þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 52-1145429 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
Terra Centre | ||
P.O. Box 6000 | ||
600 Fourth Street | 51102-6000 | |
Sioux City, Iowa | (Zip Code) | |
(Address of principal executive offices) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Common Shares, without par value | 91,835,740 shares |
3 | ||||||||
4 | ||||||||
5 | ||||||||
7 | ||||||||
8 | ||||||||
36 | ||||||||
41 | ||||||||
42 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
44 | ||||||||
44 | ||||||||
45 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
2
June 30, | December 31, | June 30, | ||||||||||
2008 | 2007 | 2007 | ||||||||||
Assets |
||||||||||||
Cash and cash equivalents |
$ | 752,008 | $ | 698,238 | $ | 286,950 | ||||||
Accounts receivable, less allowance for
doubtful accounts of $300, $264 and $422 |
236,112 | 171,183 | 242,349 | |||||||||
Inventories |
168,950 | 129,321 | 167,471 | |||||||||
Other current assets |
112,000 | 28,833 | 23,298 | |||||||||
Current assets held for sale -
discontinued operations |
45,785 | 2,335 | 2,313 | |||||||||
Total current assets |
1,314,855 | 1,029,910 | 722,381 | |||||||||
Property, plant and equipment, net |
386,800 | 389,728 | 616,031 | |||||||||
Equity method investments |
360,805 | 351,986 | 165,201 | |||||||||
Deferred plant turnaround costs, net |
37,116 | 42,190 | 41,375 | |||||||||
Intangible assets, net |
2,822 | 3,763 | 4,704 | |||||||||
Other assets |
27,287 | 27,721 | 22,482 | |||||||||
Noncurrent assets held for sale -
discontinued operations |
| 43,029 | 86,892 | |||||||||
Total assets |
$ | 2,129,685 | $ | 1,888,327 | $ | 1,659,066 | ||||||
Liabilities |
||||||||||||
Accounts payable |
146,846 | 110,687 | 144,054 | |||||||||
Customer prepayments |
91,605 | 299,351 | 25,166 | |||||||||
Accrued and other current liabilities |
130,145 | 102,655 | 93,608 | |||||||||
Current liabilities held for sale -
discontinued operations |
3,773 | 4,993 | 16,632 | |||||||||
Total current liabilities |
372,369 | 517,686 | 279,460 | |||||||||
Long-term debt |
330,000 | 330,000 | 330,000 | |||||||||
Deferred taxes |
153,754 | 99,854 | 66,186 | |||||||||
Pension liabilities |
9,251 | 9,268 | 119,407 | |||||||||
Other liabilities |
82,550 | 84,876 | 88,656 | |||||||||
Minority interest |
106,451 | 109,729 | 105,549 | |||||||||
Noncurrent liabilities held for sale -
discontinued operations |
| 739 | 2,959 | |||||||||
Total liabilities and minority interest |
1,054,375 | 1,152,152 | 992,217 | |||||||||
Preferred Shares - liquidation value of $120,000 |
115,800 | 115,800 | 115,800 | |||||||||
Common Shareholders Equity |
||||||||||||
Capital stock |
||||||||||||
Common Shares, authorized 133,500 shares;
91,836; 89,587 and 91,857 outstanding |
144,431 | 142,170 | 144,202 | |||||||||
Paid-in capital |
617,744 | 618,874 | 680,819 | |||||||||
Accumulated other comprehensive loss |
(464 | ) | (45,328 | ) | (57,149 | ) | ||||||
Retained earnings (accumulated deficit) |
197,799 | (95,341 | ) | (216,823 | ) | |||||||
Total stockholders equity |
959,510 | 620,375 | 551,049 | |||||||||
Total liabilities and stockholders equity |
$ | 2,129,685 | $ | 1,888,327 | $ | 1,659,066 | ||||||
3
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenues |
||||||||||||||||
Product revenues |
$ | 836,924 | $ | 690,995 | $ | 1,410,126 | $ | 1,190,461 | ||||||||
Other income |
6,173 | 1,540 | 7,675 | 2,998 | ||||||||||||
Total revenues |
843,097 | 692,535 | 1,417,801 | 1,193,459 | ||||||||||||
Costs and Expenses |
||||||||||||||||
Cost of sales |
547,070 | 532,353 | 954,059 | 954,617 | ||||||||||||
Selling, general and administrative expense |
27,233 | 28,194 | 39,937 | 45,251 | ||||||||||||
Equity earnings of unconsolidated
affiliates (Note 8) |
(16,518 | ) | 804 | (29,808 | ) | (4,813 | ) | |||||||||
Total cost and expenses |
557,785 | 561,351 | 964,188 | 995,055 | ||||||||||||
Income from operations |
285,312 | 131,184 | 453,613 | 198,404 | ||||||||||||
Interest income |
5,513 | 3,482 | 13,921 | 6,369 | ||||||||||||
Interest expense |
(6,756 | ) | (6,871 | ) | (13,814 | ) | (15,780 | ) | ||||||||
Loss on early retirement of debt |
| (174 | ) | | (38,836 | ) | ||||||||||
Income before income taxes and
minority interest |
284,069 | 127,621 | 453,720 | 150,157 | ||||||||||||
Income tax provision |
(107,069 | ) | (41,579 | ) | (166,573 | ) | (46,736 | ) | ||||||||
Minority interest |
(18,495 | ) | (13,939 | ) | (36,621 | ) | (22,576 | ) | ||||||||
Equity earnings of unconsolidated
affiliates (Note 8) |
37,611 | | 46,895 | | ||||||||||||
Income from continuing operations |
196,116 | 72,103 | 297,421 | 80,845 | ||||||||||||
Income (loss) from discontinued operations,
net of tax (Note 2) |
7,319 | (1,448 | ) | 7,471 | (2,981 | ) | ||||||||||
Net income |
203,435 | 70,655 | 304,892 | 77,864 | ||||||||||||
Preferred share dividends |
(1,275 | ) | (1,275 | ) | (2,550 | ) | (2,550 | ) | ||||||||
Income Available to Common Shareholders |
$ | 202,160 | $ | 69,380 | $ | 302,342 | $ | 75,314 | ||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
91,011 | 91,496 | 90,588 | 91,677 | ||||||||||||
Diluted |
104,678 | 107,294 | 104,652 | 107,311 | ||||||||||||
Earnings
per share - basic |
||||||||||||||||
Income from continuing operations |
$ | 2.14 | $ | 0.77 | $ | 3.26 | $ | 0.85 | ||||||||
Income (loss) from discontinued
operations (Note 2) |
0.08 | (0.01 | ) | 0.08 | (0.03 | ) | ||||||||||
Net income |
$ | 2.22 | $ | 0.76 | $ | 3.34 | $ | 0.82 | ||||||||
Earnings
per share - diluted |
||||||||||||||||
Income from continuing operations |
$ | 1.87 | $ | 0.67 | $ | 2.84 | $ | 0.76 | ||||||||
Income (loss) from discontinued
operations (Note 2) |
0.07 | (0.01 | ) | 0.07 | (0.03 | ) | ||||||||||
Net Income |
$ | 1.94 | $ | 0.66 | $ | 2.91 | $ | 0.73 | ||||||||
4
Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
Operating Activities |
||||||||
Net income |
$ | 304,892 | $ | 77,864 | ||||
Income (loss) from discontinued operations |
7,471 | (2,981 | ) | |||||
Income from continuing operations |
297,421 | 80,845 | ||||||
Adjustments to reconcile income from continuing operations
to net cash flows from operating activities: |
||||||||
Depreciation of property, plant and equipment and
amortization of deferred plant turnaround costs |
39,449 | 48,328 | ||||||
Loss on sale of property, plant and equipment |
727 | | ||||||
Deferred income taxes |
48,940 | 36,960 | ||||||
Minority interest in earnings |
36,621 | 22,576 | ||||||
Distributions less than equity earnings |
3,881 | (3,813 | ) | |||||
Equity earnings GrowHow UK Limited |
(46,895 | ) | | |||||
Non-cash gain on derivatives |
(4,954 | ) | 624 | |||||
Share-based compensation |
9,772 | 13,681 | ||||||
Amortization of intangible and other assets |
4,070 | 4,485 | ||||||
Non-cash loss on early retirement of debt |
| 4,662 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(65,675 | ) | (40,494 | ) | ||||
Inventories |
(36,478 | ) | 48,192 | |||||
Accounts payable and customer prepayments |
(171,404 | ) | (65,559 | ) | ||||
Other assets and liabilities, net |
(14,574 | ) | 21,832 | |||||
Net cash
flows from operating activities - continuing operations |
100,901 | 172,319 | ||||||
Net cash
flows from operating activities - discontinued operations |
10,051 | 10,522 | ||||||
Net cash flows from operating activities |
110,952 | 182,841 | ||||||
Investing Activities |
||||||||
Purchase of property, plant and equipment |
(25,691 | ) | (13,496 | ) | ||||
Plant turnaround expenditures |
(10,225 | ) | (20,320 | ) | ||||
Proceeds from sale of property, plant and equipment |
1,632 | | ||||||
Distributions received from unconsolidated affiliates |
7,196 | | ||||||
Contribution settlement received from GrowHow UK Limited |
28,055 | | ||||||
Net cash
flows from investing activities - continuing operations |
967 | (33,816 | ) | |||||
Net cash
flows from investing activities - discontinued operations |
| | ||||||
Net cash flows from investing activities |
967 | (33,816 | ) | |||||
Financing Activities |
||||||||
Issuance of debt |
| 330,000 | ||||||
Payments under borrowing arrangements |
| (331,300 | ) | |||||
Payments for debt issuance costs |
| (6,398 | ) | |||||
Preferred share dividends paid |
(2,550 | ) | (2,550 | ) | ||||
Common stock dividends paid |
(9,202 | ) | | |||||
Common stock issuances and vestings |
(6,842 | ) | 406 | |||||
Excess tax benefits from equity compensation plans |
7,817 | | ||||||
Payments under share repurchase program |
(7,500 | ) | (19,211 | ) | ||||
Distributions to minority interests |
(39,899 | ) | (11,714 | ) | ||||
Net cash
flows from financing activities - continuing operations |
(58,176 | ) | (40,767 | ) | ||||
Net cash
flows from financing activities - discontinued operations |
| | ||||||
5
Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
Net cash flows from financing activities |
(58,176 | ) | (40,767 | ) | ||||
Effect of exchange rate changes on cash |
27 | (325 | ) | |||||
Increase to cash and cash equivalents |
53,770 | 107,933 | ||||||
Cash and cash equivalents at beginning of period |
698,238 | 179,017 | ||||||
Cash and cash equivalents at end of period |
$ | 752,008 | $ | 286,950 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 12,140 | $ | 472 | ||||
Income tax refunds received |
$ | 206 | $ | 547 | ||||
Income taxes paid |
$ | 92,368 | $ | 5,198 | ||||
Supplemental schedule of non-cash investing
and financing activities: |
||||||||
Conversion of warrants to common stock |
$ | 1,672 | $ | | ||||
Supplemental schedule of unconsolidated affiliates
distributions received: |
||||||||
Equity earnings of unconsolidated affiliates |
$ | 29,808 | $ | 4,813 | ||||
Distribution more (less) than equity earnings |
3,881 | (3,813 | ) | |||||
Distributions received from unconsolidated affiliates |
7,196 | | ||||||
Total cash distributions received from
unconsolidated affiliates |
$ | 40,885 | $ | 1,000 | ||||
6
Accumulated | (Accumulated | |||||||||||||||||||||||
Other | Deficit) | |||||||||||||||||||||||
Common | Paid-In | Comprehensive | Retained | Comprehensive | ||||||||||||||||||||
Stock | Capital | Loss | Earnings | Total | Income | |||||||||||||||||||
Balance at January 1, 2008 |
$ | 142,170 | $ | 618,874 | $ | (45,328 | ) | $ | (95,341 | ) | $ | 620,375 | ||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||
Net income |
