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| 8-K - 8-K - Intrepid Potash, Inc. | q320148-k.htm |
Intrepid Potash Announces Third Quarter 2014 Results
Delivered Strong Sales Volume at Sequentially Higher Prices
Record September Rainfall Elevated Production Costs
DENVER; Oct. 29, 2014 - Intrepid Potash Inc. (Intrepid) (NYSE: IPI) today announced financial results and operating highlights for its third quarter ended September 30, 2014.
Financial results for the third quarter of 2014 include:
• | Potash sales volume up 46% in the third quarter and 34% for the first nine months of 2014 compared to the same periods last year. |
• | Trio® sales volume up 95% in the third quarter and 47% for the first nine months of 2014 compared to the same periods last year. |
• | Net loss of $1.2 million, or $0.02 per diluted share, compared with net income of $2.0 million, or $0.03 per diluted share, for the third quarter 2013. |
• | Adjusted net loss(1) of $1.2 million, or $0.02 per diluted share, compared with adjusted net income of $3.7 million, or $0.06 per diluted share, for the third quarter of 2013. |
• | Adjusted EBITDA(1) of $20.5 million, compared with $20.3 million in the third quarter of 2013. |
• | Results in the third quarter and first nine months of 2014 included a lower-of-cost-or-market inventory adjustment of $3.4 million and $8.1 million, respectively, compared with $2.1 million during each of the same periods in 2013. |
• | Cash flow from operating activities of $104.8 million for the first nine months of 2014, compared with $62.1 million in the comparable period of 2013. Cash paid for capital expenditures for the first nine months of 2014 was $55.3 million. |
• | Cash, cash equivalents, and investments totaled $73.9 million at September 30, 2014. |
"I am pleased that Intrepid delivered strong adjusted EBITDA and cash flow in the quarter driven by our strong sales volumes and sequentially higher average prices. We achieved this through our well designed close-to-the-customer strategy which involves a thoughtful approach to serving a diverse set of customers in locations where we have a freight advantage and our
objective of selling all the product we produce. By successfully executing on this strategy, we were able to navigate the challenging railroad logistics to maximize sales volumes during this period of strong demand. We believe that we will continue to earn the highest average net realized sales price(1) in North America,” said Robert Jornayvaz, Intrepid's co-founder, Executive Chairman, President and CEO.
In Carlsbad, New Mexico, as a result of the unprecedented rainfall in September, Intrepid voluntarily shut down its East facility for six days and all of Intrepid's Carlsbad facilities were periodically without power supply due to regional outages. As a result, Intrepid's third quarter production was lower than expected and the corresponding cash operating costs per ton(1) for potash and Trio® were higher than expected. The elevated cash operating costs for potash added to the lower-of-cost-or-market inventory adjustment, leading to the net loss for the quarter.
Third quarter 2014 highlights include:
Potash
• | Average net realized sales price per ton was $336 ($370 per metric tonne), a 2% increase from the previous quarter. Last year's third quarter average net realized sales price was $363 per ton ($400 per metric tonne). |
• | Cash operating costs were $204 per ton compared with $198 per ton in the third quarter of 2013. |
• | Potash sales volume was 227,000 tons in the third quarter, up 46% from the same quarter of 2013. For the first nine months of 2014, potash sales volume of 705,000 tons increased 34% from the comparable period of 2013. |
• | Potash production was 194,000 tons, up 16% compared with the same period a year ago. In the first nine months of this year, production volume was 605,000 tons, an increase of 6% from the first nine months of 2013. |
The growth in sales volume year over year is attributable to Intrepid's ability to meet customer demand and make timely shipments. Intrepid successfully utilizes strategically located facilities, truck markets, and field warehouses to implement its close-to-the-customer sales strategy and to minimize the impact of domestic rail challenges.
In the third quarter, on a per ton basis for potash, Intrepid's cash operating costs and cost of goods sold increased both year over year and sequentially. While these increases were expected from previously scheduled maintenance, the weather event amplified the increases.
The full-year 2014 outlook for cash operating costs per ton and total cost of goods sold per ton for potash have been increased slightly from the previous outlook to reflect the elevated costs in the third quarter. Intrepid's continued expectation is for per ton potash cash operating costs and
total cost of goods sold to benefit in the fourth quarter from the second, larger harvest from the HB Solar Solution mine.
