Intrepid Potash Announces Third Quarter 2013 Results; Major Projects Designed to Create Margin Opportunity Nearing Completion

DENVER; Oct. 30, 2013 - Intrepid Potash Inc. (Intrepid) (NYSE:IPI) today reported financial results and operating highlights for the third quarter of 2013.  

Recent Capital Investment Highlights

Intrepid continues to execute on its major, multi-year capital projects creating even more future margin opportunity.  Significant milestones were recently achieved including:  

• Completed construction of all 18 HB solar evaporation ponds and placed them into service with potash-enriched brine injections into all ponds 

• Progressed with HB processing plant construction targeting completion near year end 

• Commissioned the first and second compactor lines at the North facility and began producing high-quality granular potash 

• Continued to upgrade the West processing facility to improve recovery 

• Finalized drilling activities and expect to begin circulating brine into the completed third cavern system in Moab in the fourth quarter 

"As we complete the construction of our major capital investment projects, we are confident that we will begin to realize the benefits from the new assets and upgrades we are placing into service.  We have been investing to produce incremental low-cost tons using solution mining combined with solar evaporation in order to lower our cash operating cost per ton and to create the opportunity for our EBITDA growth to outpace our production growth," said Bob Jornayvaz, Intrepid's Executive Chairman of the Board.  "With our major capital projects being substantially complete this year and our expectation of lower capital investment in 2014, we intend to be free cash flow positive next year and look forward to the improved competitive position that our company will enjoy while serving our diversified customer base."

Third Quarter Results

Consolidated

• Net income was $2.0 million compared with third quarter 2012 net income of $33.3 million.  Third quarter 2013 net income included two notable items: a reserve established for previously recorded employment wage credits in New Mexico, and a lower of cost or market inventory adjustment.  Net of tax, these two items reduced net income by $3.1 million, or $0.04 per share.      

• Adjusted net income¹ was $5.1 million, or $0.07 per share, compared with $28.9 million, or $0.38 per share, in the same period of the prior year. 

• Adjusted EBITDA² was $20.3 million, compared with $56.3 million in the third quarter of the previous year.   

• Cash flows from operating activities were $14.7 million for the third quarter of 2013, compared with $33.4 million for the third quarter of 2012.   

• As of September 30, 2013, total cash and investments were $80.9 million and the full amount of the recently extended and amended $250.0 million unsecured credit facility was available.   

Commenting on the results, Mr. Jornayvaz said, "The financial results were influenced by the pause in demand and price softness across the potash market.  In this current environment, we still generated meaningful cash flow per ton sold and have maintained a robust balance sheet.  We have intentionally invested to strengthen our company and are now positioned better to capitalize on the longer-term market opportunities that the industry fundamentals support."

Potash

• Potash production in the quarter was 167,000 tons, down from 189,000 tons in the same period a year ago.  Production in the first nine months of 2013 was 571,000 tons, essentially flat compared with the 578,000 tons produced in the first nine months of 2012. 

• Cash operating cost of goods sold³, net of by-product credits, was $198 per ton in the third quarter of 2013 compared with $167 in last year's third quarter.  Cash operating cost of goods sold, net of by-product credits, in the first nine months of 2013 was $182 per ton, compared with $179 in the first nine months of 2012. 

• Total cost of goods sold, net of by-product credits, per ton was $253 for the third quarter and $243 for the first nine months of this year, compared with $224 and $238 per ton for the same periods in 2012.  Depreciation added $13 and $7 per ton to these year-over-year increases for the third quarter and for the first nine months, respectively. 

• Potash sales volume was 156,000 tons in the third quarter of 2013 and 525,000 tons for the first nine months of this year, down from 249,000 tons and 636,000 tons in the same periods of the previous year. 

• Average net realized sales price⁴ in the third quarter of 2013 was $363 per ton ($400 per metric tonne), a 10% sequential decline from the second quarter of 2013. 

The ongoing integration of several initiatives, together with the commissioning of new assets, resulted in the expected variations in production rates and in cost of goods sold.  These initiatives include the investment in upgrades at the West facility aimed at increasing recovery from the production process.  These recovery improvement projects follow the addition of mining capacity over the last several years and the ability to process the ore differently because of the flexibility offered by the new North compaction facility.  The combination of these projects is expected to leverage the investments to produce incremental volumes of high-quality granular potash.  Additionally, cost of goods sold in the quarter was impacted by lower production from the East facility due to lower grade ore being delivered to the mill.  Allocating East's production costs over fewer production tons caused a higher cost of goods sold per ton for the quarter.  
   
Langbeinite - Trio^®

• Trio^® production in the quarter was 40,000 tons, up from 35,000 tons in the same period a year ago.  Production in the first nine months of 2013 was 136,000 tons, a significant increase from the 98,000 tons produced in the first nine months of 2012. 

