarial loss (gain) 45
—
45
53
—
53
prior service cost 27
—
27
26
—
26
net transition obligation —
6
6
—
6
6
Exchange rate changes (53 ) 18
(35 ) 29
(9 ) 20
Net periodic cost $ 40
$ 51
$ 91
$ 130
$ 22
$ 152

For the nine months ended September 30, 2017 For the nine months ended September 30, 2016
Pension benefits Other benefits Total Pension benefits Other benefits Total
Service cost $ 285
$ 38
$ 323
$ 272
$ 36
$ 308
Interest cost 384
41
425
368
39
407
Expected return on assets (609 ) —
(609 ) (577 ) —
(577 )
Amortization of
actuarial loss (gain) 131
—
131
156
—
156
prior service cost 80
—
80
79
—
79
net transition obligation —
17
17
—
17
17
Exchange rate changes (199 ) 63
(136 ) (271 ) 68
(203 )
Net periodic cost $ 72
$ 159
$ 231
$ 27
$ 160
$ 187

~~Innophos Canada, Inc. plans to make cash contributions to its Canadian defined benefit plan of approximately $0.5 million in 2017.~~

~~Page 21 of 40~~

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

~~16. Accumulated Other Comprehensive Income (Loss)~~

~~Changes in accumulated other comprehensive income (loss) by Component:~~

For the three months ended September 30, 2017 Pension and Other Postretirement Adjustments Changes in Fair Value of Effective Cash Flow Hedges Total
Balance at June 30, 2017 $ (1,645 ) $ 96
$ (1,549 )
Other comprehensive loss before reclassifications (103 ) (52 ) (155 )
Amounts reclassified from accumulated other comprehensive income —
—
—
Net current period other comprehensive loss (103 ) (52 ) (155 )
Balance at September 30, 2017 $ (1,748 ) $ 44
$ (1,704 )

For the three months ended September 30, 2016 Pension and Other Postretirement Adjustments Changes in Fair Value of Effective Cash Flow Hedges Total
Balance at June 30, 2016 $ (2,932 ) $ (390 ) $ (3,322 )
Other comprehensive income (loss) before reclassifications 78
204
282
Amounts reclassified from accumulated other comprehensive income —
—
—
Net current period other comprehensive income (loss) 78
204
282
Balance at September 30, 2016 $ (2,854 ) $ (186 ) $ (3,040 )

For the nine months ended September 30, 2017 Pension and Other Postretirement Adjustments Changes in Fair Value of Effective Cash Flow Hedges Total
Balance at December 31, 2016 $ (1,493 ) $ 9
$ (1,484 )
Other comprehensive (loss) income before reclassifications (255 ) 35
(220 )
Amounts reclassified from accumulated other comprehensive income —
—
—
Net current period other comprehensive (loss) income (255 ) 35
(220 )
Balance at September 30, 2017 $ (1,748 ) $ 44
$ (1,704 )

For the nine months ended September 30, 2016 Pension and Other Postretirement Adjustments Changes in Fair Value of Effective Cash Flow Hedges Total
Balance at December 31, 2015 $ (2,842 ) $ 48
$ (2,794 )
Other comprehensive loss before reclassifications (12 ) (234 ) (246 )
Amounts reclassified from accumulated other comprehensive income —
—
—
Net current period other comprehensive loss (12 ) (234 ) (246 )
Balance at September 30, 2016 $ (2,854 ) $ (186 ) $ (3,040 )

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~

~~17.~~18. Restructuring Costs

During 2015, management evaluated several initiatives to improve the overall operating efficiency of the organization. As a result of this evaluation, wethe Company launched an initiative to reduce ~~our~~its 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.

The following table summarizes the fiscal year ~~2017~~2018 activities related to these restructuring initiatives for severance and benefits:

For the three months ended September 30, 2017 Restructuring Costs
Balance at June 30, 2017 $ 3,136
Expense recorded —
Payments made (761 )
Balance at September 30, 2017 $ 2,375

For the nine months ended September 30, 2017 Restructuring Costs
Balance at December 31, 2016 $ 6,356
Expense recorded —
Payments made (3,981 )
Balance at September 30, 2017 $ 2,375

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~~INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)~~



For the three months ended March 31, 2018	Restructuring Costs
Balance at December 31, 2017	$	1,929
Expense recorded	—
Payments made	(1,676		)
Balance at March 31, 2018	$	253

~~18.~~19. 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 ~~as of the first quarter of 2017,~~ has determined to assess the Company's performance and allocate the appropriate resources based on the following operating segments: (1) Food, Health and ~~Nutrition,~~Nutrition; (2) Industrial ~~Specialties~~Specialties; and (3) Other. ~~The new~~These reporting segments accurately reflect the underlying business dynamics and align with the strategic direction of the Company. Prior to the first quarter of 2017, the reporting segments were (1) Specialty Phosphates US & Canada, (2) Specialty Phosphates Mexico and (3) Granular Triple Super Phosphate, or GTSP & Other, versus the current market view.


