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 ~~March~~June 3130, 2010

¨	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 333-129951

INNOPHOS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		20-1380712
(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 ¨

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 ¨ No ¨

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

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated filer x Smaller reporting company ¨

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

As of ~~March~~June 3130, 2010, the registrant had 1,000 shares of common stock outstanding

TABLE OF CONTENTS

		Page
PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2832
Item 4T.	Controls and Procedures	2933
PART II
Item 1.	Legal Proceedings	3034
Item 1A.	Risk Factors	3034
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3034
Item 3.	Defaults Upon Senior Securities	3034
Item 4.	(Removed and Reserved)	3034
Item 5.	Other Information	3034
Item 6.	Exhibits	3034
Signatures		3135

PART I

ITEM 1.

FINANCIAL STATEMENTS

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

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

	March 31,2010		December 31,2009
	June 30,2010		December 31,2009
ASSETS
Current assets:
Cash and cash equivalents	$	~~115~~66,~~034~~667	$	132,222
Restricted cash		—		1,749
Accounts receivable, net		7178,~~342~~807		56,345
Inventories		~~114~~115,~~711~~194		113,636
Other current assets		4349,~~875~~504		45,638
Total current assets		~~344~~310,~~962~~172		349,590
Property, plant and equipment, net		~~200~~196,~~131~~642		204,527
Goodwill		51,706		51,706
Intangibles and other assets, net		49,~~686~~353		51,483
Total assets	$	~~646~~607,~~485~~873	$	657,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	—
Accounts payable, trade and other		3633,~~877~~091		32,580
Other current liabilities		3237,~~114~~991		54,603
Total current liabilities		6871,~~991~~082		87,183
Long-term debt		190,000		190,000
Other long-term liabilities		3634,~~756~~771		37,920
Total liabilities		295,~~747~~853		315,103
Commitments and contingencies (see note 11)
Stockholders’ equity		~~350~~312,~~738~~020		342,203
Total stockholders’ equity		~~350~~312,~~738~~020		342,203
Total liabilities and stockholders’ equity	$	~~646~~607,~~485~~873	$	657,306

See notes to condensed consolidated financial statements

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Operations (Unaudited)

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

	Three months endedMarch 31,2010				Three months endedMarch 31,2009
	Three months endedJune 30,2010			Three months endedJune 30,2009
Net sales	$	~~169~~184,~~007~~032		$	$166,766	~~190,817~~
Cost of goods sold		~~132~~136,~~301~~971			117,371	~~121,024~~
Gross profit		3647,~~706~~061			49,395	~~69,793~~
Operating expenses:
Selling, general and administrative		1413,~~518~~770			17,424	~~13,976~~
Research & development expenses		~~563~~614			533	~~529~~
Total operating expenses		1514,~~081~~384			17,957	~~14,505~~
Operating income		2132,~~625~~677			31,438	~~55,288~~
Interest expense, net		4,~~420~~428			5,476	~~6,065~~
Foreign exchange (gain) loss		(230	)			415
Foreign exchange loss (gain)		711			(690	)
Other income, net		—			208	~~(208~~	)
Income before income taxes		1727,~~435~~538			26,444	~~49,016~~
Provision for income taxes		69,~~091~~216			9,946	~~17,656~~
Net income	$	1118,~~344~~322		$	$16,498	~~31,360~~

See notes to condensed consolidated financial statements

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Operations (Unaudited)

(Dollars in thousands)


	Six months ended June 30, 2010		Six months ended June 30, 2009
Net sales	$	353,039	$	357,583
Cost of goods sold		269,272		238,395

Gross profit		83,767		119,188

Operating expenses:
Selling, general and administrative		28,288		31,400
Research & development expenses		1,177		1,062

Total operating expenses		29,465		32,462

Operating income		54,302		86,726
Interest expense, net		8,848		11,541
Foreign exchange loss (gain)		481		(275	)
Other income, net		—		—

Income before income taxes		44,973		75,460
Provision for income taxes		15,307		27,602

Net income	$	29,666	$	47,858

See notes to condensed consolidated financial statements

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

	Three months endedMarch 31,2010			Three months endedMarch 31,2009
	Six months endedJune 30,2010			Six months endedJune 30,2009
Cash flows from operating activities
Net income	$	1129,~~344~~666		$	3147,~~360~~858
Adjustments to reconcile net income to net cash (used for) provided from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1224,~~655~~914			1123,~~597~~849
Amortization of deferred financing charges		~~354~~708			~~964~~1,934
Deferred income tax benefit		(~~557~~1,161	)		(1,~~020~~764	)
Deferred profit sharing		(~~205~~414	)		(~~189~~230	)
Share-based compensation		~~721~~1,916			~~542~~1,219
Changes in assets and liabilities:
Decrease in restricted cash		1,749			—
Decrease (increase) in restricted cash		1,749			(1,748	)
(Increase) decrease in accounts receivable		(1422,~~997~~462	)		512,~~286~~558
(Increase) decrease in inventories		(1,~~075~~558	)		1331,~~788~~243
Decrease in other current assets		1,763			3,183
(Increase) (decrease) in other current assets		(6,008	)		1,187
Increase in accounts payable		4,297			2,395
Increase (decrease) in accounts payable		511			(1,731	)
(Decrease) increase in other current liabilities		(2216,~~489~~612	)		34,~~076~~784
Changes in other long-term assets and liabilities		~~(10~~383	)		~~836~~638
Net cash (used for) provided from operating activities		(6,450	)		71,818
Net cash provided from operating activities		11,632			119,797
Cash flows from investing activities:
Capital expenditures		(715,~~249~~308	)		(37,~~051~~640	)
Net cash used for investing activities		(715,~~249~~308	)		(37,~~051~~640	)
Cash flows from financing activities:
Return of capital to parent		(362,~~633~~054	)		(326,~~704~~161	)
Excess tax benefits from exercise of stock options		~~144~~175			—2
Principal payments of term-loan		—			(54,000	)
Deferred financing costs		—			(1,050	)
Net cash used for financing activities		(3,489	)		(57,704	)
Principal payments of term-loan		—			(126,500	)
Net change in cash		(17,188	)		11,063
Net cash used for financing activities		(61,879	)		(153,709	)
Net change in cash		(65,555	)		(41,552	)
Cash and cash equivalents at beginning of period		132,222			124,623
Cash and cash equivalents at end of period	$	~~115~~66,~~034~~667		$	~~135~~83,~~686~~071

See notes to condensed consolidated financial statements

INNOPHOS, INC. AND SUBSIDIARIES

Statements of Stockholders’ Equity and Other Comprehensive Income (Loss) (Unaudited)

(Dollars ~~and shares~~ in thousands)

	RetainedEarnings		Paid-inCapital			AccumulatedOtherComprehensiveIncome/(Loss)			TotalShareholders’Equity
Balance, January 1, 2009	$	194,197	$	99,658		$	(2,024	)	$	291,831
Net income		65,427								65,427
Change in pension and post-retirement plans, net of tax							(226	)		(226	)
Net income and other comprehensive income, net of tax										65,201
Stock-based compensation				3,367						3,367
Return of capital				(18,196	)					(18,196	)
Balance, December 31, 2009	$	259,624	$	84,829		$	(2,250	)	$	342,203
Net income		1129,~~344~~666								1129,~~344~~666
Change in pension and post-retirement plans, net of tax							55210			55210
Net income and other comprehensive income, net of tax										1129,~~399~~876
Stock-based compensation				~~721~~1,916						~~721~~1,916
Return of capital				(361,~~585~~975	)					(361,~~585~~975	)
Balance, March 31, 2010	$	270,968	$	81,965		$	(2,195	)	$	350,738
Balance, June 30, 2010	$	289,290	$	24,770		$	(2,040	)	$	312,020

See notes to condensed consolidated financial statements

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

1. Basis of Statement Presentation:

Summary of Significant Accounting Policies

Innophos, Inc. is a wholly-owned subsidiary of Innophos Investments Holdings, Inc. (“Investments Holdings”), incorporated under the laws of the State of Delaware. Innophos Investments Holdings, Inc. is a wholly-owned subsidiary of Innophos Holdings, Inc. (“Holdings”).

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Innophos Holdings, Inc. and Subsidiaries, or Company, have been ~~prepared~~ prepared in accordance with generally accepted accounting principles for interim financial reporting and do not include all disclosures required by generally accepted accounting principles for annual financial reporting, and should be read in ~~conjunction~~ conjunction with the audited consolidated and combined financial statements of the Company at December 31, 2009 and for the three years then ended.

The accompanying unaudited condensed consolidated financial statements of the Company reflect all adjustments, consisting only of normal recurring accruals, 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, 2009 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Recently Issued Accounting Standards

In June 2009, the FASB issued an amendment to ASC topic 860 Transfers and Servicing. Among other items the provision removes the concept of a qualifying special-purpose entity and clarifies that the objective of paragraph ASC 860-10-40-4 is to determine whether a transferor and all of the entities included in the transferor’s financial statements being presented have surrendered control over transferred financial assets. This pronouncement is effective January 1, 2010. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In June 2009, the FASB issued an amendment to ASC topic 810 Consolidation. The provisions of ASC 810 provide guidance in determining whether an enterprise has a controlling financial interest in a variable interest entity. This determination identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of a variable interest entity that most significantly impacts the entity’s economic performance, and the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the variable interest entity. This pronouncement also requires ongoing reassessments of whether an enterprise is the primary beneficiary and eliminates the quantitative approach previously required for determining the primary beneficiary. New provisions of this pronouncement are effective January 1, 2010. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force (EITF), which provides principles for allocation of consideration among its multiple-elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. The EITF introduces an estimated selling price method for valuing the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Alternatively, adoption may be on a retrospective basis, and early application is permitted. The implementation of this standard will not have a material impact on the Company’s consolidated financial position and results of operations.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

2. Dividends:

The following is the dividend activity for the three and six months ended ~~March~~June 3130, 2010 and June 30, 2009:

	Quarters ended March 31
	Three Months EndedJune 30				Six Months EndedJune 30
	2010		2009		2010		2009
Dividends declared - per share	$	0.17	$	0.17	$	0.34	$	0.34
Dividends declared - aggregate		3,~~640~~641		3,~~611~~619		7,281		7,230
Dividends paid - per share		0.17		0.17		0.34		0.34
Dividends paid - aggregate		3,~~633~~640		3,~~590~~611		7,273		7,201

As all of the business for Holdings and Innophos Investments Holdings, Inc. are transacted through Innophos, Inc. and Subsidiaries, Holdings and Innophos Investments Holdings, Inc. are dependent on earnings and distribution of funds from Innophos, Inc. and Subsidiaries.

3. Share-Based Compensation:

Holdings compensation programs include share-based payments. The primary share-based awards and their general terms and conditions currently in effect are as follows:

•

Restricted stock grants, which entitle the holder to receive, at the end of each vesting term, a specified number of shares of Holdings common stock, and which also entitle the holder to receive dividends paid on such grants throughout the vesting period.

•

Stock options, which entitle the holder to purchase, after the end of a vesting term, a specified number of shares of Holdings common stock at an exercise price per share set equal to the market price of the Company’s common stock on the date of grant.

•

Performance share awards which entitle the holder to receive, at the end of a vesting term, a number of shares of Holdings common stock, within a range of shares from zero to a specified maximum (generally 200%), calculated using a three year future average return on invested capital (i.e. the three year period 2010-2012 for a 2010 award) as defined solely by reference to Holdings own activities. Dividends will accrue over the vesting period and are paid on performance share awards when fully vested.

•

Annual stock retainer grants, which entitle independent members of the Board of Directors to receive a number of shares of Holdings common stock equal to a fixed retainer value.

Since these programs benefit the employees of Innophos, Inc. all amounts have been recorded in our consolidated results.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

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

	Three Months EndedMarch 31, 2010		Three Months EndedMarch 31, 2009
	Three Months Ended				Six Months Ended
Stock options	$	211	$	167
	June 30,2010		June 30,2009		June 30,2010		June 30,2009
Restricted stock		4		1
Stock options	$	424	$	204	$	635	$	371
Performance shares		506		374
Restricted stock		20		6		24		7
Total share-based compensation expense	$	721	$	542
Performance shares		751		467		1,257		841
Total share-based compensation expense	$	1,195	$	677	$	1,916	$	1,219

The fair value of the options granted during 2010 was determined using the Black-Scholes option-pricing model. The assumptions used in the Black-Scholes option-pricing model were as follows:


Non-qualified stock options
Expected volatility		57.5	%
Dividend yield		3.6	%
Risk-free interest rate		2.8	%
Expected term		6 years
Weighted average grant date fair value of stock options	$	10.46

There were 169,150 options granted with a fair value of $1.7 million on March 11, 2010. These awards are classified as equity awards and vest equally through March 11, 2013. The related compensation expense is based on the date of grant fair value of $25.68 per common share. The compensation expense is amortized on a straight-line basis over the requisite vesting period. For these grants, the Company had chosen a blended volatility which consists of 50% historical volatility average of ~~the~~a peer group ~~and~~ and 50% historical volatility of Innophos. The expected term for the stock options is based on the simplified method since the Company has limited data on the exercises of stock options. These stock options qualify as “plain vanilla” stock options in accordance with SAB 110. The dividend yield is the expected annual dividend payments divided by the average stock price up to the date of grant. The risk-free interest rates are derived from the U.S. Treasury securities in effect on the date of grant whose maturity period equals the options expected term. The Company applies an expected forfeiture rate to stock-based compensation expense. The estimate of the forfeiture rate is based primarily upon historical experience of employee turnover. As actual forfeitures become known, stock-based compensation expense is adjusted accordingly.

There were 79,500 performance shares granted, assuming achieving targeted return on invested capital, on March 11, 2010 with a fair value of $25.68 per common share, or $1.8 million in the aggregate which reflects forfeiture assumptions. The expected term for the performance shares is a 3 year cliff vesting. Declared dividends will accrue on the performance shares and will vest over the same period. The compensation expense is amortized on a straight-line basis over the requisite vesting period.

4. Inventories:

Inventories consist of the following:

	March 31,2010		December 31,2009
	June 30,2010		December 31,2009
Finished products	$	7773,~~260~~258	$	73,924
Raw materials		3035,~~237~~445		31,770
Spare parts		76,~~214~~491		7,942
	$	~~114~~115,~~711~~194	$	113,636

Inventory reserves as of ~~March~~June 3130, 2010 and December 31, 2009 were $913,~~227~~097 and $13,189, respectively.

