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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
OR
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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)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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52-1145429
(I.R.S. Employer Identification No.) |
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Terra Centre
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51102-6000 |
600 Fourth Street
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(Zip Code) |
P. O. Box 6000 |
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Sioux City, Iowa
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(712) 277-1340 |
(Address of principal executive offices)
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(Registrants telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class
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on which registered |
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Common Shares, without par value
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New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statement incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or non-accelerated filer. See definition of accelerated filed and large accelerated filer in Rule
12b-2 of the Act).
Large Accelerated Filer o Accelerated Filer þ Non-accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common shares held by non-affiliates
computed by reference to the price at which the common shares were last sold, or the average bid
and asked price of such common shares, as of the last business day of the registrants most
recently completed second fiscal quarter was $618,656,268.27.
The number of Common Shares, without par value, outstanding as of March 1, 2006 was 95,168,174.
Documents Incorporated by Reference
Certain portions of the proxy statement for the Annual Meeting of Shareholders of Registrant
to be held on May 2, 2006 are incorporated herein by reference into Part III hereof.
PART I
Item 1. Business
Terra Industries Inc., a Maryland corporation, is referred to as Terra, or the Company
throughout this report. References to Terra also include the direct and indirect subsidiaries of
Terra Industries Inc. where required by the context, including Mississippi Chemical Corporation
(MCC), which Terra acquired in December 2004. Subsidiaries not wholly-owned by Terra include a
limited partnership, Terra Nitrogen Company, L.P. (TNCLP), which, through its subsidiary, Terra
Nitrogen, Limited Partnership, operates Terras manufacturing facility at Verdigris, Oklahoma.
Terra is the sole general partner and the majority limited partner of TNCLP. Terras principal
corporate office is located at Terra Centre, 600 Fourth Street, P.O. Box 6000, Sioux City, Iowa
51102-6000 and its telephone number is (712) 277-1340.
Terra makes available free of charge through its website, www.terraindustries.com, its Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports as soon as reasonably practicable after such material is
electronically filed with the Securities and Exchange Commission. Terras internet website and the
information contained or incorporated therein are not intended to be incorporated into this Annual
Report on Form 10-K.
Business Overview
Terra is a leading North American and U.K. producer and marketer of nitrogen products, serving
agricultural and industrial markets. In addition, Terra owns a 50% interest in Point Lisas Nitrogen
Limited (PLNL), an ammonia production joint venture in the Republic of Trinidad and Tobago. Terra
is one of the largest North American producers of ammonia, the basic building block of nitrogen
fertilizers. The Company upgrades a significant portion of the ammonia it produces into higher
value products, which are easier for distributors and farmers to transport, store and apply to
crops than ammonia. Terra owns nine manufacturing facilities in North America and the U.K. capable
of producing nitrogen products. Two of these facilities (Beaumont, Texas and Woodward, Oklahoma)
can also produce methanol. The Beaumont, Texas facility, which historically has been a significant
methanol producer, was mothballed in December 2004 and remains out of production.
Terras business is organized into a nitrogen business segment and a methanol business segment. The
methanol segment has become less significant to the Companys business since the closing of the
Beaumont, Texas facility.
Nitrogen is both a global and local commodity: global because it is produced and traded in almost
all regions of the world, local because fertilizer customers display preferences for nitrogen in
one of four basic forms based upon local conditions. The principal forms of globally traded
nitrogen fertilizer are ammonia (82% nitrogen by weight) and urea (46% nitrogen by weight).
Ammonium nitrate (AN) (34% nitrogen by weight) is traded to a lesser extent, primarily in
international markets. Urea ammonium nitrate solutions (UAN) (28% to 32% nitrogen by weight) have
only recently been traded in international markets. UAN is less likely to be traded internationally
because it carries relatively high transportation costs due to its high water content. Because
transportation is a significant component of a customers total product cost, a key to
competitiveness in the nitrogen business is proximity to the end user, which allows
1
a supplier to have the lowest delivered cost for the customers product of choice. In addition, a
supplier must provide a reliable source of product.
The locations of Terras North American production facilities provide Terra a competitive advantage
in serving agricultural customers in the Corn Belt and other major agricultural areas in the United
States and Canada. Terras U.K. facilities are able to serve competitively the entire British
agricultural market. The Point Lisas ammonia production facility in Trinidad and Tobago serves U.S.
and international nitrogen markets and benefits from access to low-cost natural gas supplies.
