Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
|
|
|
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) |
|
|
Registrants telephone number, including area code: (712) 277-1340
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes þ No
At the close of business on July 24, 2009 the following shares of the registrants stock
were outstanding:
|
|
|
Common Shares, without par value
|
|
99,786,406 shares |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TERRA INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,001,582 |
|
|
$ |
966,700 |
|
|
$ |
752,008 |
|
Accounts receivable, less allowance for
doubtful accounts of $1,373, $290 and $300 |
|
|
91,200 |
|
|
|
130,390 |
|
|
|
236,112 |
|
Inventories, net |
|
|
128,048 |
|
|
|
197,091 |
|
|
|
168,950 |
|
Margin deposits with derivative counterparties |
|
|
|
|
|
|
36,945 |
|
|
|
38 |
|
Other current assets |
|
|
48,212 |
|
|
|
61,338 |
|
|
|
111,962 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
45,785 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,269,042 |
|
|
|
1,392,464 |
|
|
|
1,314,855 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
426,495 |
|
|
|
403,313 |
|
|
|
386,800 |
|
Equity method investments |
|
|
269,113 |
|
|
|
270,915 |
|
|
|
360,805 |
|
Deferred plant turnaround costs, net |
|
|
26,331 |
|
|
|
23,467 |
|
|
|
37,116 |
|
Other assets |
|
|
29,995 |
|
|
|
22,858 |
|
|
|
30,109 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,020,976 |
|
|
$ |
2,113,017 |
|
|
$ |
2,129,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
68,677 |
|
|
$ |
99,893 |
|
|
$ |
146,846 |
|
Customer prepayments |
|
|
27,846 |
|
|
|
111,592 |
|
|
|
91,605 |
|
Derivative hedge liabilities |
|
|
7,821 |
|
|
|
125,925 |
|
|
|
10,094 |
|
Accrued and other current liabilities |
|
|
92,236 |
|
|
|
127,770 |
|
|
|
120,051 |
|
Current liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
3,773 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
196,580 |
|
|
|
465,180 |
|
|
|
372,369 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
330,000 |
|
|
|
330,000 |
|
|
|
330,000 |
|
Deferred taxes |
|
|
83,580 |
|
|
|
61,443 |
|
|
|
153,754 |
|
Pension liabilities |
|
|
8,394 |
|
|
|
9,170 |
|
|
|
9,251 |
|
Other liabilities |
|
|
78,796 |
|
|
|
78,553 |
|
|
|
82,550 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
697,350 |
|
|
|
944,346 |
|
|
|
947,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares liquidation value of $1,600; $1,600 and $120,000 |
|
|
1,544 |
|
|
|
1,544 |
|
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares, authorized 133,500 shares;
99,701; 99,330 and 91,836 outstanding |
|
|
152,481 |
|
|
|
152,111 |
|
|
|
144,431 |
|
Paid-in capital |
|
|
581,542 |
|
|
|
579,164 |
|
|
|
617,744 |
|
Accumulated other comprehensive loss |
|
|
(112,683 |
) |
|
|
(175,529 |
) |
|
|
(6,097 |
) |
Retained earnings |
|
|
598,060 |
|
|
|
507,299 |
|
|
|
197,799 |
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
1,219,400 |
|
|
|
1,063,045 |
|
|
|
953,877 |
|
Noncontrolling interest |
|
|
102,682 |
|
|
|
104,082 |
|
|
|
112,084 |
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,322,082 |
|
|
|
1,167,127 |
|
|
|
1,065,961 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,020,976 |
|
|
$ |
2,113,017 |
|
|
$ |
2,129,685 |
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
3
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
452,339 |
|
|
$ |
836,924 |
|
|
$ |
870,701 |
|
|
$ |
1,410,126 |
|
Other income |
|
|
1,164 |
|
|
|
6,173 |
|
|
|
2,555 |
|
|
|
7,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
453,503 |
|
|
|
843,097 |
|
|
|
873,256 |
|
|
|
1,417,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
296,690 |
|
|
|
547,070 |
|
|
|
639,647 |
|
|
|
954,059 |
|
Selling, general and administrative expense |
|
|
13,906 |
|
|
|
27,233 |
|
|
|
32,474 |
|
|
|
39,937 |
|
Other operating expenses |
|
|
12,560 |
|
|
|
|
|
|
|
14,260 |
|
|
|
|
|
Equity earnings of North American affiliates |
|
|
(1,522 |
) |
|
|
(16,518 |
) |
|
|
(4,774 |
) |
|
|
(29,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
321,634 |
|
|
|
557,785 |
|
|
|
681,607 |
|
|
|
964,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
131,869 |
|
|
|
285,312 |
|
|
|
191,649 |
|
|
|
453,613 |
|
Interest income |
|
|
1,165 |
|
|
|
5,513 |
|
|
|
2,975 |
|
|
|
13,921 |
|
Interest expense |
|
|
(6,757 |
) |
|
|
(6,756 |
) |
|
|
(13,485 |
) |
|
|
(13,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, noncontrolling interest and
equity earnings (loss) of GrowHow UK Limited |
|
|
126,277 |
|
|
|
284,069 |
|
|
|
181,139 |
|
|
|
453,720 |
|
Income tax provision |
|
|
(38,215 |
) |
|
|
(107,069 |
) |
|
|
(50,800 |
) |
|
|
(166,573 |
) |
Equity earnings (loss) of GrowHow UK Limited |
|
|
1,886 |
|
|
|
37,611 |
|
|
|
(2,488 |
) |
|
|
46,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
89,948 |
|
|
|
214,611 |
|
|
|
127,851 |
|
|
|
334,042 |
|
Income from discontinued operations, net of tax |
|
|
|
|
|
|
7,319 |
|
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest |
|
|
89,948 |
|
|
|
221,930 |
|
|
|
127,851 |
|
|
|
341,513 |
|
Less: Net income attributable to the noncontrolling interest |
|
|
(9,474 |
) |
|
|
(18,495 |
) |
|
|
(17,382 |
) |
|
|
(36,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Terra Industries Inc. |
|
|
80,474 |
|
|
|
203,435 |
|
|
|
110,469 |
|
|
|
304,892 |
|
Less: Net income attributable to preferred share dividends |
|
|
(17 |
) |
|
|
(1,275 |
) |
|
|
(34 |
) |
|
|
(2,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Available to Common Stockholders |
|
$ |
80,457 |
|
|
$ |
202,160 |
|
|
$ |
110,435 |
|
|
$ |
302,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continued operations |
|
$ |
0.81 |
|
|
$ |
2.14 |
|
|
$ |
1.11 |
|
|
$ |
3.26 |
|
Discontinued operations |
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share |
|
$ |
0.81 |
|
|
$ |
2.22 |
|
|
$ |
1.11 |
|
|
$ |
3.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.81 |
|
|
$ |
1.87 |
|
|
$ |
1.11 |
|
|
$ |
2.84 |
|
Discontinued operations |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share |
|
$ |
0.81 |
|
|
$ |
1.94 |
|
|
$ |
1.11 |
|
|
$ |
2.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
99,318 |
|
|
|
91,011 |
|
|
|
99,224 |
|
|
|
90,588 |
|
Diluted |
|
|
99,710 |
|
|
|
104,678 |
|
|
|
99,704 |
|
|
|
104,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
80,474 |
|
|
$ |
196,116 |
|
|
$ |
110,469 |
|
|
$ |
297,421 |
|
Income from discontinued operations, net of tax |
|
|
|
|
|
|
7,319 |
|
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Terra Industries Inc. |
|
$ |
80,474 |
|
|
$ |
203,435 |
|
|
$ |
110,469 |
|
|
|
304,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income attributable to Terra Industries Inc. |
|
$ |
110,469 |
|
|
$ |
304,892 |
|
Income from discontinued operations |
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
110,469 |
|
|
|
297,421 |
|
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 |
|
|
41,628 |
|
|
|
39,449 |
|
Loss on sale of property, plant and equipment |
|
|
657 |
|
|
|
727 |
|
Deferred income taxes |
|
|
(1,393 |
) |
|
|
48,940 |
|
Noncontrolling interest in earnings |
|
|
17,382 |
|
|
|
36,621 |
|
Distributions in excess of equity earnings of North American affiliates |
|
|
4,204 |
|
|
|
3,881 |
|
Equity loss (earnings) of GrowHow UK Limited |
|
|
2,488 |
|
|
|
(46,895 |
) |
Non-cash loss (gain) on derivatives |
|
|
1,491 |
|
|
|
(4,954 |
) |
Share-based compensation |
|
|
8,562 |
|
|
|
9,772 |
|
Amortization of intangible and other assets |
|
|
4,598 |
|
|
|
4,070 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
40,261 |
|
|
|
(65,675 |
) |
Inventories |
|
|
68,436 |
|
|
|
(36,478 |
) |
Accounts payable and customer prepayments |
|
|
(116,095 |
) |
|
|
(171,404 |
) |
Margin deposits with derivative counterparties |
|
|
36,945 |
|
|
|
600 |
|
Other assets and liabilities, net |
|
|
(92,101 |
) |
|
|
(15,174 |
) |
|
|
|
|
|
|
|
Net cash flows from operating activities continuing operations |
|
|
127,532 |
|
|
|
100,901 |
|
Net cash flows from operating activities discontinued operations |
|
|
|
|
|
|
10,051 |
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
|
127,532 |
|
|
|
110,952 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures |
|
|
(65,992 |
) |
|
|
(35,916 |
) |
Proceeds from sale of property, plant and equipment |
|
|
101 |
|
|
|
1,632 |
|
Distributions received from North American affiliates |
|
|
11,597 |
|
|
|
7,196 |
|
Contribution settlement received from GrowHow UK Limited |
|
|
|
|
|
|
28,055 |
|
Balancing consideration and other payments from GrowHow UK Limited |
|
|
7,893 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
|
(46,401 |
) |
|
|
967 |
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Preferred share dividends paid |
|
|
(34 |
) |
|
|
(2,550 |
) |
Common stock dividends paid |
|
|
(19,940 |
) |
|
|
(9,202 |
) |
Common stock issuances and vestings |
|
|
(5,334 |
) |
|
|
(6,842 |
) |
Excess tax benefits from equity compensation plans |
|
|
3,921 |
|
|
|
7,817 |
|
Payments under share repurchase program |
|
|
|
|
|
|
(7,500 |
) |
Distributions to noncontrolling interests |
|
|
(23,391 |
) |
|
|
(39,899 |
) |
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
(44,778 |
) |
|
|
(58,176 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(1,471 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
Increase to cash and cash equivalents |
|
|
34,882 |
|
|
|
53,770 |
|
Cash and cash equivalents at beginning of period |
|
|
966,700 |
|
|
|
698,238 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,001,582 |
|
|
$ |
752,008 |
|
|
|
|
|
|
|
|
5
Consolidated Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
Six Months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
12,117 |
|
|
$ |
12,140 |
|
Income tax refunds received |
|
|
784 |
|
|
|
206 |
|
Income taxes paid |
|
|
97,360 |
|
|
|
92,368 |
|
Supplemental schedule of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
Conversion of warrants to common stock |
|
$ |
|
|
|
$ |
1,672 |
|
Supplemental schedule of unconsolidated affiliates
distributions received from GrowHow UK Limited: |
|
|
|
|
|
|
|
|
Contribution settlement payments, balancing consideration
and other payments received from GrowHow UK Limited |
|
$ |
7,893 |
|
|
$ |
28,055 |
|
Supplemental schedule of unconsolidated affiliates
distributions received from North America: |
|
|
|
|
|
|
|
|
Distributions received from unconsolidated affiliates |
|
$ |
11,597 |
|
|
$ |
7,196 |
|
Equity in earnings of unconsolidated affiliates |
|
|
4,774 |
|
|
|
29,808 |
|
Distribution in excess of equity earnings |
|
|
4,204 |
|
|
|
3,881 |
|
|
|
|
|
|
|
|
Total cash distributions received from North American
unconsolidated affiliates |
|
$ |
20,575 |
|
|
$ |
40,885 |
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
6
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Retained |
|
|
|
|
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Interest |
|
|
Earnings |
|
|
Total |
|
|
Income |
|
Balance at January 1, 2009 |
|
$ |
152,111 |
|
|
$ |
579,164 |
|
|
$ |
(175,529 |
) |
|
$ |
104,082 |
|
|
$ |
507,299 |
|
|
$ |
1,167,127 |
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,382 |
|
|
|
110,469 |
|
|
|
127,851 |
|
|
$ |
127,851 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
30,267 |
|
|
|
|
|
|
|
|
|
|
|
30,267 |
|
|
|
30,267 |
|
Change in fair value of
derivatives, net of taxes
of $23,530 |
|
|
|
|
|
|
|
|
|
|
32,579 |
|
|
|
4,609 |
|
|
|
|
|
|
|
37,188 |
|
|
|
37,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
before noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
195,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,391 |
) |
|
|
|
|
|
|
(23,391 |
) |
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
(34 |
) |
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,940 |
) |
|
|
(19,940 |
) |
|
|
|
|
Excess tax benefit |
|
|
|
|
|
|
3,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,921 |
|
|
|
|
|
Net vested stock |
|
|
370 |
|
|
|
(5,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,334 |
) |
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
4,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,161 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009 |
|
$ |
152,481 |
|
|
$ |
581,542 |
|
|
$ |
(112,683 |
) |
|
$ |
102,682 |
|
|
$ |
598,060 |
|
|
$ |
1,322,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
(Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Deficit) |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Retained |
|
|
|
|
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Interest |
|
|
Earnings |
|
|
Total |
|
|
Income |
|
Balance at January 1, 2008 |
|
$ |
142,170 |
|
|
$ |
618,874 |
|
|
$ |
(44,180 |
) |
|
$ |
108,581 |
|
|
$ |
(95,341 |
) |
|
$ |
730,104 |
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,621 |
|
|
|
304,892 |
|
|
|
341,513 |
|
|
$ |
341,513 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
(1,756 |
) |
|
|
|
|
|
|
|
|
|
|
(1,756 |
) |
|
|
(1,756 |
) |
Change in fair value of
derivatives, net of taxes
of $29,145 |
|
|
|
|
|
|
|
|
|
|
39,839 |
|
|
|
6,781 |
|
|
|
|
|
|
|
46,620 |
|
|
|
46,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
before noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
386,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,899 |
) |
|
|
|
|
|
|
(39,899 |
) |
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,550 |
) |
|
|
(2,550 |
) |
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,202 |
) |
|
|
(9,202 |
) |
|
|
|
|
Shares purchased and retired
under the share repurchase
program |
|
|
(190 |
) |
|
|
(7,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,500 |
) |
|
|
|
|
Exercise of stock options |
|
|
11 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
Net vested stock |
|
|
303 |
|
|
|
(9,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,426 |
) |
|
|
|
|
Net conversion of warrants |
|
|
2,137 |
|
|
|
412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,549 |
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
5,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,177 |
|
|
|
|
|
Excess tax benefit |
|
|
|
|
|
|
10,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2008 |
|
$ |
144,431 |
|
|
$ |
617,744 |
|
|
$ |
(6,097 |
) |
|
$ |
112,084 |
|
|
$ |
197,799 |
|
|
$ |
1,065,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
7
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. |
|
Background and Basis of Presentation |
Terra Industries Inc. together with its subsidiaries (Terra, we, our, or us) is a leading
North American producer and marketer of nitrogen products made from natural gas. We also
operate production assets in Trinidad, and the United Kingdom, through joint venture
agreements. Our six North American and our international production locations, along with a
robust distribution capability, provide us with the ability to effectively serve key
agricultural, industrial and environmental markets. Our principal products are anhydrous
ammonia (ammonia), ammonium nitrate solutions (UAN), ammonium nitrate (AN), and urea. Our
principal customers are national agricultural retail chains, farm cooperatives, independent
dealers and industrial customers. We operate in one principal industry segment Nitrogen
Products, which is based upon the guidance provided in Statement of Financial Accounting
Standards (SFAS) 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). As a wholesale nitrogen producer, we do not report industry segments in a
separate disclosure because our only reportable industry segment is nitrogen.