• Cash operating cost of goods sold per ton was $243 in the quarter compared with $197 for the same period last year.  Cash operating cost of goods sold for the first nine months of 2013 was $194 per ton, a 7% improvement from the first nine months of 2012. 

• Total cost of goods sold, net of by-product credits, per ton was $322 in the quarter and $266 for the first nine months of 2013, a 6% improvement from the first nine months of 2012. 

• Trio^® sales were 22,000 tons in the third quarter and 96,000 tons through the first nine months of this year, compared with 27,000 tons and 82,000 tons for the comparative periods in 2012. 

• Average net realized sales price for Trio^® was $353 per ton ($389 per metric tonne), an increase of 5% from last year's third quarter. 

 Overall, the demand environment for the specialty fertilizer Trio^® remains strong, particularly for the premium and granular-size product.  In the third quarter, lower-than-expected ore grade for Trio^® reduced production volume resulting in increased per-ton production costs.  

¹ Adjusted net income and adjusted net income per diluted share are financial measures 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 Adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) 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.
³ Cash operating cost of goods sold and cash operating cost of goods sold, net of by-product credits, are operating performance measures defined as total cost of goods sold excluding royalties, depreciation, depletion, and amortization (and, if applicable, excluding by-product credits), divided by the number of tons sold in the period.

⁴ Average net realized sales price is an operating performance measure calculated as gross sales less freight costs, divided by the number of tons sold in the period.

Income Taxes

The full-year effective income tax rate is expected to be approximately 36%.  Cash taxes for 2013 are expected to remain at a very low level given the significant amount of capital investments expected to be placed into service in 2013, combined with the extension of bonus depreciation that was enacted into law earlier this year.

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
 (In thousands, except share and per share amounts)

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
(In thousands, except share and per share amounts)

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In thousands)

INTREPID POTASH, INC.
UNAUDITED NON-GAAP ADJUSTED NET INCOME AND
ADJUSTED NET INCOME PER DILUTED SHARE RECONCILIATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In thousands)

Adjusted net income and adjusted net income 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 comparability of results from period to period including, among other items, pension settlement expense, reductions in the estimated accounts receivable related to the employment-related high wage tax credits in New Mexico, lower of cost or market inventory adjustments, non-cash unrealized gains or losses associated with derivative adjustments, the recognition of the outcome of contingent gain items, and the effect of changes to Intrepid's state income tax rates on the value of its net deferred tax asset.  Management believes that the presentation of adjusted net income and adjusted net income per diluted share provides useful additional information to investors for analysis of Intrepid's fundamental business on a recurring basis.  In addition, management believes that the concept of adjusted net income and adjusted net income per diluted share are widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the potash mining industry, and many investors use the published research of industry research analysts in making investment decisions.  

Adjusted net income and adjusted net income per diluted share should not be considered in isolation or as a substitute for net income or earnings per diluted share, income from operations, cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under U.S. GAAP.  Because adjusted net income and adjusted net income per diluted share exclude some but not all items that affect net income and may vary among companies, the adjusted net income and adjusted net income per diluted share amounts presented may not be comparable to similarly titled measures of other companies.  The following are reconciliations of adjusted net income to net income and adjusted net income per diluted share to earnings per diluted share, respectively, which are the most directly comparable U.S. GAAP measures:

 ADJUSTED NET INCOME:

 ADJUSTED NET INCOME PER DILUTED SHARE:

⁽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.  The Company believes that this denial is improper and intends to vigorously pursue recovery of these credits.  Nonetheless, a pre-tax, non-cash reserve of approximately $2.8 million was recorded for the credits relating to the denied periods.

⁽²⁾The lower of cost or market inventory adjustment in the third quarter of 2013 stems from allocating production costs over fewer tons produced at the East facility.      

INTREPID POTASH, INC.
UNAUDITED NON-GAAP ADJUSTED EBITDA RECONCILIATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In thousands)

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 add back of  reductions in the estimated accounts receivable related to the employment-related high wage tax credits in New Mexico, interest expense (including derivatives), income tax expense, depreciation, depletion, and amortization, and asset retirement obligation accretion.  Management believes that the presentation of adjusted EBITDA assists investors and analysts in comparing Intrepid's performance across reporting periods on a consistent basis by excluding items that management does not believe are indicative of the Company's core operating performance.  Intrepid uses adjusted EBITDA as one of the tools to evaluate the effectiveness of its business strategies.  In addition, adjusted EBITDA is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the potash mining industry, and many investors use the published research of industry research analysts in making investment decisions.  

Adjusted EBITDA should not be considered in isolation or as a substitute for performance or liquidity measures calculated in accordance with U.S. GAAP.  Because adjusted EBITDA excludes some but not all items that affect net income and net cash provided by operating activities and may vary among companies, the adjusted EBITDA amounts presented may not be comparable to similarly titled measures of other companies.  The following is a reconciliation of adjusted EBITDA to net income, which is the most directly comparable U.S. GAAP measure: