EX-99.1 2 ex991q42014.htm EXHIBIT 99.1 EX 99.1 Q4 2014

Intrepid Potash Announces Fourth Quarter and Full-Year Results
Achieves Annual Record for Potash Tons Sold
Provides 2015 Outlook

DENVER, February 18, 2015 - Intrepid Potash Inc. (Intrepid) (NYSE:IPI) today reported its financial results for the fourth quarter and full year 2014 and provided its 2015 outlook.

Significant Highlights

•
Achieved record annual potash sales volume of 915,000 tons, up 32% from 2013

•
Sold 182,000 tons of Trio® in 2014, up 48% from 2013

•
Both potash and Trio® prices were 3% higher per ton than the fourth quarter of 2013 and have increased sequentially for the past three quarters

•
Fourth quarter net income was $5.8 million, or $0.08 per diluted share; full year was $9.8 million, or $0.13 per diluted share

•
Adjusted net income1 for the fourth quarter was $5.1 million, or $0.07 per diluted share; full year was $8.4 million, or $0.11 per diluted share

•
Adjusted EBITDA1 for the fourth quarter was $29.4 million; full year was $95.3 million

•
In 2014, cash flow generated from operations totaled $127.5 million; cash used for capital expenditures was $61.8 million
  
•
Cash, cash equivalents, and investments totaled $89.9 million at December 31

"We achieved record sales volumes this year while pricing was on the rise and our price advantage was at historic highs. This success drove the free cash flow1 generation we promised for the year," said Intrepid's Executive Chairman, President and CEO Bob Jornayvaz. "In 2015, despite potential softness in the market, we expect that there will be more than enough U.S. potash demand to allow us the distinct advantage of selling all of our production into the best margin and cash flow opportunities across our diverse customer base.”

Product Highlights

Potash

The demand trends across the three major markets Intrepid serves remained strong during the fourth quarter leading to sales of 210,000 tons. For the full year, sales volume was 915,000 tons,




a 32% increase from 2013 and a single year sales volume record. Intrepid's diverse markets and its close-to-the-customer strategy resulted in an average net realized sales price per ton1 in the fourth quarter of $348, a 3% increase from the fourth quarter of 2013.
 
Fourth quarter cash operating costs1 of $192 per ton, were better by $32 year over year and $12 sequentially. Cost of goods sold per ton in the fourth quarter was $18 less year over year, but increased $19 for the full year. Depreciation and depletion increased by $15 and $17 per ton during the fourth quarter and full year, respectively, as a result of the recent capital investments.

The higher average net realized sales price, together with better operating costs, generated an average potash gross margin1 in the fourth quarter of $54 per ton and cash flow per ton1 of $127. This cash flow per ton outperformed last year's fourth quarter by $46.

Trio® 

Intrepid's Trio® remains a highly sought after specialty product. Fourth quarter sales volume of 41,000 tons increased 52% while full year volume of 182,000 tons was up 48% from the same periods in 2013. The average net realized sales price for Trio® has trended upward for the past three quarters to $354 a ton, a 3% increase from the fourth quarter of 2013.

Increasing Trio® production is a key focus for Intrepid as customers are requesting to buy more product than is currently being produced. Although full year production of 160,000 tons trailed last year, fourth quarter's production of 51,000 tons did extend the positive trend the team has been able to establish. While quarterly run rates will vary, this fourth quarter achievement represents increases of 52% sequentially and 24% year-over-year and demonstrates the progress made towards higher Trio® production. Importantly, Intrepid’s focus on obtaining higher conversion rates of standard Trio® into higher margin Trio® Premium proved successful. In 2014, premium production was more than 150% greater than 2013 production.

Trio® cash operating costs were $167 per ton in the fourth quarter, a $58 improvement from the comparable period in 2013. Full year cash operating costs were $194 per ton, ahead of last year's cash operating costs by $7 per ton. Per ton cost of goods sold for the fourth quarter and full year were also improved compared with 2013.

Reflecting the positive pricing and costs trends, Trio® contributed more gross margin and cash flow per ton in the fourth quarter and 2014 compared to the same periods in the previous year. Gross margin per ton for the fourth quarter was $99 and for the full year it was $68. Cash flow per ton was $153 in the fourth quarter, up $65 from a year ago, and for the full year, it was up $9 from 2013 to $127.