The accompanying unaudited consolidated financial statements and notes thereto have been
prepared in accordance with the requirements of the U.S. Securities and Exchange Commission
(SEC) for interim reporting. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements.
Therefore, these financial statements should be read in conjunction with our audited
consolidated financial statements and notes thereto for the year ended December 31, 2008,
included in our 2008 Annual Report on Form 10-K.
Terras significant accounting policies are described in the notes to consolidated
financial statements in our Annual Report on Form 10-K for the year ended December 31,
2008. Management is responsible for the unaudited consolidated financial statements
included in this document. The consolidated financial statements included in this document
are unaudited; however, they contain all normal recurring adjustments that, in the opinion
of management, are necessary for a fair presentation of Terras financial position, results
of operations and cash flows 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 future quarters or the full year.
2. |
|
New Accounting Pronouncements |
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 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 SFAS 141R
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 became effective for us on
January 1, 2009 and the adoption did not have an impact on our financial statements.
8
In December 2007, the FASB issued SFAS No. 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 are 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 is 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. SFAS 160 became effective
for us on January 1, 2009. The adoption of SFAS 160 recharacterized minority interest as
noncontrolling interest and reclassified minority interest as a component of equity on our
financial statements. The adoption also recharacterized a portion of other comprehensive
income (loss) by allocating a portion of other comprehensive income (loss) to the
noncontrolling interest. Prior year amounts relating to noncontrolling interests have been
reclassified to conform to the current year presentation as required by SFAS 160.
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, SFAS 161
requires enhanced disclosures about an entitys derivative and hedging activities and
thereby improves the transparency of financial reporting. SFAS 161 became effective for us
on January 1, 2009 and we have included the additional disclosure information required by
SFAS 161 within Note 6, Derivative Financial Instruments, of the Notes to the Consolidated
Financial Statements.
In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating Securities (FSP
EITF 03-6-1). The FASB decided that unvested share-based payout awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of EPS pursuant to the
two-class method under SFAS 128, Earnings per Share. FSP EITF 03-6-1 became effective for
us on January 1, 2009 and the adoption did not have an impact on our financial statements.
In December 2008, the FASB issued FSP 132(R)-1, Employers Disclosures about Postretirement
Benefit Plan Assets, which amends Statement 132(R) to require more detailed disclosures
about employers pension plan assets. New disclosures will include more information on
investment strategies, major categories of plan assets, concentrations of risk within plan
assets and valuation techniques used to measure the fair value of plan assets. This new
standard requires new disclosures only, and will have no impact on our consolidated
financial position, results of operations or cash flows. These new disclosures will be
required for us beginning in our Form 10-K for the 2009 fiscal year.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. (FSP FAS 157-4), which
provides additional guidance in accordance with FASB No. 157, Fair Value Measurements, when
the volume and level of activity for the asset or liability has significantly decreased.
FSP FAS 157-4 became effective for us on April 1, 2009 and the adoption did not have an
impact on our financial statements.
9
In April 2009, the FASB issued FASB Staff Position FSP FAS 115-2 and FAS 124-2, Recognition
and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2). This
FSP amends the other-than-temporary impairment guidance in U.S. generally accepted
accounting
principles (U.S. GAAP) for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on debt and
equity securities in a companys financial statements. This FSP does not amend existing
recognition and measurement guidance related to other-than-temporary impairments of equity
securities. FSP FAS 115-2 and FAS 124-2 became effective for us on April 1, 2009 and the
adoption did not have an impact on our financial statements.
In April 2009, the FASB issued FASB Staff Position FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS
107-1 and APB 28-1 enhance consistency in financial reporting by increasing the frequency
of fair value disclosures. This FSP relates to fair value disclosures for any financial
instruments that are not currently reflected in a companys balance sheet at fair value.
Prior to the effective date of this FSP, fair values for these assets and liabilities were
only disclosed once a year. This FSP will now require these disclosures to be made on a
quarterly basis, providing qualitative and quantitative information about fair value
estimates for all those financial instruments not measured on the balance sheet at fair
value. FSP FAS 107-1 and APB 28-1 became effective for us on April 1, 2009 and we have
included the additional disclosure information required by FSP FAS 107-1 and APB 28-1
within Note 7, Fair Value Measurements, of the Notes to the Consolidated Financial
Statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165), to be effective
for interim or annual financial periods ending after June 15, 2009. SFAS 165 does not
materially change the existing guidance but introduces the concept of financial statements
being available to be issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date, that is, whether the
date represents the date the financial statements were issued or were available to be
issued. This disclosure is intended to alert all users of financial statements that an
entity has not evaluated subsequent events after that date in the set of financial
statements being presented. SFAS 165 became effective for us on April 1, 2009 and the
adoption did not have an impact on our financial statements. We have evaluated subsequent
events through July 24, 2009, which is the date of our Form 10-Q filing.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets
(SFAS 166), which amends the derecognition guidance in SFAS 140, Accounting for Transfers
and Servicing of Financial Assts and Extinguishments of Liabilities (SFAS 140). SFAS 166
addresses concerns expressed by the SEC, members of Congress, and financial statement users
about the accounting and disclosures required by SFAS 140 in the wake of the subprime
mortgage crisis and the deterioration of the global credit markets. This guidance is
effective for financial asset transfers occurring after the beginning of an entitys first
fiscal year that begins after November 15, 2009. We are currently assessing the impact SFAS
166 will have on our financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS 167), which amends the consolidation guidance applicable to variable interest
entities under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities.
SFAS 167 is intended to improve financial reporting by enterprises involved with variable
interest entities. This guidance is effective as of the beginning of the first fiscal year
that begins after November 15, 2009. We are currently assessing the impact SFAS 167 will
have on our financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles (SFAS 168), which amends SFAS No.
162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 168 will become the
source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of
authoritative GAAP for SEC registrants. On the effective date, SFAS 168 will supersede all
then-existing non-SEC accounting and reporting standards. All other nongrandfathered
non-SEC accounting literature not included in SFAS 168 will become nonauthoritative. SFAS
168 is effective for financial statements issued for interim and annual periods ending
after September 15, 2009. We are currently assessing the impact SFAS 168 will have on our
financial statements.
10
3. |
|
Unsolicited Exchange Offer by CF Industries Holdings, Inc. |
On January 15, 2009, CF Industries Holdings, Inc. (CF) presented a letter to our Board of
Directors proposing CFs acquisition of Terra in an all-stock transaction. Terras Board
rejected the proposal on the grounds that it was not in the best interest of Terra or its
stockholders and substantially undervalued the Company. CF subsequently announced that they
remained committed to the proposal, and on February 3, 2009, announced that they would
nominate three director candidates to Terras Board and commence an exchange offer for all
of Terras outstanding common shares.
On February 23, 2009, CF announced that it had commenced an unsolicited exchange offer to
acquire all of the outstanding common shares of Terra at a fixed exchange ratio of 0.4235
CF shares for each Terra common share. In response, Terras Board of Directors announced on
February 23, 2009, that it would review and consider CFs exchange offer and make a formal
recommendation to shareholders within ten business days, and further advised Terras
shareholders to take no action pending the review of the proposed exchange offer by Terras
Board. On March 3, 2009, Terras Board of Directors unanimously concluded that CFs offer
did not present a compelling case to create additional value for the stockholders of either
Terra or CF, substantially undervalues Terra on an absolute basis and relative to CF and is
not in the best interests of Terra and its stockholders.
On March 9, 2009, CF sent a letter to Terras Board of Directors stating CF would be
prepared to enter into a negotiated merger agreement with Terra on the basis of an exchange
ratio based on $27.50 for each Terra common share, with an exchange ratio of not less than
0.4129 of a CF common share and not more than 0.4539 of a CF common share. On March 11,
2009, Terras Board of Directors unanimously concluded that CFs proposal continues to run
counter to Terras strategic objectives, substantially undervalues Terra both absolutely
and relative to CF, and would deliver less value to Terras stockholders than would owning
Terra on a stand-alone basis.
On March 23, 2009, CF sent a letter to Terras Board of Directors stating CF would be
prepared to enter into a negotiated merger agreement with Terra on the basis of an exchange
ratio based on $30.50 for each Terra share, with an exchange ratio of not less than 0.4129
of a CF common share and not more than 0.4539 of a CF common share, the same collar as CFs
proposal of March 9, 2009. On March 24, 2009, Terras Board of Directors unanimously
concluded CFs proposal continues to run counter to Terras strategic objectives,
substantially undervalues Terra both absolutely and relative to CF and would deliver less
value to Terras stockholders than would owning Terra on a stand-alone basis.
As of the date of this Form 10-Q, CFs unsolicited exchange offer to acquire all of the
outstanding common shares of Terra is still outstanding and is set to expire on August 7,
2009, unless further extended. For the three and six month periods ended June 30, 2009,
Terra incurred due diligence defense costs of $12.6 million and $14.3 million,
respectively, related to CFs unsolicited exchange offer.
11
Basic income per share data is based on the weighted-average number of common shares
outstanding during the period. Diluted income 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 per share since they are contingently returnable.
The following table provides a reconciliation between basic and diluted income per share
attributable to Terra Industries Inc. for the three and six month periods ended June 30,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands, except per-share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Basic income per common share
attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
80,474 |
|
|
$ |
196,116 |
|
|
$ |
110,469 |
|
|
$ |
297,421 |
|
Less: Preferred share dividends |
|
|
(17 |
) |
|
|
(1,275 |
) |
|
|
(34 |
) |
|
|
(2,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common stockholders |
|
|
80,457 |
|
|
|
194,841 |
|
|
|
110,435 |
|
|
|
294,871 |
|
Income from discontinued operations
available to common stockholders |
|
|
|
|
|
|
7,319 |
|
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common stockholders |
|
$ |
80,457 |
|
|
$ |
202,160 |
|
|
$ |
110,435 |
|
|
$ |
302,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
99,318 |
|
|
|
91,011 |
|
|
|
99,224 |
|
|
|
90,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share continuing operations |
|
$ |
0.81 |
|
|
$ |
2.14 |
|
|
$ |
1.11 |
|
|
$ |
3.26 |
|
Income per share discontinued operations |
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.81 |
|
|
$ |
2.22 |
|
|
$ |
1.11 |
|
|
$ |
3.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share
attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common stockholders |
|
$ |
80,457 |
|
|
$ |
194,841 |
|
|
$ |
110,435 |
|
|
$ |
294,871 |
|
Add: Preferred share dividends |
|
|
17 |
|
|
|
1,275 |
|
|
|
34 |
|
|
|
2,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders and assumed conversions |
|
$ |
80,474 |
|
|
$ |
196,116 |
|
|
$ |
110,469 |
|
|
$ |
297,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
99,318 |
|
|
|
91,011 |
|
|
|
99,224 |
|
|
|
90,588 |
|
Add incremental shares from
assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
|
161 |
|
|
|
12,048 |
|
|
|
161 |
|
|
|
12,048 |
|
Non vested stock |
|
|
231 |
|
|
|
572 |
|
|
|
319 |
|
|
|
590 |
|
Common stock warrants |
|
|
|
|
|
|
1,047 |
|
|
|
|
|
|
|
1,424 |
|
Common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
99,710 |
|
|
|
104,678 |
|
|
|
99,704 |
|
|
|
104,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share continuing operations |
|
$ |
0.81 |
|
|
$ |
1.87 |
|
|
$ |
1.11 |
|
|
$ |
2.84 |
|
Income per share discontinued operations |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.81 |
|
|
$ |
1.94 |
|
|
$ |
1.11 |
|
|
$ |
2.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Raw materials |
|
$ |
17,523 |
|
|
$ |
17,805 |
|
|
$ |
16,791 |
|
Supplies |
|
|
35,439 |
|
|
|
33,825 |
|
|
|
33,702 |
|
Finished goods |
|
|
75,086 |
|
|
|
145,461 |
|
|
|
118,457 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
128,048 |
|
|
$ |
197,091 |
|
|
$ |
168,950 |
|
|
|
|
|
|
|
|
|
|
|
Production costs include the cost of direct labor and materials, depreciation and
amortization, and overhead costs related to manufacturing activities. We allocate fixed
production overhead costs based on the normal capacity of our production facilities and
unallocated overhead costs are recognized as expense in the period incurred. We determine
the cost of inventories using the first-in, first-out method.
Inventories are stated at the lower of cost or market. Market is defined as current
replacement cost, except that market should not exceed the net realizable value and should
not be less than net realizable value reduced by an allowance for an approximately normal
profit margin. We perform a monthly analysis of our inventory balances to determine if the
carrying amount of inventories exceeds our net realizable value. Our determination of
estimated net 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.
We estimate a reserve for obsolescence and excess of our materials and supplies inventory.
Inventory is stated net of the reserve.
6. |
|
Derivative Financial Instruments |
We enter into derivative financial instruments, including swaps, basis swaps, purchased put
and call options and sold call options, to manage the effect of changes in natural gas
costs and the price 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 our
statement of operations in the period the offsetting hedged transaction occurs. If an
instrument or the hedged item is settled early, we evaluate whether the hedged forecasted
transaction is still probable of occurring when determining whether to reclassify any gains
or losses immediately in cost of sales or wait until the forecasted transaction occurs.