The Company maintained finished goods, raw material and packaging inventories at an independently owned and operated warehouse in Nashville, Tennessee. As a result of major flooding in the greater Nashville area during the first few days of May 2010, the warehouse suffered extensive water damage and has been shut down indefinitely. The inventory value affected by the flood was approximately $3.7 million. The Company has commenced the insurance claims process and currently anticipates that the full amount of the inventory losses will be recovered. The Company has recorded an insurance receivable of an equal amount.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

5. Other Current Assets:

Other current assets consist of the following:

	March 31,2010		December 31,2009
	June 30,2010		December 31,2009
Creditable taxes (value added taxes)	$	610,~~770~~816	$	4,028
Prepaid income taxes		1016,~~681~~870		10,435
Deferred taxes		119,~~792~~650		11,792
Prepaids		129,~~034~~681		13,110
Other		2,~~598~~487		6,273
	$	4349,~~875~~504	$	45,638

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

6. Intangibles and Other Assets, net:

Intangibles and other assets consist of the following:

	Useful life(years)	~~March~~June 3130,2010		December 31,2009
Developed technology and application patents, net of accumulated amortization of $10,640 for 2010 and $10,168 for 2009	10-20	$	25,960	$	26,432
Developed technology and application patents, net of accumulated amortization of $11,112 for 2010 and $10,168 for 2009	10-20	$	25,488	$	26,432
Customer relationships, net of accumulated amortization of $4,198 for 2010 and $3,961 for 2009	5-15		7,132		7,369
Customer relationships, net of accumulated amortization of $4,435 for 2010 and $3,961 for 2009	5-15		6,895		7,369
Tradenames and license agreements, net of accumulated amortization of $3,504 for 2010 and $3,401 for 2009	5-20		5,856		5,959
Tradenames and license agreements, net of accumulated amortization of $3.608 for 2010 and $3,401 for 2009	5-20		5,752		5,959
Capitalized software, net of accumulated amortization of $2,441 for 2010 and $2,279 for 2009	3-5		424		700
Capitalized software, net of accumulated amortization of $2,600 for 2010 and $2,279 for 2009	3-5		266		700
Non-compete agreement, net of accumulated amortization of $346 for 2010 and $315 for 2009	5		284		315
Non-compete agreement, net of accumulated amortization of $378 for 2010 and $315 for 2009	5		252		315
Total Intangibles		$	3938,~~656~~653	$	40,775
Deferred financing costs, net of accumulated amortization of $6,718 for 2010 and $6,364 for 2009		$	5,861	$	6,215
Deferred financing costs, net of accumulated amortization of $7,072 for 2010 and $6,364 for 2009		$	5,507	$	6,215
Deferred income taxes			~~783~~1,623		1,409
Other assets			3,~~386~~570		3,084
Total other assets		$	10,~~030~~700	$	10,708
		$	49,~~686~~353	$	51,483

7. Other Current Liabilities:

Other current liabilities consist of the following:

	March 31,2010		December 31,2009
	June 30,2010		December 31,2009
Taxes	$	7,097	$	13,480
Payroll related		10,512		6,396
Payroll related		7,819		6,396
Taxes	$	6,808	$	13,480
Freight and rebates		3,163		3,794
Interest		6,411		8,626
Benefits and pensions		34,~~758~~274		5,104
Interest		2,193		8,626
Freight and rebates		2,905		3,794
Legal		~~1,107~~135		2,820
Other		6,~~977~~946		14,383
	$	3237,~~114~~991	$	54,603

1110

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

8. Debt and Interest:

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

	March 31,2010		December 31,2009
	June 30,2010		December 31,2009
Senior subordinated notes		190,000		190,000
	$	190,000	$	190,000
Less current portion		—		—
	$	190,000	$	190,000

In the second quarter of 2009, the Company and its wholly owned subsidiary, Innophos Canada, Inc. (the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with certain lenders (collectively, the “Lenders”) including Wachovia Bank, National Association, as agent.

As of ~~March~~June 3130, 2010, the Borrowers had $5355.06 million excess availability above the minimum ~~excess~~ excess availability requirements, as calculated in accordance with the Loan Agreement, and there was no amount outstanding on the revolving credit line. A total of $1.74 million in face amount of letters of credit ~~were~~are issued under the sub-facility ~~to support instruments outstanding under a prior credit facility terminated on that date~~.

In connection with the termination of the 2004 Credit Facility dated as of August 13, 2004 in the second quarter of 2009, the Company paid the $72.7 million of outstanding term loan balance (principal and accrued interest) from cash on hand. This payment resulted in an approximate $0.4 million charge to earnings for the acceleration of deferred financing charges. Prior to the termination of the term loan, the Company made a $53.6 million excess cash flow payment in the first quarter of 2009 which resulted in an approximate $0.4 million charge to earnings for the acceleration of deferred financing charges.

The Senior Subordinated Notes accrue interest from the issue date at a rate of 8.875% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. ~~Innophos Holdings, Inc. is dependent on the earnings and distributions from Innophos, Inc. and subsidiaries to fund this obligation.~~

Holdings Senior Unsecured Notes accrued interest from the issue date at a rate of 9.5% per annum, payable semi-annually in arrears on April 15 and October 15 of each year. On April 13, 2009 Holdings purchased $10.0 million of the 9.5% Senior Unsecured Notes due April 2012 for $6.5 million. The $3.5 million retirement gain is reflected in interest expense, net in Holdings Consolidated Statement of Operations in the second quarter of 2009. Holdings also recorded accelerated deferred financing costs of approximately $0.2 million in the second quarter of 2009. These Senior Unsecured Notes were not included in the consolidated results of Innophos, Inc. However, all operations of Holdings are conducted through Innophos, Inc. and therefore, Holdings is dependent on us for debt servicing and dividend payments through our operations.

Holdings redeemed for cash all remaining $56.0 million of the Senior Unsecured Notes on April 15, 2010, the Redemption Date. The redemption price for the Notes was 100% of the principal amount plus accrued and unpaid interest to the Redemption Date. Accelerated deferred financing charges of $0.6 million ~~will be~~ were recorded in the second quarter of 2010.

As of ~~March~~June 3130, 2010, the Company was in full compliance with all debt covenant requirements.

Total interest cash payments by the Company for all indebtedness for the ~~three~~six months ended ~~March~~June 3130, 2010 and ~~March~~June 3130, 2009 was $8,~~560~~699 and $910,~~764~~259, respectively.

The carrying value ofand ~~our~~fair ~~Senior~~value ~~Subordinated~~(excluding ~~Notes~~accrued ~~and~~interest) of ~~Holdings~~our Senior ~~Unsecured~~Subordinated Notes are $190.0 million and $56194.08 million, ~~respectively. The fair values~~ at ~~March~~June 3130, 2010 ~~(excluding accrued interest) are approximately $195.7 million and $56.0 million~~, respectively.

1211

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

Interest expense, net consists of the following:

	Three months ended						Six months ended
	March 31,2010			March 31,2009
	June 30,2010			June 30,2009			June 30,2010			June 30,2009
Interest expense	$	4,~~357~~358			54,~~395~~738		$	8,715			10,133
Deferred financing cost		354			~~964~~970			708			1,934
Interest income		(~~126~~18	)		(~~277~~160	)		(144	)		(437	)
Less: amount capitalized for capital projects		(~~165~~266	)		(1772	)		(431	)		(89	)
Total interest expense, net	$	4,~~420~~428		$	65,~~065~~476		$	8,848		$	11,541

9. Other Long-term liabilities:

Other long-term liabilities consist of the following:

	March 31,2010		December 31,2009
	June 30,2010		December 31,2009
Environmental liabilities	$	1,100		1,100
Profit sharing liabilities		21,~~145~~936		2,350
Deferred income taxes		2018,~~860~~954		22,043
Pension and post retirement liabilities (US and Canada only)		5,513		5,240
Pension and post retirement liabilities (U.S. and Canada only)		4,962		5,240
Other Liabilities		7,138		7,187
Other liabilities		7,819		7,187
	$	3634,~~756~~771	$	37,920

10. Income Taxes:

The effective income tax rate on income before taxes was approximately 35% for the ~~three~~six months ended ~~March~~June 3130, 2010 compared to approximately 3638% for the comparable period in 2009. The change in the effective tax rate is a result of aincreased ~~shift of~~ earnings before tax in lower tax jurisdictions combined with a change in tax rates for our operations in multiple tax jurisdictions. Currently, the Company is under examination by certain foreign jurisdictions for its income tax returns for the years 2004 through 2008. As of ~~March~~June 3130, 2010, no significant adjustments have been proposed to the Company’s tax positions and the Company currently does not anticipate any adjustments that would result in a material change to its financial position.

The Company is included in a consolidated U.S. tax return of Innophos Holdings, Inc., however the income tax provision has been prepared on a separate return basis. The Mexican subsidiaries file separate tax returns and current income taxes receivable or payable are reflected on the accompanying combined balance sheets.

Income taxes paid were $623,~~800~~319 and $737,~~037~~565 for the ~~three~~six months ended ~~March~~ June 3130, 2010 and ~~March~~June 3130, 2009, respectively.

11. Commitments and Contingencies

Environmental

The Company’s operations are subject to extensive and changing federal and state environmental laws 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.

Under the agreements by which the Company acquired the Phosphates Business and related assets, the Company has certain rights of indemnification from the sellers for breach of representations, warranties, covenants and other agreements. The indemnification rights relating to undisclosed environmental matters are subject to certain substantial limitations and exclusions and expired as of August 13, 2009.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

~~Under~~Future ~~the~~environmental ~~agreements~~spending byis ~~which~~probable ~~the~~at ~~Company~~our ~~acquired~~site ~~the~~in ~~Phosphates~~Nashville, ~~Business~~TN, ~~and~~the ~~related~~eastern ~~assets,~~portion ~~the~~of ~~Company~~which ~~has~~had ~~certain~~been ~~rights~~used ofhistorically ~~indemnification~~as a landfill, and a western parcel previously acquired from ~~the~~a ~~sellers~~third ~~for~~party, ~~breach~~which ofreportedly ~~representations~~had housed, ~~warranties~~but no longer does, ~~covenants~~a fertilizer and ~~other~~pesticide ~~agreements~~manufacturing facility. ~~The~~We ~~indemnification~~have ~~rights~~an ~~relating~~estimated liability towith ~~undisclosed~~a ~~environmental~~range ~~matters~~of ~~are~~$0.9-$1.2 ~~subject~~million. The remedial action plan has yet to ~~certain substantial~~be ~~limitations~~finalized, and ~~exclusions~~as ~~and~~such, ~~expired~~the Company has recorded a liability, which represents the Company’s best estimate, of $1.1 million as of ~~August~~June 1330, ~~2009~~2010.

Future environmental spending is probable at our site in Nashville, TN, the eastern portion of which had been used historically as a landfill, and a western parcel previously acquired from a third party, which reportedly had housed, but no longer does, a fertilizer and pesticide manufacturing facility. We have an estimated liability with a range of $0.9-$1.2 million.

The remedial action plan 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 March 31, 2010.

The U.S. Environmental Protection Agency, or EPA, has indicated that compliance at facilities in the phosphate industry is a high enforcement priority. After several years of expressing various concerns (without issuing any notice of violation) about aspects of our Geismar, LA operations, in March 2008, we received a letter from the Department of Justice, or DOJ, indicating that EPA had referred the case for civil enforcement, contending, among other things, that we do not qualify for certain exemptions we have claimed, and alleging that we violate the Resource Conservation and Recovery Act (RCRA) at Geismar by failing to manage two materials appropriately. Although the letter stated that EPA/DOJ intended to seek unspecified penalties and corrective action, it proposed discussions to explore possible resolution, which we undertook and are pursuing. During the fourth quarter of 2008, the DOJ/EPA demanded that Innophos and its neighboring interconnected supplier, PCS, undertake certain “interim measures” to address DOJ/EPA’s chief environmental concerns. We and PCS have initiated joint technical efforts to explore solutions to the government concerns. Based on our contact with the agencies to date, we have determined it is probable that one of the process modifications will need to be undertaken in the near term, and likewise probable that the capital expenditure and future operating expense of that modification will not be material, unless the DOJ adds terms and conditions that could result in the parties not reaching agreement. However, the second measure sought by DOJ/EPA has not yet been fully evaluated from a technological or cost standpoint. The companies have proposed to DOJ/EPA a schedule for such evaluation, and although the government has not formally approved the schedule, the companies are proceeding as proposed. Based upon work so far, there appears to be at least one technically viable approach, but both detailed costing and other approaches need to be evaluated. Even though the companies have begun substantial technical work in an attempt to develop a feasible approach to address DOJ/EPA’s concerns, we cannot guarantee that our technical efforts will be successful, whether either party would be willing to implement solutions or, depending on those factors and the agencies’ position, whether this matter will be settled with DOJ/EPA or will require litigation. Should litigation become necessary to defend our operations at Geismar as compliant with environmental laws and regulations, no assurance can be given as to its outcome. We have determined that a contingent liability is neither probable nor estimable at this time, but liability is reasonably possible.

Litigation

Mexican CNA Water Tax Claims

Nature and Extent. In November 2004, our Mexican subsidiary, Innophos Fosfatados, or Fosfatados, received notice from the CNA of the Fresh Water Claims relating to water usage at our Coatzacoalcos, Veracruz, Mexico plant. As initially assessed, the claims extended from 1998-2002, but subsequently the 1998 claim was determined to be beyond the applicable statute of limitations. As now assessed, the claims through 2002 total approximately $2523.48 million (at current exchange rates ~~as of April 23, 2010~~), including basic charges of $7.51 million and $1716.97 million for interest, inflation and penalties. Management believes that Fosfatados has valid bases for challenging the Fresh Water Claims, and that matter is being defended vigorously.

Rhodia Indemnity Confirmed. As a result of favorably concluded litigation in New York state courts against Rhodia, S.A. and affiliates, or the New York Litigation, concerning their indemnification obligation for CNA claims as “taxes” under the agreement by which we purchased our business from those parties, Innophos is fully indemnified against the Fresh Water Claims, as well as any like claims pertaining to periods prior to the closing date of purchase, August 13, 2004, were such liabilities to be sustained.

Further Proceedings. The Fresh Water Claims are currently pending reconsideration from appeals in the Mexican fiscal court system. On ~~October~~Following a May 2925, ~~2009,~~2010 ~~the~~unfavorable ~~Tax~~ruling ~~Court~~by onthe ~~remand~~intermediate ~~ruled~~appellate ~~unfavorably~~court as to ~~all of Fosfatado~~Fosfatados’s ~~remaining~~substantive defenses. Onand ~~January 10,~~its ~~2010,~~favorable ~~Fosfatados~~ruling ~~appealed~~as ~~the~~to ~~decision~~1998 ofbeing beyond the ~~Tax~~applicable ~~Court~~statute of limitations, on ~~remand. On January~~June 278, 2010, ~~CNA~~Fosfatados ~~also~~appealed ~~filed an appeal challenging~~ the ~~prior~~unfavorable ~~decision~~rulings ~~that the CNA claim as~~ to ~~1998 is beyond~~ the ~~applicable~~Supreme ~~statute~~Court of ~~limitations~~Mexico. The timing of a decision on this round of appeals is not known.

14A final determination of the Fresh Water Claims may require remands to the CNA or to lower courts. In the event that the appeals were to be decided against us and Rhodia were then unable to pay on its indemnification obligations, our subsidiary could be required to satisfy a judgment for the entire amount claimed.

