PHOS Phosphate Holdings Inc (CE)

Phosphate Holdings, Inc. (OTC: PHOS), today reported fourth quarter 2010 income of $0.9 million, or $0.10 per share of common stock, compared to losses of $2.8 million, or $0.36 per share of common stock for the same period in 2009. Net income for the year ended December 31, 2010 was $1.1 million, or $0.13 per share of common stock, as compared to losses of $13.6 million, or $1.76 per share of common stock for the same period last year. The Company’s 2009 year-to-date results were materially impacted by inventory write-downs to net realizable value of approximately $10.4 million.

Net sales for the fourth quarter of 2010 were $68.5 million, a 45 percent increase from net sales of $47.2 million for the fourth quarter of 2009. The average sales price per short ton of DAP during the fourth quarter of 2010 was $534, a 93 percent increase from the prior-year period average sales price of $276. During the fourth quarter, the Company sold 126,560 tons of DAP, with 114,142 tons moving into domestic markets. The Company had operating income of $1.3 million for the fourth quarter of 2010, compared to operating losses of $4.4 million for the prior-year period. Earnings before interest, taxes, depreciation, amortization and accretion (EBITDA) for the fourth quarter of 2010 were $5.2 million, compared to EBITDA of negative $1.9 million for the fourth quarter of 2009.

Net sales for the year ended December 31, 2010 were $261.1 million, a 40 percent increase from net sales of $186.3 million for the year ended December 31, 2009. The Company had operating income of $2.3 million for the year ended December 31, 2010, compared to an operating loss of $21.7 million for the prior-year period. EBITDA for the year ended December 31, 2010 was $15.1 million, compared to negative EBITDA of $10.9 million for the same period in 2009. EBITDA in 2009 was negatively impacted by inventory write-downs of $10.4 million.

Robert E. Jones, Chief Executive Officer, said, “In November 2010, we performed a major maintenance turnaround. This turnaround was designed to address all known issues constraining sulfuric acid, phosphoric acid and DAP production. Upon completion of the turnaround, we saw improvements in our DAP production rates, as we produced approximately 55,000 short tons in December 2010. However, with operational issues at the beginning of the quarter and substantial downtime associated with the turnaround, our DAP production was limited to approximately 127,000 short tons in the fourth quarter of 2010. This production volume limited our participation in a favorable phosphate market.

“From a market perspective, the average posted DAP price was $551 per short ton, NOLA, in the fourth quarter of 2010. Sulfur prices in the fourth quarter were posted at $160 per long ton, CFR, Tampa. Ammonia prices began the fourth quarter at $465 per metric ton, CFR, Tampa, and closed the fourth quarter at $475 per metric ton, CFR, Tampa.

“While we believe we have improved the operating performance of our plants, phosphate rock shortages have hindered first quarter 2011 production. Severe flooding conditions in Morocco created logistical issues for our phosphate rock supplier, resulting in significant delays in the delivery of phosphate rock to our facility. Accordingly, we curtailed production during the latter half of January and early February to avoid a shutdown of our DAP granulation plant. With the curtailed production due to the phosphate rock shortage, we anticipate first quarter 2011 DAP production to be approximately 140,000 to 150,000 short tons. Currently, we are experiencing timely phosphate rock deliveries and our production rates are at satisfactory levels.”

In addressing the industry outlook, Jones added, “Phosphate markets are expected to be very favorable through the spring season, weather permitting. Producers’ inventories remain at manageable levels and grain prices remain strong. Currently, the U.S. corn-to-stock use ratio is at a 15-year low, with planted corn acreage in the U.S. projected at 92 million acres. Internationally, DAP prices are improving as China’s participation in the export market should be diminished and strong phosphate demand is anticipated from India and other parts of the world.”

On March 4, 2011, the Company and the Mississippi Department of Environmental Quality (MDEQ) executed an agreed order, which settled all matters previously cited by a Notice of Violation received by the Company from the MDEQ and certain other pending environmental matters with the MDEQ. In connection with this settlement, the Company agreed to pay a civil penalty of $297,000. This penalty has been recorded in the accompanying 2010 consolidated financial statements.