Until our derivatives settle, we test derivatives for ineffectiveness. This includes
assessing the correlation of New York Mercantile Exchange (NYMEX) pricing, which is
commonly used as an index in natural gas derivatives, to the natural gas pipelines pricing
at our manufacturing facilities. This assessment requires management judgment to determine
the statistically and industry appropriate analysis of prior operating relationships
between the NYMEX prices and the natural gas pipelines prices at our facilities.
13
To the extent possible, we base our market value calculations on third party data. Due to
multiple types of settlement methods available, not all settlement methods for future
period trades are available from
third party sources. In the event that a derivative is measured for fair value based on a
settlement method that is not readily available, we estimate the fair value based on
forward pricing information for similar types of settlement methods.
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. As of June 30, 2009, we did not have any credit risk related
contingent features that would require us to settle the derivative instruments or to post
collateral upon the occurrence of a credit event.
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 currency, interest or price risk; |
|
|
2. |
|
It must be probable that the results of the hedge position substantially
offset the effects of currency, interest or 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); and |
|
|
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 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. Natural gas derivatives are designated as cash flow hedges, provided
that the derivatives meet the conditions discussed above. 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 contract between us and a third party to exchange cash based on a designated
price. 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 NYMEX natural gas futures during a specified period. There are no initial cash
requirements related to the swap and basis swap agreements; however, the counterparties
require maintenance of cash margin balances generally 10% to 20% of the contract value.
14
As of June 30, 2009 and 2008, we had open derivative contracts of 13.8 million MMBtus and
37.3 million MMBtus, respectively, of natural gas.
The following summarizes the gross fair market value of all derivative instruments and their
location in our Consolidated Balance Sheet are shown by those in an asset or liability
position and are categorized as commodity derivatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives (a) |
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
Derivative Instrument |
|
Location |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Commodity Derivatives |
|
Other current assets |
|
$ |
8,004 |
|
|
$ |
25,773 |
|
|
$ |
83,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives (a) |
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
Derivative Instrument |
|
Location |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Commodity Derivatives |
|
Derivative hedge liabilities |
|
$ |
(7,821 |
) |
|
$ |
(125,925 |
) |
|
$ |
(10,094 |
) |
|
|
|
|
|
(a) |
|
Amounts are disclosed at gross fair value in accordance with SFAS 161
requirements. All of our commodity derivatives are designated as cash flow hedging
instruments under SFAS 133. See Footnote 1 and 5 of our 2008 Annual Report Form
10-K for additional information on our overall risk management strategies. The
deferred taxes related to these commodity derivatives for the periods ended June
30, 2009, December 31, 2008 and June 30, 2008 were $1.7 million, $25.2 million and
($26.1) million, respectively. |
Certain derivatives outstanding at June 30, 2009 and 2008, which settled during July 2009
and July 2008, respectively, are included in the position of open natural gas derivatives
in the table above. The July 2009 derivatives settled for an approximate $2.8 million loss
compared to the July 2008 derivatives which settled for an approximate $15.6 million gain.
All material open derivatives at June 30, 2009 will settle during the next twelve months.
We are required to maintain certain margin deposits on account with derivative
counterparties. At June 30, 2009, we had no margin deposits with derivative counterparties,
which are reported as Margin deposits with derivative counterparties on the Consolidated
Statements of Financial Position. At December 31, 2008 and June 30, 2008, we had margin
deposits with derivative counterparties of $36.9 million and less than $0.1 million,
respectively.
At June 30, 2009 and 2008, we determined that a portion of certain derivative contracts
were ineffective for accounting purposes and, as a result, recorded a $3.4 million charge
and $6.1 million credit to cost of sales, respectively. At June 30, 2009 and 2008, we
excluded a portion of the loss on certain derivative contracts from the effectiveness
assessment and, as a result, recorded a $1.9 million credit and a $1.3 million charge,
respectively, to cost of sales.
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.
15
All of our commodity derivatives are designated as cash flow hedging instruments under SFAS
133. See footnote 1 and 5 of our 2008 Annual Report Form 10-K for additional information on
our overall risk management strategies. The following table presents the effect of our
commodity derivative instruments on the Consolidated Statement of Operations for the three
and six months ended June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Location of Gain |
|
Reclassified from AOCI |
|
|
|
|
|
|
Amount of Gain (Loss) |
|
Recognized in OCI |
|
|
(Loss) Reclassified |
|
into Income |
|
|
|
|
|
|
Recognized in Income (b) |
|
June 30, |
|
|
June 30, |
|
|
from AOCI into |
|
June 30, |
|
|
June 30, |
|
|
Location of Gain (Loss) |
|
|
June 30, |
|
|
June 30, |
|
2009 |
|
|
2008 |
|
|
Income (a) |
|
2009 |
|
|
2008 |
|
|
Recognized in Income (b) |
|
|
2009 |
|
|
2008 |
|
$ |
(4,439 |
) |
|
$ |
77,085 |
|
|
Cost of Sales |
|
$ |
(25,135 |
) |
|
$ |
36,570 |
|
|
Cost of Sales |
|
$ |
(1,492 |
) |
|
$ |
4,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Location of Gain |
|
Reclassified from AOCI |
|
|
|
|
|
|
Amount of Gain (Loss) |
|
Recognized in OCI |
|
|
(Loss) Reclassified |
|
into Income |
|
|
|
|
|
|
Recognized in Income (b) |
|
June 30, |
|
|
June 30, |
|
|
from AOCI into |
|
June 30, |
|
|
June 30, |
|
|
Location of Gain (Loss) |
|
|
June 30, |
|
|
June 30, |
|
2009 |
|
|
2008 |
|
|
Income (a) |
|
2009 |
|
|
2008 |
|
|
Recognized in Income (b) |
|
|
2009 |
|
|
2008 |
|
$ |
(37,309 |
) |
|
$ |
119,832 |
|
|
Cost of Sales |
|
$ |
(98,026 |
) |
|
$ |
44,067 |
|
|
Cost of Sales |
|
$ |
(1,492 |
) |
|
$ |
4,846 |
|
|
|
|
|
|
(a) |
|
Effective portion of gain (loss) |
|
|
(b) |
|
The amount of gain or (loss) recognized in income represents ($3.4) million
and $6.1 million related to the ineffective portion of the hedging relationships
and $1.9 million and ($1.3) million related to the amount excluded from the
assessment of hedge effectiveness. |
Approximately $4.6 million of the net accumulated loss at June 30, 2009 will be
reclassified into earnings during the next twelve months as compared to $67.1 million of
the net accumulated income at June 30, 2008.
At times, we also use forward derivative instruments, such as nitrogen solution contracts,
to fix or set floor prices for a portion of our nitrogen sales volumes. At June 30, 2009,
we had open nitrogen solution contracts. 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 both the three and six
month periods ending June 30, 2009, we recognized a gain of $0.1 million on nitrogen
forward derivative instruments. For the three and six month periods ending June 30, 2008,
there were no gains or losses on nitrogen forward derivative instruments.
7. |
|
Fair Value Measurements |
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.
16
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. |
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
contracts use adjusted quoted prices from an active market, which are classified as level 2
as a significant other observable input in the disclosure hierarchy framework as defined by
SFAS 157. Our gas derivative contracts, which are classified as a level 2 input, are
comprised of swaps, basis swaps and options. The valuation techniques for these contracts
are observable market data for inputs, including prices quoted on the NYMEX, prices quoted
in spot markets and commonly referenced industry publications and prices quoted by market
makers. There have been no changes in valuation techniques during the quarter ended June
30, 2009.
The following table summarizes the valuation of our assets and liabilities in accordance
with SFAS 157 fair value hierarchy levels as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market |
|
|
Significant Other |
|
|
Significant |
|
|
|
Prices in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
8,004 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
8,004 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
(7,821 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(7,821 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarized the valuation of our assets and liabilities in accordance
with SFAS 157 fair value hierarchy levels of December 31, 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 |
|
$ |
|
|
|
$ |
25,773 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
25,773 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
(125,925 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(125,925 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table summarized the valuation of our assets and liabilities in accordance
with SFAS 157 fair value hierarchy levels 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 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the carrying amounts and estimated fair values of Terras
financial instruments as of June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
(in millions) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,001.6 |
|
|
$ |
1,001.6 |
|
|
$ |
752.0 |
|
|
$ |
752.0 |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
330.0 |
|
|
|
301.5 |
|
|
|
330.0 |
|
|
|
323.4 |
|
Preferred shares |
|
|
1.5 |
|
|
|
3.8 |
|
|
|
115.8 |
|
|
|
564.2 |
|
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
|
|
|
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments. |
|
|
|
Long-term debt: The fair value of our long-term debt is estimated by
discounting expected cash flows at the rates currently offered for debt of the
same remaining maturities. |
|
|
|
Preferred shares: Preferred shares are valued on the basis of market quotes,
when available, and management estimates based on comparisons with similar
instruments that are publicly traded. |
Concentration of Credit Risk: We are subject to credit risk through trade receivables and
short-term investments. Although a substantial portion of our debtors ability to pay
depends upon the agribusiness economic sector, credit risk with respect to trade
receivables generally is minimized due to its geographic dispersion. Short-term cash
investments are placed in short duration corporate and government debt securities funds
with well-capitalized, high quality financial institutions.
Financial Instruments: At June 30, 2009, we had letters of credit outstanding totaling $8.0
million, which guarantees various insurance and financing activities.
18
The
components of preferred shares outstanding at June 30, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Number |
|
|
Carrying |
|
|
Number |
|
|
Carrying |
|
(in thousands) |
|
of shares |
|
|
Value |
|
|
of shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Shares
(120,000 shares authorized,
$1,000 per share liquidation value) |
|
|
1,600 |
|
|
$ |
1,544 |
|
|
|
120,000 |
|
|
$ |
115,800 |
|
We had 1,600 shares of cumulative convertible perpetual Series A Preferred Shares with a
liquidation value of $1,000 per share outstanding at June 30, 2009 and 120,000 shares with
a liquidation value of $1,000 per share at June 30, 2008. Cumulative dividends of $10.625
per share are payable quarterly. The Series A Preferred Shares are not redeemable, but are
convertible into our common stock at the option of the holder for a conversion price of
$9.96 per common share. The Series A shares may automatically be converted to common shares
after December 20, 2009 if the closing price for our common shares exceeds 140% of the
conversion price for twenty days within a consecutive thirty day period prior to such
conversion. Upon the occurrence of a fundamental change to our capital structure, including
a change of control, merger, or sale of Terra, holders of the Series A Preferred Shares may
require us to purchase any or all of their shares at a price equal to their liquidation
value plus any accumulated, but unpaid, dividends. We also have the right, under certain
conditions, to require holders of the Series A Preferred Shares to exchange their shares
for convertible subordinated debentures with similar terms.
In September 2008 we commenced offers (the inducement offers) to pay a cash premium to
holders of the Series A Preferred Shares who elected to convert their Series A Preferred
Shares into shares of Terra common stock. A total of 118,400 shares or 99% of the
outstanding shares of Series A Preferred Shares were surrendered and converted as part of
the inducement offers. The former holders of the Series A Preferred Shares received, in the
aggregate, the following:
|
|
|
11,887,550 shares of Terra Industries common stock; and |
|
|
|
A cash premium of approximately $5.3 million |
The $5.3 million represents the difference between the fair value of all securities and
other consideration transferred in the transaction to the preferred stockholders and the
fair value of securities issuable pursuant to the original conversion terms of the Series A
Preferred Shares less the costs related to the inducement offers.
The following represents a summary of the deferred plant turnaround costs for the six
months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnaround |
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
Beginning |
|
|
Costs |
|
|
Turnaround |
|
|
Translation |
|
|
Ending |
|
(in thousands) |
|
Balance |
|
|
Capitalized |
|
|
Amortization |
|
|
Adjustments |
|
|
Balance |
|
Period ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
$ |
23,467 |
|
|
$ |
15,058 |
|
|
$ |
(12,372 |
) |
|
$ |
178 |
|
|
$ |
26,331 |
|
June 30, 2008 |
|
|
42,190 |
|
|
|
10,225 |
|
|
|
(14,875 |
) |
|
|
(424 |
) |
|
|
37,116 |
|
19
10. |
|
Accrued and Other Current Liabilities |
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Income taxes payable |
|
$ |
25,559 |
|
|
$ |
63,999 |
|
|
$ |
51,042 |
|
Payroll and benefit costs |
|
|
13,940 |
|
|
|
27,104 |
|
|
|
18,662 |
|
Accrued CF defense costs |
|
|
13,028 |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
9,747 |
|
|
|
9,748 |
|
|
|
9,745 |
|
Current accrued phantom shares |
|
|
4,867 |
|
|
|
4,341 |
|
|
|
10,685 |
|
Deferred revenue |
|
|
3,346 |
|
|
|
3,346 |
|
|
|
1,375 |
|
Accrued property taxes |
|
|
3,160 |
|
|
|
3,291 |
|
|
|
3,212 |
|
Other |
|
|
18,589 |
|
|
|
15,941 |
|
|
|
25,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
92,236 |
|
|
$ |
127,770 |
|
|
$ |
120,051 |
|
|
|
|
|
|
|
|
|
|
|
Other liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Unrecognized tax benefit |
|
$ |
37,124 |
|
|
$ |
35,949 |
|
|
$ |
33,560 |
|
Long-term medical and
closed facility reserve |
|
|
23,835 |
|
|
|
23,887 |
|
|
|
24,405 |
|
Long-term deferred revenue |
|
|
9,739 |
|
|
|
10,488 |
|
|
|
10,313 |
|
Accrued phantom shares |
|
|
2,262 |
|
|
|
2,430 |
|
|
|
7,613 |
|
Other |
|
|
5,836 |
|
|
|
5,799 |
|
|
|
6,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
78,796 |
|
|
$ |
78,553 |
|
|
$ |
82,550 |
|
|
|
|
|
|
|
|
|
|
|
North America
Our investment in North American 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 $118.3 million and $137.1 million at June 30, 2009
and 2008, respectively. 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.
