Intrepid Potash Inc. Announces 2012 Third Quarter Financial Results and Fourth Quarter Outlook

Market Conditions

           The summer-fill sales program was in line with our expectations, and the beginning of the fall fertilizer application season is suggesting overall normal demand for potash across North America for the 2012/2013 growing season.  Below-average yields for this crop season are tightening stocks-to-use ratios.  In turn, commodity prices for corn and soybeans continue to strengthen.  We believe that, on average, farmer cash flows from the 2012 growing season will be above average due to these higher commodity prices and the benefit of crop insurance.  For the upcoming 2012/2013 growing season, we expect that farmers will seek to maximize yields to take advantage of the strong profit potential in front of them.  

           Dealers continue to manage risk by delaying purchases until the end user is ready to buy.  As such, it has become more challenging to accurately predict timing of sales.

            The diversity of the markets we serve continues to provide a strategic advantage as we have seen a general stability in the feed and industrial markets and have benefited from the breadth of growing regions and crops our products reach.  

Capital Investment

            In the third quarter of 2012, we invested approximately $74.2 million in our capital projects and continued to make progress on the initiation, continuation, and completion of a number of strategic projects.  

               Our capital investment plans are on track for the full year, and we estimate that we will invest approximately $225 to $300 million in capital projects during 2012.  The size of this range is a function of the potential variability of equipment and material deliveries for our larger projects.  We expect our 2012 capital programs to be funded out of cash flow and our existing cash and investments.

HB Solar Solution Mine

We began construction on the HB Solar Solution mine in Carlsbad, New Mexico, in March 2012 and we continue to make significant progress.  Pond construction; drilling of injection, extraction, and water wells; and pipeline construction activities are all moving forward.  We began initial injection of brine into the mine in August 2012.  We have fully completed two of eighteen evaporation ponds and will begin first brine extraction and deposit into the pond system in November 2012.  Further, construction activities on the new HB mill began in October 2012.  The total expected capital investment for the project remains between $200 and $230 million with $99.2 million invested through September 30, 2012.  We expect first production from the HB Solar Solution mine to occur in late 2013 after the evaporation season, with ramp up of production continuing through 2015, assuming no construction or equipment delays and the benefit of average annual evaporation cycles applied to full evaporation ponds.

North Compaction Project

Construction of the North compaction project in Carlsbad, New Mexico, began in the second quarter of 2012.  This project upgrades our granulation facility and increases its capacity to handle the anticipated production from the HB Solar Solution mine and the expansion of our West facility.  Construction is on schedule.  The foundation and steel erection work is near completion, and we have set the compactors in place in the structure.  We are also on track with other elements of the system.  Total capital investment for the project is expected to be approximately $95 to $100 million, of which approximately $32.3 million has been invested as of the end of the third quarter of 2012.  The North compaction facility is expected to be operational in mid-2013.

New Moab Cavern System

We continued to expand our solution mining cavern network at our Moab, Utah, facility during the quarter.  Earlier in the year, we completed additional horizontal wells in the existing producing horizontal cavern system, and we expect to begin realizing increased production from that investment as the seasonal harvest progresses in 2013.  We are also in the process of increasing capacity by drilling a second multi-well horizontal cavern system, which we expect to place in service in late 2012.  

Wendover Upgrades

Since completing the construction of the new compactor in Wendover, Utah, in 2011, we have undertaken a series of systematic upgrades during 2012, including the construction of a new finished goods warehouse, development of additional evaporation pond capacity, and implementation of process control systems in the mill and various reliability enhancements.  Year-to-date through September 30, 2012, we have invested $4.9 million in projects in Wendover, further enhancing the capabilities of our low-cost solar evaporation assets.

Third Quarter Results and Recent Performance

Income before income taxes for the third quarter of 2012 was $44.0 million compared with $42.1 million in the third quarter of 2011.  Adjusted net income⁴ for the third quarter of 2012 was $28.9 million compared with $23.4 million in the same period last year.  Cash flows from operating activities were $33.4 million for the third quarter of 2012 compared with $50.3 million for the third quarter of 2011.  

⁴ Adjusted net income 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.

 

Potash

During the third quarter of 2012, we produced 189,000 tons of potash and sold 249,000 tons of potash compared with 173,000 tons produced and 190,000 tons sold in the third quarter of 2011.  The strong potash sales volume resulted from our continued efforts to expand our customer base and serve our customers' needs.  We made a concerted effort to develop new relationships with dealers to grow their business.  We have had success in increasing warehouse and distribution relationships, which are an important part of growing our sales in an increasingly competitive market.  