Market Conditions and Outlook

The market conditions that supported the strong fourth quarter potash and Trio® sales and pricing have continued into the first quarter of this year. Visibility into the first half of 2015 suggests sustained potash sales volume at prices stable to the fourth quarter level and robust Trio® sales with improving pricing. During the second half of 2015, potash demand and pricing are expected to be under pressure, while Trio® sales are forecast to remain solid with strong pricing. Intrepid is well positioned to sell all of its potash and Trio® production during this year. Despite forecasts for less U.S. potash demand, Intrepid serves a market that consumes nearly 10 times Intrepid's




annual potash production. Demand for Trio® currently exceeds production and availability in the market.

Intrepid's sales volume mix is likely to shift to more agricultural and feed customers from industrial customers due to declining oil and gas rig counts. Intrepid, through its recent investments to have the capability to granulate all of its production, has the flexibility to match production of granulated and non-granulated potash to meet the changing demand profile across these end markets. This shift away from industrial sales has the potential to pressure the average net realized sales price.

Potash sales volume this year is expected to approximate production volume as Intrepid entered 2015 with low inventory levels after the record sales volumes in 2014. The 2015 production and cost outlooks are similar to 2014 levels as a result of reduced solar production from the Wendover facility due to abnormally high precipitation during 2014 that supported below average evaporation rates. Per ton cash operating costs and cost of goods sold for potash are expected to improve in the second half of 2015. This trend incorporates the positive production mix shift to more low cost solar solution tons in the second half of this year including the continued ramp-up of the HB mine. The HB mine remains on track to achieve full production levels in 2016.

The 2015 forecast is for an effective tax rate of approximately 20% to 25%, with minimal cash used for tax expenses.

 
 
First-Half
 
Second-Half
 
Full-Year
 
 
2015
 
2015
 
2015
Potash
 
 
 
 
 
 
Production (tons)
 
390,000 - 410,000
 
460,000 - 490,000
 
850,000 - 900,000
Sales (tons)
 
405,000 - 425,000
 
425,000 - 445,000
 
830,000 - 870,000
Cash operating costs ($/ton)
 
$200 - $215
 
$190 - $205
 
$195 - $210
Total COGS ($/ton)
 
$285 - $300
 
$275 - $290
 
$280 - $295
 
 
 
 
 
 
 
Trio®
 
 
 
 
 
 
Production (tons)
 
75,000 - 90,000
 
80,000 - 95,000
 
155,000 - 185,000
Sales (tons)
 
90,000 - 105,000
 
85,000 - 100,000
 
175,000 - 205,000
Cash operating costs ($/ton)
 
$165 - $180
 
$170 - $185
 
$170 - $185
Total COGS ($/ton)
 
$240 - $255
 
$240 - $255
 
$240 - $255
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
Interest expense
 
$3.0 - $3.5 million
 
$3.0 - $3.5 million
 
$6.0 - $7.0 million
Depreciation, depletion, and accretion
 
$37.5 - $42.5 million
 
$37.5 - $42.5 million
 
$75.0 - $85.0 million
Selling and administrative expense
 
$13.5 - $15.0 million
 
$13.5 - $15.0 million
 
$27.0 - $30.0 million
Cash paid for capital investments
 
not provided
 
not provided
 
$40.0 - $50.0 million

Notes

1 Adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA), average net realized




sales price per ton, per ton cash operating costs, per ton average gross margin, cash flow per ton and free cash flow are non-GAAP financial measures. See the non-GAAP reconciliations set forth later in this press release for additional information.

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 international competitors use, equals 1,000 kilograms or 2,204.62 pounds.

Conference Call Information

A teleconference to discuss the quarter is scheduled for February 19, 2015, at 10:00 a.m. ET. The dial in number is 800-319-4610 for U.S. and Canada, and is +1-631-982-4565 for other countries. The call will also be streamed on the Intrepid website, www.intrepidpotash.com.

An audio recording of the conference call will be available through March 19, 2015, at www.intrepidpotash.com and by dialing 800-319-6413 for U.S. and Canada, or +1-631-883-6842 for other countries. The replay will require the input of the conference identification number 763324.