20
The combined results of operations and financial position of our North American equity
method investments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Condensed income statement
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
41,436 |
|
|
$ |
83,993 |
|
|
$ |
79,415 |
|
|
$ |
182,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,051 |
|
|
$ |
31,640 |
|
|
$ |
19,058 |
|
|
$ |
62,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates |
|
$ |
1,522 |
|
|
$ |
16,518 |
|
|
$ |
4,774 |
|
|
$ |
29,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
42,754 |
|
|
$ |
57,166 |
|
Long-term assets |
|
|
165,559 |
|
|
|
182,320 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
208,313 |
|
|
$ |
239,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
22,926 |
|
|
$ |
40,557 |
|
Long-term liabilities |
|
|
21,073 |
|
|
|
13,020 |
|
Equity |
|
|
164,314 |
|
|
|
185,909 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
208,313 |
|
|
$ |
239,486 |
|
|
|
|
|
|
|
|
The carrying value of these investments at June 30, 2009 was $36.2 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 ended June 30, 2009, we purchased approximately $37.0 million of ammonia from PLNL.
During the six month period ended June 30, 2008, we purchased approximately $77.4 million
of ammonia from PLNL.
We received $20.6 million and $40.9 million in distributions from our North American equity
investments in the six month periods ended June 30, 2009 and 2008, respectively.
United Kingdom
On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint
venture between Terra 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 the formation, we have accounted for our
investment in GrowHow as a non-operating equity method 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 GrowHow joint venture includes the
Kemira site at Ince and our former Teeside and Severnside sites.
21
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. As of June 30, 2009, we have incurred remediation costs of
$7.6 million. We anticipate total remediation costs to not exceed $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 will exceed the
total cost of reclamation of the site.
The Joint Venture Contribution Agreement specifies that we are entitled to receive a
minimum balancing consideration payment of up to £60 million based on GrowHows operating
results for fiscal 2008 to 2010. Pursuant to agreements with Kemira, we received minimum
balancing consideration and other payments totaling £5.3 million ($7.9 million) during the
first half of 2009. For the six months ended June 30, 2008, we did not receive any
balancing consideration payments. We also received $28.1 million from GrowHow during the
first half of 2008 for the refund of working capital contributions in excess of amounts
specified in the Joint Venture Contribution Agreement. The carrying value of this equity
method investment was $150.8 million and $223.7 million at June 30, 2009 and 2008,
respectively.
The results of operations and financial position of our equity method investment in GrowHow
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Condensed income statement
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
108,892 |
|
|
$ |
279,206 |
|
|
$ |
216,552 |
|
|
$ |
546,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,111 |
|
|
$ |
76,733 |
|
|
$ |
(2,744 |
) |
|
$ |
98,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terras equity in earnings (loss)
of unconsolidated affiliates |
|
$ |
1,886 |
|
|
$ |
37,611 |
|
|
$ |
(2,488 |
) |
|
$ |
46,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
279,515 |
|
|
$ |
335,197 |
|
Long-term assets |
|
|
182,212 |
|
|
|
257,849 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
461,727 |
|
|
$ |
593,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
66,533 |
|
|
$ |
135,371 |
|
Long-term liabilities |
|
|
146,492 |
|
|
|
175,707 |
|
Equity |
|
|
248,702 |
|
|
|
281,968 |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
461,727 |
|
|
$ |
593,046 |
|
|
|
|
|
|
|
|
The carrying value of this investment at June 30, 2009 was $26.4 million more than our
share of GrowHows 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.
22
13. |
|
Long-term Debt |
|
|
|
Long-term debt consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
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 2007, Terra Capital, Inc., (TCAPI) a subsidiary of Terra Industries Inc., issued $330
million of 7.0% Senior Notes due 2017 (notes). The notes are unconditionally guaranteed by
Terra and certain of its U.S. subsidiaries (the Guarantor Subsidiaries); see Note 17,
Guarantor Subsidiaries, of the Notes to the Consolidated Financial Statements. These notes
and guarantees are unsecured and will rank equal in right of payment with any existing and
future senior obligations of such guarantors.
The Indenture governing the notes contains covenants that limit, among other things, our
ability to: incur additional debt, pay dividends on common stock of Terra 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 and unpaid interest to the date of purchase. The Indenture
governing these notes contains events of default and remedies customary for a financing of
this type.
The $200 million revolving credit facilities (the facilities) due 2012 are secured by
substantially all of our working capital. Borrowing availability is generally based on 100%
of eligible cash balances, 85% of eligible accounts receivable, 60% of eligible finished
goods inventory and is reduced by outstanding letters of credit. These facilities include
$50 million available only for the use of Terra Nitrogen Company, L.P. (TNCLP), one of our
consolidated subsidiaries. Borrowings under the revolving credit facilities 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, 2009, the LIBOR rate
was 0.32%. 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, 2009. The revolving facilities require an initial one-half percent (0.50%)
commitment fee on the difference between committed amounts and amounts actually borrowed.
The facilities and the Indenture governing the notes also require that there be no change
of control related to Terra, such that no individual or group (within the meaning of the
Securities Exchange Act of 1934, as amended) beneficially owns more than 35% of the
outstanding voting shares of Terra. Such a change of control would constitute an event of
default under the facilities and would require TCAPI to offer to repurchase the notes at
101% of the principal amount thereof, including any accrued but unpaid interest. On February 23, 2009, CF Industries Holdings, Inc. (CF) commenced an
exchange offer to acquire all of the outstanding Terra common stock. Such a business
combination, if consummated, would constitute a change of control under both the facilities
and the Indenture governing the notes. See Note 3, Unsolicited Exchange Offer by CF
Industries Holdings, Inc., of the Notes to the Consolidated Financial Statements for
additional information with respect to CFs unsolicited proposal.
23
At June 30, 2009, we had no outstanding revolving credit borrowings and $8.0 million in
outstanding letters of credit. The $8.0 million in outstanding letters of credit reduced
our borrowing availability to $192.0 at June 30, 2009. The 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. Under the $150 million facility, if our
consolidated 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 (EBITDA) of $60 million during the most
recent four quarters. Under the $50 million TNCLP facility, if our borrowing availability
as computed for that facility falls below $10 million, we are required to achieve EBITDA at
TNCLP of $25 million during the most recent four quarters. A default under the $50 million
facility results in a cross default to the $150 million facility.
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) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
733 |
|
|
$ |
778 |
|
|
$ |
1,466 |
|
|
$ |
1,556 |
|
Interest cost |
|
|
4,648 |
|
|
|
4,412 |
|
|
|
9,296 |
|
|
|
8,824 |
|
Expected return on plan assets |
|
|
(4,701 |
) |
|
|
(4,516 |
) |
|
|
(9,402 |
) |
|
|
(9,032 |
) |
Amortization of prior service cost |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(18 |
) |
|
|
(18 |
) |
Amortization of actuarial loss |
|
|
162 |
|
|
|
468 |
|
|
|
324 |
|
|
|
936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense |
|
$ |
833 |
|
|
$ |
1,133 |
|
|
$ |
1,666 |
|
|
$ |
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash contributions to the defined benefit pension plans for the three months ended June 30,
2009 and 2008 were $0.4 million and $0.6 million, respectively. Cash contributions to the
defined benefit pension plans for the six months ended June 30, 2009 and 2008 were $0.8
million and $0.9 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 ended June 30, 2009 and 2008 were $1.1 million and $0.9 million, respectively.
Contributions to these plans for the six month periods ended June 30, 2009 and 2008 were
$2.3 million and $2.0 million, respectively.
24
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.
Comprehensive income attributable to Terra Industries Inc. and its components, net of tax,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income before noncontrolling interest |
|
$ |
89,948 |
|
|
$ |
221,930 |
|
|
$ |
127,851 |
|
|
$ |
341,513 |
|
Changes in cumulative foreign currency
translation adjustment |
|
|
48,126 |
|
|
|
1,130 |
|
|
|
30,267 |
|
|
|
(1,756 |
) |
Changes in market value of derivative
financial instruments classified
as cash flow hedges, net of tax |
|
|
12,700 |
|
|
|
23,707 |
|
|
|
37,188 |
|
|
|
46,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income before
noncontrolling interest |
|
|
150,774 |
|
|
|
246,767 |
|
|
|
195,306 |
|
|
|
386,377 |
|
Comprehensive income attributable
to noncontrolling interest |
|
|
(10,918 |
) |
|
|
(21,022 |
) |
|
|
(21,991 |
) |
|
|
(43,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to
Terra Industries Inc. |
|
$ |
139,856 |
|
|
$ |
225,745 |
|
|
$ |
173,315 |
|
|
$ |
342,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adoption of SFAS 160 has resulted in the reclassification of amounts previously
attributable to minority interest (now referred to as noncontrolling interest) to a
separate component of equity on the accompanying Consolidated Balance Sheet. Additionally,
net income attributable to noncontrolling interests is shown separately from net income in
the Consolidated Statements of Operations. Refer to Note 2, New Accounting Pronouncements,
of the Notes to the Consolidated Financial Statements, on this Form 10-Q for additional
information on the adoption of SFAS 160.
Prior year amounts related to noncontrolling interest (previously referred to as minority
interest) have been reclassified to conform to the current year presentation as required by
SFAS 160. The following table reconciles equity attributable to noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Noncontrolling interest, beginning
of period |
|
$ |
101,450 |
|
|
$ |
110,435 |
|
|
$ |
104,082 |
|
|
$ |
108,581 |
|
Net income attributable to
noncontrolling interest |
|
|
9,474 |
|
|
|
18,495 |
|
|
|
17,382 |
|
|
|
36,621 |
|
Distributions to noncontrolling
interests |
|
|
(9,686 |
) |
|
|
(19,373 |
) |
|
|
(23,391 |
) |
|
|
(39,899 |
) |
Changes in market value of derivative
financial instruments classified as
cash flow hedges, net of tax, attributable
to the noncontrolling interest |
|
|
1,444 |
|
|
|
2,527 |
|
|
|
4,609 |
|
|
|
6,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, end of period |
|
$ |
102,682 |
|
|
$ |
112,084 |
|
|
$ |
102,682 |
|
|
$ |
112,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
16. |
|
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. On July 23, 2009, we declared a
dividend of $0.10 per common share, payable September 10, 2009 to shareholders of record as
of August 20, 2009. Future dividends are necessarily dependent upon future earnings,
capital requirements, general financial condition, general business conditions, approval
from our Board of Directors, compliance with covenants in our debt agreements and other
factors.
On May 6, 2008, the Board of Directors adopted a resolution for the repurchase of
12,841,717 shares representing 14 percent of our then outstanding common 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 June 30, 2010, and at
such prices as we determine to be appropriate. Purchases may be commenced or suspended at
any time without notice. As of June 30, 2009 there are 7,448,662 shares available to be
repurchased under the plan. There were no share repurchase during the second quarter of
2009.
17. |
|
Guarantor Subsidiaries |
Terra Industries Inc., excluding all majority owned subsidiaries (Parent), files a
consolidated United States federal income tax return. Beginning in 1995, the Parent adopted
the tax sharing agreements, under which all domestic operating subsidiaries provide for and
remit income taxes to the Parent based on their pretax accounting income, adjusted for
permanent differences between pretax accounting income and taxable income. The tax sharing
agreements allocated the benefits of operating losses and temporary differences between
financial reporting and tax basis income to the Parent.
Condensed consolidating financial information regarding the Parent, Terra Capital, Inc.
(TCAPI), the Guarantor Subsidiaries and the subsidiaries of the Parent that are not
guarantors of the Senior Unsecured Notes (the Non-Guarantor Subsidiaries) (see Note 13,
Long-term Debt, of the Notes to Consolidated Financial Statements) for June 30, 2009;
December 31, 2008; and June 30, 2008 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; Terra Global Holding Company Inc., Terra Investment Fund I LLC, Terra
Investment Fund II LLC, Terra (U.K.) Holdings Inc., and the corporate headquarters facility
in Sioux City, Iowa. All Guarantor Subsidiaries are wholly owned by the Parent. All other
company facilities are owned by Non-Guarantor Subsidiaries. In 2008, we declared the
Beaumont, Texas facility as a discontinued operation and classified the facility as held
for sale pursuant to SFAS 144. In December 2008, the Beaumont, Texas facility was sold; see
Note 18, Discontinued Operations, of the Notes to the Consolidated Financial Statements.
