Intrepid Announces Financial Results for Third Quarter 2010
Intrepid Potash, Inc. (NYSE:IPI) announced today third quarter 2010
financial results, with net income for the quarter of $11.7 million,
resulting in $0.16 of earnings per diluted share. Earnings before
interest, taxes, depreciation, and amortization (EBITDA1) for
the third quarter of 2010 were $27.1 million.
Highlights for the Third Quarter 2010:
Potash sales in the third quarter of 2010 were 221,000 tons compared
to 111,000 tons in the third quarter of 2009.
Potash production in the third quarter of 2010 increased to 166,000
tons compared to 112,000 tons produced in the third quarter of 2009.
The average net realized sales price2 for potash was $343
per ton ($378 per metric tonne) this year in the quarter, compared to
$458 per ton ($505 per metric tonne) in the third quarter of 2009.
Our potash cash cost of goods sold, net of by-product credits3,
was $171 per ton in the third quarter of 2010 compared to $177 per ton
in the third quarter of 2009. There were no abnormal production costs
recognized in the third quarter of 2010, whereas, in the third quarter
of 2009, $5.8 million of abnormal production costs were expensed in
the period and were therefore excluded from the cash cost of goods
sold. Our third quarter 2010 cash cost of goods sold per ton results
reflect that we fully absorbed all costs attributed to production as
we produced within normal ranges during this period.
Sales of Trio ® were 45,000 tons in the third quarter of
2010 compared to 40,000 tons in the third quarter of 2009.
Langbeinite production in the third quarter of 2010 decreased to
32,000 tons from 60,000 tons produced in the third quarter of 2009.
The average net realized sales price for langbeinite, which we market
as Trio ®, was $173 per ton ($191 per metric tonne) in the
third quarter of 2010 compared to $246 per ton ($271 per metric tonne)
in the third quarter of 2009.
Average gross margin in the third quarter of 2010 for the sale of
potash was $122 per ton or 35 percent, compared to $231 per ton or 50
percent in the third quarter of 2009. Average gross margin for the
sale of Trio ® was $3 per ton or two percent compared to $74
per ton or 30 percent in the same period of 2009. The most significant
drivers of the decrease in margin for each product were the
competitive forces in the markets that reduced sales prices.
Capital investments in the third quarter of 2010 totaled $30.9 million.
As of September 30, 2010, we had $126.5 million of cash and
investments, no outstanding debt, and $125.0 million of availability
under our revolving credit facility.
'During the third quarter of 2010, the fall potash application in the
fields was robust, and we are seeing the volumes of potash sold in the
United States rebound to more historical levels,? said Bob Jornayvaz,
Intrepid′s Executive Chairman of the Board. 'Demand for potash during
the quarter started off somewhat slowly during July, as there was a lack
of clarity in the direction of potash price and dealers waited for more
clarity about market pricing for all three primary crop nutrients to
emerge. However, this hesitation was short-lived and demand for product
gained momentum throughout the quarter as dealers began purchasing
inventory for their own accounts as their confidence in price increased
and a strong fall fertilizer season began to materialize. Farmer income
in the United States is expected to rise almost twenty-five percent this
year as commodity prices have moved up significantly in the last couple
of months. Given the lower than expected yield numbers recently
announced by the USDA, specifically related to corn, we believe that the
forthcoming crop intention announcements will report near record corn
acres planted and should, in turn, lead to higher nutrient demand. It is
not only corn that has favorable economics, it is virtually every crop,
which should further lead farmers to seek maximum yield, which requires
maximum plant nutrition. We have increased our posted price to $485 per
ton FOB Carlsbad for our red granular product effective November 1,
2010. At the current time, we are holding off on taking new rail orders
until we get caught up on our backlog of rail shipments and we are only
taking new orders for spot sales from our facilities. Our strategy is
simple - we are operating our plants and managing our sales function to
fully and actively participate in this bullish market. The flexibility
that our Moab compaction project is expected to bring at the end of
2010, allowing Intrepid to sell more granular tons into the agricultural
market, and the additional Trio ® tons that our Langbeinite
Recovery Improvement Project is expected to bring on at the end of 2011,
are designed to position Intrepid to benefit from this cycle.?
Market Conditions
The somewhat rapid rebound in the nutrient market can be associated with
several contributing factors. First, the fall fertilizer season
materialized quickly this year, as an early harvest, combined with dry
weather, created a larger window for fertilizer application. Second,
demand was already strong for potash prior to the recent strengthening
of agricultural commodity prices and demand has remained strong as
potash prices have risen in conjunction with the increase in
agricultural commodity pricing. Potash prices bottomed during the summer
months as other producers introduced summer price incentive programs.