Langbeinite - Trio®
• | Average net realized sales price per ton for langbeinite, which is marketed as Trio®, in the third quarter was $351 ($387 per metric tonne), relatively flat compared with the second quarter of 2014 and the third quarter of 2013. |
• | Cash operating costs were $206 per ton, meaningfully improved from $243 per ton in the third quarter of 2013. Cash operating costs were up 7% sequentially from the second quarter of 2014. |
• | Trio® sales volume was 43,000 tons, up from 22,000 tons for the same period in the prior year. Sales volume for the first nine months of this year increased 47% to 141,000 tons compared with the same period in 2013. |
• | Production was 34,000 tons compared with 40,000 tons in the third quarter of 2013. |
Demand for granular- and premium-sized Trio® is strong, yielding solid increases in sales volume for the quarter and year to date with relatively stable pricing trends that reflect the value customers place on this specialty fertilizer.
Trio®, which is produced solely at the East facility, experienced sequentially lower production volume and a correlating increase in per ton cash operating costs and cost of goods sold in the third quarter mostly due to shutdowns for weather and scheduled maintenance.
Market conditions and outlook:
Intrepid expects to continue to achieve strong potash sales for the remainder of this year while sustaining its average net realized sales price advantage. Intrepid drives sales and realized price success by placing product forward in the market ahead of demand, by serving markets where a freight advantage exists, and by selling a diverse set of products to end users across the agricultural, industrial and feed markets.
Fourth quarter demand and pricing have remained solid as positive market conditions persist, and as the Canadian producers announced another $20 per ton price increase in early October. Based on the nine month sales volume and the level of committed sales in the fourth quarter, Intrepid has tightened its potash sales volume guidance and expects pricing in the fourth quarter to be relatively consistent with levels realized in the third quarter.
Intrepid has three solar solution facilities located where the arid climate is conducive for evaporation allowing these facilities to operate at relatively low production costs. In the solar solution mining process, rates of evaporation and precipitation are key variables in the timing
and amount of production. As a result of the third quarter 2014 abnormal rainfall levels, Intrepid expects combined production volume from its solar solution properties in 2015 to be similar to 2014 volume. At this expected production level, Intrepid’s 2015 company-wide cash operating costs per ton for potash are currently expected to approximate the full-year 2014 guidance. The potash production gains from HB in 2015 will be offset by lower production at Wendover, which is Intrepid’s lowest cost facility.
Intrepid's outlook for the full year of 2014 is presented below. This information is Intrepid's best estimate at the current time and will be impacted by actual market conditions, results of operations, and production results.
Full-Year | |||
2014 | |||
Potash | |||
Production (tons) | 850,000 - 860,000 | ||
Sales (tons) | 900,000 - 910,000 | ||
Cash operating costs ($/ton) | $195 - $205 | ||
Total COGS ($/ton) | $275 - $285 | ||
Trio® | |||
Production (tons) | 145,000 - 155,000 | ||
Sales (tons) | 175,000 - 185,000 | ||
Cash operating costs ($/ton) | $195 - $205 | ||
Total COGS ($/ton) | $275 - $285 | ||
Other | |||
Interest expense | $5.5 - $6.5 million | ||
Depreciation, depletion, and accretion | $77 - $81 million | ||
Selling and administrative expense (excludes approximately $1.8 million of restructuring charges in the first quarter) | $26 - $28 million | ||
Capital investment | $40 - $50 million | ||
Notes
(1) Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), average net realized sales price per ton, and per ton cash operating costs are non-GAAP financial measures. See the non-GAAP reconciliations set forth later in this press release for additional information.
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 international competitors use, equals 1,000 kilograms or 2,204.62 pounds.
Conference Call Information
A teleconference to discuss the quarter is scheduled for October 30, 2014, at 10:00 a.m. ET. The dial in number is 800-319-4610 for U.S. and Canada, and is 631-982-4565 for other countries. A recording of the conference call will be available two hours after the completion of the call at 800-319-6413 for U.S. and Canada, or 631-883-6842 for other countries. The replay of the call will require the input of the conference identification number 763324. The call will also be streamed on the Intrepid website, www.intrepidpotash.com. An audio recording of the conference call will be available at www.intrepidpotash.com through December 1, 2014.