26
Condensed Consolidating Balance Sheet as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
457,226 |
|
|
$ |
252,402 |
|
|
$ |
291,954 |
|
|
$ |
|
|
|
$ |
1,001,582 |
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
46,076 |
|
|
|
45,124 |
|
|
|
|
|
|
|
91,200 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
84,374 |
|
|
|
43,674 |
|
|
|
|
|
|
|
128,048 |
|
Other current assets |
|
|
23,803 |
|
|
|
4,223 |
|
|
|
3,683 |
|
|
|
16,503 |
|
|
|
|
|
|
|
48,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
23,803 |
|
|
|
461,449 |
|
|
|
386,535 |
|
|
|
397,255 |
|
|
|
|
|
|
|
1,269,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
6,037 |
|
|
|
307,568 |
|
|
|
112,890 |
|
|
|
|
|
|
|
426,495 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
9,603 |
|
|
|
259,510 |
|
|
|
|
|
|
|
269,113 |
|
Intangible assets, other assets
and deferred plant
turnaround costs |
|
|
1,816 |
|
|
|
6,567 |
|
|
|
37,950 |
|
|
|
9,993 |
|
|
|
|
|
|
|
56,326 |
|
Investments in and advances
to (from) affiliates |
|
|
1,393,645 |
|
|
|
127,059 |
|
|
|
2,947,544 |
|
|
|
424,119 |
|
|
|
(4,892,367 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,419,264 |
|
|
$ |
601,112 |
|
|
$ |
3,689,200 |
|
|
$ |
1,203,767 |
|
|
$ |
(4,892,367 |
) |
|
$ |
2,020,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
138 |
|
|
$ |
|
|
|
$ |
50,107 |
|
|
$ |
18,432 |
|
|
$ |
|
|
|
$ |
68,677 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
13,047 |
|
|
|
14,799 |
|
|
|
|
|
|
|
27,846 |
|
Derivative hedge liabilities |
|
|
4,850 |
|
|
|
277 |
|
|
|
345 |
|
|
|
2,349 |
|
|
|
|
|
|
|
7,821 |
|
Accrued and other
current liabilities |
|
|
44,102 |
|
|
|
8,907 |
|
|
|
32,557 |
|
|
|
6,670 |
|
|
|
|
|
|
|
92,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
49,090 |
|
|
|
9,184 |
|
|
|
96,056 |
|
|
|
42,250 |
|
|
|
|
|
|
|
196,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
73,617 |
|
|
|
|
|
|
|
|
|
|
|
9,963 |
|
|
|
|
|
|
|
83,580 |
|
Pension and other liabilities |
|
|
75,613 |
|
|
|
(346 |
) |
|
|
10,306 |
|
|
|
1,617 |
|
|
|
|
|
|
|
87,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
198,320 |
|
|
|
338,838 |
|
|
|
106,362 |
|
|
|
53,830 |
|
|
|
|
|
|
|
697,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares liquidation
value of $1,600 |
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
152,481 |
|
|
|
|
|
|
|
73 |
|
|
|
92,262 |
|
|
|
(92,335 |
) |
|
|
152,481 |
|
Paid-in capital |
|
|
581,542 |
|
|
|
150,218 |
|
|
|
2,024,501 |
|
|
|
808,705 |
|
|
|
(2,983,424 |
) |
|
|
581,542 |
|
Accumulated other
comprehensive income (loss) |
|
|
(112,683 |
) |
|
|
|
|
|
|
|
|
|
|
(118,926 |
) |
|
|
118,926 |
|
|
|
(112,683 |
) |
Retained earnings
(accumulated deficit) |
|
|
598,060 |
|
|
|
92,012 |
|
|
|
1,475,626 |
|
|
|
367,896 |
|
|
|
(1,935,534 |
) |
|
|
598,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,219,400 |
|
|
|
242,230 |
|
|
|
3,500,200 |
|
|
|
1,149,937 |
|
|
|
(4,892,367 |
) |
|
|
1,219,400 |
|
Noncontrolling interest |
|
|
|
|
|
|
20,044 |
|
|
|
82,638 |
|
|
|
|
|
|
|
|
|
|
|
102,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,219,400 |
|
|
|
262,274 |
|
|
|
3,582,838 |
|
|
|
1,149,937 |
|
|
|
(4,892,367 |
) |
|
|
1,322,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,419,264 |
|
|
$ |
601,112 |
|
|
$ |
3,689,200 |
|
|
$ |
1,203,767 |
|
|
$ |
(4,892,367 |
) |
|
$ |
2,020,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Consolidating Statement of Operations for the three months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
251,043 |
|
|
$ |
201,296 |
|
|
$ |
|
|
|
$ |
452,339 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
790 |
|
|
|
374 |
|
|
|
|
|
|
|
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
251,833 |
|
|
|
201,670 |
|
|
|
|
|
|
|
453,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
83 |
|
|
|
169,514 |
|
|
|
127,093 |
|
|
|
|
|
|
|
296,690 |
|
Selling, general and
administrative expenses |
|
|
13,376 |
|
|
|
(2,466 |
) |
|
|
6,934 |
|
|
|
8,622 |
|
|
|
|
|
|
|
26,466 |
|
Equity earnings of
North American affiliates |
|
|
|
|
|
|
|
|
|
|
(161 |
) |
|
|
(1,361 |
) |
|
|
|
|
|
|
(1,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
13,376 |
|
|
|
(2,383 |
) |
|
|
176,287 |
|
|
|
134,354 |
|
|
|
|
|
|
|
321,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(13,376 |
) |
|
|
2,383 |
|
|
|
75,546 |
|
|
|
67,316 |
|
|
|
|
|
|
|
131,869 |
|
Interest income |
|
|
|
|
|
|
599 |
|
|
|
309 |
|
|
|
257 |
|
|
|
|
|
|
|
1,165 |
|
Interest expense |
|
|
(465 |
) |
|
|
(6,209 |
) |
|
|
25,534 |
|
|
|
(25,617 |
) |
|
|
|
|
|
|
(6,757 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(13,841 |
) |
|
|
(3,227 |
) |
|
|
101,389 |
|
|
|
41,956 |
|
|
|
|
|
|
|
126,277 |
|
Income tax benefit (provision) |
|
|
4,373 |
|
|
|
(6,909 |
) |
|
|
(34,260 |
) |
|
|
(1,419 |
) |
|
|
|
|
|
|
(38,215 |
) |
Equity earnings (loss) of
unconsolidated affiliates |
|
|
89,942 |
|
|
|
101,907 |
|
|
|
|
|
|
|
1,886 |
|
|
|
(191,849 |
) |
|
|
1,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
80,474 |
|
|
|
91,771 |
|
|
|
67,129 |
|
|
|
42,423 |
|
|
|
(191,849 |
) |
|
|
89,948 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
|
80,474 |
|
|
|
91,771 |
|
|
|
67,129 |
|
|
|
42,423 |
|
|
|
(191,849 |
) |
|
|
89,948 |
|
Less: Net income attributable
to
the noncontrolling interest |
|
|
|
|
|
|
(1,829 |
) |
|
|
(7,645 |
) |
|
|
|
|
|
|
|
|
|
|
(9,474 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to Terra Industries Inc. |
|
$ |
80,474 |
|
|
$ |
89,942 |
|
|
$ |
59,484 |
|
|
$ |
42,423 |
|
|
$ |
(191,849 |
) |
|
$ |
80,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Consolidating Statement of Operations for the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
460,910 |
|
|
$ |
409,791 |
|
|
$ |
|
|
|
$ |
870,701 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
1,893 |
|
|
|
662 |
|
|
|
|
|
|
|
2,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
462,803 |
|
|
|
410,453 |
|
|
|
|
|
|
|
873,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
166 |
|
|
|
351,659 |
|
|
|
287,822 |
|
|
|
|
|
|
|
639,647 |
|
Selling, general and
administrative expenses |
|
|
15,615 |
|
|
|
(4,625 |
) |
|
|
18,100 |
|
|
|
17,644 |
|
|
|
|
|
|
|
46,734 |
|
Equity earnings of
North American affiliates |
|
|
|
|
|
|
|
|
|
|
(860 |
) |
|
|
(3,914 |
) |
|
|
|
|
|
|
(4,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
15,615 |
|
|
|
(4,459 |
) |
|
|
368,899 |
|
|
|
301,552 |
|
|
|
|
|
|
|
681,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(15,615 |
) |
|
|
4,459 |
|
|
|
93,904 |
|
|
|
108,901 |
|
|
|
|
|
|
|
191,649 |
|
Interest income |
|
|
|
|
|
|
1,405 |
|
|
|
808 |
|
|
|
762 |
|
|
|
|
|
|
|
2,975 |
|
Interest expense |
|
|
(930 |
) |
|
|
(12,391 |
) |
|
|
48,993 |
|
|
|
(49,157 |
) |
|
|
|
|
|
|
(13,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(16,545 |
) |
|
|
(6,527 |
) |
|
|
143,705 |
|
|
|
60,506 |
|
|
|
|
|
|
|
181,139 |
|
Income tax benefit (provision) |
|
|
4,908 |
|
|
|
(13,267 |
) |
|
|
(42,632 |
) |
|
|
191 |
|
|
|
|
|
|
|
(50,800 |
) |
Equity earnings (loss) of
unconsolidated affiliates |
|
|
122,106 |
|
|
|
145,255 |
|
|
|
|
|
|
|
(2,488 |
) |
|
|
(267,361 |
) |
|
|
(2,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
110,469 |
|
|
|
125,461 |
|
|
|
101,073 |
|
|
|
58,209 |
|
|
|
(267,361 |
) |
|
|
127,851 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
|
110,469 |
|
|
|
125,461 |
|
|
|
101,073 |
|
|
|
58,209 |
|
|
|
(267,361 |
) |
|
|
127,851 |
|
Less: Net income attributable
to
the noncontrolling interest |
|
|
|
|
|
|
(3,355 |
) |
|
|
(14,027 |
) |
|
|
|
|
|
|
|
|
|
|
(17,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to Terra Industries Inc. |
|
$ |
110,469 |
|
|
$ |
122,106 |
|
|
$ |
87,046 |
|
|
$ |
58,209 |
|
|
$ |
(267,361 |
) |
|
$ |
110,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Consolidating Statement of Cash Flows for the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Terra Industries Inc. |
|
$ |
110,469 |
|
|
$ |
122,106 |
|
|
$ |
87,046 |
|
|
$ |
58,209 |
|
|
$ |
(267,361 |
) |
|
$ |
110,469 |
|
Income from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
110,469 |
|
|
|
122,106 |
|
|
|
87,046 |
|
|
|
58,209 |
|
|
|
(267,361 |
) |
|
|
110,469 |
|
Adjustments to reconcile
income from continuing
operations to net cash
flows from operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
|
|
|
|
|
|
|
|
26,991 |
|
|
|
14,637 |
|
|
|
|
|
|
|
41,628 |
|
Loss on sale of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
657 |
|
|
|
|
|
|
|
|
|
|
|
657 |
|
Deferred income taxes |
|
|
(1,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,393 |
) |
Noncontrolling interest in
earnings |
|
|
|
|
|
|
3,355 |
|
|
|
14,027 |
|
|
|
|
|
|
|
|
|
|
|
17,382 |
|
Distributions in excess of
(less than) equity earnings |
|
|
(122,106 |
) |
|
|
(145,255 |
) |
|
|
130 |
|
|
|
4,074 |
|
|
|
267,361 |
|
|
|
4,204 |
|
Equity earnings
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,488 |
|
|
|
|
|
|
|
2,488 |
|
Non-cash gain on derivatives |
|
|
1,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,491 |
|
Share-based compensation |
|
|
8,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,562 |
|
Amortization of intangible
and other assets |
|
|
|
|
|
|
|
|
|
|
3,556 |
|
|
|
1,042 |
|
|
|
|
|
|
|
4,598 |
|
Change in operating assets
and liabilities |
|
|
47,069 |
|
|
|
36,339 |
|
|
|
(62,856 |
) |
|
|
(83,106 |
) |
|
|
|
|
|
|
(62,554 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from
operating
activities continuing
operations |
|
|
44,092 |
|
|
|
16,545 |
|
|
|
69,551 |
|
|
|
(2,656 |
) |
|
|
|
|
|
|
127,532 |
|
Net cash flows from
operating
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Operating Activities |
|
|
44,092 |
|
|
|
16,545 |
|
|
|
69,551 |
|
|
|
(2,656 |
) |
|
|
|
|
|
|
127,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and
plant
turnaround expenditures |
|
|
|
|
|
|
|
|
|
|
(55,739 |
) |
|
|
(10,253 |
) |
|
|
|
|
|
|
(65,992 |
) |
Proceeds from the sale of
property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
101 |
|
Distributions received from
unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
385 |
|
|
|
11,212 |
|
|
|
|
|
|
|
11,597 |
|
Balancing consideration and
other payments received
from GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,893 |
|
|
|
|
|
|
|
7,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from
investing
activities continuing
operations |
|
|
|
|
|
|
|
|
|
|
(55,253 |
) |
|
|
8,852 |
|
|
|
|
|
|
|
(46,401 |
) |
Net cash flows from
investing
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
|
|
(55,253 |
) |
|
|
8,852 |
|
|
|
|
|
|
|
(46,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Consolidating Statement of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends paid |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
Common stock dividends paid |
|
|
(19,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,940 |
) |
Common stock issuances and
vestings |
|
|
(5,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,334 |
) |
Change in investments and
advances from (to) affiliates |
|
|
(22,705 |
) |
|
|
113,481 |
|
|
|
(27,677 |
) |
|
|
(63,099 |
) |
|
|
|
|
|
|
|
|
Excess tax benefits from
equity
compensation plans |
|
|
3,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,921 |
|
Distributions to
noncontrolling
interests |
|
|
|
|
|
|
(4,514 |
) |
|
|
(18,877 |
) |
|
|
|
|
|
|
|
|
|
|
(23,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing
activities continuing
operations |
|
|
(44,092 |
) |
|
|
108,967 |
|
|
|
(46,554 |
) |
|
|
(63,099 |
) |
|
|
|
|
|
|
(44,778 |
) |
Net cash flows from financing
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Financing Activities |
|
|
(44,092 |
) |
|
|
108,967 |
|
|
|
(46,554 |
) |
|
|
(63,099 |
) |
|
|
|
|
|
|
(44,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate
Changes on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,471 |
) |
|
|
|
|
|
|
(1,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in Cash
and Cash Equivalents |
|
|
|
|
|
|
125,512 |
|
|
|
(32,256 |
) |
|
|
(58,374 |
) |
|
|
|
|
|
|
34,882 |
|
Cash and Cash Equivalents
at Beginning of Period |
|
|
|
|
|
|
331,714 |
|
|
|
284,658 |
|
|
|
350,328 |
|
|
|
|
|
|
|
966,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
at End of Period |
|
$ |
|
|
|
$ |
457,226 |
|
|
$ |
252,402 |
|
|
$ |
291,954 |
|
|
$ |
|
|
|
$ |
1,001,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Condensed Consolidating Balance Sheet as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
331,714 |
|
|
$ |
284,658 |
|
|
$ |
350,328 |
|
|
$ |
|
|
|
$ |
966,700 |
|
Accounts receivable, net |
|
|
9 |
|
|
|
74 |
|
|
|
73,358 |
|
|
|
56,949 |
|
|
|
|
|
|
|
130,390 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
111,295 |
|
|
|
85,796 |
|
|
|
|
|
|
|
197,091 |
|
Margin deposits with
derivative
counterparties |
|
|
|
|
|
|
36,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,945 |
|
Other current assets |
|
|
23,807 |
|
|
|
10,440 |
|
|
|
13,596 |
|
|
|
13,495 |
|
|
|
|
|
|
|
61,338 |
|
Current assets held for
sale
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
23,816 |
|
|
|
379,173 |
|
|
|
482,907 |
|
|
|
506,568 |
|
|
|
|
|
|
|
1,392,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
6,037 |
|
|
|
288,449 |
|
|
|
108,827 |
|
|
|
|
|
|
|
403,313 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
10,117 |
|
|
|
260,798 |
|
|
|
|
|
|
|
270,915 |
|
Deferred plant turnaround
costs, intangible and
other assets |
|
|
2,230 |
|
|
|
7,156 |
|
|
|
21,146 |
|
|
|
15,793 |
|
|
|
|
|
|
|
46,325 |
|
Investments in and advances
to (from) affiliates |
|
|
1,252,608 |
|
|
|