Terras facilities have the following production capacities:
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Annual Capacity1 |
Location |
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Ammonia2 |
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UAN3 |
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AN4 |
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Urea5 |
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Methanol6 |
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Beaumont, Texas7 |
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255,000 |
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225,000,000 |
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Donaldsonville, Louisiana8 |
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500,000 |
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Port Neal, Iowa |
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370,000 |
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840,000 |
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60,000 |
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Verdigris, Oklahoma |
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1,050,000 |
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2,200,000 |
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Woodward, Oklahoma9 |
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440,000 |
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340,000 |
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25,000 |
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40,000,000 |
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Yazoo City, Mississippi10 |
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500,000 |
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600,000 |
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775,000 |
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7,000 |
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Courtright, Ontario |
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480,000 |
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400,000 |
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175,000 |
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Severnside, U.K. |
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265,000 |
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500,000 |
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Billingham, U.K.12 |
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550,000 |
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520,000 |
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Point Lisas, Trinidad and Tobago13 |
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360,000 |
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Total |
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4,770,000 |
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4,380,000 |
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1,795,000 |
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267,000 |
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265,000,000 |
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1. |
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Annual capacity includes an allowance for planned maintenance shutdowns. |
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Measured in gross tons of ammonia produced; net tons available for sale will
vary with upgrading requirements. |
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Measured in tons of UAN containing 28% nitrogen by weight. |
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Measured in tons. |
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Urea is sold as urea liquor from the Port Neal, Woodward and Yazoo City
facilities and as either granular urea or urea liquor from the Courtright facility.
Production capacities shown are for urea sold in tons. |
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Measured in gallons. |
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The Beaumont facility was mothballed in December 2004 and remains out of
production. The Beaumont plant capacity depends on product mix (ammonia/methanol). |
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The Donaldsonville facilitys manufacturing capacity consists of a single
ammonia plant. This plant was mothballed in January 2005 and remains out of
production. |
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Woodwards plant capacity depends on product mix (ammonia/methanol). |
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The Yazoo City facility also produces merchant nitric acid; sales for the
twelve months ended December 31, 2005 were 40,000 product tons. |
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Terras full AN capacity at Yazoo City is 835,000 tons, however such production
would limit Yazoo Citys UAN production to approximately 450,000 tons and increase
urea production to 45,000 tons. |
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The Billingham, England facility also produces merchant nitric acid; sales for
the twelve months ended December 31, 2005 were 267,000 product tons. |
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The Point Lisas plant capacity represents Terras 50% interest. |
2
The principal customers for Terras North American nitrogen products are national agricultural
retail chains, farm cooperatives, independent dealers and industrial customers. Industrial
customers use nitrogen products to manufacture chemicals, plastics and other products such as
acrylonitrile, polyurethanes, fibers, explosives and adhesives; to reduce nitrogen oxides (NOx) and
other emissions from power plants; and in water treatment processes. In July 2005, Terra announced
it had entered into a 10-year renewable agreement to supply industrial grade ammonium nitrate and
ammonium nitrate solution to Orica USA Inc. from its Yazoo City facility.
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% of Total |
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U.S. |
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U.K. |
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2005 Terra |
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Capacity |
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Capacity |
Product |
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Revenues1 |
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Position |
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Position |
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Ammonia |
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30.1 |
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2 |
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UAN |
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36.5 |
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1 |
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AN |
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17.8 |
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1 |
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1 |
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Urea |
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3.6 |
% |
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4 |
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Methanol |
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1.4 |
% |
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1 |
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1 |
Revenues from sales of carbon dioxide, nitric acid and other
nitrogen products and services, as well as industrial sales in the
U.K., represented 10.5% of Terras total revenues for 2005. |
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Terra does not compete in these markets. |
Agricultural customers accounted for approximately 70% and industrial customers approximately 30%
of Terras North American nitrogen product revenue in 2005. In the U.K., revenues are divided
approximately equally between agricultural and industrial customers. For more information on the
nitrogen business, see the discussion under Nitrogen Business Segment below.
In December 2003, Terra entered into contracts with the Methanex Corporation (Methanex),
providing it exclusive rights to all methanol production at the Beaumont facility for five years.
In December 2004, this facility was mothballed. As long as the Beaumont facility remains idle
through the December 2008 termination of the Methanex contract, Terra will continue to realize
revenues relating to the facility of up to $16.4 million per year consisting of $4.4 million from
annual amortization of deferred revenues plus one-half of the annual cash margin, if any, based on
the plants methanol production capacity, reference prices and natural gas costs. There was no 2005
Beaumont cash margin. Terra also entered into an agreement for Methanex to market, under a
commission arrangement, all methanol produced at the Woodward facility. For more information on the
methanol business, see the discussion under Methanol Business Segment below.