About Intrepid

Intrepid (NYSE: IPI) is the largest producer of potash in the U.S. and is dedicated to the production and marketing of potash, which is essential for healthy crop development; and Trio®, a specialty fertilizer supplying three key nutrients, potassium, magnesium and sulfate, in a single particle. Intrepid owns six active production facilities across New Mexico and Utah. Intrepid is unique in the U.S. in its utilization of low-cost solar solution mining at three of its facilities, including the recently constructed HB solar solution mine.

Intrepid routinely posts important information, including information about upcoming investor presentations and press releases, on its website under the Investor Relations tab. Investors and other interested parties are encouraged to enroll on the Intrepid website, www.intrepidpotash.com to receive automatic email alerts or Really Simple Syndication (RSS) feeds regarding new postings.

Forward-looking Statements

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, mineral processing, or construction expertise
•
the costs of, and our ability to successfully construct, commission, and execute, any of our strategic projects
•
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 governmental regulations, including environmental and mining regulations; the enforcement of those regulations; and governmental policy changes
•
our ability to obtain any necessary governmental permits relating to the construction and operation of assets
•
changes in our reserve estimates
•
competition in the fertilizer industry
•
declines or changes in U.S. or world agricultural production or fertilizer application rates
•
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, or the total amount available to us under our credit facility is reduced, in whole or in part, because of covenant limitations
•
disruption in the credit markets
•
our ability to secure additional federal and state potash leases to expand our existing mining operations
•
the other risks, uncertainties, and assumptions described in our periodic filings with the Securities and Exchange Commission

In addition, new risks emerge from time to time. It is not possible for our management to predict all risks that may cause actual results to differ materially from those contained in any forward-looking statements we may make.

All information in this document speaks as of February 18, 2015. 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.

Contact:
Gary Kohn, Investor Relations        
Phone: 303-996-3024
Email: gary.kohn@intrepidpotash.com










INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013
(In thousands, except share and per share amounts)

 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Sales
 
$
98,285

 
$
73,806

 
$
410,389

 
$
336,312

Less:
 
 
 
 
 
 
 
 
Freight costs
 
10,607

 
8,281

 
43,223

 
28,856

Warehousing and handling costs
 
3,992

 
3,500

 
13,062

 
13,027

Cost of goods sold
 
68,164

 
57,308

 
303,914

 
212,864

Lower-of-cost-or-market inventory adjustments
 
76

 
1,558

 
8,186

 
3,650

Gross Margin
 
15,446

 
3,159

 
42,004

 
77,915

 
 
 
 
 
 
 
 
 
Selling and administrative
 
6,947

 
7,716

 
27,223

 
33,768

Accretion of asset retirement obligation
 
406

 
375

 
1,623

 
1,499

Restructuring expense
 
—

 
—

 
1,827

 
—

Other (income) expense
 
(1,200
)
 
54

 
(4,449
)
 
1,806

Operating (Loss) Income
 
9,293

 
(4,986
)
 
15,780

 
40,842

 
 
 
 
 
 
 
 
 
Other (Expense) Income
 
 
 
 
 
 
 
 
Interest expense, net
 
(1,663
)
 
(851
)
 
(6,232
)
 
(1,531
)
Interest income
 
76

 
144

 
186

 
524

Other income (expense)
 
274

 
5

 
1,077

 
(1,742
)
Income (Loss) Before Income Taxes
 
7,980

 
(5,688
)
 
10,811

 
38,093

 
 
 
 
 
 
 
 
 
Income Tax Expense
 
(2,189
)
 
(299
)
 
(1,050
)
 
(15,818
)
Net Income (Loss)
 
$
5,791

 
$
(5,987
)
 
$
9,761

 
$
22,275

 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
Basic
 
75,529,344

 
75,395,798

 
75,504,677

 
75,378,655

Diluted
 
75,644,478

 
75,395,798

 
75,630,323

 
75,406,727

Earnings (Loss) Per Share:
 
 
 
 
 
 
 
 
Basic
 
$
0.08

 
$
(0.08
)
 
$
0.13

 
$
0.30

Diluted
 
$
0.08

 
$
(0.08
)
 