Our production results for the third quarter of 2012 were improved over the same period in 2011 as a result of improved comparable production volumes at our East facility and a shorter annual maintenance turnaround period in 2012 as compared with 2011.  The production results from Moab and Wendover also contributed to this increase.  Production from the West facility was relatively stable.  

We continue to dedicate significant resources to and make progress on the previously announced long-term improvement plan we implemented to address the production challenges at our East facility.  As noted previously, we realized a sequential 20 percent improvement in production from our East facility during the third quarter as compared with the second quarter of this year.  This is a multi-faceted plan that will continue into 2013.  We expect to see some operating inefficiencies at our East facility as this work progresses, which may impact production levels and cause variability in our cash operating costs of goods sold.

Our cash operating cost of goods sold for potash decreased to $167 per ton, net of by-product credits of $6 per ton, in the third quarter of 2012 from $175 per ton, net of by-product credits of $8 per ton, in the third quarter of 2011.  The decrease was due to higher production levels and lower total production costs.  This solid result was also aided by a higher percentage of sales volumes from our Utah operations with their low-cost solar evaporation assets.  

Langbeinite - Trio^®

Trio^® production improved modestly again from the second to the third quarter of 2012.  We remain focused, through the execution of our East facility long-term improvement plan, on improving the operations of the plant to approach designed capacities.  As we move forward with the plan, including the ongoing commissioning and diagnostic work on our Langbeinite Recovery Improvement Project, we will determine how much incremental capital investment will be necessary to achieve recovery improvements.  

For the 27,000 tons of Trio^® sold in the third quarter of 2012, we obtained an average net realized sales price of $336 per ton, which was $14 per ton higher than in the second quarter of 2012.  These results compare with 54,000 tons of Trio^® sold at an average net realized sales price of $251 per ton in the prior year's third quarter.  The sequential improvement in Trio^® pricing was a result of strong market demand and the recognition of the value of the magnesium and sulfate components of this specialty product.  The decrease in tons sold resulted from having fewer tons available for sale in 2012 compared with a year ago.  Pricing and demand for this specialty product remain strong with all of our Trio^® inventory and anticipated 2012 production committed to targeted customer accounts.

Our cash operating cost of goods sold for Trio^® remained consistent at $197 per ton in the third quarter of 2012 and 2011.  Cash operating cost of goods sold improved sequentially from the second quarter, demonstrated by a decrease of $9 per ton when compared with the second quarter of 2012.  This improvement was a result of the improved production from our East facility, which has the result of spreading costs over a greater number of tons produced.

Income Taxes

We increased our estimate of our future blended state tax rate, which resulted in an increase in the value of our deferred income tax asset by approximately $4.3 million, or $0.06 per share.  In turn, this decreased our deferred income tax expense by $4.3 million and decreased our year-to-date 2012 effective tax rate to 32.8 percent.  We expect our effective tax rate to be approximately 38 percent beginning in the fourth quarter of 2012.

Fourth Quarter and Full Year 2012 Outlook

Our outlook for the fourth quarter and full year 2012 is presented below.  This information is our best estimate at the current time and will be impacted by market conditions, results of operations, and production results.  Outlook information for capital investment is provided on a full year basis only.

* * * * * * * * * * *

We routinely post important information about our business, including information about upcoming investor presentations, on our website under the Investor Relations tab.  We encourage our investors and other interested parties to enroll on our website to receive automatic email alerts or Really Simple Syndication (RSS) feeds regarding new postings.  Our 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.

Adjusted net income and adjusted EBITDA are non-GAAP financial measures.  We include reconciliations of these measures to the most directly comparable U.S. GAAP measures in the tables at the end of this release.  Average net realized sales price, cash operating cost of goods sold, and cash operating cost of goods sold net of by-product credits are operating measures.  We include definitions of these measures in the footnotes to this release.

Conference Call Information

The conference call to discuss third quarter 2012 results is scheduled for Thursday, November 1, 2012, at 8:00 a.m. MDT (10:00 a.m. EDT).  The call participation number is (800) 319-4610.  A recording of the conference call will be available two hours after the completion of the call at (800) 319-6413.  International participants can dial (631) 982-4565 to take part in the conference call and can access a replay of the call at (412) 317-0088.  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.  In addition, the press release announcing third quarter 2012 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 1, 2012.