| | | 304,892 | 304,892 | $ | 304,892 | |||||||||||||||||
Foreign currency
translation adjustment |
| | (1,756 | ) | | (1,756 | ) | (1,756 | ) | |||||||||||||||
Change in fair value of
derivatives, net of taxes
of $29,145 |
| | 46,620 | | 46,620 | 46,620 | ||||||||||||||||||
Comprehensive income |
$ | 349,756 | ||||||||||||||||||||||
Preferred share dividends |
| | | (2,550 | ) | (2,550 | ) | |||||||||||||||||
Common stock dividends |
| | | (9,202 | ) | (9,202 | ) | |||||||||||||||||
Shares repurchased and retired
under the share repurchase
program |
(190 | ) | (7,310 | ) | | | (7,500 | ) | ||||||||||||||||
Excess tax benefit |
| 10,297 | | | 10,297 | |||||||||||||||||||
Exercise of stock options |
11 | 23 | | | 34 | |||||||||||||||||||
Non vested stock |
303 | (9,729 | ) | | | (9,426 | ) | |||||||||||||||||
Conversion of warrants |
2,137 | 412 | | | 2,549 | |||||||||||||||||||
Share-based compensation |
| 5,177 | | | 5,177 | |||||||||||||||||||
Balance June 30, 2008 |
$ | 144,431 | $ | 617,744 | $ | (464 | ) | $ | 197,799 | $ | 959,510 | |||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Comprehensive | ||||||||||||||||||||
Stock | Capital | Loss | Deficit | Total | Income | |||||||||||||||||||
Balance at January 1, 2007 |
$ | 144,976 | $ | 693,896 | $ | (63,739 | ) | $ | (292,137 | ) | $ | 482,996 | ||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||
Net income |
| | | 77,864 | 77,864 | $ | 77,864 | |||||||||||||||||
Foreign currency
translation adjustment |
| | 11,486 | | 11,486 | 11,486 | ||||||||||||||||||
Change in fair value of
derivatives, net of taxes
of $3,665 |
| | (6,809 | ) | | (6,809 | ) | (6,809 | ) | |||||||||||||||
Pension and post retirement
benefit liabilities |
| | 1,913 | | 1,913 | 1,913 | ||||||||||||||||||
Comprehensive income |
$ | 84,454 | ||||||||||||||||||||||
Preferred share dividends |
| | | (2,550 | ) | (2,550 | ) | |||||||||||||||||
Exercise of stock options |
226 | 180 | | | 406 | |||||||||||||||||||
Shares repurchased and retired
under the share repurchase
program |
(1,000 | ) | (18,211 | ) | | | (19,211 | ) | ||||||||||||||||
Share-based compensation |
| 4,954 | | | 4,954 | |||||||||||||||||||
Balance June 30, 2007 |
$ | 144,202 | $ | 680,819 | $ | (57,149 | ) | $ | (216,823 | ) | $ | 551,049 | ||||||||||||
7
1. | Financial Statement Presentation |
|
Basis of Presentation |
||
The accompanying unaudited consolidated financial statements and notes thereto contain all
adjustments necessary, in the opinion of management, to summarize fairly the financial
position of Terra Industries Inc. and all majority-owned subsidiaries (Terra, the
Company, our we and us) and the results of operations for the periods presented.
Because of the seasonal nature of our operations and effects of weather-related conditions
in several of its marketing areas, results of any interim reporting period should not be
considered as indicative of results for a full year. These statements should be read in
conjunction with our 2007 Annual Report on Form 10-K to Shareholders. |
||
Revenue Recognition |
||
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, no obligations remain and collectibility is
probable. |
||
Revenues are primarily comprised of sales of our nitrogen-based products, including any
realized hedging gains or losses related to nitrogen product derivatives, and are reduced
by estimated discounts and trade allowances. We classify amounts directly or indirectly
billed to our customers for shipping and handling as revenue. |
||
Cost of Sales |
||
Cost of sales are primarily manufacturing costs related to our nitrogen-based products,
including any realized hedging gains or losses related to natural gas derivatives. We
classify amounts directly or indirectly billed for delivery of products to our customers or
our terminals as cost of sales. |
||
Derivatives and Financial Instruments |
||
We enter into derivative financial instruments, including swaps, basis swaps, and options,
to manage the effect of changes in natural gas costs and to manage the prices of our
nitrogen products. We report the fair value of the derivatives on our balance sheet. If the
derivative is not designated as a hedging instrument, changes in fair value are recognized
in earnings in the period of change. If the derivative is designated as a cash flow hedge,
and to the extent such hedge is determined to be effective, changes in fair value are
reported as a component of accumulated other comprehensive income (loss) in the period of
change, and subsequently recognized in cost of sales in the period the offsetting hedged
transaction occurs. |
||
Segment Reporting |
||
We review our reportable industry segments based upon the guidance provided in Statement of
Financial Accounting Standards (SFAS) 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131). The methanol industry segment does not meet the
quantitative thresholds of SFAS 131 because we have reclassified the Beaumont, Texas
related assets and liabilities as held for sale and have included earnings related to these
assets in discontinued operations as required by SFAS 144, Accounting for the Impairment or
Disposal of Long-lived Assets (SFAS
144). As a wholesale nitrogen producer we are no longer reporting industry segments in a
separate disclosure because the only reportable industry segment is nitrogen. |
8
Inventories |
||
Inventories are stated at the lower of average cost or estimated net realizable value. We
perform a monthly analysis of our inventory balances to determine if the carrying amount of
inventories exceeds its net realizable value. The analysis of estimated realizable value is
based on customer orders, market trends, and historical pricing. If the carrying amount
exceeds the estimated net realizable value, the carrying amount is reduced to the estimated
net realizable value. |
||
Production costs include the cost of direct labor and materials, depreciation and
amortization, and overhead costs related to manufacturing activity. The cost of inventories
is determined using the first- in, first-out method. |
||
We estimate a reserve for obsolescence and excess of our materials and supplies inventory.
Inventory is stated net of the reserve. |
||
Plant Turnaround Costs |
||
Costs incurred for the periodic scheduled major maintenance of continuous process
production facilities (plant turnarounds) are deferred and charged to product costs on a
straight-line basis during the period until the next scheduled turnaround, generally two
years. These costs are directly related to and associated with the turnaround to replace or
extend the useful life of worn major equipment and electronic system controls for items
such as compressors, heat exchangers, pumps, valves, catalysts, piping, motors and other
items. |
||
Impairment of Long-Lived Assets |
||
We review our long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum of the
expected future cash flows expected to result from the use of the asset (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss
is recognized based on the difference between the carrying amount and the fair value of the
asset. |
||
Use of Estimates in Preparation of the Financial Statements |
||
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. |
||
2. | Discontinued Operations |
|
During 2007, we entered into an agreement for Eastman Chemical Company to purchase our
Beaumont, Texas assets, including the methanol and ammonia production facilities. We
anticipate closing the sale on or before January 1, 2009. In connection with this sales
agreement, we evaluated our Beaumont facility for impairment. We determined that this
facilitys carrying values were impaired and we recorded a $39 million impairment charge in
the third quarter of 2007. |
9
Pursuant to the requirements of SFAS 144, we classified and accounted for certain assets as
held for sale as the anticipated sales date is within one year. SFAS 144 requires that
assets held for sale are valued on an asset-by-asset basis at the lower of carrying amount
or fair value less costs to sell. In applying those provisions, we considered cash flow
analyses, and offers related to those assets. In accordance with the provisions of SFAS
144, assets for sale are not depreciated. |
||
Results of the Beaumont operations are reported for all periods presented on a net of tax
basis as discontinued operations. In addition, assets and liabilities of the business held
for sale have been classified as assets and liabilities held for sale in the accompanying
Consolidated Balance Sheets. |
||
Summarized Financial Results of Discontinued Operations |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Operating revenue |
$ | 13,224 | $ | 1,280 | $ | 14,645 | $ | 2,642 | ||||||||
Operating and other expenses |
(1,027 | ) | (3,690 | ) | (2,214 | ) | (7,602 | ) | ||||||||
Pretax income (loss) from operations of
discontinued components |
12,197 | (2,410 | ) | 12,431 | (4,960 | ) | ||||||||||
Income tax (expense) benefit |
(4,878 | ) | 962 | (4,960 | ) | 1,979 | ||||||||||
Income (loss) from discontinued operations |
$ | 7,319 | $ | (1,448 | ) | $ | 7,471 | $ | (2,981 | ) | ||||||
The major classes of assets and liabilities held for sale and related to discontinued
operations as of June 30, 2008, December 31, 2007 and June 30, 2007 are as follows: |
June 30, | December 31, | June 30, | ||||||||||
(in thousands) | 2008 | 2007 | 2007 | |||||||||
Trade receivables |
$ | 470 | $ | 45 | $ | 66 | ||||||
Inventory |
2,203 | 2,203 | 2,203 | |||||||||
Other current assets |
43,112 | 87 | 44 | |||||||||
Current assets |
$ | 45,785 | $ | 2,335 | $ | 2,313 | ||||||
Property,
plant and equipment - net |
$ | | $ | 42,212 | $ | 86,075 | ||||||
Other non-current assets |
| 817 | 817 | |||||||||
Non-current assets |
$ | | $ | 43,029 | $ | 86,892 | ||||||
Accounts payable |
$ | 279 | $ | 18 | $ | (150 | ) | |||||
Other current liabilities |
3,494 | 4,975 | 16,782 | |||||||||
Current liabilities |
$ | 3,773 | $ | 4,993 | $ | 16,632 | ||||||
Other non-current liabilities |
$ | | $ | 739 | $ | 2,959 | ||||||
Non-current liabilities |
$ | | $ | 739 | $ | 2,959 | ||||||
3. | Income (Loss) Per Share |
|
Basic income (loss) per share data is based on the weighted-average number of common shares
outstanding during the period. Diluted income (loss) per share data is based on the
