EX-99 3 q207earningsfin0803071111111.htm EXHIBIT 99.1 PRESS RELEASE AUGUST 3, 2007

 

 

INNOPHOS HOLDINGS, INC. REPORTS SECOND QUARTER 2007 RESULTS

CRANBURY, New Jersey - (August 3, 2007) - Innophos Holdings, Inc. (NASDAQ:  "IPHS"), a leading specialty phosphates producer in North America, today announced its financial results for the second quarter of 2007.

Second Quarter Results

•    Net sales for the second quarter 2007 were $151.9 million, an increase of $12.6 million, or 9.1%, as compared to $139.3 million for the same period in 2006.

•    Operating income for the second quarter 2007 was $13.3 million, an increase of $1.1 million, or 9.0%, as compared to $12.2 million for the comparable period in 2006.  Included in second quarter 2007 operating income was a charge of $6.3 million to selling, general and administrative expense in connection with the in-sourcing of sales, marketing, R&D and technical support for the company's products to the pharmaceutical excipient and nutritional supplement customers, resulting in the cancellation of the "pharma" sales agency arrangements with Rhodia, Inc. ("Rhodia").

•    Also included in second quarter 2007 operating income results was $2.0 million of unusual expense in cost of goods sold related to the settlement of certain taxes covering the periods 1996 to 2006 on the company's port facilities in Mexico, and $0.5 million of secondary offering preparation costs.  Included in 2006 results were $1.6 million of unusual expenses related to various professional and sponsor fees.

•    Depreciation and amortization, excluding deferred financing amortization expense, for the second quarter 2007 was $11.1 million, a decrease of $0.5 million, as compared to $11.6 million for the second quarter of 2006.  Net interest expense, including deferred financing amortization expense, for the second quarter 2007 was $13.4 million, an increase of $0.5 million compared to $12.9 million for the same period in 2006.  Included in second quarter 2007 net interest expense was a $1.8 million call premium for the redemption of our floating rate senior notes and $1.5 million for related accelerated deferred financing amortization expense.

•    Tax expense for the second quarter 2007 was $5.1 million, an increase of $3.8 million, as compared to $1.3 million for the comparable period in 2006.  Income from Mexico is fully taxable, so increases in our Mexican earnings, like we had in the current quarter, will normally be expected to have corresponding increases in income tax expense. 

•    Net loss for the second quarter 2007 was $5.2 million, compared to a net loss of $1.8 million for the same period in 2006 due to the factors noted above.

•    As of June 30, 2007, Innophos had $23.0 million of cash and cash equivalents on hand.  Net debt at the end of the second quarter 2007 was $373.5 million, a decrease of $92.8 million versus $466.3 million at June 30, 2006.  Capital expenditures for the second quarter 2007 were $7.4 million versus $2.7 million in the same quarter of 2006.  This increased spending level was primarily due to the company's Coatzacoalcos cogeneration project, which continues to be on budget and schedule. 

•     Innophos had 20.8 million shares issued and outstanding at June 30, 2007.

Segment Results 2Q 2007 versus 2Q 2006

•    U.S. - Net sales increased 5.6% for the quarter versus the same quarter in the prior year due to favorable volume and mix effects upon revenue, as well as higher prices. Operating income decreased by $6.2 million from income of $3.0 million in the second quarter of 2006 to a loss of $3.2 million in the second quarter of 2007. Included in the company's second quarter 2007 results in the U.S. were $6.8 million of unusual expenses related to the "pharma" agency cancellation and secondary offering preparation costs. 2006 results included $1.4 million of unusual expenses related to professional and sponsor fees.

•    Mexico - Net sales increased 16.4% for the quarter versus the same quarter in the prior year due to higher prices, as well as favorable volume and mix effects upon revenue. Operating income increased by $6.2 million year over year, from $9.0 million in the second quarter of 2006 to $15.2 million in the second quarter of 2007. This improvement was primarily due to increased selling prices. Included in second quarter 2007 operating income was a charge of $2.0 million due to a tax settlement related to the company's port facilities. 2006 results included $0.2 million of unusual expense related to professional fees.

•    Canada - Net sales decreased 3.6% for the quarter versus the same quarter in the prior year due to lower prices, as well as decreased volume and mix effects upon revenue. As a result of lower plant fixed costs, including lower depreciation and amortization expense, operating income increased $1.1 million from $0.2 million in the second quarter of 2006 to $1.3 million in Q2 2007.

"We are pleased to report a very strong second quarter highlighted by significantly improved performance in our U.S. and Canadian businesses resulting from focused actions we have taken. Our Mexican business continues to improve quarter over quarter" said Randy Gress, Chief Executive Officer of Innophos. "We are successfully delivering on the commitments we made at the time of our IPO, and we believe we are well positioned in the marketplace and making the right investments to further improve our financial performance."