About Intrepid
Intrepid (NYSE: IPI) is the largest producer of potash in the U.S. and is dedicated to the production and marketing of potash, which is essential for healthy crop development; and Trio®, a specialty fertilizer supplying three key nutrients, potassium, magnesium and sulfate, in a single particle. Intrepid owns six active production facilities across New Mexico and Utah. Intrepid is unique in the U.S. in its utilization of low-cost solar solution mining at three of its facilities, including the newly constructed HB Solar Solution mine.
Intrepid routinely posts important information, including information about upcoming investor presentations and press releases, on its website under the Investor Relations tab. Investors and other interested parties are encouraged to enroll on the Intrepid website,
www.intrepidpotash.com to receive automatic email alerts or Really Simple Syndication (RSS) feeds regarding new postings.
Forward-looking Statements
This document contains forward-looking statements - that is, statements about future, not past, events. The forward-looking statements in this document often relate to our future performance and management's expectations for the future, including statements about our financial outlook. These statements are based on assumptions that we believe are reasonable. Forward-looking statements by their nature address matters that are uncertain. For us, the particular uncertainties that could cause our actual results to be materially different from our forward-looking statements include the following:
• | changes in the price, demand, or supply of potash or Trio®/langbeinite |
• | circumstances that disrupt or limit our production, including operational difficulties or operational variances due to geological or geotechnical variances |
• | interruptions in rail or truck transportation services, or fluctuations in the costs of these services |
• | increased labor costs or difficulties in hiring and retaining qualified employees and contractors, including workers with mining, mineral processing, or construction expertise |
• | the costs of, and our ability to successfully construct, commission, and execute, any of our strategic projects |
• | adverse weather events, including events affecting precipitation and evaporation rates at our solar solution mines |
• | changes in the prices of raw materials, including chemicals, natural gas, and power |
• | the impact of federal, state, or local governmental regulations, including environmental and mining regulations; the enforcement of those regulations; and governmental policy changes |
• | our ability to obtain any necessary governmental permits relating to the construction and operation of assets |
• | changes in our reserve estimates |
• | competition in the fertilizer industry |
• | declines or changes in U.S. or world agricultural production or fertilizer application rates |
• | declines in the use of potash products by oil and gas companies in their drilling operations |
• | changes in economic conditions |
• | our ability to comply with covenants in our debt-related agreements to avoid a default under those agreements, or the total amount available to us under our credit facility is reduced, in whole or in part, because of covenant limitations |
• | disruption in the credit markets |
• | our ability to secure additional federal and state potash leases to expand our existing mining operations |
• | the other risks, uncertainties, and assumptions described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2013, as updated by our subsequent Quarterly Reports on Form 10-Q |
In addition, new risks emerge from time to time. It is not possible for our management to predict all risks that may cause actual results to differ materially from those contained in any forward-looking statements we may make.
All information in this document speaks as of October 29, 2014. New information or events after that date may cause our forward-looking statements in this document to change. We have no duty to update or revise publicly any forward-looking statements to conform the statements to actual results or to reflect new information or future events.
Contact:
Gary Kohn, Investor Relations
Phone: 303-996-3024
Email: gary.kohn@intrepidpotash.com
INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands, except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Sales | $ | 102,280 | $ | 70,569 | $ | 312,104 | $ | 262,506 | ||||||||
Less: | ||||||||||||||||
Freight costs | 10,925 | 5,952 | 32,616 | 20,575 | ||||||||||||
Warehousing and handling costs | 3,270 | 2,854 | 9,070 | 9,527 | ||||||||||||
Cost of goods sold | 77,794 | 46,780 | 235,750 | 155,556 | ||||||||||||
Lower-of-cost-or-market inventory adjustments | 3,403 | 2,080 | 8,110 | 2,092 | ||||||||||||
Gross Margin | 6,888 | 12,903 | 26,558 | 74,756 | ||||||||||||
Selling and administrative | 6,466 | 7,921 | 20,276 | 26,052 | ||||||||||||
Accretion of asset retirement obligation | 405 | 375 | 1,217 | 1,124 | ||||||||||||
Restructuring expense | — | — | 1,827 | — | ||||||||||||
Other operating expense (income) | 2 | 2,921 | (3,249 | ) | 1,752 | |||||||||||
Operating Income | 15 | 1,686 | 6,487 | 45,828 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest expense | (1,632 | ) | (248 | ) | (4,569 | ) | (680 | ) | ||||||||
Interest income | 35 | 165 | 110 | 380 | ||||||||||||
Other income (expense) | 343 | 73 | 803 | (1,747 | ) | |||||||||||
(Loss) Income Before Income Taxes | (1,239 | ) | 1,676 | 2,831 | 43,781 | |||||||||||
Income Tax Benefit (Expense) | 3 | 350 | 1,139 | (15,519 | ) | |||||||||||
Net (Loss) Income | $ | (1,236 | ) | $ | 2,026 | $ | 3,970 | $ | 28,262 | |||||||
Weighted Average Shares Outstanding: | ||||||||||||||||
Basic | 75,528,235 | 75,394,377 | 75,496,365 | 75,372,879 | ||||||||||||
Diluted | 75,528,235 | 75,404,138 | 75,611,070 | 75,394,731 | ||||||||||||
(Loss) Earnings Per Share: | ||||||||||||||||
Basic | $ | (0.02 | ) | $ | 0.03 | $ | 0.05 | 0.37 | ||||||||
Diluted | $ | (0.02 | ) | $ | 0.03 | $ | 0.05 | 0.37 | ||||||||
7
INTREPID POTASH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(In thousands, except share and per share amounts)
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 70,833 | $ | 394 | ||||
Short-term investments | 3,019 | 15,214 | ||||||
Accounts receivable: | ||||||||
Trade, net | 32,558 | 20,837 | ||||||
Other receivables | 5,662 | 7,457 | ||||||
Refundable income taxes | 527 | 15,722 | ||||||
Inventory, net | 78,676 | 105,011 | ||||||
Prepaid expenses and other current assets | 5,456 | 5,653 | ||||||
Current deferred tax asset | 5,228 | 8,341 | ||||||
Total current assets | 201,959 | 178,629 | ||||||
Property, plant, equipment, and mineral properties, net | 799,095 | 826,569 | ||||||
Long-term parts inventory, net | 15,248 | 12,469 | ||||||
Long-term investments | 1 | 9,505 | ||||||
Other assets, net | 4,134 | 4,252 | ||||||
Non-current deferred tax asset | 146,987 | 143,849 | ||||||
Total Assets | $ | 1,167,424 | $ | 1,175,273 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Accounts payable: | ||||||||
Trade | $ | 17,905 | $ | 27,552 | ||||
Related parties | 233 | 50 | ||||||
Accrued liabilities | 20,037 | 29,845 | ||||||
Accrued employee compensation and benefits | 13,680 | 9,122 | ||||||
Other current liabilities | 1,171 | 2,059 | ||||||
Total current liabilities | 53,026 | 68,628 | ||||||
Long-term debt | 150,000 | 150,000 | ||||||
Asset retirement obligation | 21,051 | 19,959 | ||||||
Other non-current liabilities | 2,784 | 2,715 | ||||||
Total Liabilities | 226,861 | 241,302 | ||||||
Commitments and Contingencies | ||||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; and 75,528,235 and | ||||||||
75,405,410 shares outstanding at September 30, 2014, and December 31, 2013, respectively | 76 | 75 | ||||||
Additional paid-in capital | 575,225 | 572,616 | ||||||
Accumulated other comprehensive income (loss) | 2 | (10 | ) | |||||
Retained earnings | 365,260 | 361,290 | ||||||
Total Stockholders' Equity | 940,563 | 933,971 | ||||||
Total Liabilities and Stockholders' Equity | $ | 1,167,424 | $ | 1,175,273 | ||||
8
INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Reconciliation of net (loss) income to net cash provided by operating activities: | ||||||||||||||||
Net (loss) income | $ | (1,236 | ) | $ | 2,026 | $ | 3,970 | $ | 28,262 | |||||||
Deferred income taxes | (3 | ) | 773 | (31 | ) | 16,299 | ||||||||||
Items not affecting cash: | ||||||||||||||||
Depreciation, depletion, and accretion | 20,107 | 15,561 | 59,630 | 44,040 | ||||||||||||
Stock-based compensation | 689 | 1,204 | 3,220 | 3,881 | ||||||||||||
Lower-of-cost-or-market inventory adjustments | 3,404 | 2,080 | 8,110 | 2,092 | ||||||||||||