$
0.13

 
$
0.30




6


INTREPID POTASH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF DECEMBER 31, 2014 AND 2013
(In thousands, except share and per share amounts)

 
 
December 31,
 
 
2014
 
2013
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
67,589

 
$
394

Short-term investments
 
10,434

 
15,214

Accounts receivable:
 
 
 
 
Trade, net
 
28,561

 
20,837

Other receivables, net
 
3,600

 
7,457

Refundable income taxes
 
114

 
15,722

Inventory, net
 
84,094

 
105,011

Prepaid expenses and other current assets
 
4,739

 
5,653

Current deferred tax asset, net
 
3,356

 
8,341

Total current assets
 
202,487

 
178,629

 
 
 
 
 
 
 
 
 
 
Property, plant, equipment, and mineral properties, net
 
785,250

 
826,569

Long-term parts inventory, net
 
16,366

 
12,469

Long-term investments
 
11,856

 
9,505

Other assets, net
 
4,035

 
4,252

Non-current deferred tax asset, net
 
146,725

 
143,849

Total Assets
 
$
1,166,719

 
$
1,175,273

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Accounts payable:
 
 
 
 
Trade
 
$
19,953

 
$
27,552

Related parties
 
55

 
50

Accrued liabilities
 
12,483

 
29,845

Accrued employee compensation and benefits
 
12,069

 
9,122

Other current liabilities
 
2,075

 
2,059

Total current liabilities
 
46,635

 
68,628

 
 
 
 
 
Long-term debt
 
150,000

 
150,000

Asset retirement obligation
 
20,389

 
19,959

Other non-current liabilities
 
2,410

 
2,715

Total Liabilities
 
219,434

 
241,302

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
Common stock, $0.001 par value; 100,000,000 shares
 
 
 
 
authorized; and 75,536,741 and 75,405,410 shares
 
 
 
 
outstanding at December 31, 2014, and 2013, respectively
 
76

 
75

Additional paid-in capital
 
576,186

 
572,616

Accumulated other comprehensive loss
 
(28
)
 
(10
)
Retained earnings
 
371,051

 
361,290

Total Stockholders' Equity
 
947,285

 
933,971

Total Liabilities and Stockholders' Equity
 
$
1,166,719

 
$
1,175,273




7

INTREPID POTASH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013
(In thousands)
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
Reconciliation of net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
Net income (Loss)
 
$
5,791

 
$
(5,987
)
 
$
9,761

 
$
22,275

Deferred income taxes
 
2,152

 
13,793

 
2,121

 
30,092

Items not affecting cash:
 
 
 
 
 
 
 
 
Depreciation, depletion, and accretion
 
20,930

 
17,263

 
80,560

 
61,303

Stock-based compensation
 
1,017

 
1,242

 
4,237

 
5,123

Loss on settlement of pension liabilities
 
—

 
1,872

 
—

 
1,872

Lower-of-cost-or-market inventory adjustments
 
76

 
1,558

 
8,186

 
3,650

Other
 
154

 
410

 
326

 
2,522

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Trade accounts receivable, net
 
3,998

 
4,557

 
(7,724
)
 
10,671

Other receivables, net
 
2,063

 
911

 
3,857

 
1,668

Refundable income taxes
 
413

 
(11,218
)
 
15,609

 
(12,417
)
Inventory, net
 
(6,612
)
 
(18,274
)
 
8,834

 
(57,647
)
Prepaid expenses and other assets
 
717

 
1,123

 
714

 
(150
)
Accounts payable, accrued liabilities, and accrued employee
compensation and benefits
 
(8,017
)
 
(4,005
)
 
1,978

 
(2,752
)
Other liabilities
 
(31
)
 
(474
)
 
(973
)
 
(1,312
)
Net cash provided by operating activities
 
22,651

 
2,771

 
127,486

 
64,898

 
 
 
 
 
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
Additions to property, plant, and equipment and mineral properties
 
(6,445
)
 
(64,258
)
 
(61,770
)
 
(250,485
)
Proceeds from sale of property, plant, and equipment, and mineral properties
 
17

 
5,980

 
17

 
6,088

Purchases of investments
 
(20,190
)
 
—

 
(20,197
)
 
