PHOS Phosphate Holdings Inc (CE)

Phosphate Holdings, Inc. (OTC: PHOS), today reported second quarter 2009 earnings of $0.1 million, or $0.01 per diluted share of common stock, compared to earnings of $35.0 million, or $4.32 per diluted share of common stock for the same period in 2008. Net losses for the six months ended June 30, 2009 were $11.5 million or $1.50 per diluted share of common stock, as compared to earnings of $42.0 million, or $5.19 per diluted share of common stock for the same period last year. The Company’s first half of 2009 results were materially impacted by inventory write-downs to net realizable value of approximately $10.4 million.

Net sales for the second quarter of 2009 were $42.7 million, a 75 percent decrease from net sales of $171.5 million for the second quarter of 2008. The average sales price per short ton of DAP during the second quarter of 2009 was $275, a 74 percent decrease from the prior-year period average sales price of $1,049. During the second quarter, the Company sold 152,477 tons of DAP, with 73 percent moving into export markets. The Company had operating income of $0.1 million for the second quarter of 2009, compared to operating income of $55.0 million for the prior-year period. Earnings before interest, taxes, depreciation and amortization and other non-cash charges (EBITDA) for the second quarter of 2009 were $3.0 million, compared to EBITDA of $57.9 million for the second quarter of 2008. In the second quarter of 2009, inventory write-downs to net realizable value totaled approximately $1.1 million.

Net sales for the six months ended June 30, 2009 were $97.0 million, a 59 percent decrease from net sales of $238.5 million for the six months ended June 30, 2008. The Company incurred an operating loss of $18.2 million for the six months ended June 30, 2009, compared to operating income of $65.9 million for the prior-year period. EBITDA for the six months ended June 30, 2009 were negative $12.8 million, compared to EBITDA of $71.9 million for the same period in 2008.

Robert E. Jones, Chief Executive Officer, said, “The second quarter of 2009 was a period of weak domestic demand for phosphates. Distributors and retailers with high-priced carryover fertilizer inventories were reluctant to reduce prices. As a result, near-term demand was negatively impacted as many U.S. farmers reduced or deferred their phosphate applications during the spring planting season. During the quarter, we saw U.S. Gulf DAP prices decrease from $313 per short ton at March 31, 2009, to $257 per short ton by quarter’s end.”

As of June 30, 2009, the Company had a cash balance of approximately $0.4 million and borrowings under our revolving credit agreement of $3.1 million. The Company continues to aggressively manage its liquidity and believes that its current operations and available credit facilities should be adequate to meet the Company’s financing needs for 2009.

In commenting on the 2009 industry outlook, Jones added, “It appears that the distributors and retailers of phosphates have significantly reduced high-cost carryover inventories. With low phosphate application rates in both the fall of 2008 and the spring of 2009, and continuing strong demand for agricultural commodities, we currently expect a healthy rebound in the demand for phosphates in the fall of 2009 and in 2010.”

PHOSPHATE ROCK SUPPLY AGREEMENT

On August 27, 2009, the Company and OCP S.A., entered into a new phosphate rock supply agreement, which is effective as of July 3, 2009 (the “Supply Agreement”). Under the Supply Agreement, the Company agrees to purchase from OCP, on a take-or-pay basis, the phosphate rock requirements of its Pascagoula, Mississippi, plant. The price of the phosphate rock will be determined quarterly based on a negotiated formula that is based, in part, on related market prices. The term of the Supply Agreement expires on June 30, 2012.

With respect to the Supply Agreement, Mr. Jones stated, “This Supply Agreement is a testament to the strong long-term supply relationship the Company has enjoyed with OCP and represents the culmination of an effort to bring stability to the Company’s operations. We believe this Supply Agreement provides a solid platform for our return to profitability.”

The Company will host a conference call on Thursday, September 10, 2009, at 3:30 p.m., CDT, to discuss the Company’s operating results for the second quarter ended June 30, 2009. Call-in numbers are:

Q&A, Toll free: 888-378-4353

Q&A, Toll: 719-325-2146

The Company is a Delaware corporation and the sole stockholder of Mississippi Phosphates Corporation. Mississippi Phosphates Corporation is a Delaware corporation with its executive headquarters in Madison, Miss. Mississippi Phosphates Corporation owns and operates manufacturing facilities in Pascagoula, Miss., which produce diammonium phosphate, the most common form of phosphate fertilizer used as a source of phosphate on all major row crops.