weighted-average number of common shares outstanding and the effect of all dilutive
potential common shares including stock options, nonvested shares, convertible preferred
shares and common stock warrants. Nonvested stock carries dividend and voting rights, but
is not included in the weighted average number of common shares outstanding used to compute
basic income (loss) per share since they are contingently returnable. |
10
The following table provides a reconciliation between basic and diluted income (loss) per
share for the and six-month periods ended June 30, 2008 and 2007: |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands, except per-share amounts) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Basic income (loss) per share
computation: |
||||||||||||||||
Income from continuing operations |
$ | 196,116 | $ | 72,103 | $ | 297,421 | $ | 80,845 | ||||||||
Less: Preferred share dividends |
(1,275 | ) | (1,275 | ) | (2,550 | ) | (2,550 | ) | ||||||||
Income from continuing operations
available to common shareholders |
194,841 | 70,828 | 294,871 | 78,295 | ||||||||||||
Income (loss) from discontinued operations
available to common shareholders |
7,319 | (1,448 | ) | 7,471 | (2,981 | ) | ||||||||||
Income (loss) available to
common shareholders |
$ | 202,160 | $ | 69,380 | $ | 302,342 | $ | 75,314 | ||||||||
Weighted average shares outstanding |
91,011 | 91,496 | 90,588 | 91,677 | ||||||||||||
Income per
share - continuing operations |
$ | 2.14 | $ | 0.77 | $ | 3.26 | $ | 0.85 | ||||||||
Income
(loss) per share -
discontinued operations |
0.08 | (0.01 | ) | 0.08 | (0.03 | ) | ||||||||||
Net income per share |
$ | 2.22 | $ | 0.76 | $ | 3.34 | $ | 0.82 | ||||||||
Diluted income (loss) per share
computation: |
||||||||||||||||
Income from continuing operations
available to common shareholders |
$ | 194,841 | $ | 70,828 | $ | 294,871 | $ | 78,295 | ||||||||
Add: Preferred share dividends |
1,275 | 1,275 | 2,550 | 2,550 | ||||||||||||
Income available to common
shareholders and assumed conversions |
$ | 196,116 | $ | 72,103 | $ | 297,421 | $ | 80,845 | ||||||||
Weighted average shares outstanding |
91,011 | 91,496 | 90,588 | 91,677 | ||||||||||||
Add incremental shares from
assumed conversions: |
||||||||||||||||
Preferred shares |
12,048 | 12,048 | 12,048 | 12,048 | ||||||||||||
Non vested stock |
572 | 753 | 590 | 681 | ||||||||||||
Common stock warrants |
1,047 | 2,887 | 1,424 | 2,760 | ||||||||||||
Common stock options |
| 110 | 2 | 145 | ||||||||||||
Dilutive potential common shares |
104,678 | 107,294 | 104,652 | 107,311 | ||||||||||||
Income per
share - continuing operations |
$ | 1.87 | $ | 0.67 | $ | 2.84 | $ | 0.76 | ||||||||
Income
(loss) per share -
discontinued operations |
0.07 | (0.01 | ) | 0.07 | (0.03 | ) | ||||||||||
Net income per share |
$ | 1.94 | $ | 0.66 | $ | 2.91 | $ | 0.73 | ||||||||
11
4. | Inventories |
|
Inventories consisted of the following: |
June 30, | December 31, | June 30, | ||||||||||
(in thousands) | 2008 | 2007 | 2007 | |||||||||
Raw materials |
$ | 16,791 | $ | 17,765 | $ | 23,187 | ||||||
Supplies |
33,702 | 35,909 | 47,679 | |||||||||
Finished goods |
118,457 | 75,647 | 96,605 | |||||||||
Total |
$ | 168,950 | $ | 129,321 | $ | 167,471 | ||||||
Inventory is valued at actual first-in, first-out cost. Costs include raw materials, labor
and overhead. |
5. | Derivative Financial Instruments |
We manage risk using derivative financial instruments for changes in natural gas supply
prices and changes in nitrogen prices. Derivative financial instruments have credit risk
and market risk. |
To manage credit risk, we enter into derivative transactions only with counter-parties who
are currently rated as BBB or better or equivalent as recognized by a national rating
agency. We will not enter into transactions with a counter-party if the additional
transaction will result in credit exposure exceeding $20 million. The credit rating of
counter-parties may be modified through guarantees, letters of credit or other credit
enhancement vehicles. |
We classify a derivative financial instrument as a hedge if all of the following conditions
are met: |
1. | The item to be hedged must expose us to price risk. |
2. | It must be probable that the results of the hedge position substantially
offset the effects of price changes on the hedged item (e.g., there is a high
correlation between the hedge position and changes in market value of the hedge
item). |
3. | The derivative financial instrument must be designated as a hedge of the item
at the inception of the hedge. |
Natural gas supplies to meet production requirements at our North American production
facilities are purchased at market prices. Natural gas market prices are volatile and we
effectively fix prices for a portion of our natural gas production requirements and
inventory through the use of swaps, basis swaps and options. The North American contracts
reference physical natural gas prices or appropriate NYMEX futures contract prices.
Contract physical prices for North America are frequently based on prices at the Henry Hub
in Louisiana, the most common and financially liquid location of reference for financial
derivatives related to natural gas. However, natural gas supplies for our North American
production facilities are purchased at locations other than Henry Hub, which often creates
a location basis differential between the contract price and the physical price of natural
gas. Accordingly, the use of financial derivatives may not exactly offset the change in
the price of physical gas. The contracts are traded in months forward and settlement dates
are scheduled to coincide with gas purchases during that future period. |
A swap is a financial instrument whereby we agree to pay a counterparty a fixed rate, and
the counterparty pays us a variable rate. Option contracts give the holder the right to
either own or sell a futures or swap contract. The option contracts require initial premium
payments ranging from 2% to 5% of contract value. Basis swap contracts require payments to
or from us for the amount, if any, that monthly published gas prices from the source
specified in the contract differ from the prices of a
NYMEX natural gas futures during a specified period. There are no initial cash requirements
related to the swap and basis swap agreements. |
12
We may also use a collar structure where we will enter into a swap, sell a call at a higher
price and buy a put. The collar structure allows for greater participation in a decrease to
natural gas prices and protects against moderate price increases. However, the collar
exposes us to large price increases. At June 30, 2008 there were no collars outstanding. |
The following summarizes open natural gas derivative contracts at June 30, 2008 and 2007
and December 31, 2007: |
Other | Other | |||||||||||||||
Current | Current | Deferred | Net Asset | |||||||||||||
(in thousands) | Assets | Liabilities | Taxes | (Liability) | ||||||||||||
June 30, 2008 |
$ | 83,968 | $ | (10,094 | ) | $ | (26,121 | ) | $ | 47,753 | ||||||
December 31, 2007 |
$ | 4,798 | $ | (14,733 | ) | $ | 3,022 | $ | (6,913 | ) | ||||||
June 30, 2007 |
$ | 2,523 | $ | (30,749 | ) | $ | 10,040 | $ | (18,186 | ) |
Certain derivatives outstanding at June 30, 2008 and 2007, which settled during July 2008
and 2007, respectively, are included in the position of open natural gas derivatives in the
table above. The July 2008 derivatives settled for an approximate $15.6 million gain
compared to the July 2007 derivatives which settled for an approximate $5.5 million loss.
Substantially all open derivatives will settle during the next twelve months. |
We determined that certain derivative contracts were ineffective hedges for accounting
purposes and recorded a credit of $4.8 million and a credit of $.5 million, respectively,
to cost of sales for the period ending June 30, 2008 and 2007, respectively. |
The effective portion of gains and losses on derivative contracts that qualify for hedge
treatment are carried as accumulated other comprehensive income (loss) and credited or
charged to cost of sales in the month in which the hedged transaction settles. Gains and
losses on the contracts that do not qualify for hedge treatment are credited or charged to
cost of sales based on the positions fair value. The risk and reward of outstanding
natural gas positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices. |
The activity to accumulated other comprehensive income (loss), net of income taxes,
relating to current period hedging transactions for the three-month periods ended June 30,
2008 and 2007 follows: |
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
(in thousands) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Beginning accumulated gain |
$ | 26,615 | $ | 17,301 | $ | 4,210 | $ | 2,736 | ||||||||
Reclassification into earnings |
(36,570 | ) | (24,768 | ) | (2,375 | ) | (1,544 | ) | ||||||||
Net change in market value |
77,085 | 48,475 | (30,519 | ) | (19,837 | ) | ||||||||||
Ending accumulated gain |
$ | 67,130 | $ | 41,008 | $ | (28,684 | ) | $ | (18,645 | ) | ||||||
13
The activity to accumulated other comprehensive income (loss), net of income taxes,
relating to current period hedging transactions for the six-month periods ended June 30,
2008 and 2007 follows: |
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
(in thousands) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Beginning accumulated loss |
$ | (8,635 | ) | $ | (5,612 | ) | $ | (18,210 | ) | $ | (11,836 | ) | ||||
Reclassification into earnings |
(44,067 | ) | (29,795 | ) | 352 | 229 | ||||||||||
Net change in market value |
119,832 | 76,415 | (10,826 | ) | (7,038 | ) | ||||||||||
Ending accumulated gain |
$ | 67,130 | $ | 41,008 | $ | (28,684 | ) | $ | (18,645 | ) | ||||||
Approximately $67.1 million of the net accumulated gain at June 30, 2008 will be
reclassified into earnings during the next twelve months as compared to $28.7 million of
the net accumulated loss at June 30, 2007. |
At times, we also use forward derivative instruments to fix or set floor prices for a
portion of our nitrogen sales volumes. At June 30, 2008, we did not have any open contracts
for nitrogen solutions. When outstanding, the nitrogen solution contracts do not qualify
for hedge treatment due to inadequate trading history to demonstrate effectiveness.