For the three months ended September 30, 2017	Food, Health and Nutrition		Industrial Specialties		Other			Total
For the three months ended March 31, 2018										Food, Health and Nutrition		Industrial Specialties		Other		Total
Sales	$	98,276	$	67,682	$	17,881		$	183,839	$	126,363	$	63,350	$	15,727	$	205,440
EBITDA	$	16,442	$	13,491	$	(1,145	)	$	28,788	$	18,992	$	10,093	$	786	$	29,871
Depreciation and amortization expense	$	5,664	$	3,488	$	726		$	9,878	$	7,322	$	3,736	$	306	$	11,364

For the three months ended September 30, 2016	Food, Health and Nutrition		Industrial Specialties		Other			Total
For the three months ended March 31, 2017										Food, Health and Nutrition		Industrial Specialties		Other		Total
Sales	$	93,586	$	70,124	$	22,327		$	186,037	$	91,083	$	63,672	$	11,189	$	165,944
EBITDA	$	19,649	$	10,237	$	1,942		$	31,828	$	15,624	$	9,521	$	898	$	26,043
Depreciation and amortization expense	$	5,802	$	2,957	$	1,284		$	10,043	$	5,722	$	3,372	$	487	$	9,581

For the nine months ended September 30, 2017	Food, Health and Nutrition		Industrial Specialties		Other			Total
Sales	$	281,558	$	198,721	$	48,644		$	528,923
EBITDA	$	49,098	$	31,666	$	2,086		$	82,850
Depreciation and amortization expense	$	16,884	$	10,346	$	1,779		$	29,009

For the nine months ended September 30, 2016	Food, Health and Nutrition		Industrial Specialties		Other			Total
Sales	$	286,660	$	216,591	$	54,304		$	557,555
EBITDA	$	59,326	$	29,934	$	1,698		$	90,958
Depreciation and amortization expense	$	15,845	$	9,554	$	3,208		$	28,607

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INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except per share amounts, share amounts or where otherwise noted)

A reconciliation of net income to EBITDA follows:


	Three months ended				Three months ended
	September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Net income	$	11,582	$	13,643	$	10,915	$	10,923
Provision for income taxes	5,698		6,227		4,688		4,186
Interest expense, net	1,630		1,915		2,904		1,353
Depreciation and amortization	9,878		10,043		11,364		9,581
EBITDA	$	28,788	$	31,828	$	29,871	$	26,043

	Nine months ended
	September 30, 2017		September 30, 2016
Net income	$	33,728	$	38,589
Provision for income taxes	15,678		18,135
Interest expense, net	4,435		5,627
Depreciation and amortization	29,009		28,607
EBITDA	$	82,850	$	90,958

Total assets by segment Food, Health and Nutrition Industrial Specialties Other Total
For the period ended September 30, 2017 (a) $ 534,641
$ 203,633
$ 32,492
$ 770,766
For the period ended September 30, 2016 397,575
210,680
34,756
643,011

~~(a) Food, Health and Nutrition increased by $148.2 million with the acquisition of Novel Ingredients.~~

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, cleaning agents in toothpaste, and they also provide a wide range of nutritional fortification solutions for food, beverage and nutritional supplement manufacturers.

~~Full Year 2017~~Recent Trends and Outlook

The proactive selling price increase program that was implemented in the fourth quarter of 2017 ~~fiscal~~has been effective in offsetting input cost increases in the first quarter. In response to the operating environment continuing to show cost inflation, the Company has taken further price increase actions in its specialty phosphates portfolio to take effect on June 1, 2018.

The Company continues to expect full year ~~includes~~2018 revenue to grow 12% to 14% due to the annualized contributions from ~~Novel Ingredients~~acquisitions, favorable growth in ~~both Q3~~the specialty nutrition end-markets served, and ~~Q4 with estimated sales of $35 million.~~stabilization in the legacy business.

Q4Full year GAAP EPS is expected to ~~reflect typical seasonality with~~more than double in 2018. This includes an improvement in 2018 full year EPS of approximately $0.16 per diluted share due to the lower ~~sequential sales and unfavorable mix.~~

~~Demand impact from the recent natural disasters is expected to carry into Q4 and forecasted to have an unfavorable $3 million effect on sales for the full year.~~

~~An estimated $3 million of Phase 2 Operational Excellence savings will take effect in 2017, $2 million of which will be recorded in Q4.Near term logistics savings are being impacted by lack of trucking equipment availability following recent hurricanes.~~effective tax rate.

The Company ~~is planning a~~expects free cash flow (net cash provided from operating activities plus cash used for capital expenditures) to be similar to prior year with capital cash outflow of approximately $45 million to principally support the strategic value chain repositioning and manufacturing ~~stoppage in Q4 as a first step in a broader plant maintenance and supply chain~~ optimization program that will be phased throughout 2018, demonstrating our continued commitment to our phosphates product portfolio. This stoppage will impact earnings adversely by approximately $4 million due to maintenance expense, lower fixed costs absorption and higher cost of externally sourced material.programs.

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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):


	Three Months Ended			Three Months Ended			Three Months Ended					Three Months Ended
	September 30, 2017			September 30, 2016			March 31, 2018					March 31, 2017
	Amount		%	Amount		%	Amount			%		Amount			%
Net sales	$	183.8	100.0	$	186.0	100.0	$	205.4		100.0		$	165.9		100.0
Cost of goods sold	142.8		77.7	145.5		78.2	163.2			79.5		129.4			78.0
Gross profit	41.0		22.3	40.5		21.8	42.2			20.5		36.5			22.0
Operating expenses:
Selling, general and administrative	20.9		11.4	17.7		9.5	22.5			11.0		19.3			11.6
Research & development	1.1		0.6	0.9		0.5	1.4			0.7		0.8			0.5
Income from operations	19.0		10.3	21.9		11.8	18.3			8.9		16.4			9.9
Interest expense, net	1.6		0.9	1.9		1.0	2.9			1.4		1.4			0.8
Foreign exchange loss, net	0.1		0.1	0.1		0.1
Foreign exchange gain, net							(0.2		)	(0.1	)	(0.1		)	(0.1	)
Provision for income taxes	5.7		3.1	6.3		3.4	4.7			2.3		4.2			2.5
Net income	$	11.6	6.3	$	13.6	7.3	$	10.9		5.3		$	10.9		6.6