These factors, together with a diminished chance of price shocks from
nitrogen, which can be attributed to the relatively flat natural gas
forward curve, set the stage for strong economics to the farmer. We
expect sales volumes for the remainder of 2010 to be in line with
historical norms with higher sales volumes through the fall season with
sales volumes typically contracting as we enter the winter months in
November and December. With the recent price announcements, it is
difficult to predict with precision monthly sales volumes in the short
term. The specific monthly sales timing is not as relevant as the
overall strength in the potash market going into 2011.
During the third quarter of 2010, announced potash prices began their
first meaningful recovery since declining from peak levels in 2008. As
mentioned previously, a number of our competitors instituted summer
price incentive programs in July 2010 to stimulate demand, which
resulted in our average net realized sales price of $343 per ton for the
quarter. We have increased our potash pricing four times in the last two
months. We initially raised the price for red granular potash in
Carlsbad from $360 per ton to $380 per ton for orders placed after
October 1, 2010, and again to $410 per ton for orders placed after
November 1, 2010. Given the pace of change in the agricultural commodity
market, we subsequently accelerated our price increase to $435 per ton
on October 18, 2010, and then again to $485 per ton, effective November
1, 2010, based on continued strong demand in the market and limited
available product. We expect the net impact of these price increases to
be realized approximately three months after their effective date, as we
typically have a certain amount of product already committed for later
rail delivery at the time we announce a price increase. We will,
however, begin to realize the increased pricing immediately for product
sold into the truck market. It should be noted that we experienced
increased sales activity in September 2010 as a result of our announced
price increases. We estimate that some of our customers accelerated
purchases by approximately 20,000 to 25,000 tons from the fourth quarter
into the third quarter. Finally, we expect our third quarter 2010
average net realized sales price of $343 per ton to be the lowest of the
year and believe we will see sequential improvement in our average net
realized sales price into the next quarter and into next year.
As positive as the agricultural market for granular potash is, the
market for standard potash remains challenging as we are experiencing
price and volume pressure from the Canadian producers. We believe that
the Canadian producers are moving more standard potash into the domestic
market due to the lack of large export orders to countries such as India
and China. As a result, the pricing for standard product, which has
typically priced at parity with granular potash, is lagging granular
potash pricing at this time. Moreover, this highlights the importance of
our Moab compaction project, which will allow us the flexibility to
convert Moab standard tons into granular product, in order for us to
pursue the highest average net realized sales price for our production,
where pricing is currently stronger.
Third Quarter Results & Recent Performance
Income before income taxes for the third quarter of 2010 was $19.8
million compared to $15.9 million in the third quarter of 2009. Cash
flows from operating activities were $8.6 million for the third quarter
of 2010, compared to $6.6 million for the third quarter of 2009.
Adjusted net income4 for the third quarter of 2010 was $11.7
million compared to adjusted net income of $13.1 million in the same
period last year.
Potash
During the third quarter of 2010, Intrepid increased production to
166,000 tons of potash and sold 221,000 tons of potash. This compares to
112,000 tons produced and 111,000 tons sold in the third quarter of
2009. The 221,000 tons of potash we sold were at an average net realized
sales price of $343 per ton as compared to $458 per ton during the third
quarter of 2009. Our average net realized sales price for the third
quarter continued to exceed that of our North American competitors, with
an average net realized sales price advantage of $52 per ton.
Our potash cash cost of goods sold, net of by-product credits of $7 per
ton, decreased to $171 per ton in the third quarter of 2010 from $177
per ton, net of by-product credits of $16 per ton, in the third quarter
of 2009. On a comparative basis, net of by product credits, the potash
cash cost of goods sold was $199 per ton and $206 per ton in first and
second quarters of 2010, respectively. As noted previously, all
production costs were absorbed into the inventory costs in the third
quarter of 2010, and therefore included in the cash cost of goods sold
results in this quarter, whereas abnormal production costs of $5.8
million were excluded from the inventory calculation and therefore cash
cost of goods sold in the third quarter of 2009. Our lower cash cost of
goods sold per ton during the third quarter of 2010 resulted primarily
from our increasing staffing levels for our mining operations, which
allowed the mines to increase production resulting in decreased per unit
costs.
We conducted our annual maintenance turnaround at our East Mine in late
September 2010, which was successfully completed and the mine and mill
recommenced production on October 10, 2010. Following the maintenance
turnaround at the East Mine, we expect to increase production rates at
our Carlsbad facilities beginning in the month of November 2010.