Consequently, these contracts are marked-to-market and unrealized gains or losses are
reflected in revenue in the statement of operations. For the three- and six-month periods
ending June 30, 2008, there were no gains or losses on nitrogen forward derivative
instruments. For the three- and six-month periods ending June 30, 2007, we recognized a
loss of $1.1 million and $2.0 million, respectively, on nitrogen forward derivative
instruments. |
6. | Fair Value Measurements |
On January 1, 2008, we adopted SFAS 157, Fair Value Measurements (SFAS 157), which, among
other things, requires enhanced disclosure of assets and liabilities measured and reported
at fair value. In February 2008, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which delayed for
one year the applicability of SFAS 157s fair-value measurements to certain nonfinancial
assets and liabilities. We adopted SFAS 157 in 2008, except as it applies to those
nonfinancial assets and liabilities as affected by the one-year delay. The adoption of SFAS
157 did not have a material impact on our financial statements. |
SFAS 157 establishes a three level hierarchal disclosure framework that prioritizes and
ranks the level of market price observability used in measuring assets and liabilities at
fair value. Market price observability is impacted by a number of factors, including the
type of asset or liability and its characteristics. Assets and liabilities with readily
available active quoted prices or for which fair value can be measured from actively quoted
prices generally will have a higher degree of market price observability and a lesser
degree of judgment used in measuring fair value. |
||
The three levels are defined as follows: |
| Level 1 inputs to the valuation methodology are unadjusted quoted prices for
identical assets or liabilities in active markets. |
| Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument. |
| Level 3 inputs to the valuation methodology are unobservable and significant
to the fair value measurement. |
14
We evaluated our assets and liabilities to determine which items should be disclosed
according to SFAS 157. We currently measure our derivative contracts on a recurring basis
at fair value. The inputs included in the fair value measurement of our derivative contract
use adjusted quoted prices from an active market which are classified at level 2 as a
significant other observable input in the disclosure hierarchy framework as defined by SFAS
157. |
The following table summarizes the valuation of our assets and liabilities in accordance
with SFAS 157 fair value hierarchy levels as of June 30, 2008: |
Quoted Market | Significant Other | Significant | ||||||||||
Prices in Active | Observable | Unobservable | ||||||||||
Markets | Inputs | Inputs | ||||||||||
(in thousands) | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets |
||||||||||||
Derivative contracts |
$ | | $ | 83,968 | $ | | ||||||
Total |
$ | | $ | 83,968 | $ | | ||||||
Liabilities |
||||||||||||
Derivative contracts |
$ | | $ | (10,094 | ) | $ | | |||||
Total |
$ | | $ | (10,094 | ) | $ | | |||||
7. | Other Liabilities |
|
Other liabilities consisted of the following: |
June 30, | December 31, | June 30, | ||||||||||
(in thousands) | 2008 | 2007 | 2007 | |||||||||
Unrecognized tax benefit |
$ | 33,560 | $ | 33,560 | $ | 33,560 | ||||||
Long-term medical and
closed facility reserve |
24,405 | 24,368 | 23,618 | |||||||||
Long-term deferred revenue |
10,313 | 10,885 | 11,573 | |||||||||
Accrued phantom shares |
7,613 | 9,231 | 12,192 | |||||||||
Long-term retiree medical and
post employment reserve |
6,136 | 6,112 | 6,994 | |||||||||
Other |
523 | 720 | 719 | |||||||||
$ | 82,550 | $ | 84,876 | $ | 88,656 | |||||||
8. | Equity Investments |
|
Trinidad and United States |
Our investment in companies that are accounted for on the equity method of accounting and
included in operations consist of the following: (1) 50% ownership interest in Point Lisas
Nitrogen Limited, (PLNL) which operates an ammonia production plant in Trinidad (2) 50%
interest in an ammonia storage joint venture located in Houston, Texas and (3) 50% interest
in a joint venture in Oklahoma CO2 at our Verdigris nitrogen plant. These
investments were $137.1 million at June 30, 2008. We include the net earnings of these
investments as an element of income from operations because the investees operations
provide additional capacity to our operations. |
15
The combined results of operations and financial position of our equity method investments
are summarized below: |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Condensed income statement
information: |
||||||||||||||||
Net sales |
$ | 83,993 | $ | 25,696 | $ | 182,528 | $ | 55,059 | ||||||||
Net income |
$ | 31,640 | $ | 2,382 | $ | 62,921 | $ | 9,494 | ||||||||
Terras equity in earnings
of unconsolidated affiliates |
$ | 16,518 | $ | (804 | ) | $ | 29,808 | $ | 4,813 | |||||||
June 30, | June 30, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Condensed balance sheet information: |
||||||||
Current assets |
$ | 57,166 | $ | 51,141 | ||||
Long-term assets |
182,320 | 201,217 | ||||||
Total assets |
$ | 239,486 | $ | 252,358 | ||||
Current liabilities |
$ | 40,557 | $ | 24,502 | ||||
Long-term liabilities |
13,020 | | ||||||
Equity |
185,909 | 227,856 | ||||||
Total liabilities and equity |
$ | 239,486 | $ | 252,358 | ||||
The carrying value of these investments at June 30, 2008 was $44.1 million more than our
share of the affiliates book value. The excess is attributable primarily to the step-up
in basis for fixed asset values, which is being depreciated over a period of approximately
fifteen years. Our equity in earnings of unconsolidated subsidiaries is different than our
ownership interest in income reported by the unconsolidated subsidiaries due to deferred
profits on intergroup transactions and amortization of basis differences. |
We have transactions in the normal course of business with PLNL whereby we are obliged to
purchase 50% of the ammonia produced by PLNL at current market prices. During the six-month
period ending June 30, 2008, we purchased approximately $77.4 million of ammonia from PLNL.
During the six-month period ending June 30, 2007, we purchased approximately $31.9 million
of ammonia from PLNL. During the first half of 2007, PLNL performed a turnaround, resulting
in lower production levels and consequently, lower purchases by us. |
We received $40.9 million and $1.0 million in distributions from all of our equity
investments in the six-month periods ending June 30, 2008 and 2007, respectively. |
United Kingdom |
On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint
venture between us and Kemira GrowHow Oyj (Kemira). Pursuant to the joint venture
agreement, we contributed our United Kingdom subsidiary Terra Nitrogen (UK) Limited to the
joint venture for a 50% interest. Subsequent to September 14, 2007, we have accounted for
our investment in GrowHow as an equity method investment. This investment was $223.7
million at June 30, 2008. |
16
Our interest in the joint venture is classified as a non-operating equity investment. We do
not include the net earnings of this investment as an element of income from operations
since the investees operations do not provide additional capacity to us, nor are its
operations integrated with our supply chain in North America. |
The six-month results of operations and financial position of our equity method investment
in GrowHow at June 30, 2008 were: |
(in thousands) | 2008 | |||
Condensed income statement information: |
||||
Net sales |
$ | 546,033 | ||
Net income |
$ | 98,099 | ||
Terras equity in earnings
of unconsolidated affiliates |
$ | 46,895 | ||
Condensed balance sheet information: |
||||
Current assets |
$ | 335,197 | ||
Long-term assets |
257,849 | |||
Total assets |
$ | 593,046 | ||
Current liabilities |
$ | 135,371 | ||
Long-term liabilities |
175,707 | |||
Equity |
281,968 | |||
Total liabilities and equity |
$ | 593,046 | ||
The carrying value of these investments at June 30, 2008 was $82.8 million more than our
share of the affiliates book value. The excess is attributable primarily to the step-up in
basis for fixed asset values, which is being depreciated over a period of approximately
twelve years. Our equity earnings of GrowHow are different than our ownership interest in
GrowHows net income due to the amortization of basis differences. |
We contributed Terra Nitrogen (UK) Limited to the joint venture for a 50% interest in the
joint venture, and Kemira contributed its Kemira GrowHow UK Limited subsidiary for the
remaining 50% interest. The GrowHow joint venture in the United Kingdom includes the Kemira
site at Ince and our Teeside and Severnside sites. Pursuant to the GrowHow Agreements with
Kemira, we are eligible to receive a balancing consideration payment from GrowHow in 2011.
We will receive a minimum balancing consideration payment of £20 million, and have the
right to receive up to £60 million, based on GrowHows level of earnings before interest,
taxes, depreciation and amortization (EBITDA) for the years 2008 through 2010. |
In January 2008 GrowHow closed the Severnside manufacturing facility. Pursuant to the
agreement with Kemira, we are responsible for any remediation costs required to prepare the
Severnside site for disposal. We anticipate remediation costs to be approximately $5.0
million to $10.0 million. We have an option to purchase the Severnside land for a nominal
amount at any time prior to sale. If we elect not to exercise this option we are still
entitled to receive the sales proceeds. We anticipate that the proceeds related to the sale
of the Severnside land would exceed the total cost of reclamation of site. |
We received $28.1 million from GrowHow during the 2008 first quarter for the refund of
working capital contributions in excess of amounts specified in the Joint Venture
Contribution Agreement. |
17
There were no distributions from the United Kingdom equity investment since the inception
in 2007. |
9. | Long-term Debt |
|
Long-term debt consisted of the following: |
June 30, | December 31, | June 30, | ||||||||||
(in thousands) | 2008 | 2007 | 2007 | |||||||||
Unsecured Senior Notes, 7.0%
due 2017 |
$ | 330,000 | $ | 330,000 | $ | 330,000 | ||||||
Total long-term debt |
330,000 | 330,000 | 330,000 | |||||||||
Less current maturities |
| | | |||||||||
Total long-term debt |
$ | 330,000 | $ | 330,000 | $ | 330,000 | ||||||
In February 2007, Terra Capital, Inc., (TCAPI) a subsidiary of Terra Industries Inc.,
issued $330 million of 7.0% Senior Notes due 2017 to refinance our Senior Secured Notes due
in 2008 and 2010. The notes are unconditionally guaranteed by Terra Industries Inc. and its
U.S. subsidiaries (see Note 15). These notes and guarantees are unsecured and will rank
equal in right of payment with any existing and future senior obligations of such
guarantors. We recorded a $38.8 million loss on the early retirement of debt. |
The Indenture governing these notes contains covenants that limit, among other things, our
ability to: incur additional debt, pay dividends on common stock of Terra Industries Inc.
or repurchase shares of such common stock, make certain investments, sell any of our
principal production facilities or sell other assets outside the ordinary course of
business, enter into transactions with affiliates, limit dividends or other payments by our
restricted subsidiaries, enter into sale and leaseback transactions, engage in other
businesses, sell all or substantially all of our assets or merge with or into other
companies, and reduce our insurance coverage. |
We are obligated to offer to repurchase these notes upon a Change of Control (as defined in
the Indenture) at a cash price equal to 101% of the aggregate principal amount outstanding
at that time, plus accrued interest to the date of purchase. The Indenture governing these
notes contains events of default and remedies customary for a financing of this type. |
In conjunction with the bond refinancing, we amended the $200 million revolving credit
facility to extend the expiration date to January 31, 2012. The revolving credit facility
is secured by substantially all of our assets. Borrowing availability is generally based on
100% of eligible cash balances, 85% of eligible accounts receivable and 60% of eligible
finished goods inventory less outstanding letters of credit issued under the facility.
These facilities include $50 million only available for the use of Terra Nitrogen Company,
L.P. (TNCLP), one of our consolidated subsidiaries. Borrowings under the revolving credit
facility will bear interest at a floating rate plus an applicable margin, which can be
either a base rate, or, at our option, a London Interbank Offered Rate (LIBOR). At June 30,
2008, the LIBOR rate was 2.47%. The base rate is the highest of (1) Citibank, N.A.s base
rate (2) the federal funds effective rate, plus one-half percent (0.50%) per annum and (3)
the base three month certificate of deposit rate, plus one-half percent (0.50%) per annum,
plus an applicable margin in each case. LIBOR loans will bear interest at LIBOR plus an
applicable margin. The applicable margins for base rate loans and LIBOR loans were 0.50%
and 1.75%, respectively, at June 30, 2008. The revolving credit facility requires an
initial one-half percent (0.50%) commitment fee on the difference between committed amounts
and amounts actually borrowed. |
18
At June 30, 2008, we had no outstanding revolving credit borrowings and $6.5 million in
outstanding letters of credit. The $6.5 million in outstanding letters of credit reduced
our borrowing availability to $193.5 million at June 30, 2008. The credit facilities
require that we adhere to certain limitations on additional debt, capital expenditures,
acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness,
changes in lines of business and transactions with affiliates. If our borrowing
availability falls below $60 million, we are required to have achieved minimum operating
cash flows or earnings before interest, income taxes, depreciation, amortization and other
non-cash items of $60 million during the most recent four quarters. |
10. | Pension Plans |
|
We maintain defined benefit and defined contribution pension plans that cover substantially all salaried and hourly
employees. Benefits are based on a pay formula. The defined benefit plans assets consist principally of equity
securities and corporate and government debt securities. We also have certain non-qualified pension plans covering
executives, which are unfunded. We accrue pension costs based upon annual actuarial valuations for each plan and fund
these costs in accordance with statutory requirements. |
||
The estimated components of net periodic pension expense follow: |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Service cost |
$ | 778 | $ | 748 | $ | 1,556 | $ | 1,496 | ||||||||
Interest cost |
4,412 | 6,231 | 8,824 | 12,462 | ||||||||||||
Expected return on plan assets |
(4,516 | ) | (6,056 | ) | (9,032 | ) | (12,112 | ) | ||||||||
Amortization of prior service cost |
(9 | ) | (9 | ) | (18 | ) | (18 | ) | ||||||||
Amortization of actuarial loss |
468 | 1,409 | 936 | 2,818 | ||||||||||||
Termination charge |
| 123 | | 246 | ||||||||||||
Pension expense |
$ | 1,133 | $ | 2,446 | $ | 2,266 | $ | 4,892 | ||||||||
Cash contributions to the defined benefit pension plans for the three months ended June 30,
2008 and 2007 were $0.6 million and $5.7 million, respectively. Cash contributions to the
defined benefit plans for the six months ended June 30, 2008 and 2007 were $0.9 and $14.7
million, respectively. |
We also sponsor defined contribution savings plans covering most full-time employees.