	Nine Months Ended			Nine Months Ended
	September 30, 2017			September 30, 2016
	Amount		%	Amount		%
Net sales	$	528.9	100.0	$	557.5	100.0
Cost of goods sold	412.3		78.0	440.1		78.9
Gross profit	116.6		22.0	117.4		21.1
Operating expenses:
Selling, general and administrative	60.1		11.4	51.7		9.3
Research & development	2.7		0.5	2.9		0.5
Income from operations	53.8		10.2	62.8		11.3
Interest expense, net	4.4		0.8	5.6		1.0
Foreign exchange loss, net	—		—	0.5		0.1
Provision for income taxes	15.7		3.0	18.1		3.3
Net income	33.7		6.4	38.6		6.9

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Three months ended ~~September 30, 2017~~March 31, 2018 compared to the three months ended ~~September 30, 2016~~March 31, 2017

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 three months ended ~~September 30, 2017~~March 31, 2018 were ~~$183.8~~$205.4 million, ~~a decrease~~an increase of ~~$2.2~~$39.5 million, or ~~1.2%~~23.8%, as compared to ~~$186.0~~$165.9 million for the same period in ~~2016,~~2017, with prices ~~down 4.5%~~up 1.5%, ~~partially offset~~and volumes higher by ~~higher volumes~~22.3%, of ~~3.3%.~~which 20.2% resulted from acquisitions made in the second half of 2017 and 2.1% resulted from the legacy business. Food, Health and Nutrition (FHN) segment sales were up ~~5.0%~~38.7%, or ~~$4.7~~$35.3 million, with selling prices ~~lower~~higher by ~~3.4%~~0.5%, or ~~$3.2~~$0.5 million, ~~principally in~~and volumes higher by 38.2%, or $34.8 million. The 2017 acquisitions contributed $33.6 million, or 36.9%, of the ~~Food business which was driven by unfavorable market conditions,~~volume growth and the ~~overall Food, Health and Nutrition segment was adversely affected~~legacy business grew by ~~customer mix. The Food, Health and Nutrition segment had positive volume results in the current quarter with 5 weeks of sales totaling $10.2~~$1.2 million, ~~from the newly acquired Novel Ingredients business.~~or 1.3%. Industrial Specialties sales were down ~~3.5%~~0.5%, or ~~$2.4~~$0.3 million, with volumes lower by 3.0%, or $1.9 million, but selling prices ~~lower~~higher by ~~4.8%~~2.5%, or ~~$3.4 million, due to price competition in technical-grade phosphates, partially offset by higher volumes of 1.3%, or $1.0~~$1.6 million. Other sales were ~~lower~~higher by ~~19.9%~~40.6%, or $4.5 million, with volume ~~lower~~higher by ~~12.0%~~37.4%, or ~~$2.7~~$4.1 million, due to ~~strong commodity~~additional sales to South American fertilizer ~~sales in the prior year period,~~markets, and selling prices ~~lower~~higher by ~~7.9%~~3.2%, or ~~$1.8~~$0.4 million.

The Company calculates pure selling price dollar variances as the selling price for the current year to date period minus the selling price for the prior year to date period, and then multiplies the resulting selling price difference by the prior year to date period volume. Volume variance is calculated as the total sales variance minus the selling price variance and refers to the revenue effect of changes in tons sold at the relative prices applicable to the variation in tons, otherwise known as volume/mix.

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The following table illustrates for the three months ended ~~September 30, 2017~~March 31, 2018 the percentage changes in net sales by reportable segment compared with the same period of the prior year, including the effect of price and volume/mix changes upon revenue:


	Price		Volume/Mix		Total		Price		Volume/Mix		Total
Food, Health and Nutrition	(3.4	)%	8.4	%	5.0	%	0.5	%	38.2	%	38.7	%
Industrial Specialties	(4.8	)%	1.3	%	(3.5	)%	2.5	%	(3.0	)%	(0.5	)%
Other	(7.9	)%	(12.0	)%	(19.9	)%	3.2	%	37.4	%	40.6	%
Total	(4.5	)%	3.3	%	(1.2	)%	1.5	%	22.3	%	23.8	%

Gross Profit

Gross profit represents net sales less cost of goods sold. Gross profit for the three months ended ~~September 30, 2017~~March 31, 2018 was ~~$41.0~~$42.2 million, an increase of ~~$0.5~~$5.7 million, or ~~1.2%~~15.6%, as compared to ~~$40.5~~$36.5 million for the same period in ~~2016.~~2017. Gross profit as a percentage of net sales ~~increased~~decreased to ~~22.3%~~20.5% for the three months ended ~~September 30, 2017~~March 31, 2018 versus ~~21.8%~~22.0% for the same period in ~~2016 due to improving mix into higher value products.~~2017. Gross profit in ~~2017~~2018 was favorably affected by ~~$7.7~~$10.8 million ~~lower~~from higher sales volumes, including sales volumes from the 2017 acquisition companies, and $2.5 million higher selling prices. Gross profit was unfavorably affected in 2018 by $3.6 million of higher manufacturing costs, $2.3 million of higher raw material costs, mainly ~~phosphate rock~~sulfur, and ~~MGA, $0.6~~$1.7 million ~~lower~~higher depreciation and $0.3 million lower manufacturing costs. These favorable effects were partially offset by $8.4 million lower selling prices, $0.4 million unfavorable exchange rates from our Mexican peso and Canadian dollar based costs, and $0.1 million lower sales volumes. Results from the newly acquired Novel Ingredients business favorably affected gross profit by $0.8 million, which includes a $1.4 million charge for fair value inventory purchase accounting.intangible amortization expense.

Operating Expenses and Research and Development

Operating expenses consist primarily of selling, general and administrative and research and development expenses. Operating expenses for the three months ended ~~September 30, 2017~~March 31, 2018 were ~~$22.0~~$23.9 million, an increase of ~~$3.4~~$3.8 million, or ~~18.3%~~18.9%, as compared to ~~$18.6~~$20.1 million for the same period in ~~2016.~~2017. The increase was mainly due to ~~$3.0 million of transaction and integration costs related to~~acquisitions included in the ~~Novel Ingredients acquisition and $1.7 million of Novel Ingredients operating expenses for the period, partially offset by $1.3 million lower employee related costs.~~current year cost base.

