CRANBURY, N.J., Aug. 3 /PRNewswire-FirstCall/ -- Innophos Holdings, Inc. (Nasdaq: IPHS), a leading specialty phosphates producer in North America, today announced its financial results for the second quarter 2009.

Second Quarter Results

• Net sales for the second quarter 2009 were $166.8 million, a decrease of $97.2 million, or 36.8%, as compared to $264.0 million for the same period in 2008. Selling price increases had a positive effect on revenue of $4.9 million or 1.9% as increases in all product lines in the United States and Canada exceeded decreases in STPP & Other Products and Purified Phosphoric Acid in Mexico. The effects of volume and mix on revenue were negative $102.1 million, or 38.7%, which occurred across all product lines and all reporting segments.
  

• Operating income for the second quarter 2009 was $31.4 million, a decrease of $58.6 million, or 65.1%, versus $90.0 million for the comparable period in 2008. Due to lower operating rates in Mexico, the 2009 second quarter results included charges of $2.5 million for anticipated unfulfilled contractual natural gas purchase commitments expiring in December 2009 and $1.6 million of Mexico workforce reduction charges. The 2009 second quarter results also included a $1.8 million inventory write-down on granular triple super-phosphate (GTSP) fertilizer co-product. Included in the 2008 second quarter results were favorable $6.6 million of pricing settlements that were applicable to the 2008 first quarter volumes, $3.6 million of gross profit from one GTSP export shipment delayed from March into April due to a customer's ocean shipping logistics issues, $1.3 million expense for a scheduled Geismar, LA plant maintenance outage and $1.3 million asset impairment expense for two obsolete production units.
  

• Depreciation and amortization for the second quarter 2009, excluding deferred financing amortization expense, was $12.3 million, a decrease of $2.3 million compared to $14.6 million for the second quarter of 2008.
  

• Net interest expense for the second quarter 2009, including deferred financing amortization expense, was $3.6 million, a decrease of $4.8 million versus $8.4 million for the comparable period in 2008. Included in the 2009 second quarter results was a $3.5 million gain for the retirement of $10.0 million of Innophos Holdings, Inc. senior unsecured notes.
  

• Tax expense for the second quarter 2009 was $10.7 million, a decrease of $12.0 million versus $22.7 million for the comparable period in 2008.
  

• Net income for the second quarter 2009 was $17.6 million, a decrease of $41.7 million compared to $59.3 million for the same period in 2008.
  

• Diluted earnings per share for the second quarter 2009 were $0.81 compared to $2.74 for the second quarter of 2008.
  

• As of June 30, 2009, Innophos had $93.7 million of cash and cash equivalents. Net debt at the end of the second quarter 2009 was $152.3 million, a decrease of $39.3 million from $191.6 million at March 31, 2009. There were no borrowings under the Company's new $65.0 million revolving credit line as of June 30, 2009. Capital expenditures for the second quarter 2009 were $4.6 million compared to $5.2 million for the second quarter 2008.
  

Randy Gress, CEO of Innophos, commented on the results, "Even though U.S. and Canada volumes increased 7.7% from the first quarter 2009, and Specialty Salts and Specialty Acids increased 9.6% across the Company, year over year revenues were down in the second quarter. The lower volumes reflect the continuing recession, limited reformulation, increased competitive pressure and our inability to respond in certain instances because of the current rock cost for Mexico. While we experienced increases in raw material costs this quarter, we were able to maintain nearly breakeven operations in Mexico under competitive pricing and lower demand conditions. Through more flexible sourcing and manufacturing, we have continued to optimize our cost positions across our system. We are continuing to run the overall business profitably despite the downside of the fertilizer market cycle and its effects upon our raw material supply."

Segment Results 2Q 2009 Versus 2Q 2008

United States

• Year on year quarterly net sales decreased 1.6% as higher prices across all product lines did not fully offset lower volume and mix effects on revenue across all product lines.
  