Other | 224 | 751 | 172 | 2,112 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable, net | 478 | 10,428 | (11,722 | ) | 6,114 | |||||||||||
Other receivables, net | (560 | ) | 2,249 | 1,794 | 757 | |||||||||||
Refundable income taxes | 14,207 | (1,123 | ) | 15,196 | (1,199 | ) | ||||||||||
Inventory, net | 2,936 | (20,763 | ) | 15,446 | (39,373 | ) | ||||||||||
Prepaid expenses and other assets | (1,855 | ) | (2,765 | ) | (3 | ) | (1,273 | ) | ||||||||
Accounts payable, accrued liabilities, and accrued employee compensation and benefits | 10,702 | 4,658 | 9,995 | 1,253 | ||||||||||||
Other liabilities | (107 | ) | (396 | ) | (942 | ) | (838 | ) | ||||||||
Net cash provided by operating activities | 48,986 | 14,683 | 104,835 | 62,127 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Additions to property, plant, equipment, and mineral properties | (10,186 | ) | (62,468 | ) | (55,325 | ) | (186,227 | ) | ||||||||
Proceeds from sale of property, plant, equipment, and mineral properties | — | 40 | — | 108 | ||||||||||||
Purchases of investments | — | (1 | ) | (7 | ) | (80,235 | ) | |||||||||
Proceeds from sale of investments | 964 | 10,824 | 21,547 | 32,663 | ||||||||||||
Net cash used in investing activities | (9,222 | ) | (51,605 | ) | (33,785 | ) | (233,691 | ) | ||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Proceeds from long-term debt | — | — | — | 150,000 | ||||||||||||
Debt issuance costs | — | (429 | ) | — | (1,032 | ) | ||||||||||
Employee tax withholding paid for restricted stock upon vesting | — | — | (611 | ) | (577 | ) | ||||||||||
Net cash (used in) provided by financing activities | — | (429 | ) | (611 | ) | 148,391 | ||||||||||
Net Change in Cash and Cash Equivalents | 39,764 | (37,351 | ) | 70,439 | (23,173 | ) | ||||||||||
Cash and Cash Equivalents, beginning of period | 31,069 | 47,797 | 394 | 33,619 | ||||||||||||
Cash and Cash Equivalents, end of period | $ | 70,833 | $ | 10,446 | $ | 70,833 | $ | 10,446 | ||||||||
9
INTREPID POTASH, INC.
SELECTED OPERATIONS DATA (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Production volume (in thousands of tons): | ||||||||||||||||
Potash | 194 | 167 | 605 | 571 | ||||||||||||
Langbeinite | 34 | 40 | 109 | 136 | ||||||||||||
Sales volume (in thousands of tons): | ||||||||||||||||
Potash | 227 | 156 | 705 | 525 | ||||||||||||
Trio® | 43 | 22 | 141 | 96 | ||||||||||||
Gross sales (in thousands): | ||||||||||||||||
Potash | $ | 84,142 | $ | 61,170 | $ | 253,443 | $ | 222,142 | ||||||||
Trio® | 18,138 | 9,399 | 58,661 | 40,364 | ||||||||||||
Total | 102,280 | 70,569 | 312,104 | 262,506 | ||||||||||||
Freight costs (in thousands): | ||||||||||||||||
Potash | 7,846 | 4,499 | 23,003 | 14,316 | ||||||||||||
Trio® | 3,079 | 1,453 | 9,613 | 6,259 | ||||||||||||
Total | 10,925 | 5,952 | 32,616 | 20,575 | ||||||||||||
Net sales (in thousands)(1): | ||||||||||||||||
Potash | 76,296 | 56,671 | 230,440 | 207,826 | ||||||||||||
Trio® | 15,059 | 7,946 | 49,048 | 34,105 | ||||||||||||
Total | $ | 91,355 | $ | 64,617 | $ | 279,488 | $ | 241,931 | ||||||||
Potash statistics (per ton): | ||||||||||||||||
Average net realized sales price(1) | $ | 336 | $ | 363 | $ | 327 | $ | 396 | ||||||||
Cash operating costs(1)(2) | 204 | 198 | 199 | 182 | ||||||||||||
Depreciation and depletion | 73 | 54 | 68 | 49 | ||||||||||||
Royalties | 12 | 1 | 11 | 12 | ||||||||||||
Total potash cost of goods sold | $ | 289 | $ | 253 | $ | 278 | $ | 243 | ||||||||
Warehousing and handling costs | 12 | 16 | 11 | 15 | ||||||||||||
Average potash gross margin(1) | $ | 35 | $ | 94 | $ | 38 | $ | 138 | ||||||||
Trio® statistics (per ton): | ||||||||||||||||
Average net realized sales price(1) | $ | 351 | $ | 353 | $ | 348 | $ | 354 | ||||||||
Cash operating costs(1) | 206 | 243 | 202 | 194 | ||||||||||||
Depreciation and depletion | 59 | 61 | 60 | 54 | ||||||||||||
Royalties | 18 | 18 | 17 | 18 | ||||||||||||
Total Trio® cost of goods sold | $ | 283 | $ | 322 | $ | 279 | $ | 266 | ||||||||
Warehousing and handling costs | 12 | 17 | 10 | 15 | ||||||||||||
Average Trio® gross margin(1) | $ | 56 | $ | 14 | $ | 59 | $ | 73 | ||||||||
(1) Net sales, average net realized sales price, cash operating costs and average gross margin are non-GAAP financial measures. See the non-GAAP reconciliations set forth later in this press release for additional information.