Further, this maintenance turnaround allowed us to complete scheduled
maintenance work at the East Mine and to prepare the surface operations
for the Langbeinite Recovery Improvement Project. We expect the net
impact of this scheduled maintenance will result in higher per ton
operating costs in the fourth quarter of 2010, as our fixed costs during
the maintenance turnaround remained at least the same, if not higher,
due to curtailed production during this period.
Langbeinite ? Trio ®
Intrepid sold 45,000 tons of Trio ® in the third quarter of
2010, the majority of which was granular product, at an average net
realized sales price of $173 per ton. This compares to 40,000 tons sold
at an average net realized sales price of $246 per ton in the prior
year′s third quarter. Our net realized sales price per ton increased
slightly compared to the second quarter of 2010 due to continued strong
demand for granular Trio ® coupled with a price increase of
$15 per ton in September of 2010.
Demand for granular Trio ® remains strong and we expect
granular Trio ® sales demand will continue to exceed our
production for the next few quarters, resulting in the on-going need to
sell our granular product on an allocated basis. Based on this continued
demand, and that Trio ® pricing typically moves in step with
potash pricing, we raised prices for granular Trio ® to $246
per ton effective October 15, 2010.
As highlighted in our second quarter 2010 earnings announcement, during
July 2010 we were forced to shut down our langbeinite plant at our East
facility for a total of 14 days due to unusually heavy rainfall. This
weather event highlights the importance of our Langbeinite Recovery
Improvement Project, which is designed to reduce our freshwater usage in
the production of langbeinite, thereby reducing the risk of impacts from
significant or unusual weather events like those experienced in July
2010. Although we did have constrained production during July 2010, we
have not had any further weather-related production impacts in the
quarter.
Capital Investment
During the third quarter of 2010, we made significant progress in moving
forward on a number of our key capital projects. The compaction project
at our Moab, Utah plant is proceeding as planned. This project will
enable the compaction of all of our standard production, if necessary,
into granular-sized product for the agricultural market. We believe this
project will be completed prior to the end of 2010. The capital
investment for this project is now expected to be below budget at $11 to
$13 million.
The Langbeinite Recovery Improvement Project at our Carlsbad, New Mexico
East Mine is progressing well, with final engineering being completed
and a number of major components of the project currently out for bid.
As mentioned previously, a number of important pre-construction items,
including electrical tie-ins and equipment relocation for the project,
were performed during the recent East Mine maintenance turnaround. The
total capital investment for the project expected to be between $85 and
$90 million, with approximately $17 to $22 million to be invested during
the remainder of 2010, with the balance invested in 2011. Variability in
the timing of the fabrication of materials for this project could have
an impact on the timing of investment in the project during 2010.
Our updated forecast for total capital investment in 2010 is estimated
to be between $110 and $120 million, which includes sustaining,
improvement, instrumentation and control projects in addition to the
projects highlighted above.
Intrepid routinely posts information about Intrepid on its website under
the Investor Relations tab. Intrepid′s website address is www.intrepidpotash.com.
Unless expressly stated otherwise or the context otherwise requires,
references to 'tons? in this press release refer to short tons.One
short ton equals 2,000 pounds.One metric tonne, which many of
our international competitors use, equals 1,000 kilograms or 2,204.68
pounds.
Since adjusted net income and EBITDA are non-GAAP financial measures,
we make reference to their respective reconciliations in the
accompanying non-GAAP reconciliation tables towards the end of this
release.Average net realized sales price and cash cost of goods
sold are defined in the text of this release and the associated
financial tables provide the details to reconcile these numbers to U.S.
GAAP line items.
Conference Call Information
The conference call to discuss third quarter 2010 results is scheduled
for November 4, 2010, at 8:00 a.m. MDT (10:00 a.m. EDT). The call
participation number is (877) 419-5396. A recording of the conference
call will be available two hours after the completion of the call at
(800) 642-1687. International participants can dial (706) 902-2295 to
take part in the conference call and can access a replay of the call at
(706) 645-9291. All of the above participation numbers will require the
input of the conference identification number 14693434. The call will
also be streamed on the Intrepid website, www.intrepidpotash.com.
In addition, the press release announcing third quarter 2010 results
will be available on the Intrepid website before the call under
'Investor Relations - Press Releases.' An audio recording of the
conference call will be available at www.intrepidpotash.com
through December 4, 2010.
1 This is a financial measure not calculated in accordance
with U.S. Generally Accepted Accounting Principles (Non-GAAP). See the
Non-GAAP reconciliations set forth later in this press release for
additional information.
2 Average net realized sales price is calculated as gross
sales less freight costs, divided by the number of tons sold in the
period.
3 Potash cash cost of goods sold, net of by-product credits,
is defined as total cost of goods sold excluding royalties,
depreciation, depletion and amortization.
4 This is a financial measure not calculated in accordance
with U.S. Generally Accepted Accounting Principles (Non-GAAP). See the
Non-GAAP reconciliations set forth later in this press release for
additional information.
Certain statements in this press release, and other written or oral
statements made by or on behalf of us, are 'forward-looking statements?
within the meaning of the federal securities laws. Statements regarding
future events and developments and our future performance, as well as
management′s expectations, beliefs, plans, estimates or projections
relating to the future, including statements regarding guidance, are
forward-looking statements within the meaning of these laws. Although we
believe that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, there can be no
assurance that the expectations will be realized. These forward-looking
statements are subject to a number of known and unknown risks and
uncertainties, many of which are beyond our control that could cause
actual results to differ materially and adversely from such statements.
These risks and uncertainties include: changes in the price of potash or
Trio ®; operational difficulties at our facilities; the
ability to hire and retain qualified employees; changes in demand and/or
production of potash or Trio ®/langbeinite; changes in our
reserve estimates; our ability to achieve the initiatives of our
business strategy, including but not limited to the development of the
HB Solar Solution Mine as a solution mine and the further development of
our langbeinite recovery assets; changes in the prices of our raw
materials, including but not limited to the price of chemicals, natural
gas and power; fluctuations in the costs of transporting our products to
customers; changes in labor costs and availability of labor with mining
expertise; the impact of federal, state or local government regulations,
including but not limited to environmental and mining regulations, and
the enforcement of such regulations; competition in the fertilizer
industry; declines in U.S. or world agricultural production; declines in
oil and gas drilling; changes in economic conditions; adverse weather
events at our facilities; our ability to comply with covenants inherent
in our current and future debt obligations to avoid defaulting under
those agreements; disruptions in credit markets; our ability to secure
additional federal and state potash leases to expand our existing mining
operations; governmental policy changes that may adversely affect our
business and the risk factors detailed in our filings with the U.S.
Securities and Exchange Commission. Please refer to those filings for
more information on these risk factors. These forward-looking statements
speak only as of the date of this press release, and we undertake no
obligation to publicly update or revise any forward-looking statement,
whether as the result of future events, new information or otherwise.
INTREPID POTASH, INC. SELECTED OPERATIONS DATA (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 | |||
| Three Months Ended | |||
| September 30, 2010 | September 30, 2009 | ||
Production volume (in thousands of tons): | |||
Potash | 166 | 112 | |
Langbeinite | 32 | 60 | |
Sales volume (in thousands of tons): | |||
Potash | 221 | 111 | |
Trio ® | 45 | 40 | |
Gross sales (in thousands): | |||
Potash | $ 81,246 | $ 54,521 | |
Trio ® | $ 10,225 | $ 11,928 | |
Freight costs (in thousands): | |||
Potash | $ 5,396 | $ 3,598 | |
Trio ® | $ 2,435 | $ 1,995 | |
Net sales (in thousands): | |||
Potash | $ 75,850 | $ 50,923 | |
Trio ® | $ 7,790 | $ 9,933 | |
Potash statistics (per ton): | |||
Average net realized sales price | $ 343 | $ 458 | |
| 171 | 177 | |
Depreciation, depletion, and amortization | 26 | 19 | |
Royalties | 13 | 18 | |
Total potash cost of goods sold | 210 | 214 | |
Warehousing and handling costs | 11 | 13 | |
| $ 122 | $ 231 | |
Trio ® statistics (per ton): | |||
Average net realized sales price | $ 173 | $ 246 | |
| 132 | 131 | |
Depreciation, depletion, and amortization | 18 | 12 | |
Royalties | 8 | 12 | |
Total Trio ® cost of goods sold | 158 | 155 | |
Warehousing and handling costs | 12 | 17 | |
| $ 3 | $ 74 | |
*On a per ton basis, by-product credits were $7 and $16 for
the three month periods ended September 30, 2010 and 2009, respectively.By-product credits were $1.5 million and $1.7 million for the three
month periods ended September 30, 2010 and 2009, respectively.Costs
associated with abnormal production were zero and $5.8 million for the
three month periods ended September 30, 2010 and 2009, respectively.