(80,235
)
Proceeds from investments
 
779

 
45,530

 
22,326

 
78,193

Net cash used in investing activities
 
(25,839
)
 
(12,748
)
 
(59,624
)
 
(246,439
)
 
 
 
 
 
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
—

 
—

 
—

 
150,000

Debt issuance costs
 
—

 
—

 
—

 
(1,032
)
Employee tax withholding paid for restricted stock upon vesting
 
(56
)
 
(75
)
 
(667
)
 
(652
)
Net cash (used in) provided by financing activities
 
(56
)
 
(75
)
 
(667
)
 
148,316

 
 
 
 
 
 
 
 
 
Net Change in Cash and Cash Equivalents
 
(3,244
)
 
(10,052
)
 
67,195

 
(33,225
)
Cash and Cash Equivalents, beginning of period
 
70,833

 
10,446

 
394

 
33,619

Cash and Cash Equivalents, end of period
 
$
67,589

 
$
394

 
$
67,589

 
$
394


8



INTREPID POTASH, INC.
SELECTED OPERATIONS DATA (UNAUDITED)
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Production volume (in thousands of tons):
 
 
 
 
 
 
 
 
   Potash
 
254

 
209

 
859

 
780

   Langbeinite
 
51

 
41

 
160

 
177

Sales volume (in thousands of tons):
 
 
 
 
 
 
 
 
   Potash
 
210

 
167

 
915

 
692

   Trio®
 
41

 
27

 
182

 
123

 
 
 
 
 
 
 
 
 
Gross sales (in thousands):
 
 
 
 
 
 
 
 
   Potash
 
$
80,880

 
$
62,689

 
$
334,323

 
$
284,831

   Trio®
 
17,405

 
11,117

 
76,066

 
51,481

   Total
 
98,285

 
73,806

 
410,389

 
336,312

Freight costs (in thousands):
 
 
 
 
 
 
 
 
   Potash
 
7,612

 
6,480

 
30,615

 
20,796

   Trio®
 
2,995

 
1,801

 
12,608

 
8,060

   Total
 
10,607

 
8,281

 
43,223

 
28,856

Net sales (in thousands)(1):
 
 
 
 
 
 
 
 
   Potash
 
73,268

 
56,209

 
303,708

 
264,035

   Trio®
 
14,410

 
9,316

 
63,458

 
43,421

   Total
 
$
87,678

 
$
65,525

 
$
367,166

 
$
307,456

 
 
 
 
 
 
 
 
 
Potash statistics (per ton):
 
 
 
 
 
 
 
 
   Average net realized sales price(1)
 
$
348

 
$
338

 
$
332

 
$
382

   Cash operating costs(1)(2) 
 
192

 
224

 
198

 
195

   Depreciation and depletion
 
73

 
58

 
69

 
52

   Royalties
 
13

 
14

 
12

 
13

      Total potash cost of goods sold
 
$
278

 
$
296

 
$
279

 
$
260

   Warehousing and handling costs
 
16

 
19

 
12

 
16

      Average potash gross margin(1)
 
$
54

 
$
23

 
$
41

 
$
106

 
 
 
 
 
 
 
 
 
Trio® statistics (per ton):
 
 
 
 
 
 
 
 
   Average net realized sales price(1)
 
$
354

 
$
345

 
$
349

 
$
352

   Cash operating costs(1)
 
167

 
225

 
194

 
201

   Depreciation and depletion
 
54

 
59

 
59

 
55

   Royalties
 
18

 
17

 
17

 
18

      Total Trio® cost of goods sold
 
$
239

 
$
301

 
$
270

 
$
274

   Warehousing and handling costs
 
16

 
15

 
11

 
15

      Average Trio® gross margin(1)
 
$
99

 
$
29

 
$
68

 
$
63


(1) Net sales, average net realized sales price, cash operating costs and average gross margin are non-GAAP financial measures. See the non-GAAP reconciliations set forth later in this press release for additional information.
(2) On a per ton basis, by-product credits were $8 and $13 for the fourth quarter of 2014, and 2013, respectively. By-product credits were $1.7 million and $2.2 million for the fourth quarter of 2014, and 2013, respectively. On a per ton basis, by-product credits were $7 and $9 for the year ended December 31, 2014, and 2013, respectively. By-product credits were $6.5 million and $6.5 million for the year ended December 31, 2014, and 2013, respectively. Cash operating costs and GAAP total cost of goods sold are shown net of by-product credits.