Possible Post-2002 Claims. If the CNA Fresh Water Claims were sustained for the period now at issue, it is possible that the CNA would seek to claim similar higher duties, fees and other charges for fresh water extraction and usage from 2005 on into the future (2003 and 2004 are believed to be beyond the statute of limitations), or the Post-2002 Fresh Water Claims. Management estimates that amounts involved would be approximately $6.5 million of additional basic charges to date at current exchange rates,

$6.9 million relating to interest, inflation, and penalties, and, under current operating conditions, approximately $1.6 million of additional basic charges per year at current exchange rates.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

AOn ~~final~~June 28, ~~determination~~2010, Fosfatados received a CNA notice of ~~the~~audit ~~Fresh~~and ~~Water~~request ~~Claims~~for documents ~~may~~concerning ~~require~~fresh ~~further~~water ~~appeals~~usage tofor the ~~Mexican~~ ~~Supreme~~period ~~Court~~2005-2009. ~~and~~Although ~~remands~~not toincluded in our court judgments in the ~~CNA~~New orYork toLitigation ~~lower~~against ~~courts~~Rhodia, awe ~~process~~believe ~~that~~Rhodia ~~might~~is ~~continue~~required to indemnify us fully for ~~several~~post-closing ~~years.~~“losses” Incaused by breaches of covenants set forth in the ~~event~~agreement, ~~that~~which could represent the ~~appeals~~remainder ~~were~~of tothe bePost-2002 ~~decided~~Fresh ~~against~~Water usClaims ~~and~~exposure. Rhodia ~~were~~has ~~then~~contested ~~unable~~indemnification toresponsibility ~~pay~~for onthose breaches, but its ~~indemnification~~motion ~~obligations,~~for ~~our~~partial summary ~~subsidiary~~judgment ~~could~~to bedismiss ~~required~~our claims was denied by the New York trial court in January 2009. It is possible that the New York Litigation will proceed to ~~satisfy~~trial aor ~~judgment~~involve ~~for~~further motions to resolve remaining issues. Upon receipt of the ~~entire~~new ~~amount~~CNA ~~claimed~~notice we renewed our claim for indemnification by Rhodia, which was declined. Fosfatados is defending the matter.

~~Possible~~Based ~~Post-2002~~upon ~~Claims.~~advice ~~If the~~of ~~CNA~~counsel ~~Fresh~~and ~~Water~~our ~~Claims~~review ~~were~~of ~~sustained for~~ the ~~period now at issue, it is possible that the~~ CNA ~~would~~Fresh ~~seek~~Water toClaims ~~claim similar higher duties, fees~~ and ~~other charges for fresh water extraction and usage from 2005 on into~~ the ~~future (2003 and 2004 are believed to be beyond the statute of limitations), or the~~ Post-2002 Fresh Water Claims~~. Management estimates that amounts involved would be approximately $6.4 million of additional basic charges to date at current exchange rates~~, ~~$6.8~~the ~~million relating~~facts ~~to interest, inflation,~~ and ~~penalties,~~applicable ~~and~~law, ~~under~~management ~~current~~has ~~operating~~determined ~~conditions,~~that ~~approximately~~liability ~~$1.2~~is ~~million~~reasonably ofpossible, ~~additional~~but ~~basic~~is ~~charges~~neither ~~per~~probable ~~year~~nor atreasonably ~~current exchange rates~~estimable. ~~Although not included in our court judgments in the New York Litigation against Rhodia~~Accordingly, we ~~believe~~did ~~Rhodia~~not isestablish ~~required~~a toliability ~~indemnify~~on usthe ~~fully~~balance ~~for~~sheet ~~post-closing~~as ~~“losses” caused by breaches~~ of ~~covenants set forth in the agreement~~June 30, ~~which could represent the remainder of the Post-2002 Fresh Water Claims exposure~~2010. ~~Rhodia~~As ~~has~~additional ~~contested~~information ~~indemnification~~is ~~responsibility for those breaches~~gained, ~~but~~management ~~its~~will ~~motion~~reassess ~~for~~the ~~partial~~potential ~~summary~~liability ~~judgment~~and toestablish ~~dismiss~~any ~~our~~loss ~~claims~~reserve ~~was~~as ~~denied by the New York trial court in January 2009~~appropriate. ItThe isultimate ~~possible~~liability ~~that~~amount ~~the New York Litigation~~could ~~will~~be ~~proceed~~material to ~~trial~~our orresults ~~involve~~of ~~further~~operations ~~motions~~and tofinancial ~~resolve remaining issues~~condition.

Based upon advice of counsel and our review of the CNA Fresh Water Claims and the Post-2002 Fresh Water Claims, the facts and applicable law, management has determined that liability is reasonably possible, but is neither probable nor reasonably estimable. Accordingly, we did not establish a liability on the balance sheet as of March 31, 2010. As additional information is gained, management will reassess the potential liability and establish any loss reserve as appropriate. The ultimate liability amount could be material to our results of operations and financial condition.

Even though our indemnification rights have been confirmed by court judgments, ultimately we are also dependent on Rhodia having sufficient financial capacity to meet its obligations should they arise. Rhodia’s financial position has improved significantly in recent quarters and we currently see no reason to suspect they would be unable to meet their obligations.

Other Legal Matters

In June 2005, our subsidiary, Innophos Canada, Inc., was contacted by representatives of The Mosaic Company (a division of Cargill Corporation), or Mosaic, seeking a meeting to discuss the status of an ongoing remedial investigation and clean-up Mosaic is conducting at its former fertilizer manufacturing site located north of Innophos’ Pt. Maitland, Ontario, Canada plant site. The remediation is being overseen by the Provincial Ministry of Environment, or MOE. Mosaic stated that, in its view, we and Rhodia (our predecessor in interest prior to August 2004) were responsible for some phosphorus compound contamination at a rail yard between the Innophos and Mosaic sites, and will be asked to participate in the clean-up. We have determined that this contingent liability is neither probable nor estimable at this time, but liability is reasonably possible. We have notified Rhodia of the Mosaic claim, and we will seek all appropriate indemnification.

In March 2008, Sudamfos S.A., or Sudamfos, an Argentine phosphate producer, filed a request for arbitration before the ICC International Court of Arbitration, Paris, France, or ICC, of a commercial dispute with Mexicana. Sudamfos claimed Mexicana agreed to sell Sudamfos certain quantities of phosphoric acid for delivery in 2007 and 2008, and sought an order requiring Mexicana to sell approximately 12,500 metric tons during 2008 in accordance with the claimed agreement. Subsequently, Sudamfos withdrew the request for arbitration. In October 2008, Mexicana filed a lawsuit in Mexico against Sudamfos to collect approximately $1.2 million representing the contract price for prior deliveries of acid that Sudamfos had refused to pay. In October 2009, Sudamfos answered the suit and counterclaimed for $3.0 million based upon the agreement alleged in the arbitration request to sell additional acid, which agreement Mexicana denies. In June 2010, Mexico’s trial court ruled in favor of Mexicana’s claim and denied Sudamfos’s counterclaim. In July 2010, Sudamfos appealed that ruling. The timing of a decision on the appeal is not known. Management has determined that the outstanding receivable is fully collectible, and that the contingent liability from the Sudamfos counterclaim is remote, and therefore no accrual is required.

In addition, we are party to legal proceedings and contractual disputes that arise in the ordinary course of our business. Except as to the matters specifically discussed, management does not believe that these matters represent probable liabilities. However, these matters cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, results of operations, financial condition, and/or cash flows.

1514

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

12. Pension:

Net periodic benefit expense for the United States plans for the three months ended ~~March~~June 3130, 2010:

	2010
	Pensionbenefits			Otherbenefits			Total
Service cost	$	—		$	90		$	90
Interest cost		2728			46			7374
Expected return on assets		(21	)		—			(21	)
Amortization of prior service cost		(1—	)		6566			6466
Amortization of unrecognized (gains)/losses		—(1	)		(1920	)		(1921	)
Net periodic benefit expense	$	56		$	182		$	~~187~~188

Net periodic benefit expense for the United States plans for the three months ended ~~March~~June 3130, 2009:

	2009
	Pensionbenefits			Otherbenefits			Total
Service cost	$	—		$	88		$	88
Interest cost		26			4140			6766
Expected return on assets		(24	)		—			(24	)
Amortization of prior service cost		—			6566			6566
Amortization of unrecognized (gains)/losses		—			(21	)		(21	)
Net periodic benefit expense	$	2		$	173		$	175

WeNet ~~made~~periodic ~~our~~benefit ~~entire~~expense ~~cash contributions of $2.6 million~~ for ~~our U.S. defined contribution plan during~~ the ~~first~~ ~~quarter~~United ofStates ~~2010~~plans for the ~~plan~~six ~~year~~months ~~2009.~~ended ~~The U.S. defined benefit cash contributions will be~~June 30, ~~at a minimum, approximately $0.1 million for~~ 2010. :

Net periodic benefit expense for the Canadian plans for the three months ended March 31, 2010:


	2010
	Pension benefits			Other benefits			Total
Service cost	$	—		$	180		$	180
Interest cost		55			92			147
Expected return on assets		(42	)		—			(42	)
Amortization of prior service cost		—			131			131
Amortization of unrecognized (gains)/losses		(2	)		(39	)		(41	)

Net periodic benefit expense	$	11		$	364		$	375

	2010
	Pensionbenefits			Otherbenefits		Total
Service cost	$	52		$	13	$	65
Interest cost		133			21		154
Expected return on assets		(212	)		—		(212	)
Amortization of transition obligation		—			7		7
Amortization of prior service cost		25			—		25
Amortization of unrecognized (gains)/losses		23			5		28
Exchange rate changes		(79	)		15		(64	)
Net periodic benefit expense	$	(58	)	$	61	$	3

Net periodic benefit expense for the United States plans for the six months ended June 30, 2009:


	2009
	Pension benefits			Other benefits			Total
Service cost	$	—		$	176		$	176
Interest cost		52			81			133
Expected return on assets		(48	)		—			(48	)
Amortization of prior service cost		—			131			131
Amortization of unrecognized (gains)/losses		—			(42	)		(42	)

Net periodic benefit expense	$	4		$	346		$	350

We made our entire cash contributions of $2.6 million for our U.S. defined contribution plan during the first quarter of 2010 for the plan year 2009. The U.S. defined benefit cash contributions will be, at a minimum, approximately $0.1 million for 2010 which payment was made in the second quarter of 2010.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

Net periodic benefit expense for the Canadian plans for the three months ended June 30, 2010:


	2010
	Pension benefits			Other benefits			Total
Service cost	$	53		$	14		$	67
Interest cost		138			22			160
Expected return on assets		(219	)		—			(219	)
Amortization of transition obligation		—			—			—
Amortization of prior service cost		21			3			24
Amortization of unrecognized (gains)/losses		28			10			38
Exchange rate changes		74			(16	)		58

Net periodic benefit expense	$	95		$	33		$	128

Net periodic benefit expense for the Canadian plans for the three months ended June 30, 2009:


	2009
	Pension benefits			Other benefits		Total
Service cost	$	36		$	10	$	46
Interest cost		110			16		126
Expected return on assets		(147	)		—		(147	)
Amortization of transition obligation		—			6		6
Amortization of prior service cost		4			—		4
Amortization of unrecognized (gains)/losses		19			1		20
Exchange rate changes		(235	)		73		(162	)

Net periodic benefit expense	$	(213	)	$	106	$	(107	)

Net periodic benefit expense for the Canadian plans for the six months ended June 30, 2010:


	2010
	Pension benefits			Other benefits			Total
Service cost	$	105		$	27		$	132
Interest cost		271			43			314
Expected return on assets		(431	)		—			(431	)
Amortization of transition obligation		—			—			—
Amortization of prior service cost		46			10			56
Amortization of unrecognized (gains)/losses		51			15			66
Exchange rate changes		(5	)		(1	)		(6	)

Net periodic benefit expense	$	37		$	94		$	131

Net periodic benefit expense for the Canadian plans for the six months ended June 30, 2009:


	2009
	Pension benefits			Other benefits		Total
Service cost	$	73		$	19	$	92
Interest cost		220			33		253
Expected return on assets		(294	)		—		(294	)
Amortization of transition obligation		—			12		12
Amortization of prior service cost		8			—		8
Amortization of unrecognized (gains)/losses		38			2		40
Exchange rate changes		(173	)		53		(120	)

Net periodic benefit expense	$	(128	)	$	119	$	(9	)

We made cash contributions to our Canadian defined benefit plan of $0.5 million during the six months ended June 30, 2010. We expect to make additional cash contributions to our Canadian defined benefit plans of $0.5 million during the remainder of 2010.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

Net periodic benefit expense for the Canadian plans for the three months ended March 31, 2009:

	2009
	Pensionbenefits			Otherbenefits			Total
Service cost	$	37		$	9		$	46
Interest cost		110			17			127
Expected return on assets		(147	)		—			(147	)
Amortization of transition obligation		—			6			6
Amortization of prior service cost		4			—			4
Amortization of unrecognized (gains)/losses		19			1			20
Exchange rate changes		62			(20	)		42
Net periodic benefit expense	$	85		$	13		$	98

We made cash contributions to our Canadian defined benefit plan of $0.3 million during the three months ended March 31, 2010. We expect to make additional cash contributions to our Canadian defined benefit plans of $0.7 million during the remainder of 2010.

13. 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 key performance indicators for the chief operating decision maker are Sales and Operating Income. ~~The Company reports its operations in three reporting segments—United States, Mexico and Canada, each of which sells the entire portfolio of products.~~

For the three months ended March 31, 2010	United States		Mexico		Canada		Eliminations			Total
Sales	$	113,613	$	45,607	$	9,787	$			$	169,007
Intersegment sales		10,357		9,230		17,219		(36,806	)		—
Total sales	$	123,970	$	54,837	$	27,006	$	(36,806	)	$	169,007
Operating income	$	18,362	$	1,536	$	1,727	$	—		$	21,625
Depreciation expense	$	6,932	$	5,229	$	494	$	—		$	12,655
For the three months ended March 31, 2009	United States		Mexico		Canada		Eliminations			Total
Sales	$	122,185	$	58,427	$	10,205	$			$	190,817
Intersegment sales		14,237		703		20,066		(35,006	)		—
Total sales	$	136,422	$	59,130	$	30,271	$	(35,006	)	$	190,817
Operating income	$	40,873	$	7,517	$	6,898	$	—		$	55,288
Depreciation and amortization expense	$	6,192	$	4,954	$	451	$	—		$	11,597

Beginning with the second quarter, the Company realigned the reportable segments to better reflect the core businesses in which Innophos operates and how it is managed. The Company will report its core specialty phosphates business separately from GTSP and other non-specialty phosphate products. The previous reported segments of the United States, Mexico and Canada changed to Specialty Phosphates US & Canada, Specialty Phosphates Mexico and GTSP & Other. Specialty phosphates consists of the products lines Specialty Salts and Specialty Acids, Food & Technical Grade Acid, and STPP & Detergent Grade Acid. GTSP & Other includes fertilizer co-product GTSP and other non-specialty phosphate products. The Company has restated all corresponding items of segment information for earlier periods. Total asset changes were immaterial from the amounts disclosed in the last annual report.