Operating Income

Operating income for the three months ended ~~September 30, 2017~~March 31, 2018 was ~~$19.0~~$18.3 million, ~~a decrease~~an increase of ~~$2.9~~$1.9 million, or ~~13.2%~~11.6%, as compared to ~~$21.9~~$16.4 million for the same period in ~~2016.~~2017. Operating income as a percentage of net sales decreased to ~~10.3%~~8.9% versus ~~11.8%~~9.9% for the same period in ~~2016,~~2017, for the reasons noted above.

Interest Expense, net

Net interest expense, including deferred financing amortization expense, for the three months ended ~~September 30, 2017~~March 31, 2018 was $~~1.6~~2.9 million, ~~a decrease~~an increase of ~~$0.3~~$1.5 million, or ~~15.8%~~107.1%, as compared to $~~1.9~~1.4 million for the same period in ~~2016.~~2017. The ~~decrease~~increase was primarily due to ~~lower~~higher market interest rates ~~under our December 2016 renewed credit facility.~~and a higher average loan balance due from the 2017 acquisitions.

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Foreign Exchange

Foreign exchange for the three months ended ~~September 30, 2017~~March 31, 2018 was a gain of ~~$0.1~~$0.2 million as compared to a gain of $0.1 million for the same period in ~~2016.~~2017. The US 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. Foreign exchange gain or loss is recorded on remeasurement of non-US Dollar denominated monetary assets and liabilities. Such gains and losses fluctuate from period to period as the foreign currencies strengthen or weaken against the US Dollar and the amount of non-US Dollar denominated assets and liabilities increases or decreases.

Provision for Income Taxes

The effective income tax rate on income before taxes was ~~33%~~approximately 30% for the three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~31%~~approximately 28% for the ~~same~~comparable period in 2016. The variances in the effective tax rate are primarily due to prior year tax return true-ups which increased the effective tax rate by 3% as compared to the same period last year, partially offset by increased income in lower tax rate jurisdictions which decreased the effective tax rate by 1% in the current quarter.

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~~Net Income~~

~~Net income for the three months ended September 30, 2017 was $11.6 million, a decrease of $2.0 million, as compared to $13.6 million for the same period in 2016, due to the factors described above.~~

~~Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016~~

~~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 nine months ended September 30, 2017 were $528.9 million, a decrease of $28.6 million, or 5.1%, as compared to $557.5 million for the same period in 2016, with prices down 5.0% and volumes down 0.1%. Food, Health and Nutrition sales were down 1.8%, or $5.1 million, with selling prices lower by 3.6%, or $10.4 million, principally driven by unfavorable market conditions and customer mix. The Food, Health and Nutrition volume results were higher by 1.8%, or $5.3 million, largely driven by $10.2 million from the results of the newly acquired Novel Ingredients business. Industrial Specialties sales were down 8.3%, or $17.9 million, with selling prices lower by 6.1%, or $13.3 million, due to price competition in technical-grade phosphates, and volumes lower by 2.2%, or $4.6 million. Other sales were lower by 10.4%, or $5.6 million, with prices lower by 7.3%, or $3.9 million, and volumes lower by 3.1%, or $1.7 million.

The following table illustrates for the nine months ended September 30, 2017 the percentage changes in net sales by reportable segment compared with the same period of the prior year, including the effect of price and volume/mix changes upon revenue:

Price Volume/Mix Total
Food, Health and Nutrition (3.6 )% 1.8 % (1.8 )%
Industrial Specialties (6.1 )% (2.2 )% (8.3 )%
Other (7.3 )% (3.1 )% (10.4 )%
Total (5.0 )% (0.1 )% (5.1 )%

~~Gross Profit~~

Gross profit represents net sales less cost of goods sold. Gross profit for the nine months ended September 30, 2017 was $116.6 million, a decrease of $0.8 million, or 0.7%, as compared to $117.4 million for the same period in 2016. Gross profit percentage of net sales increased to 22.0% for the nine months ended September 30, 2017 versus 21.1% for the same period in 2016 due to improving mix into higher value products. Gross profit in 2017 was favorably affected by $28.7 million lower raw material costs, mainly phosphate rock and MGA, and $2.6 million lower manufacturing costs. These favorable effects were partially offset by $27.6 million lower selling prices, $5.4 million lower sales volumes, and $3.2 million expenses for the implementation of Phase 2 Operational Excellence initiatives. Results from the newly acquired Novel Ingredients business favorably affected gross profit by $0.8 million, which includes a charge of $1.4 million for fair value inventory purchase accounting. Included in 2016 gross profit was $2.4 million planned maintenance outage expense at our Coatzacoalcos, Mexico manufacturing facility and a $0.9 million charge for a GTSP lower of cost or market reserve.

~~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 nine months ended September 30, 2017 were $62.8 million, an increase of $8.2 million, or 15.0%, as compared to $54.6 million for the same period in 2016. The increase was due to $3.3 million for strategic initiatives, $3.0 million of transaction and integration costs related to the Novel Ingredients acquisition, $1.7 million of Novel Ingredients operating expenses for the current period, $1.1 million higher severance costs, partially offset by $0.9 million lower employee related expenses.

~~Operating Income~~

Operating income for the nine months ended September 30, 2017 was $53.8 million, a decrease of $9.0 million, or 14.3%, as compared to $62.8 million for the same period in 2016. Operating income as a percentage of net sales decreased to 10.2% versus 11.3% for the same period in 2016 for the reasons noted above.

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~~Interest Expense, net~~

Net interest expense, including deferred financing amortization expense, for the nine months ended September 30, 2017 was $4.4 million, a decrease of $1.2 million, or 21.4%, as compared to $5.6 million for the same period in 2016. The decrease was primarily due to lower average loan balances and interest rates, lower leverage ratios and lower applicable margins under our December 2016 renewed credit facility.