Contributions made by participating employees are matched based on a specified percentage
of employee contributions. The cost of our contributions to these plans for the three-month
periods ending June 30, 2008 and 2007 were $0.9 million and $1.8 million, respectively.
Contributions to these plans for the six-month periods ending June 30, 2008 and 2007 were
$2.0 and $3.1 million, respectively. |
We provide health care benefits for certain U.S. employees who retired on or before January
1, 2002. Participant contributions and co-payments are subject to escalation. The plan pays
a stated percentage of most medical expenses reduced for any deductible and payments made
by government programs. These costs are funded as paid. |
19
11. | Accumulated Other Comprehensive Income (Loss) |
Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and
losses that under accounting principles generally accepted in the United States are
recorded as an element of shareholders equity but are excluded from net income (loss). Our
accumulated other comprehensive income (loss) is comprised of (a) adjustments that result
from translation of our foreign entity financial statements from their functional
currencies to United States dollars, (b) adjustments that result from translation of
intercompany foreign currency transactions that are of a long-term investment nature (that
is, settlement is not planned or anticipated in the foreseeable future) between entities
that are consolidated in our financial statements, (c) the offset to the fair value of
derivative assets and liabilities (that qualify as a cash flow hedge) recorded on the
balance sheet, and (d) pension and post-retirement benefit liabilities adjustments. |
The components of accumulated other comprehensive income (loss), net of tax, for the six
months ended June 30, 2008 and 2007 follow: |
Foreign | ||||||||||||||||
Currency | Pension and Post- | |||||||||||||||
Translation | Fair Value of | Retirement Benefit | ||||||||||||||
(in thousands) | Adjustment | Derivatives | Liabilities | Total | ||||||||||||
Balance January 1, 2008 |
$ | (22,364 | ) | $ | (5,612 | ) | $ | (17,352 | ) | $ | (45,328 | ) | ||||
Change in foreign translation
adjustment |
(1,756 | ) | | | (1,756 | ) | ||||||||||
Reclassification to earnings |
| (29,795 | ) | | (29,795 | ) | ||||||||||
Change in fair value of derivatives |
| 76,415 | | 76,415 | ||||||||||||
Balance June 30, 2008 |
$ | (24,120 | ) | $ | 41,008 | $ | (17,352 | ) | $ | (464 | ) | |||||
Balance January 1, 2007 |
$ | 24,518 | $ | (11,836 | ) | $ | (76,421 | ) | $ | (63,739 | ) | |||||
Change in pension and
post-retirement liabilities |
| | 1,913 | 1,913 | ||||||||||||
Change in foreign translation
adjustment |
11,486 | | | 11,486 | ||||||||||||
Reclassification to earnings |
| 229 | | 229 | ||||||||||||
Change in fair value of derivatives |
| (7,038 | ) | | (7,038 | ) | ||||||||||
Balance June 30, 2007 |
$ | 36,004 | $ | (18,645 | ) | $ | (74,508 | ) | $ | (57,149 | ) | |||||
12. | Commitments and Contingencies |
We are involved in various claims and legal actions arising in the ordinary course of
business, including employee injury claims. Based on the facts currently available,
management believes that the ultimate disposition of these matters will not have a material
adverse effect on our consolidated financial position, results of operation or liquidity
and that the likelihood that a loss contingency will occur in connection with these claims
is remote. |
We have entered into physical natural gas supply agreements through March 2009 for
approximately 28.7 million MMBtus. As of June 30, 2008, these natural gas commitments
were $1.9 million above the respective index prices. |
20
13. | New Accounting Pronouncements |
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141R,
Business Combinations (SFAS 141R), which changes the way we account for business
acquisitions. SFAS 141R requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the transaction and
establishes the acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed in a business combination. Certain provisions of this
standard will, among other things, impact the determination of acquisition-date fair value
of consideration paid in a business combination (including contingent consideration);
exclude transaction costs from acquisition accounting; and change accounting practices for
acquired contingencies, acquisition-related restructuring costs, in-process research and
development, indemnification assets, and tax benefits. SFAS 141R is effective for business
combinations and adjustments to an acquired entitys deferred tax asset and liability
balances occurring after December 31, 2008. We are currently evaluating the future impacts
and disclosures of SFAS 141R.
|
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51, (SFAS 160). SFAS 160 improves the
comparability and transparency of financial statements when reporting minority interest.
Entities with a noncontrolling interest will be required to clearly identify and present
the ownership interest in the consolidated statement of financial position within equity,
but separate from the parents equity. The amount of consolidated net income attributable
to the parent and to the noncontrolling interest will be identified and presented on the
face of the consolidated statement of income. The statement offers further guidance on
changes in ownership interest, deconsolidation, and required disclosures. The statement is
effective for fiscal years and interim periods within those fiscal years beginning
January 1, 2009. We are currently assessing the impact SFAS 160 may have on our financial
statements. |
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). SFAS 161 is an amendment of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). To address concerns that the
existing disclosure requirements of SFAS 133 do not provide adequate information, this
Statement requires enhanced disclosures about an entitys derivative and hedging activities
and thereby improves the transparency of financial reporting. This statement shall be
effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. We are currently evaluating the future impacts and disclosures of
SFAS 161. |
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This
statement is effective 60 days following the Security and Exchange Commissions approval of
the Public Company Accounting Oversight Board amendments to Auditing Standards Section 411.
We do not expect the adoption of SFAS 162 to have a material impact on our results of
operations or financial condition. |
21
14. | Common Stockholders Equity |
Terra allocates $1.00 per share upon the issuance of Common Shares to the Common Share
capital account. The Common Shares have no par value. In the second quarter we declared and
paid a $0.10 dividend per Common Share. Future dividends are necessarily dependent upon
future earnings, capital requirements, general financial condition, general business
conditions, approval from our Board of Directors and other factors. |
In connection with the Mississippi Chemical Corporation (MCC) acquisition, we issued
warrants to purchase 4.0 million of our common shares at $5.48 per share. These warrants
were valued at $21.1 million at the MCC closing. During 2005, shareholders approved the
issuance of the underlying shares and the warrant value was reclassified to common
stockholders equity. |
||
During the six month period ended June 30, 2008, a portion of these warrants were exercised and
were redeemed for common shares. |
(in thousands) | 2008 | 2007 | ||||||
January 1 warrants outstanding |
3,288 | 4,000 | ||||||
Exercised |
2,358 | | ||||||
June 30 warrants outstanding |
930 | 4,000 | ||||||
On May 6, 2008, the Board of Directors adopted a resolution for the repurchase of 12,841,717
shares representing 14 percent of our outstanding stock. The stock buyback program commenced on
May 7, 2008 and has been and will be conducted on the open market, in private transactions or
otherwise at such times prior to December 31, 2009, and at such prices we determine appropriate.
Purchases may be commenced or suspended at any time without notice. |
||
During 2008, our repurchases under stock buyback programs were: |
Number of | Average Price | Total Cost | ||||||||||
(in thousands, except average | Shares | of Shares | of Shares | |||||||||
price of shares repurchased) | Repurchased | Repurchased | Repurchased | |||||||||
May 2008 |
189 | $ | 39.65 | $ | 7,500 |
15. | Guarantor Subsidiaries |
The consolidating statement of financial position of Terra Industries Inc. (the Parent),
Terra Capital, Inc. (TCAPI), the Guarantor Subsidiaries and subsidiaries of the Parent
that are not guarantors of the Unsecured Senior Notes due 2017 for June 30, 2008; December
31, 2007; and June 30, 2007 are presented below for purposes of complying with the
reporting requirements of the Guarantor Subsidiaries. Statements of operations for the
three- and six-month periods ended June 30, 2008 and 2007 and statements of cash flows for
the six months ended June 30, 2008 and 2007 are presented below for purposes of complying
with the reporting requirements of the Guarantor Subsidiaries. The guarantees of the
Guarantor Subsidiaries are full and unconditional. The Subsidiary issuer and the Guarantor
Subsidiaries guarantees are joint and several with the Parent. |
Guarantor subsidiaries include subsidiaries that own the Woodward, Oklahoma; Port Neal,
Iowa; Yazoo City, Mississippi, and Beaumont, Texas plants; Terra Environmental Technologies
as well as the corporate headquarters facility in Sioux City, Iowa. The Beaumont, Texas
facility is classified as held for sale pursuant to SFAS 144. All guarantor subsidiaries
are wholly owned by the Parent. All other company facilities are owned by non-guarantor