Nitrogen Business Segment
Terra is a leading producer and marketer of nitrogen products, principally fertilizers. The
Company upgrades a significant portion of the ammonia it produces into other nitrogen products,
such as urea, ammonium nitrate (AN) and urea ammonium nitrate solutions (UAN). Ammonia, AN, urea
and UAN are the principal nitrogen products the Company produces and sells in North America. Terra
produces and sells primarily ammonia and AN in the U.K. The Point Lisas production facility in
Trinidad provides ammonia for sale into both the U.S. and international nitrogen markets. Other
products Terra manufactures include nitric acid, dinitrogen tetroxide and carbon dioxide. These
products, along with a portion of Terras ammonia, AN and urea production, are used in
non-agricultural applications. In late 2003, Terra formed its Terra Environmental Technologies
division to provide products and services to customers using nitrogen products (primarily ammonia,
aqua ammonia and liquid and dry urea) to reduce nitrogen oxides (NOx) emissions from various
sources, including power plants, and in other environmental processes such as water treatment
plants.
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Although the different nitrogen fertilizer products are interchangeable to some extent, each has
its own characteristics which make one product or another preferable to the end-user. Terras
plants are designed to provide the fertilizer products preferred by end-users in the regions in
which they are located. These preferences vary according to the crop planted, soil and weather
conditions, regional farming practices, relative prices, and the cost and availability of storage,
handling and application equipment. Terras nitrogen products and its 2005 production are described
in greater detail below.
Anhydrous Ammonia
Anhydrous ammonia (or ammonia) is the simplest form of nitrogen fertilizer and the feedstock for
the production of other nitrogen fertilizers, including urea, AN and UAN. Ammonia is also widely
used in industrial applications. With the acquisition of Mississippi Chemical Corporation in
December 2004, Terra became the leading U.S. producer of ammonia. Ammonia is produced when natural
gas reacts with steam and air at high temperatures and pressures in the presence of catalysts.
Ammonia has a nitrogen content of 82% by weight and is generally the least expensive form of
fertilizer on a per-pound-of- contained-nitrogen basis. Although generally the cheapest source of
nitrogen available to agricultural customers, ammonia can be less desirable to end-users than urea,
AN and UAN because of its need for specialized application equipment and its limited application
flexibility.
In 2005, Terra produced approximately 2,795,000 tons of ammonia at its North American facilities
and approximately 758,000 tons of ammonia at its U.K. facilities. The Company is obligated by
contract through 2018 to purchase one-half of the ammonia produced by Point Lisas Nitrogen in
Trinidad at a discount to market, subject to a minimum price. In 2005, Terra purchased
approximately 359,000 tons pursuant to its contract with Point Lisas Nitrogen. Terra sold a total
of 1,898,000 tons of ammonia worldwide in 2005 and consumed approximately 2,507,000 tons of ammonia
as a raw material to manufacture its other nitrogen products.
Urea Ammonium Nitrate Solutions (UAN)
UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not require refrigeration or
pressurization for transportation or storage. UAN is produced by combining liquid urea, liquid
ammonium nitrate and water. The nitrogen content of UAN ranges from 28% to 32% by weight. (Unless
specifically stated to the contrary, all references to UAN herein shall be to 28%.) Because of its
high water content, UAN is relatively expensive to transport, making it largely a regionally
distributed product.
UAN can be applied to crops directly or mixed with crop protection products, permitting the
application of several materials simultaneously, reducing energy and labor costs and accelerating
field preparation for planting. UAN may be applied from ordinary tanks and trucks and sprayed or
injected into the soil, or applied through irrigation systems. In addition, UAN may be applied
throughout the growing season, providing significant application flexibility. Due to its stability,
UAN (like AN) may be used for no-till row crops where fertilizer is spread on the surface of the
soil and is subject to evaporation losses.
Terra produced approximately 4,206,000 tons of UAN at its North American facilities in 2005 and
sold approximately 4,368,0000 tons of UAN in 2005, primarily to U.S. fertilizer dealers and
distributors.
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Ammonium Nitrate (AN)
Terra is the largest manufacturer and marketer of agricultural-grade AN fertilizer in the U.S. and
produces AN at two facilities in the U.K. AN is produced by combining nitric acid and ammonia into
a liquid form which is then converted to a solid, largely for fertilizer applications. The nitrogen
content of AN is 34% by weight. AN is less subject to volatilization (evaporation) losses than
other nitrogen products. Due to its stability, AN is often the product of choice for pastures and
no-till crops (that is, where the soil is not plowed prior to planting) where fertilizer is
spread upon the surface and is subject to evaporation losses.