• Operating income increased by $15.5 million from $13.1 million in the second quarter of 2008 to $28.6 million in the second quarter 2009. This improvement was driven by higher selling prices and lower manufacturing expenses which exceeded the effects of higher raw material costs and unfavorable sales volume and mix. The lower second quarter 2009 manufacturing expenses were due to 2008 expenses of $1.3 million for a scheduled Geismar, LA plant maintenance outage and $1.3 million asset impairment for two obsolete production units.
  

Mexico

• Net sales decreased 71.3% versus the second quarter 2008 due to lower volume and mix effects on revenue across all product lines and lower prices in STPP & Other Products and Purified Phosphoric Acid.
  

• Operating income decreased by $77.2 million, from $75.5 million in the second quarter 2008 to a loss of $1.7 million in the second quarter 2009, as a result of lower sales volumes and selling prices. Due to lower operating rates, the 2009 second quarter results included charges of $2.5 million for anticipated unfulfilled contractual natural gas purchase commitments expiring in December 2009 and $1.6 million of Mexico workforce reduction charges. The 2009 second quarter results also included a $1.8 million inventory write-down on GTSP. Included in the 2008 second quarter results were favorable $6.6 million of pricing settlements that were applicable to the 2008 first quarter volumes and $3.6 million of gross profit from one GTSP export shipment delayed from March into April due to a customer's ocean shipping logistics issues.
  

Canada

• Net sales increased 29.9% versus the same quarter in 2008 due to higher selling prices across all product lines which exceeded lower volume and mix effects on revenue in Purified Phosphoric Acid and STPP & Other Products.
  

• Operating income increased by $3.1 million from $1.4 million in 2008 to $4.5 million in 2009 due to higher selling prices which exceeded the effects of higher raw material costs and unfavorable sales volume and mix.
  

Business Outlook

On a sequential basis, management currently expects that third quarter 2009 volumes, excluding GTSP fertilizer sales, could increase 5% to 10% from those experienced in the second quarter 2009. The Company expects its third quarter 2009 raw material cost structure on a constant volume and mix basis to be $5 to $7 million higher than the second quarter 2009 due to higher phosphate rock and phosphoric acid costs in Mexico and the mix of phosphoric acid supply in the United States and Canada. Approximately half of this increased cost will be offset by lower restructured fixed costs.

Looking beyond the third quarter 2009, overall volumes are uncertain and dependent on the depth and length of the recession and overall competitive intensity. Selling prices are expected to trend down throughout the year, but cost structure for the fourth quarter 2009 is expected to remain relatively stable with the third quarter 2009 on a constant volume and mix basis.

Management now expects the Coatzacoalcos, Mexico complex to operate for the full year 2009 at significantly reduced levels from earlier expectations due to continued reduced fertilizer demand, increased competitive pressure, largely from China, and the inability to respond in certain instances because of the current rock cost for Mexico. As previously reported, Innophos has been in arbitration with its phosphate rock supplier, OCP, S.A., over rock prices for 2008 and 2009. Among other things, Innophos has claimed in the arbitration that OCP's pricing actions breached the supply agreement between the parties and damaged the Company. To support its duty of mitigating the claimed damage, the Company is, among other things, buying fertilizer grade acid ("MGA") to operate its Coatzacoalcos site.

On July 17, 2009, OCP added counterclaims asserting Innophos' Mexican subsidiary had breached the phosphate rock exclusivity provision in the agreement by purchasing MGA for processing, breached an implied minimum purchase obligation, and improperly reduced its orders in violation of law.

Management believes the more likely outcome of the pricing issues currently before the arbitrators will be 2008 and 2009 rock prices below the interim prices paid for those years, and that, in light of the state of the record in the proceeding and the quantity of phosphate rock purchased, the range of the contingent liability of having to pay more than the 2008 and 2009 interim prices is up to $7.5 million.