~~Foreign Exchange~~

Foreign exchange for the nine months ended September 30, 2017 was zero compared to a gain of $0.5 million for the same period in 2016. The US 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. Foreign exchange gain or loss is recorded on remeasurement of non-US Dollar denominated monetary assets and liabilities. Such gains and losses fluctuate from period to period as the foreign currencies strengthen or weaken against the US Dollar and the amount of non-US Dollar denominated assets and liabilities increases or decreases.

~~Provision for Income Taxes~~

~~The effective income tax rate was 32% for the nine months ended September 30, 2017 compared to 32% for the same period in 2016.~~2017. The change in the components of the effective tax rate are primarily due to the ~~adoption~~enactment of ~~ASU No. 2016-09, Improvements~~the U.S. Tax Cuts and Jobs Act and changes in excess tax benefit from stock-based compensation. The reduction in the statutory U.S. Federal corporate tax rate and a change of mix of U.S. to ~~Employee Share-Based Payment Accounting, changing~~foreign earnings resulted in an 8% decrease in the ~~accounting for~~effective tax ~~benefits from stock option exercises and vesting of restricted stock and performance awards, which decreased~~rate. This was offset by the incremental U.S. tax on global intangible low-taxed income resulting in an increase to the effective tax rate by ~~2%,~~4%. Further, the rate increased 5% resulting from a ~~permanent adjustment attributable to an inventory obsolescence reserve in Mexico in the prior year, which decreased the effective~~smaller excess tax ~~rate by 1% as compared to last year and prior year tax return true-ups which increased the effective tax rate by 3% as compared to last year.~~benefit from stock-based compensation.

Net Income

Net income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$33.7 million, a decrease of $4.9~~$10.9 million, as compared to ~~$38.6~~$10.9 million for the same period in ~~2016,~~2017, due to the factors described above.

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Segment Reporting

The Company's chief executive officer is the chief operating decision maker and ~~as of the first quarter of 2017,~~ has determined to assess the Company's performance and allocate the appropriate resources based on the following operating segments: (1) Food, Health and ~~Nutrition,~~Nutrition; (2) Industrial ~~Specialties~~Specialties; and (3) Other. The new reporting segments accurately reflect the underlying business dynamics and align with the strategic direction of the Company. The primary performance indicators for the chief operating decision maker are sales and earnings before interest, taxes, depreciation and amortization, or EBITDA. The following table sets forth the results of these indicators by segment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	Three Months Ended								Three Months Ended
	September 30, 2017			September 30, 2016			Net Sales % Change		March 31, 2018			March 31, 2017			Net Sales % Change
Segment Net Sales
Food, Health and Nutrition	$	98,276		$	93,586		5.0	%	$	126,363		$	91,083		38.7	%
Industrial Specialties	67,682			70,124			(3.5	)%	63,350			63,672			(0.5	)%
Other	17,881			22,327			(19.9	)%	15,727			11,189			40.6	%
Total	$	183,839		$	186,037		(1.2	)%	$	205,440		$	165,944		23.8	%

Segment EBITDA
Food, Health and Nutrition	$	16,442		$	19,649				$	18,992		$	15,624
Industrial Specialties	13,491			10,237					10,093			9,521
Other	(1,145		)	1,942					786			898
Total	$	28,788		$	31,828				$	29,871		$	26,043

Segment EBITDA % of net sales
Food, Health and Nutrition	16.7		%	21.0		%			15.0		%	17.2		%
Industrial Specialties	19.9		%	14.6		%			15.9		%	15.0		%
Other	(6.4		)%	8.7		%			5.0		%	8.0		%
Total	15.7		%	17.1		%			14.5		%	15.7		%

Depreciation and amortization expense
Food, Health and Nutrition	$	5,664		$	5,802				$	7,322		$	5,722
Industrial Specialties	3,488			2,957					3,736			3,372
Other	726			1,284					306			487
Total	$	9,878		$	10,043				$	11,364		$	9,581

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Nine Months Ended
September 30,
2017 September 30,
2016 Net Sales % Change
Segment Net Sales
Food, Health and Nutrition $ 281,558
$ 286,660
(1.8 )%
Industrial Specialties 198,721
216,591
(8.3 )%
Other 48,644
54,304
(10.4 )%
Total $ 528,923
$ 557,555
(5.1 )%

Segment EBITDA
Food, Health and Nutrition $ 49,098
$ 59,326

Industrial Specialties 31,666
29,934

Other 2,086
1,698

Total $ 82,850
$ 90,958

Segment EBITDA % of net sales
Food, Health and Nutrition 17.4 % 20.7 %
Industrial Specialties 15.9 % 13.8 %
Other 4.3 % 3.1 %
Total 15.7 % 16.3 %

Depreciation and amortization expense
Food, Health and Nutrition $ 16,884
$ 15,845

Industrial Specialties 10,346
9,554

Other 1,779
3,208

Total $ 29,009
$ 28,607

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A reconciliation of net income to EBITDA follows:


	Three months ended				Three months ended
	September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Net income	$	11,582	$	13,643	$	10,915	$	10,923
Provision for income taxes	5,698		6,227		4,688		4,186
Interest expense, net	1,630		1,915		2,904		1,353
Depreciation and amortization	9,878		10,043		11,364		9,581
EBITDA	$	28,788	$	31,828	$	29,871	$	26,043

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Nine months ended
September 30,
2017 September 30,
2016
Net income $ 33,728
$ 38,589
Provision for income taxes 15,678
18,135
Interest expense, net 4,435
5,627
Depreciation and amortization 29,009
28,607
EBITDA $ 82,850
$ 90,958

Three months ended ~~September 30, 2017~~March 31, 2018 compared to the three months ended ~~September 30, 2016~~March 31, 2017

Segment Net Sales:

Food, Health and Nutrition net sales increased ~~5.0%~~38.7% for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016.~~2017. Volumes increased ~~8.4%, partially offset by an~~38.2% and average selling price ~~decrease of~~increased ~~3.4%~~0.5%. ~~The~~ Food, Health and Nutrition net sales ~~were favorably affected 11.0%~~increased by 36.9% due to the inclusion of the results of the ~~newly acquired Novel Ingredients business. Lower selling prices were primarily due to unfavorable market/customer mix.~~2017 acquisitions.