The Company produced approximately 643,000 tons of solid AN at its Yazoo City, Mississippi facility
and approximately 1,054,000 tons of solid AN at its U.K. facilities in 2005. During this same
period, the Company sold approximately 672,000 tons in the U.S. and 909,000 tons in the U.K.
Urea
Urea is produced by converting ammonia and carbon dioxide into liquid urea, which can be further
processed into a solid, granular form. Urea is used for fertilizer and animal feed as well as in
industrial applications. Granular urea has a nitrogen content of 46% by weight, the highest level
of any solid nitrogen product. Terra produces both a granulated form of urea, generally for the
fertilizer market, and urea liquor (liquid) for animal feed supplements and industrial
applications.
In 2005, Terra produced approximately 235,000 tons of urea and urea liquor, all of it at North
American plants. During this period, the Company sold approximately 247,000 tons of urea and urea
liquor.
Nitric Acid
Nitric acid is made by oxidizing ammonia with air. The product is used as a raw material for other
nitrogen products and by industrial customers to produce such products as nylon fibers,
polyurethane foams and specialty fibers. In 2005, the Company produced approximately 893,000 tons
of nitric acid worldwide. Approximately 320,000 of these tons were sold to industrial users and the
remainder was used as a raw material for the production of Terras other nitrogen products.
Dinitrogen Tetroxide
Dinitrogen tetroxide (N2O4) is the propellant oxidizer used in various
satellite, rocket and missile propulsion systems. It is also used by industrial customers in the
manufacture of pharmaceuticals. Dinitrogen tetroxide is produced by cooling and condensing a
slipstream of process gas from a nitric acid plant containing various oxides of nitrogen. The
recovered product is filtered and its composition adjusted to meet final product specifications.
Terra manufactured approximately 95,000 pounds of the product in 2005.
Marketing and Distribution
Terras customers are broadly segregated into two groups: (1) North American customers, including
those receiving shipments of imported product from the Point Lisas Nitrogen facility, and (2) U.K.
customers, including export sales to continental Europe and Australia.
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The principal customers for Terras North American manufactured nitrogen products fall into two
broad categories agricultural fertilizer customers and industrial customers. The agriculture
customers consist of independent dealers, national retail chains, and cooperatives. These
agricultural customers, in turn, sell product to dealers, farmers and other users. Industrial
customers use nitrogen products as a feedstock for a variety of chemical processes, in the
manufacture of pulp, paper, fibers and to control nitrous oxide (NOx) emissions from power plants.
Nearly all of Terras industrial customers are end-users. The Companys agricultural and industrial
customers are located primarily in the Gulf, midwestern plains and southern regions of the U.S.
where the Companys facilities are located. It is Terras objective to ship as much of its North
American production as possible directly from its manufacturing facilities to its customers. Its
five North American production facilities have total storage capacity for 190,000 tons of ammonia
and 240,000 tons of UAN.
Terras Donaldsonville terminal has ready access to rail, truck and ammonia pipeline transportation
and permits economical oceangoing vessel and barge transportation for imports and exports of
nitrogen products. The terminal includes two ammonia storage tanks, each with a capacity of 30,000
tons, and can receive ocean-going vessels carrying up to 44,000 tons of ammonia. During 2005, the
terminal received and shipped approximately 725,000 and 742,000 tons of ammonia, respectively.
Terra is currently expanding the terminals capabilities by constructing a new UAN solution tank
with a 50,000 ton capacity. Terra expects this tank and related receiving and shipping equipment to
be completed by December 2006 and to cost approximately $8.5 million.
In July 2005 Terra sold to a subsidiary of Kinder Morgan Energy Partners Terras terminal assets in
Blytheville, Arkansas, consisting of storage and supporting infrastructure for 40,000 tons of AN,
9,500 tons of UAN and 40,000 tons of urea. In conjunction with this sale of assets, Terra has
entered into a long-term agreement to lease from Kinder Morgan exclusively these terminal assets.
This arrangement will maintain Terras distribution capabilities in the Blytheville, Arkansas
region.
Terra owns a 50% interest in the Houston Ammonia Terminal, located on the Houston Ship Channel near
Pasadena, Texas. This entity has two 15,000 ton ammonia storage tanks which provide ammonia to
industrial customers in the area via a pipeline system capable of shipping approximately 1,000 tons
per day. The terminal can receive ocean-going vessels.
Terras U.K. sales are divided about equally between agricultural and industrial customers. Terra
engages merchants and buying groups to sell its Nitram brand bagged AN fertilizer directly to
British farmers. Terra also bags AN for other U.K. suppliers and sells it in bulk to suppliers who
blend it with potash and phosphates, bag it and distribute it to farmers. Terra exports a small
quantity of AN to continental Europe. Terras U.K. industrial products include ammonia, nitric acid
and liquid carbon dioxide. Most industrial sales are to customers where Terra has a freight
advantage.