Pharma Agency Agreement Termination

Effective June 30, 2007, Innophos completed the in-sourcing of sales, marketing, R&D and technical support for its calcium phosphate products to the pharmaceutical excipient and nutritional supplement markets, which resulted in the early cancellation of the company's 2004 "pharma" global sales agency agreement with Rhodia, and the acquisition of related business assets by Innophos. Under the 2004 agreement, which had a term of 10 years, Rhodia and its affiliates provided such services for Innophos' calcium phosphate pharmaceutical excipients and nutritional supplement products. In 2006, the commissions paid by Innophos to Rhodia under this agreement totaled $3.7 million.

The early cancellation, mutually agreed upon by the parties, will result in Innophos directly marketing those products through its own sales organization, and assuming all product development and technical service activities. Rhodia agreed to five year global non-competition and non-solicitation covenants with respect to the products and applications involved, and sold associated contracts, R&D equipment, patents, trade names, and intellectual property rights to Innophos.

"This is a key strategic move for our pharmaceutical and nutritional supplements business," said Gress. "Clearly the assumption of commercial responsibilities from Rhodia will strengthen Innophos' ability to grow our excipients business by leveraging our direct sales and technical support organization to address customer needs. In addition, this transaction will immediately improve the cost structure of this critical business."

The overall transaction resulted in cash payments by Innophos to Rhodia of $9.0 million, subject to certain minor post-closing adjustments, which will occur during a transition period. Innophos recorded an expense of $6.3 million in the second quarter 2007 which was attributable to the contract cancellation cost. Innophos estimates that the assumption of services formerly provided by Rhodia and its affiliates will increase the company's selling, general and administrative and R&D spending by approximately $1.5 million per year.
 

Summary Profit & Loss Statement

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

Three months ended

 

Three months ended

June 30,

 

June 30,

2007

 

2006

Net Sales

$

151,912

$

139,281

Cost of goods sold

119,969

115,778

Gross profit

31,943

23,503

Operating expenses:

Selling, general and administrative

18,084

10,785

Research & development expenses

544

484

Total operating expenses

18,628

11,269

Operating income

13,315

12,234

Interest expense, net

13,437

12,861

Foreign exchange losses (gains)

109

(151)

Other (income) expense, net

(156)

96

Loss before income taxes

(75)

(572)

Provision for income taxes

5,093

1,266

Net loss

$

(5,168)

$

(1,838)

Dividends paid per share of common stock

 $

0.17

Dividends declared per share of common stock

 $

0.17

 

Segment Reporting

The company reports its operations in three segments-United States, Mexico and Canada, each of which sells the entire portfolio of products.  The primary performance indicators for the chief operating decision maker are sales and operating income, with sales on a ship-from basis.  The following table sets forth the historical results of these indicators by segment:

Three months ended

 

Three months ended

June 30,

 

June 30,

2007

 

2006

Net Sales % Change

Segment Net Sales

United States.........

$

84,051

$

79,625

5.6%

Mexico.............

60,374

51,888

16.4%

Canada.............

7,487

7,768

(3.6%)

Total..............

$

151,912

$

139,281

9.1%

Segment Operating Income

United States.........

$

(3,188)

$

3,044

Mexico.............

15,194

9,033

Canada.............

1,309

157

Total..............

$

13,315

$

12,234

Segment Operating Income % of net sales

United States.........

(3.8%)

3.8%

Mexico.............

25.2%

17.4%

Canada.............

17.5%

2.0%

Price / Volume

The following table illustrates for the three months ended June 30, 2007 the percentage changes in net sales by reportable segment compared with the prior year, including the effect of price and volume/mix changes upon revenue:

Price

 

Volume/Mix

 

Total

United States................

1.1%

4.5%

5.6%

Mexico...................

12.6%

3.8%

16.4%

Canada....................

(2.7%)

(0.9%)

(3.6%)

The following table illustrates for the three months ended June 30, 2007 the percentage changes for net sales by major product lines compared with the prior year, including the effect of price and volume/mix changes:

Price

 

Volume/Mix

 

Total

Purified Phosphoric Acid.........

(0.8%)

(1.6%)

(2.4%)

Specialty Salts and Specialty Acids.......

2.0%

7.6%

9.6%

STPP & Other Products..........