For the three months ended June 30, 2010	Specialty Phosphates US & Canada		Specialty Phosphates Mexico		GTSP & Other			Eliminations			Total
Sales	$	123,086	$	39,298	$	21,648		$			$	184,032
Intersegment sales		372		12,854		45			(13,271	)		—

Total sales	$	123,458	$	52,152	$	21,693		$	(13,271	)	$	184,032

Operating income	$	26,758	$	4,011	$	1,908		$	—		$	32,677

Depreciation expense	$	7,060	$	3,957	$	1,243		$	—		$	12,260

For the three months ended June 30, 2009	Specialty Phosphates US & Canada		Specialty Phosphates Mexico		GTSP & Other			Eliminations			Total
Sales	$	127,098	$	34,000	$	5,668		$	—		$	166,766
Intersegment sales		9,428		2,878		106			(12,412	)		—

Total sales	$	136,526	$	36,878	$	5,774		$	(12,412	)	$	166,766

Operating income	$	33,024	$	5,778	$	(7,364	)	$	—		$	31,438

Depreciation and amortization expense	$	7,217	$	3,707	$	1,328		$	—		$	12,252

For the six months ended June 30, 2010	Specialty Phosphates US & Canada		Specialty Phosphates Mexico		GTSP & Other			Eliminations			Total
Sales	$	246,444	$	72,497	$	34,098		$	—		$	353,039
Intersegment sales		1,568		22,037		92			(23,697	)		—

Total sales	$	248,012	$	94,534	$	34,190		$	(23,697	)	$	353,039

Operating income	$	46,819	$	5,434	$	2,049		$	—		$	54,302

Depreciation expense	$	14,485	$	7,854	$	2,575		$	—		$	24,914

For the six months ended June 30, 2009	Specialty Phosphates US & Canada		Specialty Phosphates Mexico		GTSP & Other			Eliminations			Total
Sales	$	259,488	$	74,781	$	23,314		$	—		$	357,583
Intersegment sales		11,085		3,534		153			(14,772	)		—

Total sales	$	270,573	$	78,315	$	23,467		$	(14,772	)	$	357,583

Operating income	$	80,795	$	14,938	$	(9,007	)	$	—		$	86,726

Depreciation and amortization expense	$	13,859	$	8,045	$	1,944		$	—		$	23,848

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

14. Condensed Combining Financial Statements:

The following condensed combined financial data is presented to segregate the assets, liabilities, and results of operations and cash flows of the US operations (the “Guarantors”) and the Canadian and Mexican operations (the “Non-guarantors”). Innophos Inc. has issued debt and the Guarantor subsidiary is a 100% wholly owned subsidiary of Innophos Inc. The Non-guarantors are 100% wholly-owned subsidiaries of the Guarantors. Innophos, Inc. and the Guarantor subsidiary will fully and unconditionally and jointly and severally, guarantee the Company’s obligations under the Company’s Senior Subordinated Notes due 2014. Investments in subsidiaries are accounted for by the guarantor using the equity method of accounting. The Non-guarantors are presented on a combined basis. The principal combining adjustments are to eliminate intercompany balances and transactions.

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheet

As of ~~March~~June 3130, 2010

(In thousands)

	Innophos, Inc.		GuarantorSubsidiary		Non-GuarantorSubsidiary		~~AdjustmentsandEliminations~~Adjustmentsand Eliminations			Total
ASSETS
Current Assets:
Cash and cash equivalents	$	7223,556	$	21	$	4243,~~476~~110	$	—		$	~~115~~66,~~034~~667
Accounts receivable, net		~~308~~329,~~462~~385		—		~~287~~303,~~549~~782		(~~524~~554,~~669~~360	)		7178,~~342~~807
Inventories		5754,~~363~~858		—		5760,~~348~~336		—			~~114~~115,~~711~~194
Other current assets		2223,~~770~~376		—		2126,~~189~~211		(8483	)		4349,~~875~~504
Total current assets		~~461~~431,~~151~~175		21		~~408~~433,~~562~~439		(~~524~~554,~~753~~443	)		~~344~~310,~~962~~172
Property, plant and equipment, net		99,~~251~~633		—		~~100~~97,~~880~~009		—			~~200~~196,~~131~~642
Goodwill		7,237		—		44,469		—			51,706
Investment in subsidiaries		~~240~~245,~~263~~581		~~189~~193,~~599~~437		—		(~~429~~439,~~862~~018	)		—
Intercompany notes		2930,~~885~~135		—		—		(2930,~~885~~135	)		—
Intangibles and other assets, net		3735,~~028~~828		—		1213,~~658~~525		—			49,~~686~~353
Total	$	~~874~~849,~~815~~589	$	~~189~~193,~~601~~438	$	~~566~~588,~~569~~442	$	(~~984~~1,~~500~~023,596	)	$	~~646~~607,~~485~~873
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt	$	—	$	—	$	—	$	—		$	—
Accounts payable, trade and other		~~294~~303,~~930~~450		—		~~266~~284,~~616~~001		(~~524~~554,~~669~~360	)		3633,~~877~~091
Other current liabilities		2026,~~784~~871		—		11,~~414~~203		(8483	)		3237,~~114~~991
Total current liabilities		~~315~~330,~~714~~321		—		~~278~~295,~~030~~204		(~~524~~554,~~753~~443	)		6871,~~991~~082
Long-term debt		190,000		—		2930,~~885~~135		(2930,~~885~~135	)		190,000
Other long-term liabilities		1817,~~363~~249		—		1817,~~393~~522		—			3634,~~756~~771
Total stockholders’ equity		~~350~~312,~~738~~019		~~189~~193,~~601~~438		~~240~~245,~~261~~581		(~~429~~439,~~862~~018	)		~~350~~312,~~738~~020
Total	$	~~874~~849,~~815~~589	$	~~189~~193,~~601~~438	$	~~566~~588,~~569~~442	$	(~~984~~1,~~500~~023,596	)	$	~~646~~607,~~485~~873

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheet

As of December 31, 2009

(In thousands)

	Innophos, Inc.		GuarantorSubsidiary		Non-GuarantorSubsidiary		~~AdjustmentsandEliminations~~Adjustmentsand Eliminations			Total
ASSETS
Current Assets:
Cash and cash equivalents	$	72,079	$	2	$	60,141	$	—		$	132,222
Restricted cash		—		—		1,749		—			1,749
Accounts receivable, net		285,306		—		264,519		(493,480	)		56,345
Inventories		62,552		—		51,084		—			113,636
Other current assets		27,395		—		18,327		(84	)		45,638
Total current assets		447,332		2		395,820		(493,564	)		349,590
Property, plant and equipment, net		99,844		—		104,683		—			204,527
Goodwill		7,237		—		44,469		—			51,706
Investment in subsidiaries		238,013		188,623		—		(426,636	)		—
Intercompany notes		29,642		—		—		(29,642	)		—
Intangibles and other assets, net		38,345		—		13,138		—			51,483
Total	$	860,413	$	188,625	$	558,110	$	(949,842	)	$	657,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	—	$	—	$	—		$	—
Accounts payable, trade and other		276,150		—		249,910		(493,480	)		32,580
Other current liabilities		33,149		—		21,538		(84	)		54,603
Total current liabilities		309,299		—		271,448		(493,564	)		87,183
Long-term debt		190,000		—		29,642		(29,642	)		190,000
Other long-term liabilities		18,911		—		19,009		—			37,920
Total stockholders’ equity		342,203		188,625		238,011		(426,636	)		342,203
Total	$	860,413	$	188,625	$	558,110	$	(949,842	)	$	657,306

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Operations

For the three months ended June 30, 2010

(In thousands)


	Innophos, Inc.			Guarantor Subsidiary			Non-Guarantor Subsidiary		Adjustments and Eliminations			Total
Net Sales	$	119,590		$	—		$	97,818	$	(33,376	)	$	184,032
Cost of goods sold		83,394			—			86,953		(33,376	)		136,971

Gross Profit		36,196			—			10,865		—			47,061

Operating expenses:
Selling, general and administrative		11,042			1			2,727		—			13,770
Research & development expenses		614			—			—		—			614

Total operating expenses		11,656			1			2,727		—			14,384

Operating income		24,540			(1	)		8,138		—			32,677
Interest expense, net		4,156			—			272		—			4,428
Foreign exchange gains		193			—			518		—			711
Equity (income) loss		(5,208	)		(3,840	)		—		9,048			—

Income (loss) before income tax		25,399			3,839			7,348		(9,048	)		27,538
Provision for income taxes		7,077			—			2,139		—			9,216

Net income (loss)	$	18,322		$	3,839		$	5,209	$	(9,048	)	$	18,322

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Operations

For the ~~three~~six months ended ~~March~~June 3130, 2010

(In thousands)

	Innophos, Inc.			GuarantorSubsidiary			Non-GuarantorSubsidiary			Adjustmentsand Eliminations	~~AdjustmentsandEliminations~~			Total	~~Total~~
Net Sales	$	~~123~~243,~~970~~560		$	—		$	81179,~~843~~661		$	$(70,182	~~(36,806~~)	)	$	$353,039	~~169,007~~
Cost of goods sold		94178,~~816~~210			—			74161,~~291~~244			(70,182	~~(36,806~~)	)		269,272	~~132,301~~
Gross Profit		2965,~~154~~350			—			718,~~552~~417			—	—			83,767	~~36,706~~
Operating expenses:
Selling, general and administrative		1021,~~229~~271			—1			47,~~289~~016			—	—			28,288	~~14,518~~
Research & development expenses		~~563~~1,177			—			—			—	—			1,177	~~563~~
Total operating expenses		1022,~~792~~448			—1			47,~~289~~016			—	—			29,465	~~15,081~~
Operating income		1842,~~362~~902			—(1	)		311,~~263~~401			—	—			54,302	~~21,625~~
Interest expense, net		48,~~264~~420			—			~~156~~428			—	—			8,848	~~4,420~~
Foreign exchange (gains) losses		84277			—			~~(314~~204	)		—	—			481	~~(230~~	)
Equity (income) loss		(2,241	)		(975	)		—				3,216				—
Other income		—			—			—			—				—
Income (loss) before income tax		16,255			975			3,421				(3,216	)			17,435
Equity (income) loss		(7,449	)		(4,815	)		—			12,264				—
Provision for income taxes		4,911			—			1,180				—				6,091
Income (loss) before income tax		41,654			4,814			10,769			(12,264	)			44,973
Net income (loss)	$	11,344		$	975		$	2,241			$	(3,216	)		$	11,344
Provision for income taxes		11,988			—			3,319			—				15,307
Net income (loss)	$	29,666		$	4,814		$	7,450		$	(12,264	)		$	29,666

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Operations

For the three months ended ~~March~~June 3130, 2009

(In thousands)

	Innophos, Inc.			GuarantorSubsidiary			Non-GuarantorSubsidiary			AdjustmentsandEliminations			Total
Net sales	$	136,422		$	—		$	89,402		$	(35,007	)	$	190,817
Net Sales	$	133,359		$	—		$	70,079		$	(36,672	)	$	166,766
Cost of goods sold		8491,~~522~~189			—			7162,~~509~~854			(3536,~~007~~672	)		~~121~~117,~~024~~371
Gross profit		51,900			—			17,893			—			69,793
Gross Profit		42,170			—			7,225			—			49,395
Operating expenses:
Selling, general and administrative		1013,~~498~~018			1—			34,~~477~~406			—			1317,~~976~~424
Research & development expenses		~~529~~533			—			—			—			~~529~~533
Total operating expenses		1113,~~027~~551			1—			34,~~477~~406			—			1417,~~505~~957
Operating income (loss)		40,873			(1	)		14,416			—			55,288
Operating income		28,619			—			2,819			—			31,438
Interest expense, net		5,~~498~~112			—			~~567~~364			—			65,~~065~~476
Foreign exchange (gains) losses		(25	)		—			440			—			415
Foreign exchange losses (gains)		52			—			(742	)		—			(690	)
Other income		—			—			(208	)		—			(208	)
Equity (income) loss		(91,~~072~~748	)		(41,~~702~~442	)		—			~~13,774~~306			—
Income (loss) before income tax		4425,~~472~~203			4(1,~~701~~442	)		132,~~617~~989			(~~13,774~~306	)		4926,~~016~~444
Provision for income taxes		138,~~112~~705			—			41,~~544~~241			—			179,~~656~~946
Net income (loss)	$	3116,~~360~~498		$	4(1,~~701~~442	)	$	91,~~073~~748		$	(~~13,774~~306	)	$	3116,~~360~~498

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated ~~Statements~~Statement of ~~Cash~~Operations ~~Flows~~

For the ~~three~~six months ended ~~March~~June 3130, ~~2010~~2009

(In thousands)

	Innophos, Inc.			GuarantorSubsidiary			Non-~~guarantorSubsidiary~~GuarantorSubsidiary			AdjustmentsandEliminations			Total
Cash Flows from operating activities
Net Sales	$	269,781		$	—		$	159,481		$	(71,679	)	$	357,583
Net income (loss)	$	11,344		$	975		$	2,241		$	(3,216	)	$	11,344
Cost of goods sold		175,711			—			134,363			(71,679	)		238,395
Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities:
Gross Profit		94,070			—			25,118			—			119,188
Depreciation and amortization		6,932			—			5,723			—			12,655
Operating expenses:
Amortization of deferred financing charges		354			—			—			—			354
Selling, general and administrative		23,516			1			7,883			—			31,400
Deferred income tax (benefit) provision		(721	)		—			164			—			(557	)
Research & development expenses		1,062			—			—			—			1,062
Deferred profit sharing		—			—			(205	)		—			(205	)
Total operating expenses		24,578			1			7,883			—			32,462
Share-based compensation		721			—			—			—			721
Operating (loss) income		69,492			(1	)		17,235			—			86,726
Equity (income) loss in non-guarantor subsidiaries		(2,241	)		(975	)		—			3,216			—
Interest expense, net		10,610			—			931			—			11,541
Changes in assets and liabilities:
Foreign exchange losses (gains)		27			—			(302	)		—			(275	)
Decrease in restricted cash		—			—			1,749			—			1,749
Other income		—			—			—			—			—
(Increase)/decrease in accounts receivable		(23,156	)		—			(23,030	)		31,189			(14,997	)
Equity (income) loss		(10,820	)		(3,260	)		—			14,080			—
Decrease/(increase) in inventories		5,189			—			(6,264	)		—			(1,075	)
Income (loss) before income tax		69,675			3,259			16,606			(14,080	)		75,460
Decrease/(increase) in other current assets		4,625			—			(2,862	)		—			1,763
Provision for income taxes		21,817			—			5,785			—			27,602
Increase/(decrease) in accounts payable		18,780			—			16,706			(31,189	)		4,297
Net income (loss)	$	47,858		$	3,259		$	10,821		$	(14,080	)	$	47,858
Decrease in other current liabilities		(12,365	)		—			(10,124	)		—			(22,489	)
Changes in other long-term assets and liabilities		(154	)		—			144			—			(10	)
Net cash provided from (used for) operating activities		9,308			—			(15,758	)		—			(6,450	)
Cash flows from investing activities:
Capital expenditures		(5,342	)		—			(1,907	)		—			(7,249	)
Net Cash used for investing activities		(5,342	)		—			(1,907	)		—			(7,249	)
Cash flows from financing activities:
Return of capital to parent		(3,633	)		—			—			—			(3,633	)
Excess tax benefits from exercise of stock options		144			—			—						144
Net cash used for financing activities		(3,489	)		—			—			—			(3,489	)
Net change in cash		477			—			(17,665	)		—			(17,188	)
Cash and cash equivalents at beginning of period		72,079			2			60,141			—			132,222
Cash and cash equivalents at end of period	$	72,556		$	2		$	42,476		$	—		$	115,034