* * * * * * * * * * *
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 or construction expertise 

• the costs of, and our ability to successfully construct, commission and execute, our strategic projects, including the development of our HB Solar Solution mine, the further development of our langbeinite recovery and granulation assets, and our North granulation plant 

• 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 government regulations, including environmental and mining regulations, the enforcement of those regulations, and government policy changes 

• our ability to obtain any necessary government permits relating to the construction and operation of assets 

• changes in our reserve estimates 

• competition in the fertilizer industry 

• declines in U.S. or world agricultural production 

• 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 

• disruption in the credit markets 

• our ability to secure additional federal and state potash leases to expand our existing mining operations 

• the other risks and uncertainties described in our periodic filings with the U.S. Securities and Exchange Commission 

All information in this document speaks as of October 31, 2012.  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.

INTREPID POTASH, INC.
SELECTED OPERATIONS DATA (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

* On a per ton basis, by-product credits were $6 and $8 for the third quarter of 2012, and 2011, respectively.  By-product credits were $1.6 million and $1.4 million for the third quarter of 2012, and 2011, respectively.

INTREPID POTASH, INC.
SELECTED OPERATIONS DATA (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

* On a per ton basis, by-product credits were $7 for both the nine months ended September 30, 2012, and 2011, respectively.  By-product credits were $4.6 million and $4.0 million for the nine months ended September 30, 2012, and 2011, respectively.  

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Sales		$	129,350			$	114,000			$	340,377			$	338,351
Less:
Freight costs		9,699				7,602				21,284				22,320
Warehousing and handling costs		4,234				3,556				10,603				10,617
Cost of goods sold		63,382				55,547				175,027				161,257
Other		181				188				508				695
Gross Margin		51,854				47,107				132,955				143,462
Selling and administrative		8,039				8,277				25,006				24,134
Accretion of asset retirement obligation		181				184				543				566
Insurance settlement income from
property and business losses		-				-				-				(12,500		)
Other expense (income)		83				(3,115		)		140				(7,804		)
Operating Income		43,551				41,761				107,266				139,066
Other Income (Expense)
Interest expense, including realized and
unrealized derivative gains and losses		(221		)		(175		)		(689		)		(677		)
Interest income		487				446				1,526				1,231
Other income		135				22				413				340
Income Before Income Taxes		43,952				42,054				108,516				139,960
Income Tax Expense		(10,685		)		(16,547		)		(35,610		)		(55,466		)
Net Income		$	33,267			$	25,507			$	72,906			$	84,494
Weighted Average Shares Outstanding:
Basic		75,298,838				75,202,504				75,268,544				75,172,912
Diluted		75,350,216				75,300,272				75,325,450				75,277,594
Earnings Per Share:
Basic		$	0.44			$	0.34			$	0.97			$	1.12
Diluted		$	0.44			$	0.34			$	0.97			$	1.12

		September 30,					December 31,
		2012					2011
ASSETS
Cash and cash equivalents		$	55,115					$	73,372
Short-term investments		74,638						97,242
Accounts receivable:
Trade, net		47,796						29,304
Other receivables		9,658						6,898
Income tax receivable		-						4,493
Inventory, net		56,466						55,390
Prepaid expenses and other current assets		6,696						5,015
Current deferred tax asset		4,207						4,931
Total current assets		254,576						276,645
Property, plant, and equipment, net of accumulated depreciation
of $130,103 and $98,654, respectively		484,563						387,423
Mineral properties and development costs, net of accumulated
depletion of $10,613 and $9,773, respectively		69,969						33,482
Long-term parts inventory, net		7,493						9,559
Long-term investments		16,146						6,180
Other assets		4,338						3,949
Non-current deferred tax asset		187,768						215,632
Total Assets		$	1,024,853					$	932,870
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable:
Trade		$	22,818					$	20,900
Related parties		18						134
Accrued liabilities		27,466						14,795
Accrued employee compensation and benefits		12,552						12,370
Other current liabilities		2,058						1,476
Total current liabilities		64,912						49,675
Asset retirement obligation		10,776						9,708
Other non-current liabilities		2,206						2,354
Total Liabilities		77,894						61,737
Commitments and Contingencies
Common stock, $0.001 par value; 100,000,000 shares authorized;
and 75,299,126 and 75,207,533 shares outstanding
at September 30, 2012, and December 31, 2011, respectively		75						75
Additional paid-in capital		567,088						564,285
Accumulated other comprehensive loss		(1,314		)				(1,431		)
Retained earnings		381,110						308,204
Total Stockholders' Equity		946,959						871,133
Total Liabilities and Stockholders' Equity		$	1,024,853					$	932,870