94,331 |
|
|
|
3,103,568 |
|
|
|
588,172 |
|
|
|
(5,038,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,278,654 |
|
|
$ |
486,697 |
|
|
$ |
3,906,187 |
|
|
$ |
1,480,158 |
|
|
$ |
(5,038,679 |
) |
|
$ |
2,113,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
205 |
|
|
$ |
62 |
|
|
$ |
70,473 |
|
|
$ |
29,153 |
|
|
$ |
|
|
|
$ |
99,893 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
58,922 |
|
|
|
52,670 |
|
|
|
|
|
|
|
111,592 |
|
Derivative hedge liabilities |
|
|
35,254 |
|
|
|
7,476 |
|
|
|
39,880 |
|
|
|
43,315 |
|
|
|
|
|
|
|
125,925 |
|
Accrued and other
current liabilities |
|
|
51,861 |
|
|
|
8,947 |
|
|
|
42,261 |
|
|
|
24,701 |
|
|
|
|
|
|
|
127,770 |
|
Current liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
87,320 |
|
|
|
16,485 |
|
|
|
211,536 |
|
|
|
149,839 |
|
|
|
|
|
|
|
465,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
51,770 |
|
|
|
|
|
|
|
|
|
|
|
9,673 |
|
|
|
|
|
|
|
61,443 |
|
Pension and other liabilities |
|
|
74,975 |
|
|
|
|
|
|
|
10,983 |
|
|
|
1,765 |
|
|
|
|
|
|
|
87,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
214,065 |
|
|
|
346,485 |
|
|
|
222,519 |
|
|
|
161,277 |
|
|
|
|
|
|
|
944,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
liquidation
value of $1,600 |
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
152,111 |
|
|
|
|
|
|
|
73 |
|
|
|
83,332 |
|
|
|
(83,405 |
) |
|
|
152,111 |
|
Paid-in capital |
|
|
579,164 |
|
|
|
150,218 |
|
|
|
2,201,646 |
|
|
|
963,435 |
|
|
|
(3,315,299 |
) |
|
|
579,164 |
|
Accumulated other
comprehensive income
(loss) |
|
|
(175,529 |
) |
|
|
|
|
|
|
|
|
|
|
(170,574 |
) |
|
|
170,574 |
|
|
|
(175,529 |
) |
Retained earnings
(accumulated deficit) |
|
|
507,299 |
|
|
|
(30,094 |
) |
|
|
1,397,955 |
|
|
|
442,688 |
|
|
|
(1,810,549 |
) |
|
|
507,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,063,045 |
|
|
|
120,124 |
|
|
|
3,599,674 |
|
|
|
1,318,881 |
|
|
|
(5,038,679 |
) |
|
|
1,063,045 |
|
Noncontrolling interest |
|
|
|
|
|
|
20,088 |
|
|
|
83,994 |
|
|
|
|
|
|
|
|
|
|
|
104,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,063,045 |
|
|
|
140,212 |
|
|
|
3,683,668 |
|
|
|
1,318,881 |
|
|
|
(5,038,679 |
) |
|
|
1,167,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,278,654 |
|
|
$ |
486,697 |
|
|
$ |
3,906,187 |
|
|
$ |
1,480,158 |
|
|
$ |
(5,038,679 |
) |
|
$ |
2,113,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Consolidating Balance Sheet as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 method investments |
|
|
|
|
|
|
|
|
|
|
10,567 |
|
|
|
350,238 |
|
|
|
|
|
|
|
360,805 |
|
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 |
|
|
953,877 |
|
|
|
395,671 |
|
|
|
2,135,047 |
|
|
|
130,179 |
|
|
|
(3,614,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,003,632 |
|
|
$ |
456,540 |
|
|
$ |
3,149,585 |
|
|
$ |
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 |
|
Derivative hedge liabilities |
|
|
3,026 |
|
|
|
|
|
|
|
1,522 |
|
|
|
5,546 |
|
|
|
|
|
|
|
10,094 |
|
Accrued and other
current liabilities |
|
|
54,982 |
|
|
|
9,187 |
|
|
|
34,162 |
|
|
|
21,720 |
|
|
|
|
|
|
|
120,051 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
273,519 |
|
|
|
338,847 |
|
|
|
194,616 |
|
|
|
143,001 |
|
|
|
(2,059 |
) |
|
|
947,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares liquidation
value of $120,000 |
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
(17,949 |
) |
|
|
|
|
|
|
|
|
|
|
236,083 |
|
|
|
(224,231 |
) |
|
|
(6,097 |
) |
Retained earnings
(accumulated deficit) |
|
|
(129,913 |
) |
|
|
(54,383 |
) |
|
|
919,711 |
|
|
|
59,223 |
|
|
|
(596,839 |
) |
|
|
197,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
614,313 |
|
|
|
95,835 |
|
|
|
2,864,743 |
|
|
|
1,496,066 |
|
|
|
(4,117,080 |
) |
|
|
953,877 |
|
Noncontrolling interest |
|
|
|
|
|
|
21,858 |
|
|
|
90,226 |
|
|
|
|
|
|
|
|
|
|
|
112,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
614,313 |
|
|
|
117,693 |
|
|
|
2,954,969 |
|
|
|
1,496,066 |
|
|
|
(4,117,080 |
) |
|
|
1,065,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,003,632 |
|
|
$ |
456,540 |
|
|
$ |
3,149,585 |
|
|
$ |
1,639,067 |
|
|
$ |
(4,119,139 |
) |
|
$ |
2,129,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Consolidating Statement of Operations for the three months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 earnings
of North America affiliates |
|
|
|
|
|
|
|
|
|
|
(16,518 |
) |
|
|
|
|
|
|
|
|
|
|
(16,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and 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 noncontrolling
interest |
|
|
(1,366 |
) |
|
|
51 |
|
|
|
125,205 |
|
|
|
160,179 |
|
|
|
|
|
|
|
284,069 |
|
Income tax benefit (provision) |
|
|
598 |
|
|
|
(42,635 |
) |
|
|
(54,420 |
) |
|
|
(10,612 |
) |
|
|
|
|
|
|
(107,069 |
) |
Equity earnings (loss) of
unconsolidated affiliates |
|
|
204,203 |
|
|
|
250,357 |
|
|
|
|
|
|
|
37,611 |
|
|
|
(454,560 |
) |
|
|
37,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
203,435 |
|
|
|
207,773 |
|
|
|
70,785 |
|
|
|
187,178 |
|
|
|
(454,560 |
) |
|
|
214,611 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
7,319 |
|
|
|
|
|
|
|
|
|
|
|
7,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
$ |
203,435 |
|
|
$ |
207,773 |
|
|
$ |
78,104 |
|
|
$ |
187,178 |
|
|
$ |
(454,560 |
) |
|
$ |
221,930 |
|
Less: Net income attributable
to
the noncontrolling interest |
|
|
|
|
|
|
(3,570 |
) |
|
|
(14,925 |
) |
|
|
|
|
|
|
|
|
|
|
(18,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to Terra Industries Inc. |
|
$ |
203,435 |
|
|
$ |
204,203 |
|
|
$ |
63,179 |
|
|
$ |
187,178 |
|
|
$ |
(454,560 |
) |
|
$ |
203,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Consolidating Statement of Operations for the six months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
303,157 |
|
|
|
|
|
|
|
954,059 |
|
Selling, general and
administrative expenses |
|
|
1,410 |
|
|
|
(6,090 |
) |
|
|
20,109 |
|
|
|
24,508 |
|
|
|
|
|
|
|
39,937 |
|
Equity earnings
of North America affiliates |
|
|
|
|
|
|
|
|
|
|
(29,808 |
) |
|
|
|
|
|
|
|
|
|
|
(29,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(2,340 |
) |
|
|
(579 |
) |
|
|
202,156 |
|
|
|
254,483 |
|
|
|
|
|
|
|
453,720 |
|
Income tax benefit (provision) |
|
|
974 |
|
|
|
(66,116 |
) |
|
|
(84,135 |
) |
|
|
(17,296 |
) |
|
|
|
|
|
|
(166,573 |
) |
Equity earnings (loss) of
unconsolidated affiliates |
|
|
306,258 |
|
|
|
380,021 |
|
|
|
|
|
|
|
46,895 |
|
|
|
(686,279 |
) |
|
|
46,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
304,892 |
|
|
|
313,326 |
|
|
|
118,021 |
|
|
|
284,082 |
|
|
|
(686,279 |
) |
|
|
334,042 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
|
|
|
|
7,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
$ |
304,892 |
|
|
$ |
313,326 |
|
|
$ |
125,492 |
|
|
$ |
284,082 |
|
|
$ |
(686,279 |
) |
|
$ |
341,513 |
|
Less: Net income attributable
to
the noncontrolling interest |
|
|
|
|
|
|
(7,068 |
) |
|
|
(29,553 |
) |
|
|
|
|
|
|
|
|
|
|
(36,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to Terra Industries Inc. |
|
$ |
304,892 |
|
|
$ |
306,258 |
|
|
$ |
95,939 |
|
|
$ |
284,082 |
|
|
$ |
(686,279 |
) |
|
$ |
304,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Consolidating Statement of Cash Flows for the six months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Terra Industries Inc. |
|
$ |
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 |
|
Noncontrolling 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and
plant turnaround
expenditures |
|
|
|
|
|
|
|
|
|
|
(30,826 |
) |
|
|
(5,090 |
) |
|
|
|
|
|
|
(35,916 |
) |
Distributions received from
unconsolidated affiliate |
|
|
|
|
|
|
|
|
|
|
7,196 |
|
|
|
|
|
|
|
|
|
|
|
7,196 |
|
Contribution settlement
received from
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,055 |
|
|
|
|
|
|
|
28,055 |
|
Proceeds from the sale of
property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
1,242 |
|
|
|
390 |
|
|
|
|
|
|
|
1,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Consolidating Statement of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
(7,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,500 |
) |
Distributions to
noncontrolling
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 Period |
|
|
|
|
|
|
55,857 |
|
|
|
267,145 |
|
|
|
906,752 |
|
|
|
(531,516 |
) |
|
|
698,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
at End of Period |
|
$ |
|
|
|
$ |
45,342 |
|
|
$ |
382,642 |
|
|
$ |
817,198 |
|
|
$ |
(493,174 |
) |
|
$ |
752,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. |
|
Discontinued Operations |
On December 31, 2008, pursuant to a 2007 agreement, we sold our Beaumont, Texas assets,
including the methanol and ammonia production facilities, to Eastman Chemical Company
(Eastman). Consideration received, including cash and a Promissory Note from Eastman of
$5.2 million, approximated this facilitys carrying value. The Promissory Note is due on
December 31, 2009 bearing interest at a rate of 3.0% per annum.
Pursuant to the requirements of FASB Statement No. 144 (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assts, we classified and accounted for the Beaumont
assets and liabilities as held for sale in the statements of financial position and the
results of operations on a net of tax basis in the statement of operations. 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.
37
Summarized Financial Results of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating revenue |
|
$ |
|
|
|
$ |
13,224 |
|
|
$ |
|
|
|
$ |
14,645 |
|
Operating and other expenses |
|
|
|
|
|
|
(1,027 |
) |
|
|
|
|
|
|
(2,214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from operations of
discontinued components |
|
|
|
|
|
|
12,197 |
|
|
|
|
|
|
|
12,431 |
|
Income tax expense |
|
|
|
|
|
|
(4,878 |
) |
|
|
|
|
|
|
(4,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
|
|
|
$ |
7,319 |
|
|
$ |
|
|
|
$ |
7,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The major classes of assets and liabilities held for sale and related to discontinued
operations as of June 30, 2009, December 31, 2008 and June 30, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Trade receivables |
|
$ |
|
|
|
$ |
|
|
|
$ |
470 |
|
Inventory |
|
|
|
|
|
|
|
|
|
|
2,203 |
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
43,112 |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
45,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
$ |
279 |
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
|
3,494 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,773 |
|
|
|
|
|
|
|
|
|
|
|
38
|
|
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
You should read the following discussion and analysis in conjunction with our Unaudited
Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1,
of this report. The information contained in this Quarterly Report on Form 10-Q is not a
complete description of our business or the risks associated with an investment in our common
shares. We urge you to carefully review and consider the various disclosures made by us in
this report and in our other reports filed with the SEC, including our Annual Report on Form
10-K for the year ended December 31, 2008 and subsequent reports on Form 8-K, which discuss
our business in greater detail.
The section entitled Risk Factors contained in Part II, Item 1A of this report, and similar
discussions in our other SEC filings, describe some of the important risk factors that may
affect our business, financial condition, results of operations and/or liquidity. You should
carefully consider those risks, in addition to the other information in this report and in our
other filings with the SEC.
INTRODUCTION
In this discussion and analysis, we explain our business in the following areas:
|
|
|
Recent Business Environment; |
|
|
|
Liquidity and Capital Resources; and |
|
|
|
Various Quantitative and Qualitative Disclosures. |
BUSINESS STRATEGY
We are a leading North American producer and marketer of nitrogen products made from natural
gas. Terra is the largest producer of ammonia in the United States and the second largest
producer in North America. We also operate production assets in Trinidad and the United
Kingdom through joint venture agreements. Our six North American and
our international
production locations, along with a robust distribution capability, provide us with the ability
to effectively serve key agricultural, industrial and environmental markets. Terra has an
extensive history of operating as a public entity and managing complex corporate structures
including master limited partnerships, joint ventures and corporate alliances. In fact, since
the 1980s, Terra has successfully integrated numerous large-scale value enhancing
acquisitions that have contributed to our track record of strong cash flows over the business
cycle.
Regarding the business cycle, the nitrogen products industry in which Terra operates has
periods of oversupply during industry downturns that lead to capacity shutdowns or
curtailments at the least cost-effective plants or at major import points such as the Gulf
Coast. These shutdowns may be followed by supply shortages that result in higher selling
prices and higher industry-wide production rates during any subsequent industry upturns.
Higher selling prices can encourage capacity additions that ultimately lead to an oversupply
of product, and the cycle repeats.
Successful companies in cyclical businesses, like nitrogen products, pursue conservative
capital management and investment strategies. This enables them to weather industry downturns
and continue to effectively serve their target markets cost-effectively throughout the
business cycle.