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the ~~three~~six months ended ~~March~~June 3130, ~~2009~~2010

(In thousands)

	Innophos, Inc.			GuarantorSubsidiary			Non-guarantorSubsidiary			AdjustmentsandEliminations			Total
Cash Flows from operating activities
Net income (loss)	$	3129,~~360~~666		$	4,~~701~~814		$	97,~~073~~450		$	(1312,~~774~~264	)	$	3129,~~360~~666
Adjustments to reconcile net income (loss) to net cash provided from (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		613,~~192~~455			—			511,~~405~~459			—			1124,~~597~~914
Amortization of deferred financing charges		~~964~~708			—			—			—			~~964~~708
Deferred income tax benefit		493			—			(1,513	)		—			(1,020	)
Deferred income tax (benefit) provision		(1,950	)		—			789			—			(1,161	)
Deferred profit sharing		—			—			(~~189~~414	)		—			(~~189~~414	)
Stock based compensation		542			—			—			—			542
Share-based compensation		1,916			—			—			—			1,916
Equity (income) loss in subsidiaries		(9,072	)		(4,702	)		—			13,774			—
Equity (income) loss in non-guarantor subsidiaries		(7,449	)		(4,815	)		—			12,264			—
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable		(18,424	)		—			(15,933	)		39,643			5,286
Decrease in restricted cash		—			—			1,749			—			1,749
Decrease in inventories		492			—			13,296			—			13,788
(Increase) decrease in accounts receivable		(44,079	)		—			(39,263	)		60,880			(22,462	)
Increase in other current assets		2,499			—			1,030			(346	)		3,183
Increase (decrease) in inventories		7,694			—			(9,252	)		—			(1,558	)
(Decrease)/increase in accounts payable		24,101			—			17,937			(39,643	)		2,395
Decrease (increase) in other current assets		4,019			—			(10,026	)		(1	)		(6,008	)
Increase in other current liabilities		451			—			2,279			346			3,076
Increase (decrease) in accounts payable		27,300			—			34,091			(60,880	)		511
Changes in other long-term assets and liabilities		59			—			777			—			836
(Decrease) increase in other current liabilities		(6,278	)		—			(10,335	)		1			(16,612	)
Net cash provided from (used in) operating activities		39,657			(1	)		32,162			—			71,818
Changes in other long-term assets and liabilities		9			—			374			—			383
Cash flows used for investing activities:
Net cash provided from (used for) operating activities		25,011			(1	)		(13,378	)		—			11,632
Capital expenditures		(1,632	)		—			(1,419	)		—			(3,051	)
Cash flows from investing activities:
Net Cash used for investing activities		(1,632	)		—			(1,419	)		—			(3,051	)
Capital expenditures		(11,655	)		—			(3,653	)		—			(15,308	)
Cash flows used for financing activities:
Net cash used for investing activities		(11,655	)		—			(3,653	)		—			(15,308	)
Repayments from subsidiaries		50,000			—			—			(50,000	)		—
Cash flows from financing activities:
Net change in borrowing with Innophos, Inc		—			—			(50,000	)		50,000			—
Repayment from subsidiaries		—			—			—			—			—
Return of capital to parent		(3,704	)		—			—			—			(3,704	)
Net change in borrowing with Innophos, Inc.		—			—			—			—			—
Principal payment of term loans		(54,000	)		—			—			—			(54,000	)
Return of capital to parent		(62,054	)		—			—			—			(62,054	)
Net cash used for financing activities		(7,704	)		—			(50,000	)		—			(57,704	)
Excess tax benefits from exercise of stock options		175			—			—			—			175
Net change in cash		30,321			(1	)		(19,257	)		—			11,063
Deferred financing costs		—			—			—			—			—
Cash and cash equivalents at beginning of period		61,295			5			63,323			—			124,623
Principal payment of term loans		—			—			—			—			—
Cash and cash equivalents at end of period	$	91,616		$	4		$	44,066		$	—		$	135,686
Net cash used for financing activities		(61,879	)		—			—			—			(61,879	)
Net change in cash		(48,523	)		(1	)		(17,031	)		—			(65,555	)
Cash and cash equivalents at beginning of period		72,079			2			60,141			—			132,222
Cash and cash equivalents at end of period	$	23,556		$	1		$	43,110		$	—		$	66,667

15. Subsequent Event:

The Company maintains finished goods, raw material and packaging inventories at an independently owned and operated warehouse in Nashville, Tennessee. As a result of major flooding in the greater Nashville area during the first few days of May 2010, the warehouse suffered extensive water damage and has been shut down indefinitely. While the full extent of damage to material in the warehouse is unknown at this time the Company believes the inventory value affected by the flood is less than $5.0 million. The Company has commenced the insurance claims process and currently estimates a net cost after insurance recovery in the range of $1.0 to $3.0 million with the more likely outcome considered to be the lower end of the range.

The Company’s Nashville manufacturing facility experienced no flood damage and retains normal operating capability. The loss of finished goods and packing inventory stored at the warehouse, as well as uncertainties regarding the timing and location of alternative storage and recovery of the area’s transportation infrastructure, will create additional supply chain challenges to meet customer demand. The Company is executing a contingency plan to meet customer requirements and currently anticipates it will be able to meet demand and avoid material loss of sales from the Nashville flooding. The Company maintains business interruption insurance, and at this time does not believe events in Nashville will bring that coverage into play.

INNOPHOS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(Dollars in thousands, except where noted)

INNOPHOS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2009

(In thousands)


	Innophos, Inc.			Guarantor Subsidiary			Non-guarantor Subsidiary			Adjustments and Eliminations			Total
Cash Flows from operating activities
Net income (loss)	$	47,858		$	3,259		$	10,821		$	(14,080	)	$	47,858
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		12,772			—			11,077			—			23,849
Amortization of deferred financing charges		1,934			—			—			—			1,934
Deferred income tax benefit		(977	)		—			(787	)		—			(1,764	)
Deferred profit sharing		—			—			(230	)		—			(230	)
Share-based compensation		1,219			—			—			—			1,219
Equity (income) loss in non-guarantor subsidiaries		(10,820	)		(3,260	)		—			14,080			—

Changes in assets and liabilities:
Increase in restricted cash		—			—			(1,748	)		—			(1,748	)
(Increase) decrease in accounts receivable		(36,994	)		—			(31,866	)		81,418			12,558
Decrease in inventories		14,608			—			16,635			—			31,243
Decrease (increase) in other current assets		2,883			—			(1,341	)		(355	)		1,187
Increase (decrease) in accounts payable		41,780			—			37,907			(81,418	)		(1,731	)
(Decrease) increase in other current liabilities		(472	)		—			4,901			355			4,784
Changes in other long-term assets and liabilities		384			—			254			—			638

Net cash provided from (used for) operating activities		74,175			(1	)		45,623			—			119,797

Cash flows from investing activities:
Capital expenditures		(5,269	)		—			(2,371	)		—			(7,640	)

Net cash used for investing activities		(5,269	)		—			(2,371	)		—			(7,640	)

Cash flows from financing activities:
Repayment from subsidiaries		50,000			—			—			(50,000	)		—
Net change in borrowing with Innophos, Inc.		—			—			(50,000	)		50,000			—
Return of capital to parent		(26,161	)		—			—			—			(26,161	)
Excess tax benefits from exercise of stock options		2			—			—			—			2
Deferred financing costs		(1,050	)		—			—			—			(1,050	)
Principal payment of term loans		(126,500	)		—			—			—			(126,500	)

Net cash used for financing activities		(103,709	)		—			(50,000	)		—			(153,709	)

Net change in cash		(34,803	)		(1	)		(6,748	)		—			(41,552	)
Cash and cash equivalents at beginning of period		61,295			5			63,323			—			124,623

Cash and cash equivalents at end of period	$	26,492		$	4		$	56,575		$	—		$	83,071

ITEM 2.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

This discussion contains forward-looking statements about our markets, the demand for our products and services and our future results. We based these statements on assumptions that we consider reasonable. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed in the “Risk Factors” as contained in our 2009 Annual Report on Form 10-K and “Forward-Looking Statements” sections of that report.

Overview

Innophos is a leading North American producer of specialty phosphates. Most specialty phosphates are highly customized, application-specific compounds that are engineered to meet customer performance requirements. Specialty phosphates are often critical to the taste, texture and performance of foods, beverages, pharmaceuticals, oral care products and other applications. For example, specialty phosphates act as flavor enhancers in beverages, electrolytes in sports drinks, texture additives in cheeses, leavening agents in baked goods, calcium and phosphorus sources for nutritional supplements, pharmaceutical excipients and cleaning agents in toothpaste.

Recent Trends and Outlook

~~First~~Second quarter 2010 results ~~confirmed~~demonstrated ~~the~~strong ~~encouraging~~ongoing year over year volume ~~trend~~growth ~~seen~~for inspecialty ~~the~~phosphates, ~~second~~with ~~half~~recovery ofevident ~~2009.~~in the ~~Specialty~~industrial ~~phosphates~~markets ~~sequential~~most ~~volumes were~~affected upby ~~33%~~recessionary conditions in ~~Canada,~~2009 ~~11%~~and in the ~~U.S.~~ongoing ~~and~~strength ~~12%~~ in ~~Mexico~~sales asto ~~that~~consumer ~~operation~~oriented ~~regained~~end ~~market position~~markets. ~~Overall,~~Volume ~~the~~growth ~~12%~~is ~~specialty~~expected ~~phosphate~~to ~~volume~~continue ~~increase~~for ~~represented~~ the ~~fourth~~third ~~consecutive~~ quarter, ofleading ~~sequential~~to ~~volume~~an ~~improvement.~~expected ~~Selling~~sequential ~~prices~~net sales ~~declined~~growth 4%in ~~sequentially~~excess ~~overall~~of ~~and~~5% for ~~each~~specialty ~~segment~~phosphates ~~except~~and ~~Canada~~over ~~which declined 9~~10%, ~~and~~sales ~~management~~growth ~~expects~~on toa ~~see~~year ~~overall~~over ~~average~~year ~~specialty phosphates pricing to improve slightly from this point~~basis.

Specialty ~~phosphate~~phosphates selling ~~volume~~prices isimproved ~~expected~~moderately toin ~~continue~~comparison to ~~grow~~first ~~for~~quarter ~~the~~following ~~2010~~increases ~~second~~implemented ~~quarter~~in atMarch aand ~~rate~~April, ofand 5%going toforward ~~10%~~management ~~versus~~expects ~~the~~to ~~first~~maintain ~~quarter 2010,~~its ~~with~~operating ~~Mexico~~margin ~~expected~~level tothrough ~~continue~~the ~~showing~~third ~~strong improvement~~quarter.

GTSP & ~~Other~~ volume increased significantly in the 2010 first quarter compared to the fourth quarter 2009 primarily as greater production of purified phosphoric acid resulted in higher co-product production. Selling prices rose consistent with market increases for ~~phosphate fertilizers, leading to break-even operating income in~~ the ~~first~~second ~~quarter~~half 2010 ~~compared~~is ~~to a loss of $2 million in the same period 2009. Volume increases are~~ expected to ~~continue~~be ~~for~~similar ~~the~~to ~~balance of~~ the ~~year~~first half, although the timing of large orders ~~will~~generally ~~lead~~leads to variability in ~~any~~ individual ~~quarter’s~~quarterly results. ~~Prices~~Market ~~are expected to moderate from levels at the end of the 2010 first quarter, though average~~ pricing ~~for~~is ~~the~~currently ~~second quarter should be favorable versus the first~~stable.

AAs ~~portion~~expected, ofsecond ~~U.S.~~quarter ~~raw~~gross ~~material~~profit benefited ~~costs~~from ~~reset~~the ~~down~~impact inof ~~January~~adjustments ~~2010~~to ascontracted ~~previously~~purchase ~~disclosed~~prices effective January 2010, reflecting market conditions at the beginning of the year. ~~The~~Since $8these ~~million~~contract ~~per~~prices ~~quarter~~reset, ~~benefit~~commodity ~~from~~fertilizer ~~this~~and ~~reset~~related ~~will~~raw ~~affect~~material ~~gross~~prices ~~profit~~such ~~from~~as sulfur ~~the~~have ~~second~~increased. ~~quarter~~Although ~~onward.~~Innophos ~~Since~~continues ~~the~~to ~~beginning~~expect ofsome ~~the~~moderation ~~year~~in market prices before contract prices reset for 2011, ~~commodity~~management’s ~~fertilizer~~expectation ~~and~~remains ~~related~~that ~~raw~~an ~~material~~approximate ~~prices~~$5 ~~such~~million asper ~~sulfur~~quarter ~~and~~cost ~~ammonia~~increase ~~have~~from ~~increased,~~higher contract ~~and~~raw ~~Innophos~~material ~~has~~prices ~~responded~~will ~~with~~phase ~~price~~in ~~increases~~beginning inwith ~~March~~the ~~that~~fourth ~~are~~quarter ~~expected~~2010 toand ~~offset~~take ~~these~~full ~~increased~~effect ~~raw~~in ~~material~~the ~~costs~~second quarter 2011.

~~The~~ ~~lagged~~Continued ~~nature~~progress ofhas ~~some~~been ofmade ~~Innophos’~~on ~~supply~~executing ~~contracts~~our ~~means~~rock ~~that~~diversification astrategy. ~~portion~~The ofCompany ~~Innophos~~signed ~~costs~~its ~~towards the end of the~~ first ~~quarter~~new ~~and~~rock ~~into~~contract ~~the second quarter are advantaged versus current market raw material prices. Some moderation in market prices is expected to occur before Innophos’ contracts reset for 2011. Based~~ on ~~these~~May ~~expectations~~3rd, ~~management~~and ~~currently~~has ~~estimates~~taken ~~that~~shipload anquantities ~~approximate $5 million per quarter cost increase~~ from ~~higher~~three ~~contract~~different ~~raw~~potential ~~material~~sources ~~prices~~and ~~will~~continues ~~phase~~to inadvance ~~beginning~~negotiations ~~with~~for ~~the~~both ~~fourth~~short ~~quarter 2010~~ and ~~take~~long ~~full~~term ~~effect in the second quarter 2011~~supply.