Forward-looking Statements

This letter contains “forward-looking statements” within the meaning of the federal securities law, which are intended to qualify for the safe harbor from liability provided thereunder. All statements which are not historical statements of fact are “forward-looking statements” for purposes of these provisions and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Future events, risks and uncertainties that could cause a material difference in such results include, but are not limited to,(i) changes in matters which affect the global supply and demand of phosphate fertilizer products, phosphate rock, ammonia, sulfur and sulfuric acid, (ii) a variety of conditions in the agricultural industry such as grain prices, planted acreage, projected grain stocks, U.S. government policies, weather, and changes in agricultural production methods, (iii) changes in the availability and cost of phosphate rock and our other primary raw materials, (iv) changes in capital markets and events pertaining to the recent financial credit crisis, (v) possible unscheduled plant outages and other operating difficulties, (vi) price competition and capacity expansions and reductions from both domestic and international competitors, (vii) foreign government agricultural policies (in particular, the policies of the governments of India and China), (viii) the relative unpredictability of international and local economic conditions, (ix) the relative value of the U.S. dollar, (x) regulations regarding the environment and the sale and transportation of fertilizer products, and (xi) impact of future storms. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

PHOSPHATE HOLDINGS, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

    June 30,   December 31, 2009 2008 Assets Current assets: Cash and cash equivalents $ 383 2,153 Trade accounts receivable 2,242 7,400 Income taxes receivable 1,205 21,414 Other receivables 455 1,863 Inventories 22,264 47,645 Prepaid expenses and other   3,644 5,079 Total current assets 30,193 85,554   Restricted investments held in trust, at fair value 3,530 2,990 Property, plant and equipment, net 51,020 50,593 Other   200 130 Total assets $ 84,943 139,267 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,227 2,658 Accrued expenses 8,899 11,760 Current maturities of long-term debt 600 600 Short-term financing obligations 2,748 2,181 Deferred income taxes 691 573 Deposits on future sales - 24,600 Revolving credit agreement   3,052 11,494 Total current liabilities 18,217 53,866   Long-term debt, less current maturities 2,100 2,400 Asset retirement obligations 5,076 4,841   Deferred income taxes   787 7,940 Total liabilities   26,180 69,047     Stockholders’ equity:

Common stock ($0.01 par; 30,000,000 shares authorized; 7,654,290 shares issued and outstanding)

77 77 Additional paid-in capital 33,880 33,880 Retained earnings   24,806 36,263 Total stockholders’ equity   58,763 70,220

Total liabilities and stockholders’ equity

$ 84,943 139,267   PHOSPHATE HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(In thousands, except per share and share data)

(Unaudited)

   

Three months ended

  Six months ended June 30, June 30, 2009   2008 2009   2008 Net sales: DAP $ 41,991 170,412 94,891 232,001 Other 722   1,079 2,075   6,453 Total net sales 42,713 171,491 96,966 238,454 Cost of sales 41,249 111,739 112,039 164,461 Unrealized loss on firm purchase commitment -   - 1,237   - Gross profit (loss) 1,464 59,752 (16,310 ) 73,993 Selling, general and administrative expenses 1,503 4,750 3,545 6,529 Insurance recovery (115 ) - (1,615 ) - Impairment of assets -   - -   1,572 Operating income (loss) 76 55,002 (18,240 ) 65,892   Other income (expense): Interest, net (181 ) 32 (293 ) 293 Other, net 322   449 141   213 Total other income (expense) 141   481 (152 ) 506 Income (loss) before income taxes 217 55,483 (18,392 ) 66,398 Income tax expense (benefit) 113   20,478 (6,935 ) 24,407 Net income (loss) $ 104   35,005 (11,457 ) 41,991 Earnings (loss) per share – basic $ 0.01   4.57 (1.50 ) 5.49 Earnings (loss) per share – diluted $ 0.01   4.32 (1.50 ) 5.19 Weighted average common shares outstanding – basic 7,654   7,654 7,654   7,654 Weighted average common shares outstanding – diluted 7,971   8,094 7,654   8,092   PHOSPHATE HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

    Six months ended June 30, 2009   2008 Cash flows from operating activities: Net income (loss) $ (11,457 ) 41,991