16.9%

2.5%

19.4%

Summary Cash Flow Statement 

 

 

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

Six months ended

Six months ended

June 30,

June 30,

2007

2006

Cash flows from operating activities

Net loss

$

 (7,236)

$

(3,128)

Adjustments to reconcile net loss to net cash

provided by operating activities:

Depreciation and amortization

22,749

22,772

Amortization of deferred financing charges

3,072

2,199

Deferred income tax benefit

(1,504)

(1,740)

Deferred profit sharing

191

(350)

Stock-based compensation-Restricted stock

463

-

Non-cash interest for floating rate senior notes

-

8,585

Changes in assets and liabilities:

(Increase)/decrease in accounts receivable

(5,257)

264

(Increase)/decrease in inventories

(5,130)

521

(Increase)/decrease in other current assets

 (1,744)

3,639

Increase/(decrease) in accounts payable

7,021

(6,660)

Increase/(decrease) in other current liabilities

2,550

(12,472)

Changes in other long-term assets and liabilities

289

3,757

Net cash (used in) provided from operating activities

15,464

17,387

Cash flows from investing activities:

Capital expenditures

(12,052)

(5,439)

Purchase of pharma assets from Rhodia

(2,120)

-

Net cash used for investing activities

(14,172)

(5,439)

Cash flows from financing activities:

Proceeds from exercise of stock options

878

-

Principal repayments of term-loan

(8,500)

(19,000)

Proceeds from issuance of senior unsecured notes

66,000

-

Principal repayment of floating rate senior notes

(60,800)

-

Deferred financing costs

(1,815)

-

Dividends paid

(5,808)

-

Net cash used for financing activities

(10,045)

(19,000)

Net change in cash

(8,753)

(7,052)

Cash and cash equivalents at beginning of period

31,760

61,402

Cash and cash equivalents at end of period

$

23,007

$

54,350

Summary Balance Sheets  

 

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets  (Unaudited)

(Dollars in thousands)

June 30, 2007

 

 

December 31, 2006

ASSETS

Current  Assets:

Cash and cash equivalents

$

23,007

$

 31,760

Accounts receivable - trade

61,573

 56,316

Inventories

75,699

 70,569

Other current assets

15,396

 13,652

Total current assets

175,675

172,297

Property, plant and equipment, net

267,085

277,222

Goodwill

47,268

 47,268

Intangibles and other assets, net

67,106

 68,533

Total assets

$

557,134

$

565,320

LIABILITIES AND STOCKHOLDER'S EQUITY

Current  liabilities:

Current portion of long-term debt

$

1,446

$

    1,524

Accounts payable:

Trade and other

37,900

 30,879

Other current liabilities

42,750

 40,200

Total current liabilities

82,096

 72,603

Long-term debt

395,054

398,276

Other long-term liabilities

30,481

 33,729

Total liabilities

507,631

504,608

Total stockholders' equity

49,503

 60,712

Total liabilities and stockholders' equity

$

557,134

$

565,320 

 
Additional Information

It should be noted the unusual expense items discussed are not considered extraordinary under United States generally accepted accounting principles, or USGAAP.  They have been presented here to exclude the impact of certain unusual expense items on Innophos' results.  The Company believes these measures are reflective of how management views Innophos' operations, provide transparency to investors, and enable period-to-period comparability of financial performance.

Net debt is a supplemental financial measure that is not required by, or presented in accordance with, USGAAP.  The Company believes net debt is helpful in analyzing leverage and as a performance measure for purposes of presentation in this release. The Company defines net debt as total debt, including accrued interest on floating rate notes, less cash and cash equivalents.

Conference Call Details

Innophos Holdings will hold a live conference call to discuss second quarter 2007 financial results on Monday, August 6, 2007 at 10:00 a.m. EDT.  To participate, please dial in to the conference call at (866) 600-0797, access code 10444106. The conference call topic is Innophos Holdings 2nd Quarter Earnings Call.

Forward Looking Statements

Safe Harbor for Forward-Looking and Cautionary Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  As such, final results could differ from estimates or expectations due to risks and uncertainties, including but not limited to: incomplete or preliminary information; changes in government regulations and policies; continued acceptance of Innophos' products and services in the marketplace; competitive factors; technological changes; Innophos' dependence upon third-party suppliers; and other risks.  For any of these factors, Innophos claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended.

Release Not an Offering of Securities

This release does not constitute an offer to sell, or the solicitation of an offer to buy, any securities of Innophos, nor shall there be any sale of securities in any state in which an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that state.

###

About Innophos, Inc.

Innophos Holdings, Inc. (www.innophos.com), the holding company for a leading North American manufacturer of specialty phosphates, serves a diverse range of customers across multiple applications, geographies and channels.  Innophos offers a broad suite of products used in a wide variety of food and beverage, consumer products, pharmaceutical and industrial applications.  Innophos' market-leading positions derive from its experience and dedication to customer service and innovation.  Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations in Nashville, TN; Chicago Heights, IL; Chicago (Waterway), IL; Geismar, LA; Port Maitland, ON (Canada); and Coatzacoalcos, Veracruz and Mission Hills, Guanajuato (Mexico). 'IPHS-G'

SOURCE Innophos Holdings, Inc. 

Investor Relations: (609) 366-1299
investor.relations@innophos.com
 
Public Relations: Alex Stanton - Stanton Crenshaw Communications, (212) 780-1900

alex@stantoncrenshaw.com