39
Our business strategy seeks to pursue profitable growth in the core, nitrogen-based
agricultural products business as a scale operator in North America. We also seek to leverage
our current business and manufacturing strength outside the core business in closely-adjacent
market segments that help to assure long-term cash flow growth and tend to reduce volatility
in earnings. Elements of this strategy include:
|
|
|
Development of products and markets for upgraded products made from ammonia such as
UAN, our primary nitrogen fertilizer product, and TerraCair®, a liquid product for the
treatment of diesel exhaust in automotive applications; |
|
|
|
Seeking opportunities to expand our existing asset base to take advantage of
logistical or feedstock advantages both domestically and internationally; |
|
|
|
Management of North American and international assets to realize a rate of return
that meets or exceeds our cost of capital throughout the business cycle; |
|
|
|
Maintenance of our facilities to be safe, reliable and environmentally compliant,
cultivation of relationships with natural customers who, due to their physical
location, can receive our product most economically, and close management of the
supply chain to keep storage, transportation and other costs at an appropriate level;
and |
|
|
|
Continued evaluation of business opportunities in nitrogen markets and businesses
that leverage Terras core competencies in chemical manufacturing, distribution and
product application. |
RECENT BUSINESS ENVIRONMENT
Demand
Short term demand for nitrogen products may remain constrained into the fall as retailers are
anticipated to maintain low inventory levels. Dealers appear to be returning to the pre-2007
practice of utilizing all available inventory and clearing on-site material by the end of the
planting season. Estimated ending corn stock levels as of the end of the 2009 planting season
support an expected strong demand for corn in the spring of 2010. In addition, nitrogen demand
is expected to benefit from the enactment of the 2010 Emission Standards of the 1990
Amendments to the Clean Air Act which requires diesel powered vehicles to achieve near-zero
emissions of nitrogen oxides on January 1, 2010. In preparation
of the new emission standard, truck
manufacturing customers will utilize TerraCair Ultrapure® Diesel Exhaust Fluid
(TerraCair DEF) for their Selective Catalytic Reduction (SCR) equipped vehicles during the
second half of 2009.
An expected increase in long term demand for nitrogen products is supported by the global
grain supply. The ending corn stock ratio for the 2009 planting season was estimated to be
15.8% by the USDA World Agriculture Supply and Demand Estimates (WASDE) June 2009 report,
which is the second lowest level in 35 years. Historically, the corn ending stock ratio is
approximately 30%. Pursuant to its June 2009 report, WASDE expects corn prices for 2009-2010
to increase to $3.90 $4.70 per bushel, from $4.10 $4.30 per bushel in 2008-2009. The
expected increased demand for corn is supported by the expected increased demand for food,
seed and industrial markets, increased ethanol demand and higher expected exports.
Supply
In an effort to maintain nitrogen inventory at acceptable levels, certain North American
production has been curtailed. Imports have declined as a result of the sluggish demand due to
poor import economics during the second quarter of 2009, removing 1.2 million tons of nitrogen
from the U.S. supply system.
40
Natural Gas Costs
As a result of the economic slowdown, natural gas consumption has declined in the utility and
industrial sectors, driving near term prices below $4 per MMBtu as of June 30, 2009.
The following is an average NYMEX forward natural gas price for the succeeding twelve month
period noted for the respective dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
(in $ per MMBtu) |
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
|
|
$ |
13.22 |
|
|
$ |
7.90 |
|
|
$ |
6.09 |
|
|
$ |
4.69 |
|
|
$ |
5.09 |
|
During the second quarter of 2009, natural gas prices decreased 61% from June 30, 2008.
Generally, as customers place advance orders we secure the prices for the natural gas required
to produce the inventory to satisfy these orders.
RESULTS OF OPERATIONS
Consolidated Results
We reported for the first half of 2009 net income of $110.5 million on revenues of $873.3
million compared with 2008 first half net income of $304.9 million on revenues of $1,417.8
million. The decrease in net income and revenue for the first half of 2009 is due to lower
overall nitrogen prices, lower ammonia and UAN sales volumes, as well as lower equity
earnings. Diluted income per share for the six months ended June 30, 2009 was $1.11 compared
with $2.91 for the six months ended June 30, 2008.
41
The following table shows the results of operations for the three and six months ended June
30, 2009 and 2008 (certain percentages that are not considered to be meaningful are
represented by NM):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Quarter to Date |
|
|
Six Months Ended |
|
|
Year to Date |
|
|
|
June 30, |
|
|
2009-2008 |
|
|
June 30, |
|
|
2009-2008 |
|
(in millions except per share data) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Percent |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Percent |
|
Net sales |
|
$ |
453.5 |
|
|
$ |
843.1 |
|
|
$ |
(389.6 |
) |
|
|
-46 |
% |
|
$ |
873.3 |
|
|
$ |
1,417.8 |
|
|
$ |
(544.5 |
) |
|
|
-38 |
% |
Cost of goods sold |
|
|
296.7 |
|
|
|
547.1 |
|
|
|
(250.4 |
) |
|
|
-46 |
% |
|
|
639.6 |
|
|
|
954.1 |
|
|
|
(314.5 |
) |
|
|
-33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
156.8 |
|
|
|
296.0 |
|
|
|
(139.2 |
) |
|
|
-47 |
% |
|
|
233.7 |
|
|
|
463.7 |
|
|
|
(230.0 |
) |
|
|
-50 |
% |
Gross margin percentage |
|
|
34.6 |
% |
|
|
35.1 |
% |
|
|
-0.5 |
% |
|
|
-2 |
% |
|
|
26.8 |
% |
|
|
32.7 |
% |
|
|
-5.9 |
% |
|
|
-18 |
% |
Selling, general and
administrative expenses |
|
|
13.9 |
|
|
|
27.2 |
|
|
|
(13.3 |
) |
|
|
-49 |
% |
|
|
32.5 |
|
|
|
39.9 |
|
|
|
(7.4 |
) |
|
|
-19 |
% |
Other operating expenses |
|
|
12.6 |
|
|
|
|
|
|
|
12.6 |
|
|
|
100 |
% |
|
|
14.3 |
|
|
|
|
|
|
|
14.3 |
|
|
|
100 |
% |
Equity in earnings of
North American affiliates |
|
|
(1.5 |
) |
|
|
(16.5 |
) |
|
|
15.0 |
|
|
|
-91 |
% |
|
|
(4.8 |
) |
|
|
(29.8 |
) |
|
|
25.0 |
|
|
|
-84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
131.8 |
|
|
|
285.3 |
|
|
|
(153.5 |
) |
|
|
-54 |
% |
|
|
191.7 |
|
|
|
453.6 |
|
|
|
(261.9 |
) |
|
|
-58 |
% |
Interest income (expense), net |
|
|
(5.6 |
) |
|
|
(1.2 |
) |
|
|
(4.4 |
) |
|
NM |
|
|
|
(10.5 |
) |
|
|
0.1 |
|
|
|
(10.6 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes,
noncontrolling interest and
equity earnings (loss) of
GrowHow UK Limited |
|
|
126.2 |
|
|
|
284.1 |
|
|
|
(157.9 |
) |
|
|
-56 |
% |
|
|
181.2 |
|
|
|
453.7 |
|
|
|
(272.5 |
) |
|
|
-60 |
% |
Income tax provision |
|
|
(38.2 |
) |
|
|
(107.1 |
) |
|
|
68.9 |
|
|
|
-64 |
% |
|
|
(50.8 |
) |
|
|
(166.6 |
) |
|
|
115.8 |
|
|
|
-70 |
% |
Equity earnings (loss) of
GrowHow UK Limited |
|
|
1.9 |
|
|
|
37.6 |
|
|
|
(35.7 |
) |
|
NM |
|
|
|
(2.5 |
) |
|
|
46.9 |
|
|
|
(49.4 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations, net of tax |
|
|
89.9 |
|
|
|
214.6 |
|
|
|
(124.7 |
) |
|
|
-58 |
% |
|
|
127.9 |
|
|
|
334.0 |
|
|
|
(206.1 |
) |
|
|
-62 |
% |
Income from discontinued
operations, net of tax |
|
|
|
|
|
|
7.3 |
|
|
|
(7.3 |
) |
|
NM |
|
|
|
|
|
|
|
7.5 |
|
|
|
(7.5 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
|
89.9 |
|
|
|
221.9 |
|
|
|
(132.0 |
) |
|
|
-59 |
% |
|
|
127.9 |
|
|
|
341.5 |
|
|
|
(213.6 |
) |
|
|
-63 |
% |
Net income attributable to
noncontrolling interest |
|
|
(9.5 |
) |
|
|
(18.5 |
) |
|
|
9.0 |
|
|
|
-49 |
% |
|
|
(17.4 |
) |
|
|
(36.6 |
) |
|
|
19.2 |
|
|
|
-52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Terra Industries Inc. |
|
$ |
80.4 |
|
|
$ |
203.4 |
|
|
$ |
(123.0 |
) |
|
|
-60 |
% |
|
$ |
110.5 |
|
|
$ |
304.9 |
|
|
$ |
(194.4 |
) |
|
|
-64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.81 |
|
|
$ |
1.94 |
|
|
|
(1.13 |
) |
|
|
-58 |
% |
|
$ |
1.11 |
|
|
$ |
2.91 |
|
|
|
(1.80 |
) |
|
|
-62 |
% |
Weighted average diluted
shares outstanding |
|
|
99,710 |
|
|
|
104,678 |
|
|
|
(4,968 |
) |
|
|
-5 |
% |
|
|
99,704 |
|
|
|
104,652 |
|
|
|
(4,948 |
) |
|
|
-5 |
% |
The
following table shows sales volumes and prices and natural gas cost for the three months ended June 30, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
(quantities in thousands of tons) |
|
Volumes |
|
|
Unit Price(1) |
|
|
Volumes |
|
|
Unit Price(1) |
|
Ammonia |
|
|
384 |
|
|
$ |
367 |
|
|
|
547 |
|
|
$ |
530 |
|
UAN 32% basis |
|
|
808 |
|
|
$ |
243 |
|
|
|
1,099 |
|
|
$ |
338 |
|
Urea(2) |
|
|
75 |
|
|
$ |
304 |
|
|
|
76 |
|
|
$ |
450 |
|
Ammonium nitrate(3) |
|
|
241 |
|
|
$ |
193 |
|
|
|
269 |
|
|
$ |
301 |
|
Natural gas
cost(4) |
|
|
|
|
|
$ |
4.30 |
|
|
|
|
|
|
$ |
8.77 |
|
|
|
|
(1) |
|
After deducting $35.6 million and $45.2 million outbound freight costs for 2009
and 2008, respectively. |
|
(2) |
|
Urea sales volumes and prices include granular urea and urea solutions data. |
|
(3) |
|
Ammonium nitrate sales volumes and prices include agricultural grade AN,
industrial grade AN and ammonium nitrate solution (ANS). |
|
(4) |
|
Per MMBtu. Includes all
transportation and other logistical costs and any gains or losses on
financial derivatives related to North American natural gas
purchases. Net costs of derivatives for the second quarter of 2009
were $25.1 million. Excluding the impact of 2009 hedge costs,
natural gas cost was $3.39 per MMBtu for the 2009 second quarter. The
net benefit of derivatives for the second quarter of 2008 were
$36.6 million. |
42
The
following table shows sales volumes and prices and natural gas costs for the six months ended June 30, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
(quantities in thousands of tons) |
|
Volumes |
|
|
Unit Price(1) |
|
|
Volumes |
|
|
Unit Price(1) |
|
Ammonia |
|
|
765 |
|
|
$ |
352 |
|
|
|
911 |
|
|
$ |
503 |
|
UAN 32% basis |
|
|
1,434 |
|
|
$ |
260 |
|
|
|
2,016 |
|
|
$ |
314 |
|
Urea(2) |
|
|
152 |
|
|
$ |
313 |
|
|
|
135 |
|
|
$ |
439 |
|
Ammonium nitrate(3) |
|
|
408 |
|
|
$ |
223 |
|
|
|
510 |
|
|
$ |
288 |
|
Natural gas
cost(4) |
|
|
|
|
|
$ |
5.68 |
|
|
|
|
|
|
$ |
8.16 |
|
|
|
|
(1) |
|
After deducting $70.3 million and $79.0 million outbound freight costs for 2009
and 2008, respectively. |
|
(2) |
|
Urea sales volumes and prices include granular urea and urea solutions data. |
|
(3) |
|
Ammonium nitrate sales volumes and prices include agricultural grade AN,
industrial grade AN and ammonium nitrate solution (ANS). |
|
(4) |
|
Per MMBtu. Includes all
transportation and other logistical costs and any gains or losses on
financial derivatives related to North American natural gas
purchases. Net costs of derivatives for the first half of 2009
were $98.0 million. Excluding the impact of 2009 hedge costs,
natural gas cost was $3.73 per MMBtu for the 2009 first half. The
net benefit of derivatives for the first half of 2008 were
$44.1 million. |
RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2009 COMPARED WITH QUARTER ENDED JUNE 30, 2008
Our net sales for the second quarter of 2009 were $453.5 million, a decline of $389.6 million
or 46% from the second quarter of 2008 net sales of $843.1 million. The decline was primarily
due to an overall decline in product price of approximately 30%
($182.3 million) and a decline in UAN and
ammonia sales volumes of 26% and 30% (aggregate $207.3 million), respectively. During the second quarter of 2009 growers
faced inclement weather early in the quarter which limited pre-plant fertilizer application.
Demand recovered for side-dressing ammonia application at the end of the quarter. The supply
channel also maintained the carryover of inventory from purchases made in the prior year. The
significant decrease in volumes as compared to the second quarter of 2008 is also partially
due to dealers purchasing for application and future fill during the second quarter of 2008.
As the market has corrected for this, the sales volumes decreased in the current quarter.
As a result of decreased demand in the second quarter, aggregate production rates were reduced
to 90% and a planned curtailment of the Donaldsonville, Louisiana facility started July 1,
2009. During the second quarter of 2009 our Woodward, Oklahoma facility was in turnaround,
which was extended due to mechanical issues. The fixed costs associated with the facility
being offline were $4.9 million during the second quarter of 2009.
Our gross margin was $156.8 million in the second quarter of 2009 compared to $296.0 million
in the second quarter of 2008. Gross margin decreased slightly as a percentage of sales to
34.6% from 35.1%. The gross margin percentage includes a 51% decrease in natural gas
costs for the second quarter of 2009. The second quarter natural gas unit costs, net of
forward pricing gains and losses, declined from $8.77 per MMBtu in 2008 to $4.30 per MMBtu in
2009. The decrease in natural gas cost was offset by aggregate
reductions in product pricing of $182.3 million and a margin
impact of $36.6 million due to the decrease in sales volumes.
We enter into forward sales commitments by utilizing forward pricing and prepayment programs
with customers. We use derivative instruments to hedge a portion of our natural gas
requirements. The use of these derivative instruments is designed to hedge exposure to natural
gas price fluctuations for production required for forward sales estimates. The net cost of
derivatives for the second quarter of 2009 was $25.1 million as compared to the net benefit of
derivatives for the second quarter of 2008 of $36.6 million. Excluding the impact of the hedge
cost, natural gas cost was $3.39 per MMBtu in the second quarter of 2009.
43
Selling, General and Administrative Costs and Other Operating Expenses
Selling, general and administrative (SG&A) costs decreased $13.3 million in the second quarter
of 2009 compared to the second quarter of 2008 primarily due to a decrease in short- and
long-term performance based incentive compensation expense and a decrease in contracted
services. Other operating expenses of $12.6 million represents costs associated with the
unsolicited exchange offer by CF.