9




INTREPID POTASH, INC.
UNAUDITED NON-GAAP RECONCILIATIONS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2014 AND 2013
(In thousands, except per share amounts)

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use several non-GAAP financial measures to monitor and evaluate our performance. These non-GAAP financial measures include adjusted net income (loss), adjusted net income (loss) per diluted share, adjusted EBITDA, net sales, average net realized sales price, cash operating costs, average potash and Trio® gross margin, cash flow per ton and free cash flow. These non-GAAP financial measures should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. In addition, because the presentation of these non-GAAP financial measures varies among companies, our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies.

We believe these non-GAAP financial measures provide useful information to investors for analysis of our business. We also refer to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are widely used by professional research analysts and others in the valuation, comparison and investment recommendations of companies in the potash mining industry. Many investors use the published research reports of these professional research analysts and others in making investment decisions.

Below is additional information about our non-GAAP financial measures, including, if applicable, reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures:

Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Diluted Share

Adjusted net income (loss) and adjusted net income (loss) 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 the comparability of results from period to period. These items include, among others, restructuring expenses and adjustments to the allowance associated with the employment-related high wage tax credits in New Mexico. We consider these non-GAAP financial measures to be useful because they allow for period-to-period comparisons of our operating results excluding items that we believe are not indicative of our fundamental ongoing operations.


10


Three Months Ended December 31,
 
Year Ended December 31,

2014
 
2013
 
2014
 
2013
Net Income (Loss)
$
5,791

 
$
(5,987
)
 
$
9,761

 
$
22,275

Adjustments
 
 
 
 
 
 
 
        Allowance for New Mexico employment credits(1)
(1,168
)
 
—

 
(4,114
)
 
2,811

        Restructuring expense
—

 
—

 
1,827

 
—

        Loss on settlement of pension obligation termination
—

 
—

 
—

 
1,871

     Compensating tax refund
—

 
—

 
—

 
(1,705
)
        Calculated income tax effect(2)
467

 
—

 
915

 
(1,191
)
     Change in blended state tax rate
 
 
 
 
 
 
 
        to value deferred income tax asset
—

 
(2,208
)
 
—

 
(948
)
          Total adjustments
(701
)
 
(2,208
)
 
(1,372
)
 
838

Adjusted Net Income (Loss)
$
5,090

 
$
(8,195
)
 
$
8,389

 
$
23,113

 
 
 
 
 
 
 
 

(1) In the third quarter of 2013, we received notification that our application for certain New Mexico employment-related high wage tax credits had been denied and established an additional pre-tax, non-cash allowance of approximately $2.8 million. In 2014, Intrepid received notification from the State of New Mexico that the vast majority of the credits will be allowed and therefore reversed $4.1 million of the allowance.

(2) Assumes an annual effective tax rate of 40%.


 
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Net Income (Loss) Per Diluted Share
$
0.08

 
$
(0.08
)
 
$
0.13

 
$
0.30

Adjustments
 
 
 
 
 
 
 
     Allowance for New Mexico employment credits
(0.02
)
 
—

 
(0.05
)
 
0.04

     Restructuring expense
—

 
—

 
0.02

 
—

     Loss on settlement of pension obligation termination
—

 
—

 
—

 
0.02

     Compensating tax refund
—

 
—

 
—

 
(0.02
)
     Calculated income tax effect
0.01

 
—

 
0.01

 
(0.02
)
     Change in blended state tax rate
 
 
 
 
 
 
 
        to value deferred income tax asset
—

 
(0.03
)
 
—

 
(0.01
)
          Total adjustments
(0.01
)
 
(0.03
)
 
(0.02
)
 
0.01

Adjusted Net Income (Loss) Per Diluted Share
$
0.07

 
$
(0.11
)
 
$
0.11

 
$
0.31








11

Adjusted EBITDA

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 adjustment to the allowance associated with the employment-related high wage tax credits in New Mexico, restructuring expenses, interest expense, income tax expense, depreciation, depletion, and asset retirement obligation accretion. We consider adjusted EBITDA to be useful because it reflects our operating performance before the effects of certain non-cash items and other items that we believe are not indicative of our core operations. We use adjusted EBITDA to assess operating performance and as one of the measures under our performance-based compensation programs for employees.