subsidiaries. |
22
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 45,342 | $ | 382,642 | $ | 817,198 | $ | (493,174 | ) | $ | 752,008 | |||||||||||
Accounts receivable, net |
| 5,848 | 146,935 | 89,177 | (5,848 | ) | 236,112 | |||||||||||||||||
Inventories |
1 | | 116,451 | 52,498 | | 168,950 | ||||||||||||||||||
Other current assets |
43,022 | 1,935 | 20,611 | 46,432 | | 112,000 | ||||||||||||||||||
Current
assets held for sale -
discontinued operations |
| | 45,785 | | | 45,785 | ||||||||||||||||||
Total current assets |
43,023 | 53,125 | 712,424 | 1,005,305 | (499,022 | ) | 1,314,855 | |||||||||||||||||
Property, plant and
equipment, net |
| | 266,936 | 119,864 | | 386,800 | ||||||||||||||||||
Equity
investment -
operating |
| | 10,567 | 126,502 | | 137,069 | ||||||||||||||||||
Equity
investment -
non-operating |
| | | 223,736 | | 223,736 | ||||||||||||||||||
Intangible assets, other assets
and deferred plant
turnaround costs |
6,732 | 7,744 | 24,611 | 33,481 | (5,343 | ) | 67,225 | |||||||||||||||||
Investments in and advances
to (from) affiliates |
959,510 | 394,584 | 2,130,501 | 130,179 | (3,614,774 | ) | | |||||||||||||||||
Non current assets held for
sale - discontinued
operations |
| | | | | | ||||||||||||||||||
Total assets |
$ | 1,009,265 | $ | 455,453 | $ | 3,145,039 | $ | 1,639,067 | $ | (4,119,139 | ) | $ | 2,129,685 | |||||||||||
Liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 279 | $ | | $ | 94,954 | $ | 57,461 | $ | (5,848 | ) | $ | 146,846 | |||||||||||
Customer prepayments |
| | 49,138 | 42,467 | | 91,605 | ||||||||||||||||||
Accrued and other
current liabilities |
58,008 | 9,187 | 35,684 | 27,266 | | 130,145 | ||||||||||||||||||
Current liabilities held for
sale - discontinued
operations |
| | 3,773 | | | 3,773 | ||||||||||||||||||
Total current liabilities |
58,287 | 9,187 | 183,549 | 127,194 | (5,848 | ) | 372,369 | |||||||||||||||||
Long-term debt |
| 330,000 | | | | 330,000 | ||||||||||||||||||
Deferred taxes |
136,706 | | | 13,583 | 3,465 | 153,754 | ||||||||||||||||||
Pension and other liabilities |
78,526 | (340 | ) | 11,067 | 2,224 | 324 | 91,801 | |||||||||||||||||
Minority interest |
| 20,771 | 85,680 | | | 106,451 | ||||||||||||||||||
Noncurrent liabilities held for
sale - discontinued
operations |
| | | | | | ||||||||||||||||||
Total liabilities and
minority interest |
273,519 | 359,618 | 280,296 | 143,001 | (2,059 | ) | 1,054,375 | |||||||||||||||||
Preferred stock |
115,800 | | | | | 115,800 |
23
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Common Stockholders Equity |
||||||||||||||||||||||||
Common stock |
144,431 | | 73 | 32,458 | (32,531 | ) | 144,431 | |||||||||||||||||
Paid-in capital |
617,744 | 150,218 | 1,944,959 | 1,168,302 | (3,263,479 | ) | 617,744 | |||||||||||||||||
Accumulated other
comprehensive income
(loss) |
(12,316 | ) | | | 236,083 | (224,231 | ) | (464 | ) | |||||||||||||||
Retained earnings
(accumulated deficit) |
(129,913 | ) | (54,383 | ) | 919,711 | 59,223 | (596,839 | ) | 197,799 | |||||||||||||||
Total stockholders equity |
619,946 | 95,835 | 2,864,743 | 1,496,066 | (4,117,080 | ) | 959,510 | |||||||||||||||||
Total liabilities and
stockholders equity |
$ | 1,009,265 | $ | 455,453 | $ | 3,145,039 | $ | 1,639,067 | $ | (4,119,139 | ) | $ | 2,129,685 | |||||||||||
24
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Product revenues |
$ | | $ | | $ | 478,835 | $ | 358,089 | $ | | $ | 836,924 | ||||||||||||
Other revenues |
| | 5,120 | 1,053 | | 6,173 | ||||||||||||||||||
Total revenues |
| | 483,955 | 359,142 | | 843,097 | ||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales |
| 83 | 363,813 | 183,174 | | 547,070 | ||||||||||||||||||
Selling, general and
administrative expenses |
901 | (4,055 | ) | 13,431 | 16,956 | | 27,233 | |||||||||||||||||
Equity in the (earnings) loss
of subsidiaries |
| | (16,518 | ) | | | (16,518 | ) | ||||||||||||||||
Total cost & expenses |
901 | (3,972 | ) | 360,726 | 200,130 | | 557,785 | |||||||||||||||||
Income (loss) from operations |
(901 | ) | 3,972 | 123,229 | 159,012 | | 285,312 | |||||||||||||||||
Interest income |
| 2,286 | 1,983 | 1,244 | | 5,513 | ||||||||||||||||||
Interest expense |
(465 | ) | (6,207 | ) | (1 | ) | (83 | ) | | (6,756 | ) | |||||||||||||
Foreign currency gain (loss) |
| | (6 | ) | 6 | | | |||||||||||||||||
Income (loss) before income
taxes and minority interest |
(1,366 | ) | 51 | 125,205 | 160,179 | | 284,069 | |||||||||||||||||
Income tax benefit (provision) |
598 | (42,635 | ) | (54,420 | ) | (10,612 | ) | | (107,069 | ) | ||||||||||||||
Minority interest |
| (3,570 | ) | (14,925 | ) | | | (18,495 | ) | |||||||||||||||
Equity in subsidiary earnings |
204,203 | 250,357 | | 37,611 | (454,560 | ) | 37,611 | |||||||||||||||||
Income from continuing
operations |
203,435 | 204,203 | 55,860 | 187,178 | (454,560 | ) | 196,116 | |||||||||||||||||
Income from discontinued
Operations - net of tax |
| | 7,319 | | | 7,319 | ||||||||||||||||||
Net income |
$ | 203,435 | $ | 204,203 | $ | 63,179 | $ | 187,178 | $ | (454,560 | ) | $ | 203,435 | |||||||||||
25
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Product revenues |
$ | | $ | | $ | 834,569 | $ | 575,557 | $ | | $ | 1,410,126 | ||||||||||||
Other revenues |
| | 6,065 | 1,610 | | 7,675 | ||||||||||||||||||
Total revenues |
| | 840,634 | 577,167 | | 1,417,801 | ||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales |
| 166 | 650,157 | 303,736 | | 954,059 | ||||||||||||||||||
Selling, general and
administrative expenses |
1,410 | (6,090 | ) | 20,109 | 24,508 | | 39,937 | |||||||||||||||||
Equity in the (earnings) loss
of subsidiaries |
| | (29,808 | ) | | | (29,808 | ) | ||||||||||||||||
Total cost & expenses |
1,410 | (5,924 | ) | 640,458 | 328,244 | | 964,188 | |||||||||||||||||
Income (loss) from operations |
(1,410 | ) | 5,924 | 200,176 | 248,923 | | 453,613 | |||||||||||||||||
Interest income |
| 5,923 | 1,983 | 6,015 | | 13,921 | ||||||||||||||||||
Interest expense |
(930 | ) | (12,426 | ) | (3 | ) | (455 | ) | | (13,814 | ) | |||||||||||||
Foreign currency gain (loss) |
| | | | | | ||||||||||||||||||
Income (loss) before income
taxes and minority interest |
(2,340 | ) | (579 | ) | 202,156 | 254,483 | | 453,720 | ||||||||||||||||
Income tax benefit (provision) |
974 | (66,116 | ) | (84,135 | ) | (17,296 | ) | | (166,573 | ) | ||||||||||||||
Minority interest |
| (7,068 | ) | (29,553 | ) | | | (36,621 | ) | |||||||||||||||
Equity in subsidiary earnings |
306,258 | 380,021 | | 46,895 | (686,279 | ) | 46,895 | |||||||||||||||||
Income from continuing
operations |
304,892 | 306,258 | 88,468 | 284,082 | (686,279 | ) | 297,421 | |||||||||||||||||
Income from discontinued
Operations - net of tax |
| | 7,471 | | | 7,471 | ||||||||||||||||||
Net income |
$ | 304,892 | $ | 306,258 | $ | 95,939 | $ | 284,082 | $ | (686,279 | ) | $ | 304,892 | |||||||||||
26
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Operating Activities |
||||||||||||||||||||||||
Net income |
$ | 304,892 | $ | 306,258 | $ | 95,939 | $ | 284,082 | $ | (686,279 | ) | $ | 304,892 | |||||||||||
Income from discontinued
operations |
| | 7,471 | | | 7,471 | ||||||||||||||||||
Income from continuing
operations |
304,892 | 306,258 | 88,468 | 284,082 | (686,279 | ) | 297,421 | |||||||||||||||||
Adjustments to reconcile
income from continuing
operations to net cash
flows from operating
activities: |
||||||||||||||||||||||||
Depreciation and amortization |
| | 20,733 | 18,716 | | 39,449 | ||||||||||||||||||
(Gain) loss on sale of property,
plant and equipment |
| | 920 | (193 | ) | | 727 | |||||||||||||||||
Deferred income taxes |
48,940 | | | | | 48,940 | ||||||||||||||||||
Minority interest in earnings |
| (633 | ) | 37,254 | | | 36,621 | |||||||||||||||||
Distributions less than
equity earnings |
(339,136 | ) | (28,822 | ) | (29,808 | ) | (60,791 | ) | 462,438 | 3,881 | ||||||||||||||
Equity earnings -
GrowHow UK Limited |
| | | (46,895 | ) | | (46,895 | ) | ||||||||||||||||
Non-cash gain on derivatives |
(4,954 | ) | | | | | (4,954 | ) | ||||||||||||||||
Share-based compensation |
9,772 | | | | | 9,772 | ||||||||||||||||||
Amortization of intangible
and other assets |
| | 2,433 | 1,637 | | 4,070 | ||||||||||||||||||
Change in operating assets
and liabilities |
13,046 | (6,876 | ) | (140,882 | ) | (232,439 | ) | 79,020 | (288,131 | ) | ||||||||||||||
Net cash flows from operating
activities - continuing
operations |
32,560 | 269,927 | (20,882 | ) | (35,883 | ) | (144,821 | ) | 100,901 | |||||||||||||||
Net cash flows from operating
activities - discontinued
operations |
| | 10,051 | | | 10,051 | ||||||||||||||||||
Net Cash Flows from
Operating Activities |
32,560 | 269,927 | (10,831 | ) | (35,883 | ) | (144,821 | ) | 110,952 | |||||||||||||||
Investing Activities |
||||||||||||||||||||||||
Purchase of property,
plant and equipment |
| | (20,765 | ) | (4,926 | ) | | (25,691 | ) | |||||||||||||||
Plant turnaround expenditures |
| | (10,061 | ) | (164 | ) | | (10,225 | ) | |||||||||||||||
Proceeds from the sale of
property, plant and
equipment |
| | 1,242 | 390 | | 1,632 | ||||||||||||||||||
Distributions received from
unconsolidated affiliate |
| | 7,196 | | | 7,196 | ||||||||||||||||||
Contribution settlement
received from
GrowHow UK Limited |
| | | 28,055 | | 28,055 | ||||||||||||||||||
Net cash flows from investing
activities - continuing
operations |
| | (22,388 | ) | 23,355 | | 967 | |||||||||||||||||
Net cash flows from investing
activities - discontinued
operations |
| | | | | | ||||||||||||||||||
Net Cash Flows from
Investing Activities |
| | (22,388 | ) | 23,355 | | 967 | |||||||||||||||||
27
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Financing Activities |
||||||||||||||||||||||||
Preferred share dividends paid |