(2) On a per ton basis, by-product credits were $7 and $7 for the third quarter of 2014, and 2013, respectively. By-product credits were $1.6 million and $1.1 million for the third quarter of 2014, and 2013, respectively. On a per ton basis, by-product credits were $7 and $8 for the nine months ended September 30, 2014, and 2013, respectively. By-product credits were $4.7 million and $4.3 million for the nine months ended September 30, 2014, and 2013, respectively. Cash operating costs and GAAP total cost of goods sold are shown net of by-product credits.
10
INTREPID POTASH, INC.
UNAUDITED NON-GAAP RECONCILIATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(In thousands, except per share amounts)
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use several non-GAAP financial measures to monitor and evaluate our performance. These non-GAAP financial measures include adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted EBITDA, net sales, average net realized sales price, cash operating costs, average potash and Trio® gross margin, and free cash flow. These non-GAAP financial measures should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. In addition, because the presentation of these non-GAAP financial measures varies among companies, our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies.
We believe these non-GAAP financial measures provide useful information to investors for analysis of our business. We also refer to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are widely used by professional research analysts and others in the valuation, comparison and investment recommendations of companies in the potash mining industry. Many investors use the published research reports of these professional research analysts and others in making investment decisions.
Below is additional information about our non-GAAP financial measures, including, if applicable, reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures:
Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Diluted Share
Adjusted net income (loss) and adjusted net income (loss) per diluted share are non-GAAP financial measures that are calculated as net income or earnings per diluted share adjusted for certain items that impact the comparability of results from period to period. These items include, among others, restructuring expenses and reversal of the allowance associated with the employment-related high wage tax credits in New Mexico. We consider these non-GAAP financial measures to be useful because they allow for period-to-period comparisons of our operating results excluding items that we believe are not indicative of our fundamental ongoing operations.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net Income (Loss) | $ | (1,236 | ) | $ | 2,026 | $ | 3,970 | $ | 28,262 | ||||||
Adjustments | |||||||||||||||
Allowance for New Mexico employment credits(1) | — | 2,811 | (2,563 | ) | 2,811 | ||||||||||
Restructuring expense | — | — | 1,827 | — | |||||||||||
Loss on settlement of pension obligation termination | — | — | — | 1,871 | |||||||||||
Compensating tax refund | — | — | — | (1,705 | ) | ||||||||||
Calculated income tax effect(2) | — | (1,124 | ) | 294 | (1,191 | ) | |||||||||
Change in blended state tax rate | |||||||||||||||
to value deferred income tax asset | — | — | — | 1,260 | |||||||||||
Total adjustments | — | 1,687 | (442 | ) | 3,046 | ||||||||||
Adjusted Net Income (Loss) | $ | (1,236 | ) | $ | 3,713 | $ | 3,528 | $ | 31,308 | ||||||
11
(1) In the third quarter of 2013, Intrepid received notification that its application for certain New Mexico employment-related high wage tax credits had been denied and established a pre-tax, non-cash allowance of approximately $2.8 million for the credits relating to the denied periods. In March of 2014, Intrepid received notification from the State of New Mexico that the vast majority of the credits will be allowed and therefore has reversed most of the allowance to reflect the expected amount of cash to be received.