 
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net Income (Loss)
$
5,791

 
$
(5,987
)
 
$
9,761

 
$
22,275

     Allowance for New Mexico employment credits
(1,168
)
 
—

 
(4,114
)
 
2,811

     Restructuring expense
—

 
—

 
1,827

 
—

     Interest expense
1,663

 
851

 
6,232

 
1,531

     Income tax expense
2,189

 
299

 
1,050

 
15,818

     Depreciation, depletion, and accretion
20,930

 
17,263

 
80,560

 
61,303

          Total adjustments
23,614

 
18,413

 
85,555

 
81,463

Adjusted Earnings Before Interest, Taxes, Depreciation,
 
 
 
 
 
 
 
     and Amortization
$
29,405

 
$
12,426

 
$
95,316

 
$
103,738



Net Sales and Average Net Realized Sales Price per Ton

Net sales and average net realized sales price are non-GAAP financial measures. Net sales are calculated as sales less freight costs. Average net realized sales price is calculated as net sales, divided by the number of tons sold in the period. We consider net sales and average net realized sales price to be useful because they remove the effect of transportation and delivery costs on sales and pricing. When we arrange transportation and delivery for a customer, we include in revenue and in freight costs the costs associated with transportation and delivery. However, many of our customers arrange for and pay their own transportation and delivery costs, in which case these costs are not included in our revenue and freight costs. We use net sales and average net realized sales price as key performance indicators to analyze sales and price trends. We also use net sales as one of the measures under our performance-based compensation programs for employees.


12

 
 
Three Months Ended December 31,
 
 
2014
 
2013
 
 
Potash
 
Trio®
 
Total
 
Potash
 
Trio®
 
Total
Sales
 
$
80,880

 
$
17,405

 
$
98,285

 
$
62,689

 
$
11,117

 
$
73,806

Freight costs
 
7,612

 
2,995

 
10,607

 
6,480

 
1,801

 
8,281

   Net sales
 
$
73,268

 
$
14,410

 
$
87,678

 
$
56,209

 
$
9,316

 
$
65,525

 
 
 
 
 
 
 
 
 
 
 
 
 
Divided by:
 
 
 
 
 
 
 
 
 
 
 
 
Tons sold (in thousands)
 
210

 
41

 
 
 
167

 
27

 
 
   Average net realized sales price per ton
 
$
348

 
$
354

 
 
 
$
338

 
$
345

 
 

 
 
Year Ended December 31,
 
 
2014
 
2013
 
 
Potash
 
Trio®
 
Total
 
Potash
 
Trio®
 
Total
Sales
 
$
334,323

 
$
76,066

 
$
410,389

 
$
284,831

 
$
51,481

 
$
336,312

Freight costs
 
30,615

 
12,608

 
43,223

 
20,796

 
8,060

 
28,856

   Net sales
 
$
303,708

 
$
63,458

 
$
367,166

 
$
264,035

 
$
43,421

 
$
307,456

 
 
 
 
 
 
 
 
 
 
 
 
 
Divided by:
 
 
 
 
 
 
 
 
 
 
 
 
Tons sold (in thousands)
 
915

 
182

 
 
 
692

 
123

 
 
   Average net realized sales price per ton
 
$
332

 
$
349

 
 
 
$
382

 
$
352

 
 


Cash Operating Costs per Ton

Cash operating costs per ton is a non-GAAP financial measure that is calculated as total cost of goods sold divided by the number of tons sold in the period and then adjusted to exclude per-ton depreciation, depletion, and royalties. Total cost of goods sold is reported net of by-product credits and does not include warehousing and handling costs. We consider cash operating costs to be useful because it represents our core, per-ton costs to produce potash and Trio®. We use cash operating costs as an indicator of performance and operating efficiencies and as one of the measures under our performance-based compensation programs for employees.