(2,550 | ) | | | | | (2,550 | ) | ||||||||||||||||
Common stock dividends paid |
(9,202 | ) | | | | | (9,202 | ) | ||||||||||||||||
Common stock issuances and
vestings |
(6,842 | ) | | | | | (6,842 | ) | ||||||||||||||||
Change in investments and
advances from (to) affiliates |
(14,283 | ) | (280,442 | ) | 188,615 | (77,053 | ) | 183,163 | | |||||||||||||||
Excess tax benefits from equity
compensation plans |
7,817 | | | | | 7,817 | ||||||||||||||||||
Payments under share
repurchase program |
(7,500 | ) | | | | | (7,500 | ) | ||||||||||||||||
Distributions to minority
interests |
| | (39,899 | ) | | | (39,899 | ) | ||||||||||||||||
Net cash flows from financing
Activities - continuing
operations |
(32,560 | ) | (280,442 | ) | 148,716 | (77,053 | ) | 183,163 | (58,176 | ) | ||||||||||||||
Net cash flows from financing
activities - discontinued
operations |
| | | | | | ||||||||||||||||||
Net Cash Flows from
Financing Activities |
(32,560 | ) | (280,442 | ) | 148,716 | (77,053 | ) | 183,163 | (58,176 | ) | ||||||||||||||
Effect of Exchange Rate
Changes on Cash |
| | | 27 | | 27 | ||||||||||||||||||
Increase (decrease) in Cash
and Cash Equivalents - |
| (10,515 | ) | 115,497 | (89,554 | ) | 38,342 | 53,770 | ||||||||||||||||
Cash and Cash Equivalents
at Beginning of Year |
| 55,857 | 267,145 | 906,752 | (531,516 | ) | 698,238 | |||||||||||||||||
Cash and Cash Equivalents
at End of Year |
$ | | $ | 45,342 | $ | 382,642 | $ | 817,198 | $ | (493,174 | ) | $ | 752,008 | |||||||||||
28
Guarantor | Non-Guarantor | |||||||||||||||||||||||
Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash, cash equivalents and
restricted cash |
$ | | $ | 55,857 | $ | 267,145 | $ | 906,752 | $ | (531,516 | ) | $ | 698,238 | |||||||||||
Accounts receivable, net |
1 | 2 | 98,469 | 72,711 | | 171,183 | ||||||||||||||||||
Inventories |
| | 95,781 | 32,104 | 1,436 | 129,321 | ||||||||||||||||||
Other current assets |
10,614 | 638 | 11,127 | 6,454 | | 28,833 | ||||||||||||||||||
Current assets held for sale -
discontinued operations |
| | 2,335 | | | 2,335 | ||||||||||||||||||
Total current assets |
10,615 | 56,497 | 474,857 | 1,018,021 | (530,080 | ) | 1,029,910 | |||||||||||||||||
Property, plant and
equipment, net |
| | 264,198 | 125,530 | | 389,728 | ||||||||||||||||||
Equity investments |
| | 10,488 | 341,498 | | 351,986 | ||||||||||||||||||
Deferred plant turnaround
costs, intangible and
other assets |
6,732 | 8,333 | 18,984 | 45,174 | (5,549 | ) | 73,674 | |||||||||||||||||
Investments in and advances
to (from) affiliates |
620,375 | 365,762 | 1,848,352 | 57,752 | (2,892,241 | ) | | |||||||||||||||||
Noncurrent assets held for
sale - discontinued
operations |
| | 43,029 | | | 43,029 | ||||||||||||||||||
Total Assets |
$ | 637,722 | $ | 430,592 | $ | 2,659,908 | $ | 1,587,975 | $ | (3,427,870 | ) | $ | 1,888,327 | |||||||||||
Liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 128 | $ | | $ | 66,945 | $ | 43,614 | $ | | $ | 110,687 | ||||||||||||
Customer prepayments |
| | 125,036 | 174,315 | | 299,351 | ||||||||||||||||||
Accrued and other
liabilities |
25,715 | 9,169 | 45,508 | 22,263 | | 102,655 | ||||||||||||||||||
Current liabilities held for
sale - discontinued
operations |
| | 4,993 | | | 4,993 | ||||||||||||||||||
Total current liabilities |
25,843 | 9,169 | 242,482 | 240,192 | | 517,686 | ||||||||||||||||||
Long-term debt |
| 330,000 | | | | 330,000 | ||||||||||||||||||
Deferred income taxes |
86,157 | | | 10,113 | 3,584 | 99,854 | ||||||||||||||||||
Pension and other liabilities |
79,650 | | 11,628 | 2,866 | | 94,144 | ||||||||||||||||||
Minority interest |
| 21,404 | 88,325 | | | 109,729 | ||||||||||||||||||
Non current liabilities held for
sale - discontinued
operations |
| | 739 | | | 739 | ||||||||||||||||||
Total liabilities and
minority interest |
191,650 | 360,573 | 343,174 | 253,171 | 3,584 | 1,152,152 | ||||||||||||||||||
Preferred stock |
115,800 | | | | | 115,800 |
29
Guarantor | Non-Guarantor | |||||||||||||||||||||||
Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Common Stockholders equity |
||||||||||||||||||||||||
Common stock |
142,170 | | 73 | 32,458 | (32,531 | ) | 142,170 | |||||||||||||||||
Paid in capital |
618,873 | 150,218 | 1,910,748 | 1,133,745 | (3,194,710 | ) | 618,874 | |||||||||||||||||
Accumulated other
comprehensive income
(loss) |
(22,002 | ) | | | 281,850 | (305,176 | ) | (45,328 | ) | |||||||||||||||
Retained earnings
(accumulated deficit) |
(408,769 | ) | (80,199 | ) | 405,913 | (113,249 | ) | 100,963 | (95,341 | ) | ||||||||||||||
Total stockholders equity |
330,272 | 70,019 | 2,316,734 | 1,334,804 | (3,431,454 | ) | 620,375 | |||||||||||||||||
Total liabilities and
stockholders equity |
$ | 637,722 | $ | 430,592 | $ | 2,659,908 | $ | 1,587,975 | $ | (3,427,870 | ) | $ | 1,888,327 | |||||||||||
30
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 49,114 | $ | 176,703 | $ | 531,140 | $ | (470,008 | ) | $ | 286,950 | |||||||||||
Accounts receivable, net |
| | 94,640 | 147,710 | (1 | ) | 242,349 | |||||||||||||||||
Inventories |
| | 88,619 | 84,175 | (5,323 | ) | 167,471 | |||||||||||||||||
Other current assets |
2,274 | 6,900 | 9,200 | 11,281 | (6,357 | ) | 23,298 | |||||||||||||||||
Current assets held for sale -
discontinued operations |
| | 2,313 | | | 2,313 | ||||||||||||||||||
Total current assets |
2,275 | 56,014 | 371,475 | 774,306 | (481,689 | ) | 722,381 | |||||||||||||||||
Property, plant and
equipment, net |
| | 275,233 | 340,799 | (1 | ) | 616,031 | |||||||||||||||||
Equity investments |
| | 11,072 | 154,129 | | 165,201 | ||||||||||||||||||
Intangible assets, other assets
and deferred plant
turnaround costs |
(1,839 | ) | 8,702 | 23,399 | 45,358 | (7,059 | ) | 68,561 | ||||||||||||||||
Investments in and advanced
to (from) affiliates |
551,049 | 343,352 | 1,488,733 | (212,242 | ) | (2,170,892 | ) | | ||||||||||||||||
Non current assets held for
sale - discontinued
operations |
| | 86,892 | | | 86,892 | ||||||||||||||||||
Total assets |
$ | 551,485 | $ | 408,068 | $ | 2,256,804 | $ | 1,102,350 | $ | (2,659,641 | ) | $ | 1,659,066 | |||||||||||
Liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 27 | $ | | $ | 62,526 | $ | 81,501 | $ | | $ | 144,054 | ||||||||||||
Accrued expenses and
other current liabilities |
28,819 | 9,128 | 43,920 | 42,582 | (5,675 | ) | 118,774 | |||||||||||||||||
Current liabilities held for
sale - discontinued
operations |
| | 16,632 | | | 16,632 | ||||||||||||||||||
Total current liabilities |
28,846 | 9,128 | 123,078 | 124,083 | (5,675 | ) | 279,460 | |||||||||||||||||
Long-term debt |
| 330,000 | | | | 330,000 | ||||||||||||||||||
Deferred taxes |
(17,740 | ) | | | 50,916 | 33,010 | 66,186 | |||||||||||||||||
Pension and other liabilities |
171,652 | (342 | ) | 12,621 | 2,640 | 21,492 | 208,063 | |||||||||||||||||
Minority interest |
| 20,597 | 84,951 | | 1 | 105,549 | ||||||||||||||||||
Non current liabilities held for
sale - discontinued
operations |
| | 2,959 | | | 2,959 | ||||||||||||||||||
Total liabilities and
minority interest |
182,758 | 359,383 | 223,609 | 177,639 | 48,828 | 992,217 | ||||||||||||||||||
Preferred stock |
115,800 | | | | | 115,800 | ||||||||||||||||||
Common Stockholders Equity |
||||||||||||||||||||||||
Common stock |
144,202 | | 73 | 49,709 | (49,782 | ) | 144,202 | |||||||||||||||||
Paid-in capital |
680,819 | 150,218 | 2,006,068 | 1,244,369 | (3,400,655 | ) | 680,819 | |||||||||||||||||
Accumulated other
comprehensive income
(loss) |
(83,135 | ) | | | 9,018 | 16,968 | (57,149 | ) | ||||||||||||||||
Retained earnings
(accumulated deficit) |
(488,959 | ) | (101,533 | ) | 27,054 | (378,385 | ) | 725,000 | (216,823 | ) | ||||||||||||||
Total stockholders equity |
252,927 | 48,685 | 2,033,195 | 924,711 | (2,708,469 | ) | 551,049 | |||||||||||||||||
Total liabilities and
stockholders equity |
$ | 551,485 | $ | 408,068 | $ | 2,256,804 | $ | 1,102,350 | $ | (2,659,641 | ) | $ | 1,659,066 | |||||||||||
31
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Product revenues |
$ | | $ | | $ | 319,153 | $ | 371,842 | $ | | $ | 690,995 | ||||||||||||
Other revenues |
| | 1,092 | 448 | | 1,540 | ||||||||||||||||||
Total revenues |
| | 320,245 | 372,290 | | 692,535 | ||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales |
300 | 179 | 270,120 | 261,754 | | 532,353 | ||||||||||||||||||
Selling, general and
administrative expenses |
421 | (3,612 | ) | 1,031 | 30,354 | | 28,194 | |||||||||||||||||
Equity in the (earnings) loss
of subsidiaries |
| | 804 | | | 804 | ||||||||||||||||||
Total cost & expenses |
721 | (3,433 | ) | 271,955 | 292,108 | | 561,351 | |||||||||||||||||
Income (loss) from operations |
(721 | ) | 3,433 | 48,290 | 80,182 | | 131,184 | |||||||||||||||||
Interest income |
| 698 | 1,789 | 995 | | 3,482 | ||||||||||||||||||
Interest expense |
(465 | ) | (6,291 | ) | (1 | ) | (114 | ) | | (6,871 | ) | |||||||||||||
Loss on debt |
| (174 | ) | | | | (174 | ) | ||||||||||||||||
Foreign currency gain (loss) |
| (1,886 | ) | | 1,886 | | | |||||||||||||||||
Income (loss) before income
taxes and minority interest |
(1,186 | ) | (4,220 | ) | 50,078 | 82,949 | | 127,621 | ||||||||||||||||
Income tax benefit (provision) |
398 | (17,677 | ) | (17,903 | ) | (6,397 | ) | | (41,579 | ) | ||||||||||||||
Minority interest |
| (2,690 | ) | (11,249 | ) | | | (13,939 | ) | |||||||||||||||
Equity in subsidiary earnings |
71,443 | 96,030 | | | (167,473 | ) | | |||||||||||||||||
Income from continuing
operations |
70,655 | 71,443 | 20,926 | 76,552 | (167,473 | ) | 72,103 | |||||||||||||||||
Income (loss) from discontinued
operations - net of tax |
| | (1,448 | ) | | | (1,448 | ) | ||||||||||||||||
Net income |
$ | 70,655 | $ | 71,443 | $ | 19,478 | $ | 76,552 | $ | (167,473 | ) | $ | 70,655 | |||||||||||
32