Methanol Business Segment
Terras methanol business segment has shrunk considerably since it mothballed its principal
methanol production facility at Beaumont, Texas in December 2004. The facility remained closed
throughout 2005 and remains closed to date. Terras remaining manufacturing facility capable of
producing methanol is in Woodward, Oklahoma.
6
In December 2003, Terra entered into contracts with Methanex Corporation (Methanex) providing
Methanex exclusive rights to all methanol production at Terras Beaumont, Texas facility for five
years. Methanex paid $25 million for these rights and agreed to purchase Terras methanol
production at amounts expected to approximate cash production costs. Methanex also agreed to pay
Terra 50% of any gross profits earned from its sales of Beaumont product up to maximum payments of
$12 million per year. The agreement also gave Methanex the right to terminate Beaumonts
production, with Terra being responsible for the costs of shutting down the facility. On December
1, 2004, at the request of Methanex and under the terms of the parties agreement, Terra ceased
production at the Beaumont facility and mothballed the plant. The parties agreement stipulates
that, beginning two years from the date of the shutdown, Terra may terminate the agreement by
paying Methanex approximately $417,000 per month remaining in the agreements term. As long as the
Beaumont facility remains idle through the December 2008 termination of the Methanex contract,
Terra will continue to realize revenues relating to the facility of up to $16.4 million per year
consisting of $4.4 million from annual amortization of deferred revenues plus one-half of the
annual cash margin, if any, attributable to idled methanol production based on reference prices and
natural gas costs. There was no 2005 cash margin.
Terra has retained some employees to operate the Beaumont methanol storage and distribution
terminal and potentially to operate the ammonia plant.
Manufacturing Facilities
Terra owns the plant and processing equipment at the Beaumont facility, which has an annual
methanol production capacity of 225 million gallons. Terra did not produce any methanol at the
Beaumont plant in 2005. For a description of the Beaumont facility, see the Beaumont, Texas
description under Item 2 Properties. The Woodward, Oklahoma facility produced 30.4 million, 37.3
million and 33.8 million gallons of methanol in 2005, 2004 and 2003, respectively, and has an
annual methanol production capacity of 40 million gallons. For a description of the Woodward
facility, see the Woodward, Oklahoma listing under Item 2 Properties, Marketing and Distribution
In addition to the Beaumont production agreement, Terra also entered into an agreement with
Methanex to market, under a commission arrangement, all methanol produced at the Woodward, Oklahoma
facility. The customers served under these arrangements are primarily large domestic chemical
producers.
Nitrogen Industry Overview
The three major nutrients required for plant growth are phosphorous, mined as phosphate rock;
potassium, mined as potash; and nitrogen, produced from natural gas. Phosphorus plays a key role in
the photosynthesis process. Potassium is an important regulator of plants physiological functions.
Nitrogen is an essential element for most organic compounds in plants because it promotes protein
formation. Nitrogen is also a major component of chlorophyll, which helps promote green healthy
growth and high yields. There are no substitutes for nitrogen fertilizers in the cultivation of
high-yield crops. These three nutrients occur naturally in the soil to a certain extent, but must
be replaced because crops remove them from the soil. Nitrogen, to a greater extent than phosphate
and potash, must be reapplied each year in areas of intense agricultural usage because of nitrogen
absorption by crops and its tendency to escape from the soil by evaporation or leaching.
Consequently, demand for nitrogen fertilizer tends to be more consistent on a year-by-year,
per-acre-planted basis than is demand for phosphate or potash fertilizer.
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The major nitrogen consuming crop in North America is corn and in the United Kindgom, wheat.
Certain crops, such as soybeans and other legumes, can use atmospheric nitrogen and do not require
nitrogen fertilizers.
Demand
Global demand for fertilizers typically grows at predictable rates and tends to correspond to
growth in grain production. Global fertilizer demand is driven in the long term primarily by
population growth, increases in disposable income and associated improvements in diet. Short-term
demand depends on world economic growth rates and factors creating temporary imbalances in supply
and demand. These factors include weather patterns, the level of world grain stocks relative to
consumption, agricultural commodity prices, energy prices, crop mix, fertilizer application rates,
farm income and temporary disruptions in fertilizer trade from government intervention, such as
changes in the buying patterns of China or India.