13

 
 
Three Months Ended December 31,
 
 
2014
 
2013
 
 
Potash
 
Trio®
 
Total
 
Potash
 
Trio®
 
Total
Cost of goods sold
 
$
58,463

 
$
9,701

 
$
68,164

 
$
49,177

 
$
8,131

 
$
57,308

Divided by sales volume (in thousands of tons)
 
210

 
41

 
 
 
167

 
27

 
 
   Cost of goods sold per ton
 
$
278

 
$
239

 
 
 
$
296

 
$
301

 
 
Less per-ton adjustments
 
 
 
 
 
 
 
 
 
 
 
 
   Depreciation and depletion
 
$
73

 
$
54

 
 
 
$
58

 
$
59

 
 
   Royalties
 
13

 
18

 
 
 
14

 
17

 
 
Cash operating costs per ton
 
$
192

 
$
167

 
 
 
$
224

 
$
225

 
 

 
 
Year Ended December 31,
 
 
2014
 
2013
 
 
Potash
 
Trio®
 
Total
 
Potash
 
Trio®
 
Total
Cost of goods sold
 
$
254,752

 
$
49,162

 
$
303,914

 
$
179,207

 
$
33,657

 
$
212,864

Divided by sales volume (in thousands of tons)
 
915

 
182

 
 
 
692

 
123

 
 
   Cost of goods sold per ton
 
$
279

 
$
270

 
 
 
$
260

 
$
274

 
 
Less per-ton adjustments
 
 
 
 
 
 
 
 
 
 
 
 
   Depreciation and depletion
 
$
69

 
$
59

 
 
 
$
52

 
$
55

 
 
   Royalties
 
12

 
17

 
 
 
13

 
18

 
 
Cash operating costs per ton
 
$
198

 
$
194

 
 
 
$
195

 
$
201

 
 


Average Potash and Trio® Gross Margin and Cash Flow per Ton

Average potash and Trio® gross margin and cash flow per ton are non-GAAP financial measures. Average gross margin per ton is calculated by subtracting the sum of per ton total cost of goods sold and per ton warehousing and handling costs from the average net realized sales price. Cash flow per ton is calculated by adding depreciation and depletion to average gross margin. We believe these measures are useful because they represent the average margin and cash flow we realize on each ton of potash and Trio® sold. The reconciliations of average potash and Trio® net realized sales price to GAAP sales is set forth separately above under the heading “Net Sales and Average Net Realized Sales Price per Ton.”


  
  

14

 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Potash
 
 
 
 
 
 
 
 
Average potash net realized sales price
 
$
348

 
$
338

 
$
332

 
$
382

Less total potash cost of goods sold
 
278

 
296

 
279

 
260

Less potash warehousing and handling costs
 
16

 
19

 
12

 
16

   Average potash gross margin per ton
 
$
54

 
$
23

 
$
41

 
$
106

   Depreciation and depletion
 
73

 
58

 
69

 
52

   Cash flow per ton
 
$
127

 
$
81

 
$
110

 
$
158


 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Trio®
 
 
 
 
 
 
 
 
Average Trio® net realized sales price
 
$
354

 
$
345

 
$
349

 
$
352

Less total Trio® cost of goods sold
 
239

 
301

 
270

 
274

Less Trio® warehousing and handling costs
 
16

 
15

 
11

 
15

   Average Trio® gross margin per ton
 
$
99

 
$
29

 
$
68

 
$
63

   Depreciation and depletion
 
54

 
59

 
59

 
55

   Cash flow per ton
 
$
153

 
$
88

 
$
127

 
$
118



Free Cash Flow

Free cash flow is a non-GAAP financial measure that is calculated as net cash provided by operating activities less cash paid for capital expenditures. We consider free cash flow to be a useful measure of liquidity because it indicates cash generated by normal business operations, including capital expenditures. Free cash flow does not represent cash available for discretionary expenditures because we have non-discretionary obligations, such as debt service obligations, that are not deducted from this measure.


 
Three Months Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2014
 
2013
Net cash provided by operating activities
22,651

 
2,771

 
127,486

 
64,898

Less cash paid for additions to property, plant, equipment and mineral properties
(6,445
)
 
(64,258
)
 
(61,770
)
 
(250,486
)
Free cash flow
16,206

 
(61,487
)
 
65,716

 
(185,588
)


15