INTREPID POTASH, INC. SELECTED OPERATIONS DATA (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 | |||
| Nine Months Ended | |||
| September 30, 2010 | September 30, 2009 | ||
Production volume (in thousands of tons): | |||
Potash | 503 | 381 | |
Langbeinite | 128 | 147 | |
Sales volume (in thousands of tons): | |||
Potash | 594 | 290 | |
Trio ® | 177 | 123 | |
Gross sales (in thousands): | |||
Potash | $ 223,522 | $ 184,602 | |
Trio ® | $ 39,627 | $ 44,140 | |
Freight costs (in thousands): | |||
Potash | $ 13,110 | $ 7,997 | |
Trio ® | $ 10,060 | $ 6,425 | |
Net sales (in thousands): | |||
Potash | $ 210,412 | $ 176,605 | |
Trio ® | $ 29,567 | $ 37,715 | |
Potash statistics (per ton): | |||
Average net realized sales price | $ 354 | $ 610 | |
| 190 | 200 | |
Depreciation, depletion, and amortization | 26 | 19 | |
Royalties | 13 | 22 | |
Total potash cost of goods sold | 229 | 241 | |
Warehousing and handling costs | 10 | 14 | |
| $ 115 | $ 355 | |
Trio ® statistics (per ton): | |||
Average net realized sales price | $ 167 | $ 306 | |
| 124 | 143 | |
Depreciation, depletion, and amortization | 17 | 14 | |
Royalties | 8 | 15 | |
Total Trio ® cost of goods sold | 149 | 172 | |
Warehousing and handling costs | 10 | 14 | |
| $ 8 | $ 120 | |
*On a per ton basis, by-product credits were $8 and $17 for
the nine month periods ended September 30, 2010 and 2009, respectively.By-product credits were $4.9 million for both the nine month periods
ended September 30, 2010 and 2009.Costs associated with abnormal
production were $0.5 million and $12.2 million for the nine month
periods ended September 30, 2010 and 2009, respectively.
INTREPID POTASH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (In thousands, except share and per share amounts) | |||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, 2010 | September 30, 2009 | September 30, 2010 | September 30, 2009 | ||||||||||
| Sales | $ 91,471 | $ 66,449 | $ 263,149 | $ 228,742 | |||||||||
Less: | |||||||||||||
Freight costs | 7,831 | 5,593 | 23,170 | 14,422 | |||||||||
Warehousing and handling costs | 2,893 | 2,137 | 7,935 | 5,764 | |||||||||
Cost of goods sold | 53,812 | 30,035 | 162,482 | 90,943 | |||||||||
Costs associated with abnormal | |||||||||||||
| - | 5,784 | 470 | 12,159 | |||||||||
Other | 127 | - | 666 | - | |||||||||
| Gross Margin | 26,808 | 22,900 | 68,426 | 105,454 | |||||||||
Selling and administrative | 6,439 | 6,475 | 21,021 | 21,021 | |||||||||
Accretion of asset retirement obligation | 176 | 169 | 528 | 510 | |||||||||
Other | 271 | 18 | 744 | 595 | |||||||||
| Operating Income | 19,922 | 16,238 | 46,133 | 83,328 | |||||||||
| Other Income (Expense) | |||||||||||||
Interest expense, including realized and | |||||||||||||
unrealized derivative gains and losses | (430 | ) | (639 | ) | (1,462 | ) | (592 | ) | |||||
Interest income | 207 | 42 | 479 | 75 | |||||||||
Insurance settlements in excess of | |||||||||||||
property losses | - | 5 | - | (11 | ) | ||||||||
Other income | 147 | 266 | 296 | 448 | |||||||||
| Income Before Income Taxes | 19,846 | 15,912 | 45,446 | 83,248 | |||||||||
| Income Tax Expense | (8,187 | ) | (6,392 | ) | (18,338 | ) | (34,611 | ) | |||||
| Net Income | $ 11,659 | $ 9,520 | $ 27,108 | $ 48,637 | |||||||||
Weighted Average Shares Outstanding: | |||||||||||||
Basic | 75,101,446 | 75,032,086 | 75,077,260 | 75,008,438 | |||||||||
Diluted | 75,143,542 | 75,055,990 | 75,133,775 | 75,023,180 | |||||||||
Earnings Per Share: | |||||||||||||
Basic | $ 0.16 | $ 0.13 | $ 0.36 | $ 0.65 | |||||||||
Diluted | $ 0.16 | $ 0.13 | $ 0.36 | $ 0.65 | |||||||||
INTREPID POTASH, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009 (In thousands, except share and per share amounts) | ||||||
September 30, 2010 | December 31, 2009 | |||||
| ASSETS | ||||||