Supply
Increased ammonia prices in 1995 led to capacity expansion projects globally that resulted in
capacity growth that was, in the short term, substantially greater than demand, causing a
structural imbalance in ammonia supply and demand. In addition, foreign government support for
domestic production in India, China and the former Soviet Union has kept uneconomical plants
running, further increasing supply.
This new global capacity has been partially offset by permanent plant closings in both the U.S. and
Europe since 1999. According to Fertecon, since 1999, 23 U.S. ammonia production plants have been
closed, indefinitely idled or mothballed, resulting in total lost annual production capacity of
over 8.9 million short tons. Recent increases in natural gas costs in many regions of the world
have forced temporary plant closures which, in addition to permanent plant closures, have provided
support for nitrogen prices.
Imports account for a significant portion of U.S. nitrogen product supply. Producers from the
former Soviet Union, Canada, the Middle East, Trinidad and Venezuela are major exporters to the
U.S. These export producers are often competitive in regions close to the point of entry for
imports, primarily the Gulf coast and east coast of North America. Due to higher freight costs and
limited distribution infrastructure, importers are less competitive in serving the main
corn-growing regions of the U.S., which are more distant from these ports.
Methanol Industry Overview
Methanol is a liquid made primarily from natural gas that is used as a feedstock in the
production of formaldehyde, acetic acid, methyl tertiary-butyl ether (MTBE), and a variety of other
chemical intermediates which form the foundation of a large number of secondary derivatives.
Formaldehyde is used to produce urea-formaldehyde and phenol-formaldehyde resins, which are used as
wood adhesives for plywood, particleboard, oriented strand board, medium-density fiberboard and
other engineered wood products. In addition, formaldehyde is used in the manufacture of elastomers,
paints, foams, polyurethane and automotive products. Acetic acid is used as a chemical intermediate
to produce adhesives, paper, paints, plastics, resins, solvents, and textiles. MTBE, an oxygenate
and octane enhancer, is used to reduce
8
hydrocarbon and carbon monoxide emissions from motor vehicles. Chemical intermediates are used to
manufacture de-icer and windshield fluid, antifreeze, herbicides, pesticides, and poultry feed
products.
Methanol is a typical commodity chemical and the methanol industry is characterized by cycles of
oversupply resulting in lower prices and idled capacity, followed by periods of shortage and
rapidly rising prices until increased prices justify new plant investments or the re-start of idled
capacity. However, the expanding number of different uses for methanol and its derivatives over the
last several years has resulted in the methanol industry becoming more complex and subject to
increasingly diverse influences on supply and demand.
Demand
Due to an increasing range of end uses for methanol, demand has tended to move with the general
level of economic activity in methanols major markets. The significant use of methanol for the
production of chemicals used in the building products industry means that building and construction
cycles are important factors in determining demand for methanol-based chemicals. MTBE is considered
the preferred oxygenate by the refining industry and its production had grown rapidly until 2003
when initiatives in California and other states resulted in regulations that prohibit the addition
of MTBE to gasoline.
Supply
Over the past several years significant industry restructuring has taken place with most North
American methanol capacity shut down. New methanol production facilities have generally been
constructed in locations with access to low-cost natural gas, although this advantage is partially
offset by higher distribution costs due to distance from major markets.
Credit
Terras credit terms are generally 15-30 days in the U.S. and 30 days in the U.K., but may be
extended for longer periods during certain sales seasons, consistent with industry practices.
Seasonality and Volatility
The fertilizer business is highly seasonal, based upon the planting, growing and harvesting
cycles. Nitrogen fertilizer inventories must be accumulated to permit uninterrupted customer
deliveries, and require significant storage capacity. This seasonality generally results in higher
fertilizer prices during peak periods, with prices normally reaching their highest point in the
spring, decreasing in the summer, and increasing again in the late fall early winter period as
depleted inventories are restored.
Nitrogen fertilizer prices can also be volatile as a result of a number of other factors. The most
important of these factors are:
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Weather patterns and field conditions (particularly during periods of high fertilizer
consumption); |
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Quantities of fertilizers imported to primary markets; |
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Current and projected grain inventories and prices, which are heavily influenced by U.S.
exports and worldwide grain markets; and |
9
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Price fluctuations in natural gas, the principal raw material used to produce nitrogen
fertilizer. |
Governmental policies may directly or indirectly influence the number of acres planted, the level
of grain inventories, the mix of crops planted and crop prices.
While most U.S. methanol is sold pursuant to long-term contracts based on market index pricing and
fixed volumes, the spot market price of methanol can be volatile. The industry has experienced
cycles of oversupply, resulting in depressed prices and idled capacity, followed by periods of
shortages and rapidly rising prices. Future demand for methanol will depend in part on the emerging
regulatory environment with respect to reformulated gasoline.