~~Significant~~Capital ~~progress~~expenditure ~~was~~expectations ~~made~~for on2010 remain approximately $35 million, ~~arrangements~~with expenditure for ~~future~~the ~~multi-sourced~~balance of the year to continue debottlenecking of US / Canada specialty salts facilities and to enhance Mexico’s capability to process multiple grades of rock consistent with the Company’s supply chain diversification strategy. In addition, limited investment continues to ~~the~~evaluate Innophos’ Mexican ~~facility~~phosphate ~~with~~rock aconcessions. ~~contract~~Following ~~signed~~a ~~with~~review ~~one~~of ~~new~~the ~~strategic~~status ~~supplier~~of ~~and~~the aCompany’s ~~trial~~ERP ~~shipment~~project, ~~received~~management ~~from~~anticipates aan ~~second~~implementation ~~new~~in ~~supplier.~~early 2011 ~~Discussions~~with ~~are~~expenditure continuing ~~with~~at ~~other~~a ~~potential~~reduced ~~strategic suppliers~~rate versus the first half of 2010.

~~Capital~~Net ~~expenditures~~debt ~~for~~(defined ~~2010~~as ~~are~~total ~~expected~~debt toless becash and atcash ~~the~~equivalents) ~~upper~~improved ~~end~~moderately ~~of the of the previously announced $30~~ to $35 123 million ~~range.~~at ~~Major~~the ~~items~~end of ~~expenditure~~the ~~are~~second ~~anticipated~~quarter todespite ~~include:~~a ~~the~~build ~~Mexican~~of ~~food~~working ~~grade~~capital ~~acid~~to ~~expansion~~support ~~(completed~~higher ~~during~~operating ~~the~~rates ~~first~~in ~~quarter);~~Mexico. ~~incremental~~Strong ~~improvements~~cash toflow ~~existing~~generation ~~Mexican~~is ~~food~~expected ~~grade~~for ~~salts~~the ~~capability;~~balance ~~completion~~ of the ~~ERP project;~~year. ~~additional~~This ~~debottlenecking~~will allow ~~and~~management ~~expansion~~to ofcontinue ~~food~~with ~~grade~~its ~~salts~~previously ~~capability~~stated inobjectives ~~Canada~~of ~~and~~maintaining ~~various~~the ~~U.S.~~dividend, ~~locations;~~pursuing ~~and~~several ~~finally,~~“bolt-on” ~~investment~~acquisition toprojects ~~enhance~~and ~~Mexico’s~~actively ~~capability~~seeking opportunities to ~~store,~~optimize ~~handle~~the cost and ~~process~~profile ~~multiple grades~~ of ~~rock consistent with~~ the Company’s ~~supply chain diversification strategy as well as limited investment in evaluating our Mexican phosphate rock concessions~~debt structure.

2324

Although net debt increased in the first quarter on higher working capital requirements, recent strong cashflow generation is expected to continue overall for the year. This will allow management to continue with its previously stated objectives of maintaining the dividend, pursuing several bolt-on acquisition projects and continuing to seek opportunities to optimize the cost and profile of remaining debt facilities.

Historical Performance

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.

	Three months endedMarch 31,2010							Three months endedMarch 31,2009
	Three months ended					Three months ended
	Amount				%			Amount				%
	June 30,2010					June 30,2009
Net sales	$	169.0			100.0			$	190.8			100.0
	Amount			%		Amount				%
Cost of goods sold		132.3			78.3				121.0			63.4
Net sales	$	184.0		100.0		$	166.8			100.0
Gross profit		36.7			21.7				69.8			36.6
Cost of goods sold		136.9		74.4			117.4			70.4
Operating expenses:
Gross profit		47.1		25.6			49.4			29.6
Selling, general and administrative		14.5			8.6				14.0			7.3
Operating expenses:
Research & development expenses		0.6			0.4				0.5			0.3
Selling, general and administrative		13.8		7.5			17.5			10.5
Operating income		21.6			12.8				55.3			29.0
Research & development expenses		0.6		0.3			0.5			0.3
Interest expense, net		4.4			2.6				6.1			3.2
Operating income		32.7		17.8			31.4			18.8
Foreign exchange (gains)/losses, net		(0.2	)		(0.1	)			0.4			0.2
Interest expense, net		4.4		2.4			5.5			3.3
Other income		—			—				(0.2	)		(0.1	)
Foreign exchange loss (gain), net		0.7		0.4			(0.7	)		(0.4	)
Provision for income taxes		6.1			3.6				17.6			9.2
Other income		—		—			0.2			0.1
Net income	$	11.3			6.7			$	31.4			16.5
Provision for income taxes		9.2		5.0			9.9			5.9
Net income	$	18.4		10.0		$	16.5			9.9
	Six months ended					Six months ended
	June 30,2010					June 30,2009
	Amount			%		Amount				%
Net sales	$	353.0		100.0		$	357.6			100.0
Cost of goods sold		269.2		76.3			238.4			66.7
Gross profit		83.8		23.7			119.2			33.3
Operating expenses:
Selling, general and administrative		28.3		8.0			31.4			8.8
Research & development expenses		1.2		0.3			1.1			0.3
Operating income		54.3		15.4			86.7			24.2
Interest expense, net		8.8		2.5			11.5			3.2
Foreign exchange loss (gain), net		0.5		0.1			(0.3	)		(0.1	)
Provision for income taxes		15.3		4.3			27.6			7.7
Net income	$	29.7		8.4		$	47.9			13.4

Three months ended ~~March~~June 3130, 2010 compared to the three months ended ~~March~~June 3130, 2009

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 ~~March~~June 3130, 2010 were $~~169~~184.0 million, aan ~~decrease~~increase of $2117.82 million, or 1110.43%, as compared to $~~190~~166.8 million for the same period in 2009. ~~Selling~~Volume ~~price~~effects ~~decreases~~upon ~~had~~revenue awere ~~negative~~positive ~~effect on revenue of 23~~27.5% or $4445.8 9 million which occurred across all product lines and segments. ~~Volume~~Selling ~~and~~price ~~mix~~decreases ~~effects~~had ~~upon~~a ~~revenue~~negative ~~were~~effect ~~positive~~on 12revenue of 17.02% or $2328.07 million ~~driven~~which byoccurred ~~U.S.~~in ~~and~~both US/Canada and Mexico Specialty ~~Salts~~Phosphates. ~~and~~GTSP ~~Specialty~~prices ~~Acids~~improved in line with market prices in comparison to last year. GTSP sales volumes increased significantly as a result both of increased purified acid production leading to higher co-product volumes and ~~Purified~~favorable ~~Phosphoric~~order ~~Acid~~pattern in the quarter.

~~The~~25 Company calculates pure selling price dollar variances as the selling price for the current period minus the selling price for the prior period, and then multiplies the resulting selling price difference by the prior period volume. The selling price dollar variance is then divided by the prior period sales dollars to calculate the percentage change. Volume/mix variance is calculated as the total sales variance minus the selling price variance. The following table illustrates for the three months ended March 31, 2010 the percentage changes in net sales by reportable segment compared with the same period in 2009, including the effects of price and volume/mix upon revenue:

	Price		Volume/Mix		Total
United States	(27.6	%)	20.6	%	(7.0	%)
Mexico	(14.5	%)	(7.4	%)	(21.9	%)
Canada	(25.1	%)	21.0	%	(4.1	%)

The following table illustrates for the three months ended March 31, 2010 the percentage changes for net sales by major product lines compared with the same period in 2009, including the effect of price and volume/mix effects upon revenue:

	Price		Volume/Mix		Total
Purified Phosphoric Acid	(38.7	%)	11.2	%	(27.5	%)
Specialty Salts and Specialty Acids	(22.8	%)	21.0	%	(1.8	%)
STPP & Other Products	(10.5	%)	(11.8	%)	(22.3	%)

Going forward Innophos will report sales variances under four product categories; Specialty Salts & Specialty Acids, Food & Technical Grade Acid, STPP & Detergent Grade Acid, and GTSP & Other. Specialty Salts & Specialty Acids will be unchanged. Detergent Grade Acid will be

The Company calculates pure selling price dollar variances as the selling price for the ~~removed~~current ~~from~~period ~~Purified~~minus ~~Phosphoric~~the ~~Acid~~selling ~~leaving~~price ~~Food &~~for ~~Technical~~the ~~Grade~~prior ~~Acid.~~period, ~~STPP~~and ~~will~~then bemultiplies ~~removed~~the ~~from~~resulting ~~STPP &~~selling ~~Other~~price ~~leaving~~difference ~~GTSP &~~by ~~Other~~the prior period volume. ~~STPP~~The ~~will~~selling beprice ~~combined~~dollar ~~with Detergent~~variance ~~Grade~~is ~~Acid~~then ~~forming~~divided by the ~~additional~~prior ~~category~~period ~~STPP &~~sales ~~Detergent~~dollars ~~Grade~~to ~~Acid.~~calculate ~~For~~ the percentage ~~three~~change. ~~months~~Volume/mix ~~ended~~variance ~~March 31,~~is ~~2010~~calculated ~~net~~as the total sales ~~for~~variance ~~GTSP &~~minus ~~Other~~the ~~was~~selling ~~$12~~price variance.4 ~~million,~~The afollowing ~~decrease~~table ofillustrates ~~$5.3~~for ~~million~~the three months ended June 30, or2010 ~~29.9%~~the aspercentage ~~compared~~changes toin net sales by reportable ~~$17.7~~segment ~~million~~compared ~~for~~with the same period in 2009., including the effects of price and volume/mix upon revenue:


	Price		Volume/Mix		Total
Specialty Phosphates US & Canada	(19.0	%)	15.8	%	(3.2	%)
Specialty Phosphates Mexico	(23.3	%)	38.9	%	15.6	%
GTSP & Other	59.1	%	222.8	%	281.9	%

The following table illustrates for the three months ended June 30, 2010 the percentage changes for net sales by major product lines compared with the same period in 2009, including the effect of price and volume/mix effects upon revenue:


	Price		Volume/Mix		Total
Specialty Salts and Specialty Acids	(16.6	%)	17.0	%	0.4	%
Food & Technical Grade Acid	(26.6	%)	34.6	%	8.0	%
STPP & Detergent Grade Acid	(28.3	%)	23.4	%	(4.9	%)
GTSP & Other	59.1	%	222.8	%	281.9	%

Gross Profit

Gross profit represents net sales less cost of goods sold. Gross profit for the three months ended ~~March~~June 3130, 2010 was $3647.71 million, a decrease of $332.13 million, or ~~47.~~4.7%, as compared to $6949.84 million for the same period in 2009. Gross margin decreased to 2125.76% for the three months ended ~~March~~June 3130, 2010 versus 3629.6% for the same period in 2009. The change in gross profit was primarily due to lower selling prices which had an unfavorable effect of $4428.7 million, $0.8 million unfavorable exchange rate impact mostly from our Mexican peso based costs, and $1.1 million expense for the planned maintenance outage at our Geismar La. manufacturing facility. This was ~~partially~~mostly offset by favorable sales volume, lower raw material cost, and ~~mix~~lower manufacturing cost which resulted in a net favorable effect of $1122.78 million. ~~Cost~~Included ofin ~~goods~~the ~~sold~~2009 onsecond ~~a replacement cost~~quarter ~~basis~~results ~~would~~were ~~have been~~ $81.32 million ~~lower~~Mexican ~~for~~workforce ~~the~~reduction ~~first~~costs, ~~quarter due to U~~$1.S.8 ~~raw~~million ~~material~~inventory ~~cost~~write-downs ~~resets~~of ~~effective~~granular ~~January 1,~~triple ~~2010~~super-phosphate, ~~but~~and ~~this~~a ~~benefit~~charge ~~was delayed until the second quarter due to sale~~ of ~~existing~~$2.5 ~~higher~~million ~~cost~~for ~~inventory~~anticipated ~~which~~unfulfilled ~~was depleted~~contractual innatural ~~the~~gas ~~first~~purchase ~~quarter 2010~~commitments.

Operating Expenses and Research and Development

Operating expenses consist primarily of selling, general and administrative, and R&D expenses. For the three months ended ~~March~~June 3130, 2010, these costs were $1514.14 million, ana ~~increase~~decrease of $03.6 million, or 420.10%, as compared to $1418.50 million for the same period in 2009. The decrease is due to $1.9 million lower enterprise resource planning system and business redesign project (ERP) expenses as a result of capitalizing the implementation phase costs, $0.9 million lower legal expenses related to our OCP arbitration, and $0.4 million reduction in all other costs. Included in 2009 second quarter results was a charge of $0.4 million Mexican workforce reduction costs.

Operating Income

Operating income for the three months ended ~~March~~June 3130, 2010 was $2132.67 million, aan ~~decrease~~increase of $331.73 million, or 604.91%, as compared to $~~55.3 million for the same period in 2009. Included in these results was break-even operating income for GTSP & Other for the three months ended March~~ 31~~, 2010 compared to a $1~~.94 million ~~loss~~ for the same period in 2009. Operating income as a percentage of net sales for the Company decreased to 1217.8% versus 2918.08% for the same period in 2009.

Interest Expense, net

Net interest expense, including deferred financing amortization expense, for the three months ended ~~March~~ June 3130, 2010 was $4.4 million, a decrease of $1.71 million, compared to $65.15 million for the same period in 2009. This decrease is primarily due to the pay off of the remaining balance of the Term Loan in the second quarter of 2009.

Foreign Exchange

Foreign exchange ~~gain~~loss for the three months ended ~~March~~June 3130, 2010 was $0.27 million compared to a ~~loss~~gain of $0.47 million for the same period in 2009 as a result of the remeasurement of the non-U.S. dollar denominated monetary assets and liabilities. The U.S. dollar is the functional currency of our Mexican and Canadian operations. Consequently, foreign exchange gain or loss is recorded on remeasurement of non-U.S. dollar denominated monetary assets and liabilities. Such gains and losses fluctuate from period to period as the foreign currencies strengthen or weaken against the U.S. dollar and the amount of non-U.S. dollar denominated assets and liabilities increases or decreases.

Provision for Income Taxes

The effective income tax rate on income before taxes was 3533% for the three months ended ~~March~~June 3130, 2010 compared to 3638% for the same period in 2009. The change in the effective tax rate is a result of aincreased ~~shift of~~ earnings before tax in lower tax rate jurisdictions combined with a change in tax rates for our operations in multiple tax jurisdictions.

Net Income

Net income for the three months ended ~~March~~June 3130, 2010 was $1118.34 million, athe ~~decrease~~same ofas ~~$20.1 million, compared to~~ net income of $3116.4 5 million for the same period in 2009, due to the factors described above.

25Six months ended June 30, 2010 compared to the six months ended June 30, 2009

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 six months ended June 30, 2010 were $353.0 million, a decrease of $4.6 million, or 1.3%, as compared to $357.6 million for the same period in 2009. Selling price decreases had a negative effect on revenue of 20.6% or $73.5 million which occurred in US/Canada and Mexico Specialty Phosphates. GTSP prices increased for the comparable period in-line with market prices. Volume effects upon revenue were positive 19.3% or $68.9 million which occurred across all product lines and segments.