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation of property, plant and equipment 3,324 2,520 Amortization of prepaid maintenance turnaround costs 1,721 1,422 Accretion of asset retirement obligation 235 247 Deferred loan cost amortization 37 20 Share-based compensation 161 38 Impairment charges - 1,572 Deferred income taxes (7,035 ) 2,449 Other (139 ) 200 Changes in operating assets and liabilities: Trade and other accounts receivable 6,566 (29,446 ) Income taxes receivable 20,209 - Inventories 781 (45,980 ) Prepaid expenses and other (286 ) (5,512 ) Accounts payable and accrued expenses (3,453 ) 27,562 Income taxes payable -   10,627   Net cash provided by operating activities 10,664   7,710     Cash flows from investing activities: Purchases of restricted investments held in trust (400 ) (400 ) Purchases of property, plant and equipment (3,751 ) (9,127 ) Net cash used in investing activities (4,151 ) (9,527 )   Cash flows from financing activities: Net payments on revolving credit agreement (8,442 ) - Proceeds from short-term financing obligations 2,324 2,744 Payments of short-term financing obligations (1,757 ) (1,735 ) Payments on term debt (300 ) - Cash dividends - (11,481 ) Deferred loan costs (108 ) -     Net cash used in financing activities (8,283 ) (10,472 )   Net decrease in cash and cash equivalents (1,770 ) (12,289 )   Cash and cash equivalents at beginning of period 2,153   43,576   Cash and cash equivalents at end of period $ 383   31,287   Supplemental disclosure of non-cash transaction: Delivery of inventory to settle deposits on future sales obligation $ 24,600   -    

PHOSPHATE HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows (In thousands) (Unaudited)     Three months ended June 30, 2009   2008 Cash flows from operating activities: Net income $ 104 35,005

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation of property, plant and equipment 1,672 1,319 Amortization of prepaid maintenance turnaround costs 860 998 Accretion of asset retirement obligation 118 125 Deferred loan cost amortization 24 11 Share-based compensation 106 38 Deferred income taxes 83 1,225 Other (321 ) (19 ) Changes in operating assets and liabilities: Trade and other accounts receivable (545 ) (21,396 ) Income taxes receivable 5,709 - Inventories (3,548 ) (21,317 ) Prepaid expenses and other (1,521 ) (4,774 ) Accounts payable and accrued expenses (11,119 ) 25,925 Income taxes payable -   9,186   Net cash provided by (used in) operating activities (8,378 ) 26,326     Cash flows from investing activities: Purchases of restricted investments held in trust (200 ) (200 ) Purchases of property, plant and equipment (1,718 ) (4,889 ) Net cash used in investing activities (1,918 ) (5,089 )   Cash flows from financing activities: Net proceeds from revolving credit agreement 3,052 - Proceeds from short-term financing obligations 2,324 2,743 Payments of short-term financing obligations (757 ) (751 ) Payments on term debt (150 ) - Deferred loan costs (108 ) -     Net cash provided by financing activities 4,361   1,992     Net increase (decrease) in cash and cash equivalents (5,935 ) 23,229   Cash and cash equivalents at beginning of period 6,318   8,058   Cash and cash equivalents at end of period $ 383   31,287    

PHOSPHATE HOLDINGS, INC. AND SUBSIDIARY

Reconciliation of Net Income (Loss) to EBITDA (In thousands) (Unaudited)     We define EBITDA as net income (loss) before interest; income taxes; depreciation, amortization and accretion; and asset impairment charges. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements to assess:  

• the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

• our operating performance and return on capital as compared to other companies in the fertilizer business, without regard to financing or capital structure; and

• the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

 

We use EBITDA as a primary operating performance measure and an important indicator of our ability to provide cash flows to meet future debt service, if any, capital expenditures and working capital requirements and to fund future growth.

 

The U.S. Generally Accepted Accounting Principles, or GAAP, measure most directly comparable to EBITDA is net income (loss).  Our non-GAAP financial measure of EBITDA should not be considered as an alternative to GAAP net income (loss).  You should not consider EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP.  Because EBITDA excludes some, but not all, items that affect income from continuing operations and is defined differently by different companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies.

 

We compensate for the limitations of EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this information into our decision-making processes.

 

The following table shows the reconciliation of net income (loss) to EBITDA for the periods indicated:

    Three Months Ended   Six Months Ended June 30, June 30, 2009   2008 2009   2008 Net income (loss) $ 104 35,005 $ (11,457 ) 41,991 Interest, net 181 (32 ) 293 (293 ) Income tax expense (benefit) 113 20,478 (6,935 ) 24,407 Depreciation, amortization and accretion 2,650 2,442 5,280 4,189 Asset impairment charge (a) - -   -   1,572     EBITDA

$

3,048

57,893

 

$

(12,819 )

 

71,866    

(a)

  During the first quarter of 2008, we recorded an asset impairment charge of $1,572 related to the failure of certain internal components of the waste heat boiler in our No. 2 sulfuric acid plant.