Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Innophos Holdings, Inc. (1364099) 10-K published on Feb 27, 2019 at 4:06 pm
Reporting Period: Dec 30, 2018
We face new operational and logistical challenges as we operate our Geismar plant in a more self-reliant manner. We must source MGA from a variety of suppliers to support our Geismar facility and ensure all such sources provide the quality of MGA required, in a timely manner and at an acceptable cost. Any issues with the MGA quality may negatively impact the quality of the PPA that we produce. We must coordinate the logistics of efficiently transporting MGA to our Geismar plant and receiving and processing such MGA. We must continue to operate our deep well injection system at our Geismar plant to handle the co-product separated at the site efficiently and in accordance with applicable law. Any disruption in any of these activities may have a negative impact on our business.
Failure to maintain compliance with the laws, rules and regulations applicable to the products we sell may have a material and adverse effect on our Company. The products we sell are required to have an approved regulatory status in each jurisdiction in which we market the products. Failure to establish a recognized regulatory status, including in new markets and with respect to new products for which we have limited experience, could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages. Many of our products are ingredients in foods, nutritional supplements or pharmaceutical excipients that are used in finished products consumed or used by humans or animals and accordingly are subject to applicable food safety laws. Food products are highly regulated, and the laws, rules and regulations of the various jurisdictions in which we operate frequently are not harmonized. We are subject to a number of risks if we are unable to achieve and maintain compliance with evolving food safety laws. These risks are particularly prevalent as we continue to grow our Food, Health and Nutrition portfolio, including through acquisitions. Establishing a regulatory status for our products includes ensuring that any product claims we make are appropriately substantiated. Failure to establish appropriate substantiation for any such product claims, including products that we acquire through acquisitions, could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages. Worldwide regulatory trends toward increasing regulation of food safety factors to reduce risks, adoption of increased food defense measures and prevention of economic adulteration of food particularly through supply chain management may increase our operating costs. For example, in 2011, the United States enacted the Food Safety Modernization Act, or FSMA, which mandates comprehensive, prevention-based controls by food processors to protect the U.S. food supply and provides the FDA with new enforcement authority. The FDA, pursuant to the FSMA, continues to promulgate and finalize the FSMA by implementing regulations. We are subject to substantial risks if we fail to maintain compliance with evolving FSMA requirements and comparable food regulatory requirements in other jurisdictions in which we do business, including enforcement actions, fines, the rescission or denial of operating permits, and other penalties. We are also subject to the increased costs associated with maintaining compliance with such regulatory requirements. In addition, in the United States and other jurisdictions where we conduct business, our products are subject to strict good manufacturing practice, or GMP, regulations established by the FDA and comparable foreign authorities. Compliance with such GMP regulations is costly, and failure to comply could lead to enforcement actions and harm our business. We are also subject to periodic inspection by federal, state, local and foreign authorities with jurisdiction over our operations and product markets, including, but not limited to the FDA and its foreign counterparts. If any non-compliance is identified during any such inspection, we could be subject to enforcement actions, fines and other penalties.
We record income taxes based on the amounts that are refundable or payable in the current year, and we include results of any difference between GAAP and tax reporting that we record as deferred tax assets or liabilities. We review our deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in our tax provision in the period of change. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax assets and the timing of income tax payments. Actual collections and payments may differ from these estimates as a result of changes in tax laws as well as unanticipated future transactions impacting related income tax balances. For more information, see Note 15 of the Consolidated Financial Statements "Income Taxes".
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)), and associated ASUs related to 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, or ROU, representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In addition, entities can use an optional transition method to apply the transition requirements in Topic 842 at the Topic’s effective date. The Company will elect the transition method to adopt the new leases standard at the adoption date of the new standard on January 1, 2019. The company has a cross-functional team in place to evaluate and implement the new guidance and has substantially completed its evaluation. All of the leases classified by the Company are Operating leases, and the Company estimates it will record ROU Assets and Lease Liabilities of approximately$45.0 million to $50.0 million at January 1, 2019. These leases primarily cover rail cars, inventory tanks, building, equipment and fleet cars. In addition, the company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, does not require reassessment of prior conclusions related to contracts containing a lease, lease classification, and initial direct lease costs. As an accounting policy election, the company will exclude short-term leases (term of 12 months or less) from the balance sheet and will account for non-lease and lease components in a contract as a single component for most asset classes. The impact to the company's Consolidated Statement of Operations and Consolidated Statement of Cash Flows is expected to not be material.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and the effects of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for postretirement health care benefits. New disclosures include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. The new standard is effective for fiscal years beginning after December 15, 2020, and must be applied retrospectively for all periods presented. Early adoption is permitted. The Company does not anticipate the adoption of this standard will have a material impact on its financial position, results of operations and related disclosures.