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Cash Flows from Operating Activities:
Reconciliation of net income to net cash provided by operating activities:
Net income		$	33,267			$	25,507			$	72,906			$	84,494
Deferred income taxes		7,105				12,597				28,588				42,614
Insurance settlement income from property and business losses		-				-				-				(12,500		)
Items not affecting cash:
Depreciation, depletion, amortization, and accretion		12,095				8,819				34,727				26,043
Stock-based compensation		973				1,104				3,678				3,776
Unrealized derivative gain		(272		)		(368		)		(769		)		(913		)
Other		954				1,110				2,939				1,565
Changes in operating assets and liabilities:
Trade accounts receivable		(15,848		)		1,556				(18,491		)		(10,395		)
Other receivables		(567		)		(3,821		)		(2,760		)		(9,834		)
Income tax receivable		1,715				3,567				4,493				(552		)
Inventory		2,396				(2,401		)		989				(6,996		)
Prepaid expenses and other assets		(3,608		)		(1,788		)		(1,681		)		(541		)
Accounts payable, accrued liabilities, and accrued employee compensation and benefits		(6,234		)		4,529				6,716				13,243
Other liabilities		1,466				(84		)		985				(392		)
Net cash provided by operating activities		33,442				50,327				132,320				129,612
Cash Flows from Investing Activities:
Additions to property, plant, and equipment		(47,285		)		(37,120		)		(123,054		)		(100,936		)
Additions to mineral properties and development costs		(25,572		)		(60		)		(36,978		)		(780		)
Insurance settlement proceeds from property and business losses		-				-				-				806
Purchases of investments		(17,691		)		(25,901		)		(83,325		)		(78,360		)
Proceeds from investments		45,159				10,408				93,496				42,779
Other		-				-				2				-
Net cash used in investing activities		(45,389		)		(52,673		)		(149,859		)		(136,491		)
Cash Flows from Financing Activities:
Debt issuance costs		(61		)		(1,454		)		(61		)		(1,454		)
Employee tax withholding paid for restricted stock upon vesting		-				(1		)		(746		)		(1,077		)
Excess income tax benefit from stock-based compensation		246				7				55				434
Proceeds from exercise of stock options		34				31				34				330
Net cash provided by (used in) financing activities		219				(1,417		)		(718		)		(1,767		)
Net Change in Cash and Cash Equivalents		(11,728		)		(3,763		)		(18,257		)		(8,646		)
Cash and Cash Equivalents, beginning of period		66,843				71,250				73,372				76,133
Cash and Cash Equivalents, end of period		$	55,115			$	67,487			$	55,115			$	67,487
Supplemental disclosure of cash flow information
Net cash paid during the period for:
Interest, including settlements on derivatives		$	417			$	406			$	1,356			$	1,165
Income taxes		$	272			$	378			$	1,162			$	12,983
Accrued purchases for property, plant, and equipment, and mineral properties and development costs		$	24,550			$	14,472			$	24,550			$	14,472

	Three Months Ended September 30,											Nine Months Ended September 30,
	2012					2011						2012						2011
Net Income	$	33,267					$	25,507					$	72,906					$	84,494
Adjustments
Insurance settlement income from property and
business losses	-						-						-						(12,500		)
Income associated with New Mexico refundable
employment-related credit	-						(3,230		)				-						(7,922		)
Unrealized derivative gain	(272		)				(368		)				(769		)				(913		)
Other	181						188						508						695
Calculated tax effect *	30						1,350						86						8,173
Change in blended state tax rate
to value deferred tax asset	(4,290		)				-						(4,290		)				-
Total adjustments	(4,351		)				(2,060		)				(4,465		)				(12,467		)
Adjusted Net Income	$	28,916					$	23,447					$	68,441					$	72,027
*Estimated annual effective tax rate of 32.8% for 2012 and 39.6% for 2011.

	Three Months Ended September 30,											Nine Months Ended September 30,
	2012					2011						2012						2011
Net Income	$	33,267					$	25,507					$	72,906					$	84,494
Interest expense, including realized and
unrealized derivative gains and losses	221						175						689						677
Income tax expense	10,685						16,547						35,610						55,466
Depreciation, depletion, amortization, and accretion	12,095						8,819						34,727						26,043
Total adjustments	23,001						25,541						71,026						82,186
Adjusted Earnings Before Interest, Taxes, Depreciation,
and Amortization	$	56,268					$	51,048					$	143,932					$	166,680