Equity Earnings of Unconsolidated Affiliates North America
We recorded income of $1.5 million from our North American equity investments in the second
quarter of 2009 as compared to $16.5 million in the second quarter of 2008. In addition, we
also received cash distributions of $12.4 million from our North American equity investments
in 2009 as compared to $21.0 million in 2008. The decrease in the second quarter results is
primarily due to the decrease in Gulf ammonia pricing which affects the results of our Point
Lisas facility, as compared to the second quarter of 2008.
Equity Earnings of Unconsolidated Affiliates GrowHow
We recorded income of $1.9 million from GrowHow for the second quarter ended June 30, 2009 as
compared to income of $37.6 million for the quarter ended June 30, 2008. The decrease was
attributed to a decrease in sales volumes and prices of 36% and 27%, respectively. As a result
of the decrease in agricultural and industrial demand, during the second quarter of 2009,
GrowHow operated its ammonia plants on a reduced schedule. During the second quarter of 2009,
we received balancing consideration and other payments from GrowHow of $2.7 million.
Noncontrolling Interests
Noncontrolling interest represents third-party interests in the earnings of the publicly held
common units of TNCLP. The 2009 and 2008 amounts are directly related to TNCLP earnings and
losses. During the first quarter of 2008, the cumulative shortfall of the Minimum Quarterly
Distribution was satisfied which entitled us to increased income allocations as provided for
in the TNCLP Partnership Agreement. The current quarter noncontrolling interest balance
reflects the impact of these adjusted income allocations. Our increased income allocation
attributed to our General Partner interest was $5.5 million for the quarter ended June 30,
2009, as compared to $13.6 million for the quarter ended June 30, 2008.
Income Taxes
Our income tax expense for the second quarter of 2009 and 2008 was $38.2 million and $107.1
million, respectively, and was based on the estimated effective tax rate for the individual
jurisdictions in which we operate. The estimated annual effective tax rates were 32.2% and
35.3% in the quarters ended June 30, 2009 and 2008, respectively. The 2009 estimated annual
effective tax rate reflects benefits related to the reorganization of Terras subsidiary
ownership structure for its international operations during the fourth quarter 2008, and
expected utilization of state and federal tax credits.
44
RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2009 COMPARED WITH SIX MONTHS ENDED JUNE 30,
2008
Our net sales for the first six months of 2009 were $873.3 million, a decline of $544.5
million or 38% from the first six months of 2008 net sales of $1,417.8 million. The decline
was primarily due to a 29% and 16% decline in UAN and ammonia sales
volumes (aggregate $310.0 million), respectively, and
the decrease of 17% and 30% in UAN and ammonia sales prices
(aggregate $234.5 million), respectively.
Our gross margin was $233.7 million in the first half of 2009 compared to $463.7 million in
the first half of 2008, and decreased as a percentage of sales to 26.8% from 32.7%. The gross
margin percentage movement reflects a 31% decrease in natural gas costs. The first half of
2009 natural gas unit costs, net of forward pricing gains and losses, decreased from $8.16 per
MMBtu in 2008 to $5.68 per MMBtu in 2009. The decrease in natural gas cost was offset by
aggregate reductions in product pricing of $234.5 million and a
margin impact of $51.0 million due to the decrease in sales volumes.
We enter into forward sales commitments by utilizing forward pricing and prepayment programs
with customers. We use derivative instruments to hedge a portion of our natural gas
requirements. The use of these derivative instruments is designed to hedge exposure to natural
gas price fluctuations for production required for forward sales estimates. The net cost of
derivatives for the first half of 2009 was $98.0 million as compared to the net benefit of
derivatives for the first half of 2008 of $44.1 million. Excluding the impact of the hedge
cost, natural gas cost was $3.73 per MMBtu in the first half of 2009.
Selling, General and Administrative Costs and Other Operating Expenses
Selling, general and administrative costs decreased $7.4 million in the first six months of
2009 compared to the first six months of 2008 primarily due to a decrease in short-term
performance based incentive compensation expense, long-term share-based compensation expense,
contracted services and a reduction in self-insurance costs. Other operating expenses of $14.3
million represents costs associated with the unsolicited exchange offer by CF, of which $1.7
million was previously reported in SG&A in the first quarter of 2009.
Equity Earnings of Unconsolidated Affiliates North America
We recorded income of $4.8 million from our North American equity investments in the first six
months of 2009 as compared to $29.8 million in the first six months of 2008. In addition, we
also received cash distributions of $20.6 million from our North American equity investments
in 2009 as compared to $40.9 in 2008. The decrease in the first half results is primarily due
to the decrease in Gulf ammonia pricing which affects the results of our Point Lisas facility,
as compared to the first half of 2008.
Equity Earnings of Unconsolidated Affiliates GrowHow
We recorded a loss of $2.5 million from GrowHow for the first half ended June 30, 2009 as
compared to income of $46.9 million for the first half ended June 30, 2008. The decrease is
primarily due to a 54% decrease in sales volumes, partially offset by a 51% decrease in
natural gas cost and a 12% increase in sales price in the first half of 2009 compared to the
first half of 2008. During the first half of 2009, we received balancing consideration and
other payments from GrowHow of $7.9 million in the first half of 2009.
45
Noncontrolling Interests
Noncontrolling interest represents third-party interests in the earnings of the publicly held
common units of TNCLP. The 2009 and 2008 amounts are directly related to TNCLP earnings and
losses. During the first half of 2008, the cumulative shortfall of the Minimum Quarterly
Distribution was satisfied which entitled us to increased income allocations as provided for
in the TNCLP Partnership Agreement. The current half noncontrolling interest balance reflects
the impact of these adjusted income allocations. Our increased income allocation attributed to
our General Partner interest was $9.4 million for the six months ended June 30, 2009, as
compared to $15.6 million for the six months ended June 30, 2008.
Income Taxes
Our income tax expense for the first half of 2009 and 2008 was $50.8 million and $166.6
million, respectively, and was based on the estimated effective tax rate for the individual
jurisdictions in which we operate. The estimated annual effective tax rates were 31.5% and
35.9% in the six months ended June 30, 2009 and 2008, respectively. The 2009 estimated annual
effective tax rate reflects benefits related to the reorganization of Terras subsidiary
ownership structure for its international operations during the fourth quarter 2008, and
expected utilization of state and federal tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash and cash equivalents were to fund our working capital requirements,
make payments for plant turnarounds and capital expenditures, common stock dividends and make
distributions to noncontrolling interests. The principal sources of funds were cash flows from
operations and funds received from GrowHow, our 50% owned joint venture, and distributions
received from our North American equity investments. Cash and cash equivalents were $1,002
million at June 30, 2009. During the first half of 2009 cash and cash equivalents increased
$34.9 million.
Cash Flows
The following table summarized our cash flows from operating, investing and financing
activities for the six month period ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
($in millions) |
|
2009 |
|
|
2008 |
|
Operating activities |
|
$ |
127.5 |
|
|
$ |
111.0 |
|
Investing activities |
|
|
(46.4 |
) |
|
|
1.0 |
|
Financing activities |
|
|
(44.8 |
) |
|
|
(58.2 |
) |
Effect of exchange rate changes on cash |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
34.9 |
|
|
$ |
53.8 |
|
|
|
|
|
|
|
|
Operating Activities
Our cash flows from operating activities were $127.5 million during the first half of 2009.
The $127.5 million is comprised of $190.1 million from operations offset by $62.6 million from
changes in our working capital accounts. The $190.1 million includes $110.5 million of net
income, adjusted for non-cash expenses. The significant non-cash expenses incurred include
$41.6 million of depreciation of property, plant and equipment and amortization of deferred
plant turnaround costs, $8.6 million of share-based compensation, and $17.4 million of
noncontrolling interest in earnings.
46
Included in the June 30, 2009 cash and cash equivalents balance of $1,002 million is $27.8
million of customer prepayments for the selling price and delivery costs of products that we
expect to ship during the second half of 2009, as compared to the June 30, 2008 cash and cash
equivalents balance of $752.0 million which included $91.6 million of customer prepayments.
Investing Activities
Our investing activities used cash of $46.4 million during the first half of 2009. The primary
use of cash was related to $50.9 million of property, plant and equipment purchases for our
operations and $15.1 million for turnaround activities. The primary sources of cash were
related to the $7.9 million balancing consideration and other payments received from GrowHow.
We also received $11.6 million in distributions from our North American equity investments
above the equity earnings.
Financing Activities
Our financing activities used cash of $44.8 million during the first half of 2009. The primary
use of cash related to $23.4 of distributions to the noncontrolling interest holders of TNCLP
and common stock dividends of $19.9 million.
Long-term Debt and Revolving Credit Facilities
During 2007, we completed a debt refinancing whereby we issued $330 million of 7% unsecured
senior notes due 2017. These proceeds were used to redeem $200.0 million of 12 7/8% senior
secured notes and $131.3 million of 11 1/2% second priority senior secured notes due 2010.
In connection with the debt refinancing, we extended the terms of our revolving credit
facilities (facilities) through 2012. Borrowing availability under the facilities is generally
based on eligible cash balances, 85% of eligible accounts receivable and 60% of eligible
inventory, less outstanding letters of credit. These facilities include $50 million solely
dedicated for the use of TNCLP, one of our consolidated subsidiaries.
At June 30, 2009, there were no outstanding revolving credit borrowings and there were $8.0
million in outstanding letters of credit, resulting in borrowing availability of approximately
$192.0 million under the facilities. We are required to maintain a combined minimum unused
borrowing availability of $30 million. The facilities also 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. In addition, if our borrowing availability falls below a
combined $60 million, we are required to have generated $60 million of operating cash flows,
or earnings before interest, income taxes, depreciation, amortization and other non-cash items
(as defined in the facilities) for the preceding four quarters. The facilities also require
that there be no change of control related to Terra, such that no individual or group acquires
more than 35% of the outstanding voting shares of Terra. Such change of control would
constitute an event of default under the facilities.
Our ability to meet facilities covenants will depend on future operating cash flows, working
capital needs, receipt of customer prepayments and trade credit terms. Failure to meet these
covenants could result in additional costs and fees to amend the facilities or could result in
termination of the facilities. Access to adequate bank facilities may be required to fund our
need to build inventories during the second half of the year in order to ensure product
availability during the peak sales season. We believe that our facilities are adequate for
expected 2009 sales levels.
47
In addition, our ability to manage our exposure to commodity price risk in the purchase of
natural gas through the use of financial derivatives may be affected by our ability to obtain
sufficient credit terms. For
additional information regarding commodity price risk, see Item 3, Quantitative and
Qualitative Disclosures about Market Risk.
Based on our June 30, 2009 financial position and the current market conditions for our
financial products and for natural gas, we anticipate that we will be able to comply with our
covenants through 2009.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from interest rates, foreign exchange
rates, natural gas prices and nitrogen prices. We manage our exposure to these and other
market risks through regular operating and financing activities and through the use of
derivative financial instruments. We intend to use derivative financial instruments as risk
management tools and not for speculative investment purposes. Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, of Terras Annual Report on Form 10-K for the year
ended December 31, 2008 provides more information as to the types of practices and instruments
used to manage risk. There were no material changes in our use of financial instruments during
the quarter ended June 30, 2009.
Natural gas is the principal raw material used to manufacture nitrogen and methanol. Natural
gas prices are volatile and we mitigate some of this volatility through the use of derivative
commodity instruments. Our current policy is to hedge natural gas provided that such
arrangements would not result in costs greater than expected selling prices for our finished
products. Estimated North American natural gas requirements for 2009 are approximately 113
billion cubic feet (BCF). We have hedged 15% of our expected North American requirements for
the next twelve months. The fair value of these instruments is estimated based, in part, on
quoted market prices from brokers, realized gains or losses and our computations. These
instruments and other natural gas positions fixed natural gas prices at $6.1 million
(including $4.6 million included in accumulated other comprehensive loss) more than published
prices for June 30, 2009 forward markets.
There were no material changes outside the ordinary course of business to Terras contractual
obligations, critical accounting policies or off-balance sheet arrangements presented in Item
7, Managements Discussion and Analysis of Financial Condition and Results of Operations of
the Annual Report on Form 10-K for the period ended December 31, 2008
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this report, that our disclosure controls
and procedures are effective to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commissions rules and forms.
There were no significant changes in our internal control over financial reporting that
occurred during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
48
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in this report may constitute forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995. Forward-looking statements are based
upon the assumptions as to future events that may not prove to be accurate. These statements
are not guarantees of future performance and involve risks, uncertainties and assumptions that
are difficult to predict. Actual outcomes and results
may differ materially from what is expressed or forecasted in these forward-looking
statements. As a result, these statements speak only as of the date they were made and we
undertake no obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as otherwise required by
law.
Words such as expects, intends, plans, projects, believes, estimates, and similar
expressions are used to identify these forward-looking statements. These include, among
others, statements relating to:
|
|
|
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 2008 Annual Report. |
Additional information as to these factors can be found in our 2008 Annual Report on Form 10-K
in the sections entitled Business, Legal Proceedings, and Managements Discussion and
Analysis of Financial Condition and Results of Operations and in the Notes to our
consolidated financial statements included as part of this report.
49
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims, disputes, administrative proceedings and
legal actions arising in the ordinary course of business. We do not believe that the matters
in which we are currently involved, either individually or in the aggregate, will have a
material adverse effect on our consolidated financial position, results of operations or
liquidity.
ITEM 1A. RISK FACTORS
There were no significant changes in our risk factors during the first six months of 2009 as
compared to the risk factors identified in our 2008 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
50
ITEM 6. EXHIBITS
(a) Exhibits
|
|
|
Exhibit 3.1
|
|
Amendment No. 1 to the Amended and Restated Bylaws of Terra
Industries Inc., filed as Exhibit 3.1 to Terra Industries Inc.s Form 8-K
dated April 14, 2009, is incorporated herein by reference. |
|
|
|
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 32.1*
|
|
Certification of the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2*
|
|
Certification of the Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
51
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
|
TERRA INDUSTRIES INC. |
|
|
|
|
|
|
|
Date: July 24, 2009
|
|
/s/ Daniel D. Greenwell
Daniel D. Greenwell
|
|
|
|
|
Senior Vice President and Chief
Financial Officer and a duly authorized
signatory
(Principal Financial Officer and
Principal Accounting Officer) |
|
|
52
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
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 32.1*
|
|
Certification of the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2*
|
|
Certification of the Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
53