(2) Assumes an annual effective tax rate of 40%.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net Income (Loss) Per Diluted Share | $ | (0.02 | ) | $ | 0.03 | $ | 0.05 | $ | 0.37 | ||||||
Adjustments | |||||||||||||||
Allowance for New Mexico employment credits | — | 0.04 | (0.03 | ) | 0.04 | ||||||||||
Restructuring expense | — | — | 0.02 | — | |||||||||||
Loss on settlement of pension obligation termination | — | — | — | 0.02 | |||||||||||
Compensating tax refund | — | — | — | (0.02 | ) | ||||||||||
Calculated income tax effect | — | (0.01 | ) | — | (0.02 | ) | |||||||||
Change in blended state tax rate | |||||||||||||||
to value deferred income tax asset | — | — | — | 0.02 | |||||||||||
Total adjustments | — | 0.03 | (0.01 | ) | 0.04 | ||||||||||
Adjusted Net Income (Loss) Per Diluted Share | $ | (0.02 | ) | $ | 0.06 | $ | 0.04 | $ | 0.41 | ||||||
Adjusted EBITDA
Adjusted earnings before interest, taxes, depreciation, and amortization (or adjusted EBITDA) is a non-GAAP financial measure that is calculated as net income adjusted for the reversal of the allowance associated with the employment-related high wage tax credits in New Mexico, restructuring expenses, interest expense, income tax expense (benefit), depreciation, depletion, and amortization, and asset retirement obligation accretion. We consider adjusted EBITDA to be useful because it reflects our operating performance before the effects of certain non-cash items and other items that we believe are not indicative of our core operations. We use adjusted EBITDA to assess operating performance and as one of the measures under our performance-based compensation programs for employees.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net Income (Loss) | $ | (1,236 | ) | $ | 2,026 | $ | 3,970 | $ | 28,262 | |||||||
Allowance for New Mexico employment credits | — | 2,811 | (2,563 | ) | 2,811 | |||||||||||
Restructuring expense | — | — | 1,827 | — | ||||||||||||
Interest expense | 1,632 | 248 | 4,569 | 680 | ||||||||||||
Income tax benefit | (3 | ) | (350 | ) | (1,139 | ) | 15,519 | |||||||||
Depreciation, depletion, and accretion | 20,107 | 15,561 | 59,630 | 44,040 | ||||||||||||
Total adjustments | 21,736 | 18,270 | 62,324 | 63,050 | ||||||||||||
Adjusted Earnings Before Interest, Taxes, | ||||||||||||||||
Depreciation and Amortization | $ | 20,500 | $ | 20,296 | $ | 66,294 | $ | 91,312 | ||||||||
Net Sales and Average Net Realized Sales Price per Ton
Net sales and average net realized sales price are non-GAAP financial measures. Net sales are calculated as sales less freight costs. Average net realized sales price is calculated as net sales,
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divided by the number of tons sold in the period. We consider net sales and average net realized sales price to be useful because they remove the effect of transportation and delivery costs on sales and pricing. When we arrange transportation and delivery for a customer, we include in revenue and in freight costs the costs associated with transportation and delivery. However, many of our customers arrange for and pay their own transportation and delivery costs, in which case these costs are not included in our revenue and freight costs. We use net sales and average net realized sales price as key performance indicators to analyze sales and price trends. We also use net sales as one of the measures under our performance-based compensation programs for employees.
Three Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Potash | Trio® | Total | Potash | Trio® | Total | |||||||||||||||||||
Sales | $ | 84,142 | $ | 18,138 | $ | 102,280 | $ | 61,170 | $ | 9,399 | $ | 70,569 | ||||||||||||
Freight costs | 7,846 | 3,079 | 10,925 | 4,499 | 1,453 | 5,952 | ||||||||||||||||||
Net sales | $ | 76,296 | $ | 15,059 | $ | 91,355 | $ | 56,671 | $ | 7,946 | $ | 64,617 | ||||||||||||
Divided by: | ||||||||||||||||||||||||
Tons sold (in thousands) | 227 | 43 | 156 | 22 | ||||||||||||||||||||
Average net realized sales price per ton | $ | 336 | $ | 351 | $ | 363 | $ | 353 | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Potash | Trio® | Total | Potash | Trio® | Total | |||||||||||||||||||
Sales | $ | 253,443 | $ | 58,661 | $ | 312,104 | $ | 222,142 | $ | 40,364 | $ | 262,506 | ||||||||||||
Freight costs | 23,003 | 9,613 | 32,616 | 14,316 | 6,259 | 20,575 | ||||||||||||||||||
Net sales | $ | 230,440 | $ | 49,048 | $ | 279,488 | $ | 207,826 | $ | 34,105 | $ | 241,931 | ||||||||||||
Divided by: | ||||||||||||||||||||||||
Tons sold (in thousands) | 705 | 141 | 525 | 96 | ||||||||||||||||||||
Average net realized sales price per ton | $ | 327 | $ | 348 | $ | 396 | $ | 354 | ||||||||||||||||
Cash Operating Costs per Ton
Cash operating costs per ton is a non-GAAP financial measure that is calculated as total of cost of goods sold divided by the number of tons sold in the period and then adjusted to exclude per-ton depreciation, depletion, and royalties. Total cost of goods sold is reported net of by-product credits and does not include warehousing and handling costs. We consider cash operating costs to be useful because it represents our core, per-ton costs to produce potash and Trio®. We use cash operating costs as an indicator of performance and operating efficiencies and as one of the measures under our performance-based compensation programs for employees.