As of December 31, 2010, the Company had a cash balance of approximately $2.3 million and $9.0 million in borrowings under its revolving credit agreement. We spent approximately $3.8 million on capital expenditures in the fourth quarter of 2010, and $9.7 million for the year ended December 31, 2010. Based on current phosphate market conditions, DAP production rates and available credit facilities, the Company should have adequate liquidity to meet its operating and other cash flow needs throughout 2011.

At the end of 2010, our Board of Directors appointed a special committee of independent directors to initiate a comprehensive review of strategic options. While this review is ongoing, we will not hold an earnings call to discuss our fourth quarter and year end 2010 financial results and will not otherwise discuss this strategic process. When the strategic process is completed, we intend to resume regular quarterly earnings calls. We look forward to providing a more comprehensive update at our annual meeting in late June in New York City. Details regarding the date and time of this meeting will be forthcoming.

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 release 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, (v) possible unscheduled plant outages and other operating difficulties, (vi) price competition and capacity expansions and reductions from both domestic and international competitors, (vii) the concentration of our sales with one large customer, (viii) foreign government agricultural policies (in particular, the policies of the governments of India and China), (ix) the relative unpredictability of international and local economic conditions, (x) the relative value of the U.S. dollar, (xi) regulations regarding the environment and the sale and transportation of fertilizer products, (xii) our potential inability to obtain or maintain required permits and governmental approvals or to meet financial assurance requirements, (xiii) loss of key members of management, and (xiv) 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 SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data) (Unaudited)             December 31, Assets 2010   2009 Current assets: Cash and cash equivalents $ 2,261 2,067 Trade accounts receivable 9,128 3,059 Income taxes receivable

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574 Other receivables 2,297 5 Inventories 26,141 17,587 Prepaid expenses and other 8,329 4,854 Deferred income taxes 336

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Total current assets 48,492 28,146 Freight deposits 5,636

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Restricted investments held in trust, at fair value 5,657 4,350 Property, plant and equipment, net 61,402 48,751 Other 553 163 Total assets $ 121,740 81,410 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,804 1,578 Accrued expenses 29,783 11,031 Current maturities of long-term debt

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600 Short-term financing obligations 3,492 1,989 Revolving credit agreement 9,000

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Deferred income taxes

--

124 Total current liabilities 44,079 15,322 Long-term debt, less current maturities

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1,800 Asset retirement obligations 16,307 5,128 Deferred income taxes 1,836 706 Total liabilities 62,222 22,956 Stockholders’ equity:

Common stock ($0.01 par; 30,000,000 shares authorized; 8,411,308 shares issued and outstanding)

84 84 Additional paid-in capital 35,660 35,660 Retained earnings 23,774 22,710 Total stockholders’ equity 59,518 58,454   Total liabilities and stockholders’ equity $ 121,740 81,410     PHOSPHATE HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)               Three months

ended

December 31,

  Twelve months

ended

December 31,

2010   2009 2010   2009 Net sales:   DAP $ 67,553 46,459 257,233 182,780 Other 986   766   3,863     3,531   Total net sales 68,539 47,225 261,096 186,311 Cost of sales 66,063   49,637   249,931     205,501   Gross profit (loss) 2,476 (2,412 ) 11,165 (19,190 ) Selling, general and administrative expenses 2,204 1,268 6,858 5,843 Environmental remediation 297 730 4,028 1,330 Litigation expenses (recoveries), net (1,303 ) 220 (2,053 ) (2,821 ) Insurance recoveries

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--

--

(1,615 ) Reduction in asset retirement obligations

--

  (190 )

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  (190 ) Operating income (loss) 1,278 (4,440 ) 2,332 (21,737 ) Other income (expense): Interest, net (257 ) (142 ) (1,107 ) (596 ) Other, net 356   88   534     670   Total other income (expense) 99   (54 ) (573 )   74   Income (loss) before income taxes 1,377 (4,494 ) 1,759 (21,663 ) Income tax expense (benefit) 524   (1,674 ) 695     (8,110 ) Net income (loss) $ 853   (2,820 ) 1,064     (13,553 ) Earnings (loss) per share – basic $ 0.10 (0.36 ) 0.13 (1.76 ) Earnings (loss) per share – diluted $ 0.10 (0.36 ) 0.13 (1.76 ) Weighted average common shares outstanding – basic 8,411 7,844 8,411 7,713 Weighted average common shares outstanding – diluted 8,411 7,844 8,411 7,713     PHOSPHATE HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)               Years ended