Industrial Specialties net sales decreased ~~3.5%~~0.5% for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016. Average selling prices~~2017. Volumes decreased ~~4.8%~~3.0%, ~~primarily due to strong competition in technical grade products,~~ partially offset by ~~increased volumes of~~ ~~1.3%~~.a 2.5% increase in average selling prices.

Other net sales ~~decreased~~increased ~~19.9%~~40.6% for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016.~~2017. Volumes ~~decreased 12.0%, mostly due to strong commodity fertilizer sales in the prior year period,~~increased 37.4% and average selling prices ~~decreased 7.9%~~increased 3.2%.

Segment EBITDA Percentage of Net Sales:

The ~~430~~220 basis point decrease in Food, Health and Nutrition EBITDA margins for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016~~2017 is due to ~~lower average selling prices~~the 2017 acquisitions which decreased margins by ~~280~~230 basis points, increased raw material costs, mainly sulfur, which decreased margins by 150 basis points, lower sales volume/mix which decreased margins by 180 basis points, the inclusion of the newly acquired Novel Ingredients business which decreased margins by 240 basis points, primarily due to a fair value inventory adjustment which decreased margins by 15020 basis points, and ~~other~~ higher operating costs which decreased margins by 7020 basis points. This decrease was partially offset by lower manufacturing costs which increased margins by ~~220~~150 basis points, ~~and decreased raw material costs, mainly phosphate rock and MGA,~~higher average selling prices which increased margins by ~~120~~40 basis points, and the change in translation which increased margins by 10 basis points.

The ~~530~~90 basis point increase in Industrial Specialties EBITDA margins for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016~~2017 is due to ~~lower raw material costs, mainly phosphate rock and MGA,~~higher average selling prices which increased margins by ~~470~~210 basis points, higher sales volume/mix which increased margins by ~~310~~160 basis points, and lower ~~manufacturing and~~ operating costs which increased margins by ~~280~~70 basis points. This increase was partially offset by ~~lower average selling prices~~higher manufacturing costs which decreased margins 200 basis points and higher raw material costs, mainly sulfur, which decreased margins by ~~440 basis points, and other higher costs which decreased margins by 90~~150 basis points.

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The ~~1,510~~300 basis point decrease in Other EBITDA margins for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016~~2017 is due to higher manufacturing ~~and operating~~ costs which decreased margins ~~1,570 basis points, higher strategic project expenses which decreased margins by 1,340 basis points, and lower selling prices which decreased margins 800~~2,020 basis points. This decrease was partially offset by higher sales volume/mix which increased margins by 1,010 basis points, lower operating costs which increased margins 330 basis points, higher selling prices which increased margins 290 basis points, the change in translation which increased margins by 50 basis points, and lower raw material costs which increased margins by ~~1,480 basis points and higher sales volume/mix which increased margins by 720 basis points.~~

~~Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016~~

~~Segment Net Sales:~~

Food, Health and Nutrition net sales decreased 1.8% for the nine months ended September 30, 2017 compared with the same period in 2016. Average selling prices decreased by 3.6%, primarily due to unfavorable market/customer mix, which was partially offset by increased volumes of 1.8%. The Food, Health and Nutrition net sales were favorably affected 3.6% from the results of the newly acquired Novel Ingredients business.

Industrial Specialties net sales decreased 8.3% for the nine months ended September 30, 2017 compared with the same period in 2016. Average selling prices decreased 6.1%, due to competitive pressures on technical grade products, and volumes decreased 2.2%, primarily due to the year-over-year effect from pruning of lower margin, less differentiated applications.

Other net sales decreased 10.4% for the nine months ended September 30, 2017 compared with the same period in 2016. Average selling prices decreased 7.3%, due to lower commodity market prices, and volumes decreased 3.1%.

~~Segment EBITDA Percentage of Net Sales:~~

The 330 basis point decrease in Food, Health and Nutrition EBITDA margins for the nine months ended September 30, 2017 compared with the same period in 2016 is due to lower average selling prices which decreased margins by 300 basis points, higher strategic project expenses which decreased margins by 130 basis points, lower sales volume/mix which decreased margins by 130 basis points and the inclusion of the newly acquired Novel Ingredients business which decreased margins by 80 basis points, primarily due to a fair value inventory adjustment which decreased margins by 50 basis points. This decrease was partially offset by decreased raw material costs, mainly phosphate rock and MGA, which increased margins by 220 basis points and lower manufacturing and operating costs which increased margins by 70 basis points. Included in 2016 was turnaround costs which increased margins by 20 basis points in 2017.

The 210 basis point increase in Industrial Specialties EBITDA margins for the nine months ended September 30, 2017 compared with the same period in 2016 is due to lower raw material costs, mainly phosphate rock and MGA, which increased margins by 550 basis points, lower manufacturing and operating cost which increased margins by 200 basis points, and higher sales volume/mix which increased margins by 130 basis points. This increase was partially offset by lower average selling prices which decreased margins by 560 basis points, higher strategic project expenses which decreased margins by 130 basis points, and increased severance cost which decreased margins by 30 basis points. Included in 2016 was turnaround costs which increased margins by 50 basis points in 2017.