The following table illustrates for the six months ended June 30, 2010 the percentage changes in net sales by reportable segment compared with the same period in 2009, including the effect of price and volume/mix effects upon revenue:


	Price		Volume/Mix		Total
Specialty Phosphates US & Canada	(23.3	%)	18.3	%	(5.0	%)
Specialty Phosphates Mexico	(27.1	%)	24.0	%	(3.1	%)
GTSP & Other	30.7	%	15.6	%	46.3	%

The following table illustrates for the six months ended June 30, 2010 the percentage changes for net sales by major product lines compared with the same period in 2009, including the effect of price and volume/mix effects upon revenue:


	Price		Volume/Mix		Total
Specialty Salts and Specialty Acids	(19.7	%)	19.0	%	(0.7	%)
Food & Technical Grade Acid	(35.9	%)	27.5	%	(8.4	%)
STPP & Detergent Grade Acid	(29.8	%)	13.2	%	(16.6	%)
GTSP & Other	30.7	%	15.6	%	46.3	%

Gross Profit

Gross profit represents net sales less cost of goods sold. Gross profit for the six months ended June 30, 2010 was $83.8 million, a decrease of $35.4 million, or 29.7%, as compared to $119.2 million for the same period in 2009. Gross margin decreased to 23.7% for the six months ended June 30, 2010 versus 33.3% for the same period in 2009. The change in gross profit was primarily due to lower selling prices which had an unfavorable effect of $73.5 million, $1.4 million unfavorable exchange rate impact mostly from our Mexican peso based costs, and $1.1 million expense for the planned maintenance outage at our Geismar La. manufacturing facility. This was partially offset by favorable sales volume combined with lower raw material and manufacturing costs which resulted in a net favorable effect of $34.7 million. Included in the 2009 results were $1.6 million Mexican workforce reduction costs, $1.8 million inventory write-downs of granular triple super-phosphate, and a charge of $2.5 million for anticipated unfulfilled contractual natural gas purchase commitments.

Operating Expenses and Research and Development

Operating expenses consist primarily of selling, general and administrative, and R&D expenses. For the six months ended June 30, 2010, these costs were $29.5 million, a decrease of $3.0 million, or 9.2%, as compared to $32.5 million for the same period in 2009. The decrease is due to $1.9 million lower ERP expenses as a result of capitalizing the implementation phase costs, $1.5 million lower legal and other professional services, and $0.9 million lower legal expenses related to our OCP arbitration. This was partially offset by $1.6 million increased short term incentive accruals. Included in 2009 second quarter results was a charge of $0.4 million Mexican workforce reduction costs.

Operating Income

Operating income for the six months ended June 30, 2010 was $54.3 million, a decrease of $32.4 million, or 37.4%, as compared to $86.7 million for the same period in 2009. Operating income as a percentage of net sales for the Company decreased to 15.4% versus 24.2% for the same period in 2009.

Interest Expense, net

Net interest expense, including deferred financing amortization expense, for the six months ended June 30, 2010 was $8.8 million, a decrease of $2.7 million, compared to $11.5 million for the same period in 2009. This decrease is primarily due to the pay off of the remaining balance of the Term Loan in the second quarter of 2009.

Foreign Exchange

Foreign exchange loss for the six months ended June 30, 2010 was $0.5 million compared to a gain of $0.3 million for the same period in 2009 as a result of the remeasurement of the non-U.S. dollar denominated monetary assets and liabilities. The U.S. dollar is the functional currency of our Mexican and Canadian operations. Consequently, foreign exchange gain or loss is recorded on remeasurement of non-U.S. dollar denominated monetary assets and liabilities. Such gains and losses fluctuate from period to period as the foreign currencies strengthen or weaken against the U.S. dollar and the amount of non-U.S. dollar denominated assets and liabilities increases or decreases.

Provision for Income Taxes

The effective income tax rate on income before taxes was 34% for the six months ended June 30, 2010 compared to 37% for the same period in 2009. The change in the effective tax rate is a result of increased earnings before tax in lower tax rate jurisdictions combined with a change in tax rates for our operations in multiple tax jurisdictions.

Net Income

Net income for the six months ended June 30, 2010 was $29.7 million, a decrease of $18.2 million, compared to net income of $47.9 million for the same period in 2009, due to the factors described above.

Segment Reporting

~~The~~Beginning ~~company~~with ~~reports~~the second quarter, the Company reported its ~~operations~~core inspecialty ~~three~~phosphates ~~reporting~~business separately from GTSP and other non-specialty phosphate products. The previous reported segments— of the United States, Mexico and Canada changed to Specialty Phosphates US & Canada, ~~each~~Specialty ofPhosphates ~~which~~Mexico ~~sells~~and ~~the~~GTSP & ~~entire portfolio~~Other. Specialty phosphates consists of the products lines Specialty Salts and Specialty Acids, Food & Technical Grade Acid, and STPP & Detergent Grade Acid. GTSP & Other includes fertilizer co-product GTSP and other non-specialty phosphate products. The primary performance indicators for the chief operating decision maker are sales and operating income~~, with sales on a ship-from basis~~. The following table sets forth the historical results of these indicators by segment:

	Three months endedMarch 31,2010			Three months endedMarch 31,2009			Net Sales % Change
	Three months endedJune 30,2010			Three months endedJune 30,2009			Net Sales % Change
Segment Net Sales
United States	$	113,613		$	122,185		(7.0	%)
Specialty Phosphates US & Canada	$	123,086		$	127,098		(3.2	%)
Mexico		45,607			58,427		(21.9	%)
Specialty Phosphates Mexico		39,298			34,000		15.6	%
Canada		9,787			10,205		(4.1	%)
Total Specialty Phosphates	$	162,384		$	161,098		0.8	%
Total	$	169,007		$	190,817		(11.4	%)
GTSP & Other		21,648			5,668		281.9	%
Total	$	184,032		$	166,766		10.4	%
Segment Operating Income
United States	$	18,362		$	40,873
Specialty Phosphates US & Canada	$	26,758		$	33,024
Mexico		1,536			7,517
Specialty Phosphates Mexico		4,011			5,778
Canada		1,727			6,898
Total Specialty Phosphates	$	30,769		$	38,802
Total	$	21,625		$	55,288
GTSP & Other		1,908			(7,364	)
Total	$	32,677		$	31,438
Segment Operating Income % of net sales
United States		16.2	%		33.5	%
Specialty Phosphates US & Canada		21.7	%		26.0	%
Mexico		3.4	%		12.9	%
Specialty Phosphates Mexico		10.2	%		17.0	%
Canada		17.6	%		67.6	%
Total Specialty Phosphates		18.9	%		24.1	%
GTSP & Other		8.8	%		(129.9	%)
	Six months endedJune 30,2010			Six months endedJune 30,2009			Net Sales % Change
Segment Net Sales
Specialty Phosphates US & Canada	$	246,444		$	259,488		(5.0	%)
Specialty Phosphates Mexico		72,497			74,781		(3.1	%)
Total Specialty Phosphates	$	318,941			334,269		(4.6	%)
GTSP & Other		34,098			23,314		46.3	%
Total	$	353,039		$	357,583		(1.3	%)
Segment Operating Income
Specialty Phosphates US & Canada	$	46,819		$	80,795
Specialty Phosphates Mexico		5,434			14,938
Total Specialty Phosphates	$	52,253			95,733
GTSP & Other		2,049			(9,007	)
Total	$	54,302		$	86,726
Segment Operating Income % of net sales
Specialty Phosphates US & Canada		19.0	%		31.1	%
Specialty Phosphates Mexico		7.5	%		20.0	%
Total Specialty Phosphates		16.4	%		28.6	%
GTSP & Other		6.0	%		(38.6	%)

~~Beginning~~29 with the quarterly period ending June 30, 2010, the Company will report its operations on three new reporting segments – Specialty Phosphates U.S. & Canada, Specialty Phosphates Mexico and GTSP & Other. For the three months ended March 31, 2010 net sales and operating income for GTSP & Other was $12.4 million and break-even respectively compared to $17.7 million and a loss of $1.9 million respectively for the same period in 2009.

ThreeTable monthsof ended March 31, 2010 compared to the three months ended March 31, 2009 Contents

Three months ended June 30, 2010 compared to the three months ended June 30, 2009

Segment Net Sales:

InSpecialty ~~the~~Phosphates ~~United~~US & ~~States~~Canada net sales decreased 73.02% for the three months ended ~~March~~June 3130, 2010 when compared with the same period in 2009. Selling prices decreased 2719.60% with decreases across all product lines. Volume ~~and mix~~ impact upon revenue ~~was~~increased ~~an increase~~ of 2015.68% with increases across all product lines but most notably in ~~Specialty~~Food ~~Salts~~& ~~and~~Technical ~~Specialty~~Grade ~~Acids~~Acid.

InSpecialty Phosphates Mexico net sales ~~decreased~~increased 2115.96% for the three months ended ~~March~~June 3130, 2010 when compared with the same period in 2009. ~~primarily due~~Selling toprices ~~lower~~decreased ~~selling~~23.3% ~~prices~~with decreases across all product lines. Volume impact upon revenue was an increase of 38.9% with increases across all product lines.

InGTSP ~~Canada~~& Other net sales ~~decreased~~increased 4281.19% for the three months ended ~~March 31~~ June 30, 2010 when compared with the same period in 2009. ~~Selling~~on higher selling prices ~~decreased~~and ~~sales~~substantially byhigher 25volumes.1% ~~which~~GTSP ~~occurred~~sales ~~across~~volumes ~~all~~increased ~~product~~significantly ~~lines.~~as ~~Volume~~a ~~and~~result ~~mix~~both ~~impact~~of ~~upon~~increased ~~revenue~~purified ~~was~~acid anproduction ~~increase~~leading ofto ~~21.0%~~higher ~~which~~co-product ~~occurred~~volumes ~~across~~and ~~all~~favorable ~~product~~order ~~lines~~pattern in the quarter. GTSP prices improved in line with market prices in comparison to last year.

Segment Operating Income % of Net Sales:

The 174.3% decrease in ~~the~~Specialty ~~United~~Phosphates ~~States~~US & Canada for the three months ended ~~March~~June 3130, 2010 compared with the same period in 2009 is mainly due to decreased selling prices, ~~and increased manufacturing expenses, mainly inventory related,~~ partially offset by increased volume ~~and~~ /mix ~~impact~~effects on revenue, ~~and slightly~~ lower raw material costs, ~~which~~and ~~did not reflect~~ lower ~~raw~~operating ~~material replacement costs effective January 1, 2010 due to the sale of existing higher cost inventories in the first quarter 2010~~expenses.

The 96.58% decrease in Specialty Phosphates Mexico for the three months ended ~~March~~June 3130, 2010 compared with the same period in 2009 is mainly due to decreased selling prices partially offset by ~~decreased~~increased ~~manufacturing~~volume ~~expenses,~~effects ~~mainly~~on ~~inventory~~revenue, ~~related.~~decreased ~~Mexico~~manufacturing ~~results~~expenses, ~~did~~and ~~not realize the full benefit of~~ lower ~~rock~~operating ~~costs~~expenses. ~~for~~Included ~~2010~~in ~~due to~~ the ~~sale~~2009 ofsecond ~~existing~~quarter ~~higher~~results ~~cost~~were ~~inventories~~$1.2 inmillion ~~the~~Mexican ~~first~~workforce ~~quarter 2010~~reduction costs.

26The 138.7% increase in GTSP & Other for the three months ended June 30, 2010 compared with the same period in 2009 is primarily due to higher selling prices and significantly higher volumes. Included in the 2009 second quarter results were $1.8 million inventory write-downs of granular triple super-phosphate, and a charge of $2.5 million for anticipated unfulfilled contractual natural gas purchase commitments.

~~Table~~Six ofmonths ~~Contents~~ended June 30, 2010 compared to the six months ended June 30, 2009

~~The~~Segment ~~50.0%~~Net ~~decrease~~Sales: in Canada for the three months ended March 31, 2010 compared with the same period in 2009 is primarily due to lower selling prices partially offset by favorable volume and mix impacts on revenue and lower raw material costs.

~~During~~Specialty ~~the~~Phosphates ~~three~~US & ~~month~~Canada ~~period~~net ~~ending~~sales ~~March~~decreased 5.0% for the six months ended June 3130, 2010 ~~depreciation~~when ~~and~~compared ~~amortization~~with ~~expense~~the ~~was~~same period $6in 2009.9 ~~million~~Selling inprices ~~the~~decreased ~~United~~23.3% ~~States, $0~~with decreases across all product lines.5 ~~million~~Volume ineffects ~~Canada,~~upon ~~and~~revenue $5was an increase of 18.23% ~~million~~with increases across all product lines but most notably in ~~Mexico~~Specialty Salts and Specialty Acids.

Specialty Phosphates Mexico net sales decreased 3.1% for the six months ended June 30, 2010 when compared with the same period in 2009. Selling prices decreased 27.1% with decreases across all product lines. Volume effects upon revenue was an increase of 24.0% with increases across all product lines.

GTSP & Other net sales increased 46.3% for the six months ended June 30, 2010 when compared with the same period in 2009 primarily on higher selling prices. GTSP prices improved in-line with market prices in comparison to last year.

Segment Operating Income % of Net Sales:

The 12.1% decrease in Specialty Phosphates US & Canada for the six months ended June 30, 2010 compared with the same period in 2009 is mainly due to decreased selling prices and increased manufacturing expenses (higher volumes and Geismar turnaround), partially offset by increased volumes, lower raw material costs and lower operating expenses.

The 12.5% decrease in Specialty Phosphates Mexico for the six months ended June 30, 2010 compared with the same period in 2009 is mainly due to decreased selling prices partially offset by increased volumes and decreased manufacturing expenses. Included in the 2009 results were $1.6 million Mexican workforce reduction costs.

The 44.6% increase in GTSP & Other for the six months ended June 30, 2010 compared with the same period in 2009 is primarily due to higher selling prices. Included in the 2009 results were $1.8 million inventory write-downs of granular triple super-phosphate, and a charge of $2.5 million for anticipated unfulfilled contractual natural gas purchase commitments.

Liquidity and Capital Resources

The following table sets forth a summary of the Company’s cash flows for the periods indicated.

	Three months endedMarch 31,2010			Three months endedMarch 31,2009
Operating Activities	$	(6.5	)	$	71.8
Investing Activities		(7.2	)		(3.1	)
Financing Activities		(3.5	)		(57.7	)

ThreeTable monthsof ended March 31, 2010 compared to three months ended March 31, 2009 Contents

Net cash from operating activities was a use of $6.5 million for the three months ended March 31, 2010 as compared to source of $71.8 million for the same period in 2009, a decrease in cash of $78.3 million. The decrease in operating activities cash resulted primarily from unfavorable changes of $58.5 million in working capital and $20.1 million in net income as described earlier.


	Six months ended June 30, 2010			Six months ended June 30, 2009
Operating Activities	$	11.6		$	119.8
Investing Activities		(15.3	)		(7.6	)
Financing Activities		(61.9	)		(153.7	)

~~The~~Six ~~change~~months inended ~~working capital is a use of cash of $~~June 30.8, ~~million in~~ 2010 compared to asix ~~source~~months ofended ~~cash~~June 30, ~~of $27.7 million in~~ 2009, a decrease in cash of $58.5 million. The decrease in cash is mainly due to increases in accounts receivable (due to sales increases on a sequential basis), and decreased other current liabilities (mainly accrued short term incentive and other accruals).