December 31,

2010   2009 Cash flows from operating activities: Net income (loss) $ 1,064 (13,553 )

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

Depreciation of property, plant and equipment 7,571 6,779 Amortization of prepaid maintenance turnaround costs 3,967 2,912 Accretion of asset retirement obligation 659 477 Deferred loan cost amortization 229 72 Unrealized restricted investment gain (507 ) (560 ) Share-based compensation 702 340 Deferred income taxes 670 (7,683 ) Reduction in asset retirement obligation

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(190 ) Other 3 3 Changes in operating assets and liabilities: Trade and other accounts receivable (8,361 ) 6,199 Income taxes receivable 574 20,840 Inventories (8,554 ) 5,458 Prepaid expenses and other (7,442 ) (2,687 ) Freight deposits (5,636 )

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Accounts payable and accrued expenses 18,276   (2,149 ) Net cash provided by operating activities 3,215   16,258   Cash flows from investing activities: Purchases of restricted investments held in trust (800 ) (800 ) Purchases of property, plant and equipment (9,702 ) (4,937 ) Net cash used in investing activities (10,502 ) (5,737 ) Cash flows from financing activities: Net borrowings (payments) on revolving credit agreement 9,000 (11,494 ) Proceeds from financing obligations 4,836 3,248 Payments on financing obligations (3,333 ) (3,440 ) Payment of deferred loan costs (622 ) (108 ) Payments on term loan (2,400 ) (600 ) Capital contributions from exercise of stock options

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  1,787   Net cash provided by (used in) financing activities 7,481   (10,607 ) Net increase (decrease) in cash and cash equivalents 194 (86 ) Cash and cash equivalents at beginning of year 2,067   2,153   Cash and cash equivalents at end of year $ 2,261   2,067       PHOSPHATE HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)                 Three Months

ended

December 31,

2010   2009 Cash flows from operating activities: Net income (loss) $ 853 (2,820)

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

Depreciation of property, plant and equipment 2,063 1,747 Amortization of prepaid maintenance turnaround costs 1,185 631 Accretion of asset retirement obligation 282 120 Deferred loan cost amortization 27 18 Unrealized restricted investment gain (357) (88) Share-based compensation 304 106 Deferred income taxes 524 (1,116) Reduction in asset retirement obligation

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(190) Changes in operating assets and liabilities: Trade and other accounts receivable (2,103) 12,861 Income taxes receivable

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631 Inventories 1,057 3,036 Prepaid expenses and other (3,851) (1,170) Freight deposits (1,054)

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Long-term prepaid insurance 607

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Accounts payable and accrued expenses 3,131 (5,788) Net cash provided by operating activities 2,668 7,978 Cash flows from investing activities: Purchases of restricted investments held in trust (200) (200) Purchases of property, plant and equipment (3,764) (258) Net cash used in investing activities (3,964) (458) Cash flows from financing activities: Net payments on revolving credit agreement (295) (8,319) Proceeds from financing obligations 1,052 924 Payments on financing obligations (839) (803) Payments on term loan

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(150) Capital contributions from exercise of stock options

--

1,787 Net cash used in financing activities (82) (6,561)

Net increase (decrease) in cash and cash equivalents

(1,378) 959 Cash and cash equivalents at beginning of year 3,639 1,108 Cash and cash equivalents at end of year $ 2,261 2,067    

PHOSPHATE HOLDINGS, INC. AND SUBSIDIARIES

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. 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

December 31,

  Twelve Months

ended

December 31,

2010   2009 2010   2009 Net income (loss) $ 853 (2,820 ) 1,064 (13,553 ) Interest, net 257 142 1,107 596 Income tax expense (benefit) 524 (1,674 ) 695 (8,110 ) Depreciation, amortization and accretion 3,530 2,498   12,197 10,168   EBITDA

$

5,164 (1,854 )

 

15,063

 

(10,899 )