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Three Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Potash | Trio® | Total | Potash | Trio® | Total | |||||||||||||||||||
Cost of goods sold | $ | 65,670 | $ | 12,124 | $ | 77,794 | $ | 39,547 | $ | 7,233 | $ | 46,780 | ||||||||||||
Divided by sales volume (in thousands of tons) | 227 | 43 | 156 | 22 | ||||||||||||||||||||
Cost of goods sold per ton | $ | 289 | $ | 283 | $ | 253 | $ | 322 | ||||||||||||||||
Less per-ton adjustments | ||||||||||||||||||||||||
Depreciation and depletion | $ | 73 | $ | 59 | $ | 54 | $ | 61 | ||||||||||||||||
Royalties | 12 | 18 | 1 | 18 | ||||||||||||||||||||
Cash operating costs per ton | $ | 204 | $ | 206 | $ | 198 | $ | 243 | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Potash | Trio® | Total | Potash | Trio® | Total | |||||||||||||||||||
Cost of goods sold | $ | 196,289 | $ | 39,461 | $ | 235,750 | $ | 130,030 | $ | 25,526 | $ | 155,556 | ||||||||||||
Divided by sales volume (in thousands of tons) | 705 | 141 | 525 | 96 | ||||||||||||||||||||
Cost of goods sold per ton | $ | 278 | $ | 279 | $ | 243 | $ | 266 | ||||||||||||||||
Less per-ton adjustments | ||||||||||||||||||||||||
Depreciation and depletion | $ | 68 | $ | 60 | $ | 49 | $ | 54 | ||||||||||||||||
Royalties | 11 | 17 | 12 | 18 | ||||||||||||||||||||
Cash operating costs per ton | $ | 199 | $ | 202 | $ | 182 | $ | 194 | ||||||||||||||||
Average Potash and Trio® Gross Margin per Ton
Average potash and Trio® gross margin per ton are non-GAAP financial measures that are calculated as average net realized sales price less per ton total cost of goods sold and per ton warehousing and handling costs. We consider average potash and Trio® gross margin per ton to be useful because they represent the average margin we realize on each ton of potash and Trio® sold. The reconciliations of average potash and Trio® net realized sales price to GAAP sales is set forth separately above under the heading “Net Sales and Average Net Realized Sales Price per Ton.”
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Potash | ||||||||||||||||
Average potash net realized sales price | $ | 336 | $ | 363 | $ | 327 | $ | 396 | ||||||||
Less total potash cost of goods sold | 289 | 253 | 278 | 243 | ||||||||||||
Less potash warehousing and handling costs | 12 | 16 | 11 | 15 | ||||||||||||
Average potash gross margin per ton | $ | 35 | $ | 94 | $ | 38 | $ | 138 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Trio® | ||||||||||||||||
Average Trio® net realized sales price | $ | 351 | $ | 353 | $ | 348 | $ | 354 | ||||||||
Less total Trio® cost of goods sold | 283 | 322 | 279 | 266 | ||||||||||||
Less Trio® warehousing and handling costs | 12 | 17 | 10 | 15 | ||||||||||||
Average Trio® gross margin per ton | $ | 56 | $ | 14 | $ | 59 | $ | 73 | ||||||||
Free Cash Flow
Free cash flow is a non-GAAP financial measure that is calculated as cash flows from operating activities less cash paid for capital expenditures. We consider free cash flow to be a useful measure of liquidity because it indicates cash generated by normal business operations, including capital expenditures. Free cash flow does not represent cash available for discretionary expenditures because we have non-discretionary obligations, such as debt service obligations, that are not deducted from this measure.
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