The 120 basis point increase in Other EBITDA margins for the nine months ended September 30, 2017 compared with the same period in 2016 is due to lower raw material costs which increased margins by 1,860 basis points, higher sales volume/mix which increased margins by 170 basis points, and favorable translation effects which increased margins by 40 basis points. This increase was partially offset by higher manufacturing and operating costs which decreased margins by 890 basis points, lower selling prices which decreased margins by 770 basis points, and higher strategic project expenses which decreased margins by 570 basis points. Included in 2016 was a $0.9 million charge for a GTSP lower of cost or market reserve which increased margins by 170 basis points in 2017, and turnaround costs which increased margins by 110 basis points in 2017.

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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)	Six months ended						Three months ended
	September 30, 2017			September 30, 2016			March 31, 2018			March 31, 2017
Operating Activities	$	46.7		$	81.8		$	(4.2	)	$	(10.7	)
Investing Activities	(148.6		)	(25.7		)	(9.4		)	(7.5		)
Financing Activities	81.2			(41.6		)	25.4			(5.7		)
Effect of foreign exchange rate changes	—			0.3			0.2			0.2

~~Nine~~Three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017

Net cash ~~from~~used by operating activities was ~~$46.7~~$4.2 million for the ~~nine~~three months ended ~~September 30, 2017 as~~March 31, 2018 compared to ~~$81.8~~a use of $10.7 million for ~~2016, a decrease~~2017, an increase in cash of ~~$35.1~~$6.5 million. The ~~decrease~~increase in operating activities cash resulted from ~~unfavorable~~favorable changes of ~~$32.3~~$3.2 million in working capital, $2.2 million non-cash adjustments to income and ~~$4.9 million in net income, as described above, partially offset by~~a favorable ~~changes~~change of ~~$1.7~~$1.1 million in other long term assets and ~~liabilities and $0.4 million non-cash adjustments to income.~~liabilities.

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The change in working capital is derived from it being a use of cash of ~~$15.9~~$26.8 million in 2018 compared to a use of $30.0 million in 2017, ~~compared to a source of $16.4 million in 2016, a decrease~~an increase in cash of ~~$32.3~~$3.2 million. The change in working capital was due to ~~unfavorable~~favorable changes in ~~inventory of $30.2 million, driven by adjusting inventory levels in the prior year, accounts receivable of $12.9 million due to the effects of extended payment terms,~~ other current assets of ~~$2.0~~$4.5 million, primarily due to timing of vendor prepayments, accounts receivable of $0.9 million, and ~~accounts payable~~inventory of ~~$5.0~~$0.4 million. ~~Accounts receivable has increased as a percent of quarterly sales compared to the last four quarters' average due to pressures on customer payment terms.~~ These ~~unfavorable~~favorable effects were partially offset by ~~a favorable change~~unfavorable changes in other current liabilities of ~~$17.8~~$2.0 million ~~largely due to U.S. income tax payments in the prior year.~~and accounts payable of $0.6 million.

Net cash used for investing activities was ~~$148.6~~$9.4 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, compared to ~~$25.7~~$7.5 million for ~~2016, an increase~~2017, a decrease in ~~spending~~cash of ~~$122.9~~$1.9 million. The change was due to ~~the acquisition of Novel Ingredients for $125.0 million, partially offset by~~ $1.0 million cash received from the sale of an administrative building in 2017 and a ~~$1.1~~$0.9 million ~~decrease~~increase in capital spending.

Approximately ~~60%~~40% of the ~~2017~~2018 capital spending was for strategic growth initiatives and the remaining ~~40%~~60% was for plant maintenance projects. ~~Approximately half of the~~Our expectation for 2018 capital expenditures is approximately $45 million due to additional requirements to support strategic ~~growth investments were focused on the deep well injection system project at~~manufacturing initiatives, along with continuous improvement in our Geismar, LA facility which accounts for approximately 30% of the Company's total capital expenditures. The Company expects to come in favorable to budget and spend $15 million total on the project, of which $2.0 million occurred in 2016 and $7.7 million occurred in the first three quarters of 2017, with the majority of the remaining $5.3 million of projected spending to occur in the fourth quarter 2017.plants.

Net cash from financing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$81.2~~$25.4 million, compared to a use of ~~$41.6~~$5.7 million in ~~2016,~~2017, an increase in cash of ~~$122.7~~$31.1 million. This increase in cash was largely due to ~~$125.0 million~~ increased loan borrowings for seasonal working capital needs which were primarily funded with cash on hand in the ~~Novel Ingredients acquisition.~~first quarter of 2017.

~~Innophos~~The Company may from time to time seek to acquire or otherwise retire outstanding debt through privately negotiated transactions, exchanges or otherwise. Debt repurchases or exchanges, if any, will depend on prevailing market conditions, Company liquidity requirements, restrictive financial covenants and other factors applicable at the time. The amounts involved may be material.

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company spent ~~$3.9~~$1.7 million related to restructuring activities initiated during the third quarter of 2015, and anticipates spending ~~$2.2~~$0.3 million within the next twelve months.

On ~~September 30, 2017,~~March 31, 2018, the Company had cash and cash equivalents outside the United States of ~~$25.3~~$33.5 million, or ~~77%~~82% of the Company's balance. The foreign cash amounts are not restricted by law to be used in other countries. ~~Our~~The Company's 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, we may be required to accrue and pay ~~United States~~additional taxes, such as withholding taxes, to repatriate these funds.

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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 our 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.

Critical Accounting Estimates and Policies

There have been no material changes from the critical accounting estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.


ITEM 3.	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.