Net cash ~~used~~from ~~for~~operating ~~investing~~ activities was a source of $711.26 million for the ~~three~~six months ended ~~March~~June 3130, 2010, as compared to source of $3119.18 million for the same period in 2009, ana ~~increase~~decrease in ~~the use of~~ cash of $4108.12 million. ~~This~~The ~~increase~~decrease ~~was~~in ~~mainly~~operating ~~due~~activities tocash ~~the~~resulted ~~Company’s~~primarily ~~enterprise~~from ~~resource planning,~~unfavorable orchanges ~~ERP,~~of ~~system~~$90.7 million in working capital and ~~business~~$18.2 ~~process~~million ~~redesign~~in ~~project~~net income as described earlier.

InThe ~~the~~change ~~second~~in ~~quarter~~working ofcapital ~~2009~~is ~~the~~a ~~Company~~use ~~launched~~of ancash ~~ERP~~of ~~project~~$44.4 tomillion ~~upgrade~~in ~~its~~2010 ~~systems~~compared ~~technology and~~ to ~~improve its position as~~ a ~~reliable~~source ~~specialty~~of ~~phosphate~~cash ~~supplier.~~of ~~To date the Company has spent approximately~~ $1546.3 million onin ~~this project~~2009, ofa ~~which~~decrease ~~approximately~~in cash of $890.7 million. ~~was~~The ~~capitalized~~decrease asin ~~of March 31,~~cash ~~2010,~~is ~~and~~mainly ~~future~~due ~~expenditures~~to onincreases ~~the~~in ~~ERP~~accounts ~~project~~receivable ~~are~~and ~~expected~~inventory tolevels ~~total~~due ~~approximately $8~~ to ~~$10~~higher ~~million~~operating byrates ~~the~~in ~~end of 2010~~Mexico, and ~~with~~decreased ~~the~~other ~~majority~~current ~~of this spending anticipated as capital expenditures~~liabilities.

Net cash used for investing activities was $15.3 million for the six months ended June 30, 2010, compared to $7.6 million for the same period in 2009, an increase in the use of cash of $7.7 million. This increase was mainly due to the Company’s ERP project.

In the second quarter of 2009 the Company launched an ERP project to upgrade its systems technology and to improve its position as a reliable specialty phosphate supplier. To date the Company has spent approximately $20.0 million on this project, of which approximately $13.1 million was capitalized as of June 30, 2010. Following a review of the status of the Company’s ERP project, management anticipates an implementation in early 2011 with expenditure continuing at a reduced rate versus the first half of 2010.

The Company is investing to grow its food, beverage and pharmaceutical phosphate business, especially geographically, and also to diversify its raw material supply long term. Projects are underway in the U.S. to debottleneck and increase production capabilities of various specialty salts. Additionally, in conjunction with the investment in the Coatzacoalcos facility to more than double its existing food grade purified phosphoric acid capacity which was completed in the first quarter 2010, the site personnel have conducted successful production tests of several additional food grade salts to enable a shift in focus from detergency to the multiple food market segments served by salts and acid.

Innophos currently estimates that full exploration costs to a proven reserves standard for the ~~Santo~~Baja ~~Domingo~~California ~~deposit~~Sur deposits could require expenditures of $10 to $15 million over a three year period, inclusive of expenditures to date. This estimate includes mineral rights payments, taxes, ~~mineral~~ mineral resource measurement, beneficiation process design and completion of feasibility studies. Full expenditures would only occur if interim milestone goals were successfully attained. It is estimated that 2010 expenditures will be approximately $10.7 to $~~2 million~~1.5 ~~with efforts primarily focused on the Santo Domingo deposit~~million. Innophos intends to seek one or more partners for these efforts, but anticipates no difficulties in completing the exploration phase without a partnership.

Management projects total 2010 capital expenditures to approximate $30 to $35 million with the likely outcome at the high end of the range.

Net cash from financing activities for the ~~three~~six months ended ~~March~~June 3130, 2010 was a use of $361.59 million compared to $57153.7 million for the same period in 2009, an increase in cash of $5491.28 million. This is mainly due to a $54126.05 million of Term Loan principal ~~payment~~payments in 2009 offset by a $35.9 million return of capital to our parent.

~~Holdings~~On ~~redeemed~~April 13, ~~for~~2009 ~~cash~~Holdings ~~all~~purchased ~~remaining~~ $5610.0 million of the 9.5% Senior Unsecured Notes ondue April ~~15,~~ ~~2010,~~2012 ~~the~~for ~~Redemption~~$6.5 ~~Date~~million. The $3.5 ~~redemption~~million ~~price~~retirement ~~for~~gain ~~the~~is ~~Notes~~reflected ~~was~~as ~~100%~~interest income in Holdings Consolidated Statement of Operations in the ~~principal~~second ~~amount~~quarter ~~plus~~of ~~accrued~~2009. ~~interest~~The Company also recorded accelerated deferred financing costs of approximately $20.72 million toin the ~~Redemption~~second quarter ~~Date~~of 2009.

Holdings redeemed for cash all remaining $56.0 million of the Senior Unsecured Notes on April 15, 2010, the Redemption Date. The redemption price for the Notes was 100% of the principal amount plus accrued interest of $2.7 million to the Redemption Date. Accelerated deferred financing charges of $0.6 million were recorded in the second quarter of 2010.

Innophos and its subsidiaries and affiliates may from time to time seek to acquire or otherwise retire outstanding debt (including publicly issued debt) through open market purchases, privately negotiated transactions including refinancing, tender offers, exchanges or otherwise. Debt repurchases, refinancing 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.

We believe that on-hand cash combined with cash generated from operations, including our Mexican operations, will be sufficient to meet our obligations such as debt service, tax payments, capital expenditures and working capital requirements for at least

2731

the next twelve months. We expect to fund all these obligations through our existing cash and our future operating cash flows. 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 are insufficient to fund our debt and other liquidity needs, the Company may have to take alternative actions that differ from the Company’s current operating plan.

We’re subject to Rhodia’s ability to perform its obligations under our 2004 acquisition agreements, primarily to indemnify us (or provide security) against potential liabilities such as the CNA Fresh Water Claims currently estimated at $2524 million for the periods through 2002. Even though our indemnification rights have been confirmed by court judgments, ultimately we are also dependent on Rhodia having sufficient financial capacity to meet its obligations should they arise. Rhodia’s financial position has improved significantly in recent quarters and we currently see no reason to suspect they would be unable to meet their obligations.

If the CNA Fresh Water Claims were sustained for the periods through 2002, it is possible that the CNA would seek to claim similar higher duties, fees and other charges for fresh water extraction and usage from 2005 on into the future (2003 and 2004 are believed to be beyond the statute of limitations). Management estimates that amounts involved would be approximately $13 million of additional basic charges, interest, inflation, and penalties, and, under current operating conditions, approximately $1.26 million of additional basic charges per year. Although not included in our court judgments in the New York Litigation against Rhodia, we believe Rhodia is required to indemnify us fully for post-closing “losses” caused by breaches of covenants set forth in the agreement. Rhodia has contested indemnification responsibility for those breaches, but its motion for partial summary judgment to dismiss our claims was denied by the New York trial court in January 2009. It is possible that the New York Litigation will proceed to trial or involve further motions to resolve remaining issues. Please refer to Note 12 of Notes to Consolidated Financial Statements in “Item 1. Financial Statements” for additional information.

	Years ending December 31,
Contractual Obligations	Total		2010		2011		2012		2013		2014		Thereafter
2004 Senior Subordinated Notes Due 2014 (1)		265,882		8,431		16,863		16,862		16,863		206,863		—
Future service pension benefits		9,632		537		642		735		825		902		5,991
Other (2)		459,249		89,845		48,764		48,764		48,764		48,764		174,348
Operating leases		18,538		4,111		3,688		2,824		2,690		2,246		2,979
Total contractual cash obligations (3)	$	753,301	$	102,924	$	69,957	$	69,185	$	69,142	$	258,775	$	183,318
Total contractual cash obligations	$	753,301	$	102,924	$	69,957	$	69,185	$	69,142	$	258,775	$	183,318

(1)	Amounts include fixed rate interest payments at 8.875% for years 2010 and thereafter.

(2)	Represents minimum annual purchase commitments to buy raw materials from suppliers.

(3) Does not reflect the $56.0 million Senior Unsecured Notes which were issued by our ultimate parent, Innophos Holdings, Inc. on April 16, 2007. Holdings redeemed for cash all remaining $56.0 million of the Senior Unsecured Notes on April 15, 2010, the Redemption Date. The redemption price for the Notes was 100% of the principal amount plus accrued interest to the Redemption Date.

Critical Accounting Estimates

There have been no material changes from the critical accounting estimates previously disclosed in our 2009 Annual Report on Form 10-K.

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 Loan Agreement will bear interest at floating rates based on LIBOR plus an applicable borrowing margin. We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt to the extent practicable consistent with our credit status. For fixed-rate debt, interest rate changes do not affect earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally affect our earnings and cash flows, assuming other factors are held constant.

At ~~March~~June 3130, 2010, we had $190.0 million principal amount of fixed-rate debt and a $65.0 million ~~revolving~~ revolving credit facility, of which ~~we had $53.0 million available above the minimum excess availability requirements, which~~ has not been drawn upon~~. In addition~~, ~~Innophos~~of ~~Holdings,~~which ~~Inc.~~we had $5655.06 million ofavailable ~~senior~~above ~~unsecured notes. Holdings redeemed for cash all remaining $56.0 million of~~ the ~~Senior~~minimum ~~Unsecured~~excess ~~Notes~~availability ~~on April 15, 2010, the Redemption Date~~requirements. As all of the business for Innophos Holdings, Inc. is transacted through Innophos, Inc. and its subsidiaries, Innophos Holdings, Inc. is dependent on the earnings and the distribution of funds from Innophos, Inc. and subsidiaries.

Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense should we need to draw on our revolving line of credit. Changes in economic conditions may also result in higher other operating expenses, reducing our funds available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow has been used to service debt and funding working capital needs, which may affect our ability to make future acquisitions or capital expenditures. We may from time to time use interest rate protection agreements to minimize our exposure to interest rate fluctuation. Regardless of hedges, we may experience economic loss and a negative impact on earnings or net assets as a result of interest rate fluctuations.

28We do not currently, but may from time to time, hedge our interest rate or currency rate risks. In the second quarter of 2010 we purchased forward natural gas price cap contracts which allow us to purchase a portion of our monthly natural gas usage requirements at a fixed price if prevailing market prices are greater than this contractual fixed price amount. These contracts are for periods expiring through April 2011, and apply to our U.S., Canadian and Mexican facilities.

funds available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow must be used to service debt, which may affect our ability to make future acquisitions or capital expenditures. We may from time to time use interest rate protection agreements to minimize our exposure to interest rate fluctuation. Regardless of hedges, we may experience economic loss and a negative impact on earnings or net assets as a result of interest rate fluctuations.

We do not currently, but may from time to time, hedge our commodity, interest rate or currency rate risks.

We believe that our concentration of credit risk related to trade accounts receivable is limited since these receivables are spread among a number of customers and are geographically dispersed. Our largest customer in 2008 represented 11% of that year’s sales, otherwise, no other customer accounted for more than 10% of our sales in the last 3 years.

Foreign Currency Exchange Rates

The U.S. dollar is the functional currency of the Canadian and Mexican operations. Accordingly, these operations’ monetary assets and liabilities are translated at current exchange rates, non-monetary assets and liabilities are translated at historical exchange rates, and revenue and expenses are translated at average exchange rates and at historical exchange rates for the related revenue and expenses of non-monetary assets and liabilities. All translation gains and losses are included in net income.

Our principal source of exchange rate exposure in our foreign operations consists of expenses, such as labor expenses and utilities, which are denominated in the foreign currency of the country in which we operate. A decline in the value of the U.S. dollar relative to the local currency would generally cause our operational expenses (particularly labor costs) to increase (conversely, a decline in the value of the foreign currency relative to the U.S. dollar would cause these expenses to decrease). We believe that normal exchange rate fluctuations consistent with recent historical trends would have a modest impact on our expenses, and would not materially affect our financial condition or results of operations. Nearly all of our sales and raw material purchases are denominated in U.S. dollars and our exchange rate exposure in terms of sales revenues and raw material costs is minimal.

Inflation and changing prices

Our costs and expenses will be subject to inflation and price fluctuations. Significant price fluctuations in raw materials, freight, and energy costs, if not compensated for by cost savings from production efficiencies or price increases passed on to customers, could have a material effect on our financial condition and results of operations.

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 4T.

CONTROLS AND PROCEDURES

Disclosure Control and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be reported in the Company’s consolidated financial statements and filings is recorded, processed, summarized and reported within the periods specified in the rules and forms of the 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 ~~March~~June 3130, 2010, 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.

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 ~~first~~second quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2933

PART II

ITEM 1.

LEGAL PROCEEDINGS

The information set forth in Note 11 to our consolidated condensed financial statements, “Commitments and Contingencies,” 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 2009 Annual Report on Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

(REMOVED AND RESERVED)

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
4.8		Forms of Exhibits to the Loan and Security Agreement dated May 22, 2009 by and among Innophos, Inc. and Innophos Canada, Inc., as Borrowers, and Wachovia Bank, National Association, TD Bank, N.A. and Israel Discount Bank, Wachovia Bank, National Association, as Administrative and Collateral Agent for Lenders, and Wachovia Capital Markets LLC, as Syndication Agent, Lead Arranger and Lead Bookrunner.
31.1		Certification of Principal Executive Officer dated August 3, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1		Certification of Principal Executive Officer dated May 7, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer dated August 3, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer dated May 7, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer dated August 3, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer dated May 7, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer dated August 3, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer dated May 7, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Not to be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 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.

3034

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, INC.
/s/ Randolph Gress
By:		Randolph Gress
Its:		Chief Executive Officer and Director
		(Principal Executive Officer)
Dated: May 7, 2010
Dated: August 3, 2010
INNOPHOS, INC.
/s/ Neil I. Salmon
By:		Neil I. Salmon
Its:		Vice President and Chief Financial Officer
		(Principal Financial Officer)
Dated: May 7, 2010
Dated: August 3, 2010

3135

EXHIBIT INDEX

Exhibit No.		Description
4.8		Forms of Exhibits to the Loan and Security Agreement dated May 22, 2009 by and among Innophos, Inc. and Innophos Canada, Inc., as Borrowers, and Wachovia Bank, National Association, TD Bank, N.A. and Israel Discount Bank, Wachovia Bank, National Association, as Administrative and Collateral Agent for Lenders, and Wachovia Capital Markets LLC, as Syndication Agent, Lead Arranger and Lead Bookrunner.
31.1		Certification of Principal Executive Officer dated August 3, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.1		Certification of Principal Executive Officer dated May 7, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer dated August 3, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer dated May 7, 2010 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer dated August 3, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Principal Executive Officer dated May 7, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer dated August 3, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer dated May 7, 2010 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

3236

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