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Product revenues |
$ | | $ | | $ | 561,080 | $ | 629,381 | $ | | $ | 1,190,461 | ||||||||||||
Other revenues |
| | 1,841 | 1,157 | | 2,998 | ||||||||||||||||||
Total revenues |
| | 562,921 | 630,538 | | 1,193,459 | ||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales |
300 | 179 | 485,209 | 468,929 | | 954,617 | ||||||||||||||||||
Selling, general and
administrative expenses |
952 | (5,903 | ) | 5,794 | 44,408 | | 45,251 | |||||||||||||||||
Equity in the (earnings) loss
of subsidiaries |
| | (4,813 | ) | | | (4,813 | ) | ||||||||||||||||
Total cost & expenses |
1,252 | (5,724 | ) | 486,190 | 513,337 | | 995,055 | |||||||||||||||||
Income (loss) from operations |
(1,252 | ) | 5,724 | 76,731 | 117,201 | | 198,404 | |||||||||||||||||
Interest income |
| 1,270 | 3,558 | 1,541 | | 6,369 | ||||||||||||||||||
Interest expense |
(930 | ) | (14,621 | ) | (3 | ) | (226 | ) | | (15,780 | ) | |||||||||||||
Loss on debt |
| (38,836 | ) | | | | (38,836 | ) | ||||||||||||||||
Foreign currency gain (loss) |
| (1,886 | ) | 2 | 1,884 | | | |||||||||||||||||
Income (loss) before income
taxes and minority interest |
(2,182 | ) | (48,349 | ) | 80,288 | 120,400 | | 150,157 | ||||||||||||||||
Income tax benefit |
903 | (8,782 | ) | (33,234 | ) | (5,623 | ) | | (46,736 | ) | ||||||||||||||
Minority interest |
| (4,357 | ) | (18,219 | ) | | | (22,576 | ) | |||||||||||||||
Equity in subsidiary earnings |
79,144 | 140,632 | | | (219,776 | ) | | |||||||||||||||||
Income from continuing
operations |
77,865 | 79,144 | 28,835 | 114,777 | (219,776 | ) | 80,845 | |||||||||||||||||
Income (loss) from discontinued
operations - net of tax |
| | (2,981 | ) | | | (2,981 | ) | ||||||||||||||||
Net income |
$ | 77,865 | $ | 79,144 | $ | 25,854 | $ | 114,777 | $ | (219,776 | ) | $ | 77,864 | |||||||||||
33
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Operating Activities |
||||||||||||||||||||||||
Net income |
$ | 77,865 | $ | 79,144 | $ | 25,855 | $ | 114,777 | $ | (219,777 | ) | $ | 77,864 | |||||||||||
Loss from discontinued
operations |
| | (2,981 | ) | | | (2,981 | ) | ||||||||||||||||
Income from continuing
operations |
77,865 | 79,144 | 28,836 | 114,777 | (219,777 | ) | 80,845 | |||||||||||||||||
Adjustments to reconcile net
income from continuing
operations to net cash
flows from operating
activities: |
||||||||||||||||||||||||
Depreciation and amortization |
| | 22,400 | 25,928 | | 48,328 | ||||||||||||||||||
Deferred income taxes |
| 34,981 | 1,979 | | | 36,960 | ||||||||||||||||||
Minority interest in earnings |
| 2,096 | 20,479 | | 1 | 22,576 | ||||||||||||||||||
Distributions in excess of (less
than) equity earnings |
207,328 | 4,126 | (3,813 | ) | 788,067 | (999,521 | ) | (3,813 | ) | |||||||||||||||
Non-cash (gain) loss
on derivatives |
624 | | | | | 624 | ||||||||||||||||||
Share-based compensation |
13,683 | | | | (2 | ) | 13,681 | |||||||||||||||||
Amortization of intangible
and other assets |
| | 4,485 | | | 4,485 | ||||||||||||||||||
Non-cash loss on early
retirement of debt |
| 4,662 | | | | 4,662 | ||||||||||||||||||
Change in operating assets
and liabilities - continuing
operations |
(33,123 | ) | (37,087 | ) | (45,918 | ) | (192,594 | ) | 272,693 | (36,029 | ) | |||||||||||||
Net cash flows from operating
activities - continuing
operations |
266,377 | 87,922 | 28,448 | 736,178 | (946,606 | ) | 172,319 | |||||||||||||||||
Net cash flows from operating
activities - discontinued
operations |
| | 10,522 | | | 10,522 | ||||||||||||||||||
Net Cash Flows from
Operating Activities |
266,377 | 87,922 | 38,970 | 736,178 | (946,606 | ) | 182,841 | |||||||||||||||||
Investing Activities |
||||||||||||||||||||||||
Purchase of property, plant and
equipment |
| | (3,654 | ) | (9,842 | ) | | (13,496 | ) | |||||||||||||||
Plant turnaround expenditures |
| | (7,268 | ) | (13,052 | ) | | (20,320 | ) | |||||||||||||||
Net Cash Flows from
Investing Activities -
Continuing Operations |
| | (10,922 | ) | (22,894 | ) | | (33,816 | ) | |||||||||||||||
Net Cash Flows from
Investing Activities -
Discontinued Operations |
| | | | | | ||||||||||||||||||
Net Cash Flows from
Investing Activities |
| | (10,922 | ) | (22,894 | ) | | (33,816 | ) | |||||||||||||||
34
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Financing Activities |
||||||||||||||||||||||||
Issuance of debt |
| 330,000 | | | | 330,000 | ||||||||||||||||||
Principal payments under
borrowing arrangements |
| (331,300 | ) | | | | (331,300 | ) | ||||||||||||||||
Payments for debt issuance
costs |
| (6,398 | ) | | | | (6,398 | ) | ||||||||||||||||
Preferred share dividends paid |
(2,550 | ) | | | | | (2,550 | ) | ||||||||||||||||
Common stock issuances and
vestings |
406 | | | | | 406 | ||||||||||||||||||
Change in investments and
advances from (to) affiliates |
(245,022 | ) | (131,846 | ) | 160,369 | (260,100 | ) | 476,599 | | |||||||||||||||
Repurchase of stock |
(19,211 | ) | | | | | (19,211 | ) | ||||||||||||||||
Distributions to minority
interests |
| | (11,714 | ) | | | (11,714 | ) | ||||||||||||||||
Net Cash Flows from
Financing Activities -
Continuing Operations |
(266,377 | ) | (139,544 | ) | 148,655 | (260,100 | ) | 476,599 | (40,767 | ) | ||||||||||||||
Net Cash Flows from
Financing Activities -
Discontinued Operations |
| | | | | | ||||||||||||||||||
Net Cash Flows from
Financing Activities |
(266,377 | ) | (139,544 | ) | 148,655 | (260,100 | ) | 476,599 | (40,767 | ) | ||||||||||||||
Effect of Exchange Rate
Changes on Cash |
| | | (325 | ) | | (325 | ) | ||||||||||||||||
Increase (decrease) in Cash
and Cash Equivalents |
| (51,622 | ) | 176,703 | 452,859 | (470,007 | ) | 107,933 | ||||||||||||||||
Cash and Cash Equivalents
at Beginning of Year |
1 | 100,736 | | 78,282 | (2 | ) | 179,017 | |||||||||||||||||
Cash and Cash Equivalents
at End of Year |
$ | 1 | $ | 49,114 | $ | 176,703 | $ | 531,141 | $ | (470,009 | ) | $ | 286,950 | |||||||||||
35
36
Three months ended June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Sales | Average | Sales | Average | |||||||||||||
(quantities in thousands of tons) | Volumes | Unit Price1 | Volumes | Unit Price1 | ||||||||||||
Ammonia2 |
547 | $ | 530 | 482 | $ | 357 | ||||||||||
UAN (32% basis)3 |
1,099 | $ | 338 | 1,146 | $ | 229 | ||||||||||
Urea |
30 | $ | 417 | 32 | $ | 317 | ||||||||||
Ammonium nitrate2 |
194 | $ | 328 | 179 | $ | 262 |
1. | After deducting outbound freight costs. |
|
2. | 2007 ammonia and ammonium nitrate sales volumes and prices have been adjusted to exclude
Terras UK operations for comparability to 2008 volumes and pricing. |
|
3. | The nitrogen content of UAN is 32% by weight. |
37
38
Six-months ended June 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Sales | Average | Sales | Average | |||||||||||||
(quantities in thousands of tons) | Volumes | Unit Price1 | Volumes | Unit Price1 | ||||||||||||
Ammonia2 |
911 | $ | 503 | 834 | $ | 347 | ||||||||||
UAN (32% basis)3 |
2,016 | $ | 314 | 2,086 | $ | 209 | ||||||||||
Urea |
55 | $ | 418 | 65 | $ | 308 | ||||||||||
Ammonium nitrate2 |
367 | $ | 316 | 367 | $ | 241 |
1. | After deducting outbound freight costs. |
|
2. | 2007 ammonia and ammonium nitrate sales volumes and prices have been adjusted to exclude
Terras UK operations for comparability to 2008 volumes and pricing. |
|
3. | The nitrogen content of UAN is 32% by weight. |
39
40
41
| changes in financial markets, |
| general economic conditions within the agricultural industry, |
| competitive factors and price changes (principally, sales prices of nitrogen
products and natural gas costs), |
| changes in product mix, |
| changes in the seasonality of demand patterns, |
| changes in weather conditions, |
| changes in environmental and other government regulations, |
| changes in agricultural regulations, and |
| other risks detailed in Risk Factors in our 2007 Annual Report. |
42
43
NAME | FOR | WITHHELD | ||||||
Michael L. Bennett |
78,508,877 | 2,891,109 | ||||||
Peter S. Janson |
79,633,576 | 1,736,410 | ||||||
James R. Kroner |
79,635,525 | 1,734,661 |
Total Number of | ||||||||||||||||
Total | Shares Purchased as | Maximum Number of | ||||||||||||||
Month of | Number of | Average | Part of Publicity | Shares that May Yet Be | ||||||||||||
Share | Shares | Price Paid | Announced Plans or | Purchased Under the | ||||||||||||
Purchases | Purchased | per share | Programs | Plans or Programs | ||||||||||||
May 2008 |
189,150 | $ | 39.65 | 189,150 | 12,652,567 |
44
Exhibit 3.1 | A Certificate of Correction to correct errors and omissions to the August 3, 2005 Articles of Restatement for Terra Industries Inc. as filed with the State Department of Assessments and Taxation of Maryland on April 30, 2008, was included as Exhibit 99.1 to Terra Industries Inc.s Form 8-K filed with the Securities and Exchange Commission on May 5, 2008, and is incorporated herein by reference. | |||
Exhibit 10.1 | Form of Phantom Performance Share Award agreement of February 2008 | |||
Exhibit 10.2 | Form of Performance Share Award agreement of February 2008 | |||
Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Exhibit 31.2 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Exhibit 32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
45
TERRA INDUSTRIES INC. |
||||
Date: July 25, 2008 | /s/ Daniel D. Greenwell | |||
Daniel D. Greenwell | ||||
Senior Vice President and Chief Financial Officer and a duly authorized signatory |
46
Exhibit No. | Description | |
Exhibit 10.1 | Form of Phantom Performance Share Award agreement of February 2008 |
|
Exhibit 10.2 | Form of Performance Share Award agreement of February 2008 |
|
Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
Exhibit 31.2 | Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
Exhibit 32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
47