Raw Materials
The principal raw material used to produce manufactured nitrogen products and methanol is
natural gas. Natural gas costs in 2005 accounted for approximately 72% of Terras total
manufacturing costs and expenses. Significant increases in natural gas costs that are not hedged or
recovered through increased prices to customers would have an adverse impact on the Companys
business, financial condition and results. Terra management believes there will be a sufficient
supply of natural gas for the foreseeable future and will, as opportunities present themselves,
enter into firm transportation contracts to minimize the risk of interruption or curtailment of
natural gas supplies during the peak-demand winter season. The Company uses a combination of spot
and term purchases of varied duration from a variety of suppliers to obtain natural gas supply.
Terra owns a 50% interest in Point Lisas Nitrogen Limited, a 50/50 ammonia production joint venture
with KNC Trinidad Limited. Point Lisas Nitrogen Limited has a contract to purchase natural gas from
the National Gas Company of Trinidad and Tobago. The joint ventures cost of natural gas has
historically been significantly lower than U.S. natural gas costs, which has resulted in the joint
venture being substantially more profitable than comparable North American facilities.
Pursuant to a policy approved by the board of directors, Terra employs natural gas hedges with a
goal of mitigating risk from increases to natural gas prices. Terra hedges natural gas prices
through the use of supply contracts, financial derivatives and other instruments. Terra enters into
these positions when it believes such arrangements would not result in costs greater than expected
selling prices for the finished products.
If natural gas prices rise, Terra may benefit from the use of forward-pricing techniques.
Conversely, if natural gas prices fall, the Company may incur costs above the then-available spot
market price. The settlement dates of forward-pricing contracts coincide with gas purchase dates.
Forward-pricing contracts are based on a specified price referenced to spot market prices or
appropriate NYMEX futures contract prices.
Transportation
Terra uses several modes of transportation to distribute products to customers, including
railroad cars, common carrier trucks, barges and common carrier pipelines.
10
Railcars are the major mode of transportation at Terras North American manufacturing facilities.
At December 31, 2005, Terra had 2,487 railcars under lease. Terra owns 10 nitric acid railcars. In
addition, Terra operates Terra Express, Inc., a common carrier covering the 48 contiguous United
States which is most active in the middle third of the country. Terra Express specializes in
transporting liquid bulk products, including UAN, urea liquor, ethanol, ammonia and propane. Terra
Express employs one driver and 38 owner-operators. In the U.K., Terras AN production is
transported primarily by contract carrier trucks, and ammonia is transported primarily by pipelines
that the Company owns.
Terra transports purchased natural gas to its Woodward, Oklahoma facility via both intrastate and
interstate pipelines and to Terras Verdigris, Oklahoma facility via intrastate pipeline. The
intrastate pipelines serving Woodward and Verdigris are not open-access carriers, but are
nonetheless part of a widespread regional system through which Woodward and Verdigris can receive
natural gas from any major Oklahoma source. Terra also has limited access to out-of-state natural
gas supplies for these facilities. Terras Beaumont, Texas facility sources natural gas via four
intrastate pipelines. The Courtright, Ontario facility sources natural gas at delivery points at
Parkway and Dawn, Ontario and a local utility. Terra transports purchased natural gas for its Port
Neal, Iowa facility via interstate, open-access pipelines. At the Billingham and Severnside,
England locations, purchased natural gas is transported to the facilities via a nationwide,
open-access pipeline system. Terras Donaldsonville, Louisiana facility sources purchased natural
gas from two intrastate pipelines. Terras Yazoo City facility is served by three interstate
pipelines and one intrastate pipeline.
FMCL Limited Liability Company, Terras 50/50 ammonia shipping joint venture with KNC Trinidad
Limited, leases a vessel for transportation of ammonia, primarily between the Point Lisas Nitrogen
Limited facility in Trinidad and the United States. Use of this vessel is shared between the joint
venture partners, Terra and KNC Trinidad Limited.
Research and Development
At the present time, Terra is not undertaking any significant, ongoing research and
development efforts.
Competition
The markets in which Terra operates are highly competitive. Competition in agricultural input
markets takes place largely on the bases of price, supply reliability, delivery time and quality of
service. Feedstock availability to production facilities and the cost and efficiency of production,
transportation and storage facilities are also important competitive factors. Government
intervention in international trade can distort the competitive environment. The relative cost and
availability of natural gas are also important competitive factors. Significant determinants of a
plants competitive position are the natural gas acquisition and transportation contracts
negotiated with its major suppliers as well as proximity to natural gas sources and/or end-users.