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At ~~September 30, 2017,~~March 31, 2018, we had a $450.0 million revolving credit facility, of which ~~$295.0~~$345.0 million of variable-rate debt was outstanding, which approximates fair value (determined using level 2 inputs within the fair value hierarchy). Total remaining availability was ~~$153.9~~$103.9 million, taking into account $1.1 million in face amount of letters of credit issued under the sub-facility. 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, with a fixed rate of 0.9475% plus the applicable margin on the debt expiring in December 2017. This interest rate swap has been designated as a cash flow hedge with the changes in value recorded through other comprehensive income. The fair value of this interest rate swap of approximately $0.1 million (determined using level 2 inputs within the fair value hierarchy) is recorded in other long-term liabilities as of September 30, 2017.

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 operating cash flow and available borrowing capacity on our credit facility has been used to repurchase shares, pay dividends, fund capital expenditures, fund working capital needs and service debt, which may affect our ability to make future acquisitions. We have and may continue, ~~from time to time used~~but presently do not, 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 ~~$195.0~~$345.0 million outstanding borrowings as floating rate debt, ~~(amount not covered by the swap),~~ an immediate increase of one percentage point would cause an increase to interest expense of approximately ~~$2.0~~$3.5 million per year.

We do not currently, but may from time to time, hedge our currency rate and energy 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.

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Foreign Currency Exchange Rates

The US 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 US 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 US 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 US Dollars and our exchange rate exposure in terms of sales revenues is minimal. However, the strength or weakness of the ~~USD~~U.S. Dollar versus other currencies can affect our competitiveness in the USUnited States and export markets.

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.

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.


ITEM 4.	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)~~1934, as amended) 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 Securities and Exchange Commission, or 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. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

As of ~~September 30, 2017,~~March 31, 2018, the Company completed an evaluation under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective at the reasonable assurance level.

The Company acquired Novel Ingredients on August 25, 2017 and NutraGenesis on November 3, 2017, both wholly owned subsidiaries, and is in the process of evaluating and integrating these companies into the Company’s existing internal controls over financial reporting. The Management’s Report on Internal Control Over Financial Reporting to be included in the Annual Report on Form 10-K for the year ending December 31, 2018 will include Novel Ingredients and NutraGenesis, and the Company will disclose any material changes in its internal controls over financial reporting with respect to Novel Ingredients and NutraGenesis in future interim quarters and in the Annual Report on Form 10-K for the year ending December 31, 2018.

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.

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during or with respect to the ~~third~~first quarter of ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company acquired Novel Ingredients on August 25, 2017 and is in the process of evaluating and integrating this company into the Company’s existing internal control over financial reporting. The Management’s Report on Internal Control Over Financial Reporting to be included in the Annual Report on Form 10-K for the year ending December 31, 2017 will exclude Novel Ingredients, and we will disclose any material changes in our internal controls over financial reporting with respect to Novel Ingredients in the Annual Report on Form 10-K for the year ending December 31, 2018.

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PART II - OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

Note 1415 of Notes to Consolidated Condensed Financial Statements in “Part I, Item 1. Financial Statements" contained in this Quarterly Report on Form 10-Q is incorporated herein by reference.


ITEM 1A.	RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not have any share repurchases on the open market during the ~~third~~first quarter of ~~2017.~~2018. 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. ~~No such re-aquisitions took place in~~In the ~~third~~first quarter of ~~2017.~~2018, the Company reacquired an aggregate of 6,188 shares at a price of $40.21 per share in connection with the surrender of restricted shares by employees for tax purposes.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

None.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

a) Exhibits. The following exhibits are filed or furnished as part of this report:



Exhibit No.		Description
31.1		Certification of Principal Executive Officer dated ~~October 31, 2017~~May 9, 2018 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer dated ~~October 31, 2017~~May 9, 2018 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer dated ~~October 31, 2017~~May 9, 2018 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer dated ~~October 31, 2017~~May 9, 2018 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



*	Not to be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor deemed to be incorporated by reference into any filing under that Act or the Securities Act of ~~1933.~~1933, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



INNOPHOS HOLDINGS, INC.

	/s/ Kim Ann Mink
By:	Kim Ann Mink
Its:	Chief Executive Officer, President and Director
	(Principal Executive Officer)

Dated:	~~October 31, 2017~~May 9, 2018

INNOPHOS HOLDINGS, INC.

	/s/ Han Kieftenbeld
By:	Han Kieftenbeld
Its:	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

Dated:	~~October 31, 2017~~May 9, 2018

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EXHIBIT INDEX



Exhibit No.		Description
31.1		Certification of Principal Executive Officer dated ~~October 31, 2017~~May 9, 2018 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer dated ~~October 31, 2017~~May 9, 2018 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer dated ~~October 31, 2017~~May 9, 2018 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer dated ~~October 31, 2017~~May 9, 2018 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



*	Not to be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor deemed to be incorporated by reference into any filing under that Act or the Securities Act of ~~1933.~~1933, as amended.

Page 4034 of 4034



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues	$	196,873	$	205,023	$	588,331	$	616,489
Net income	$	9,229	$	12,744	$	31,165	$	32,456
Income per common share - Basic	$	0.48	$	0.66	$	1.61	$	1.69
Income per common share - Diluted	$	0.47	$	0.65	$	1.58	$	1.66



Non-qualified stock options
Expected Volatility	31.3		%
Dividend Yield	3.6		%
Risk-free interest rate	2.09		%
Expected term (years)	6.6
Weighted average grant date fair value of stock options	$	11.54



For the three months ended September 30, 2017	Restructuring Costs
Balance at June 30, 2017	$	3,136
Expense recorded	—
Payments made	(761		)
Balance at September 30, 2017	$	2,375

For the nine months ended September 30, 2017	Restructuring Costs
Balance at December 31, 2016	$	6,356
Expense recorded	—
Payments made	(3,981		)
Balance at September 30, 2017	$	2,375



Total assets by segment	Food, Health and Nutrition		Industrial Specialties		Other		Total
For the period ended September 30, 2017 (a)	$	534,641	$	203,633	$	32,492	$	770,766
For the period ended September 30, 2016	397,575		210,680		34,756		643,011