Terras domestic competitors in the nitrogen fertilizer markets are primarily other independent
fertilizer companies. Nitrogen fertilizers imported into the United States compete with
domestically produced nitrogen fertilizers, including those produced by Terra. Countries with
inexpensive sources of natural gas (whether as a result of government regulation or otherwise) can
produce nitrogen fertilizers at a low cost. A substantial amount of new ammonia capacity is
expected to be added abroad in the foreseeable future.
11
Importers of this new supply will face higher transportation costs, which will reduce their
advantage of inexpensive natural gas.
In the methanol segment, production and trade have become increasingly globalized and a number of
foreign competitors produce methanol primarily for the export market. Many of these foreign
competitors have access to favorably priced sources of natural gas and are relatively insensitive
to raw material price fluctuations. However, because of low domestic demand, foreign competitors
aggressively pursue the U.S. and other export markets.
Environmental and Other Regulatory Matters
Terras U.S. operations are subject to various federal, state and local environmental, health
and safety laws and regulations, including laws relating to air quality, hazardous or solid wastes
and water quality. Terras operations in Canada are subject to various federal and provincial
regulations regarding such matters, including the Canadian Environmental Protection Act
administered by Environment Canada, and the Ontario Environmental Protection Act administered by
the Ontario Ministry of the Environment. Terras U.K. operations are subject to similar regulations
under a variety of acts governing hazardous chemicals, transportation and worker health and safety.
All of Terras facilities require operating permits that are subject to review by governmental
agencies. Terra is also involved in the manufacture, handling, transportation, storage and disposal
of materials that are or may be classified as hazardous or toxic by federal, state, provincial or
other regulatory agencies. The Company takes precautions to reduce the likelihood of accidents
involving these materials. If such materials have been or are disposed of at sites that are
targeted for investigation and/or remediation by federal or state regulatory agencies, Terra may be
responsible under CERCLA or analogous laws for all or part of the costs of such investigation and
remediation, and damages to natural resources.
The State of Arizona designated Inspiration Consolidated Copper Company (Inspiration), a Terra
subsidiary that disposed of its assets in 1988 and no longer operates a business, as one of several
potentially responsible parties (PRP) under the state Superfund law at the Pinal Creek Drainage
Basin Site (Pinal Site) in Globe/Miami, Arizona, based upon Inspirations prior ownership and
operation of copper mining and production facilities. Under state and federal Superfund laws, all
PRPs may be jointly and severally liable for the costs of investigation and/or remediation of an
environmentally impaired site regardless of fault or the legality of original disposals. The Pinal
Site is the subject of ongoing investigation and cleanup to address groundwater releases of acidic
metal-bearing solutions from past copper mining and production facilities. The remedial actions are
governed by a 1997 consent decree (1997 Consent Decree) between the Arizona Department of
Environmental Quality and the two current owners/operators of the copper mining and production
facilities (one of whom is the successor to Inspirations buyer), both of whom the State designated
as PRPs, and Inspiration (collectively with Terra, the Group). The Groups members are jointly
financing and performing the work, but Inspiration no longer owns assets or is conducting any
activities at the Pinal Site. Also, the Group has filed an action for cost-recovery against other
former owners and operators at the Pinal Site, a substantial portion of which has been settled. In
a related matter, more than a decade ago, residents in an area of the Pinal Site brought a class
action lawsuit against the Group seeking property damages and medical monitoring for potential
personal injuries allegedly related to the acidic metal-bearing groundwater. The class action
lawsuit was settled in September 2000, although plaintiffs reserved the right to assert personal
injury claims individually. In the 1988 sale agreement, Inspiration was contractually indemnified
by its buyer (which
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includes the buyers successor) for all environmental claims relating to the Pinal Site. In April
2005, Inspiration and its successor settled most claims relating to the 1988 indemnity, confirming
that the successor will indemnify Inspiration for past and future costs arising out of the 1997
Consent decree, for allocation claims arising out of the cost-recovery lawsuit, and for legal fees
of common counsel in the various lawsuits. After consideration of such factors as the number of
PRPs and levels of financial responsibility, including the ongoing litigation and contractual
indemnities, Terra believes its liability with respect to these matters will not be material.
Terra retained a small number (less than 10%) of its retail locations after the sale of its
distribution business in 1999. Some of these locations are now, or are expected in the future to
be, the subject of environmental clean-up activities for which the Company has retained liability.
Terra does not believe that such environmental costs and liabilities will have a material effect on
its results of operations, financial position or net cash flows. As of September 30, 2005, there
were 14 remaining locations, six of which were undergoing environmental clean-up activities prior
to the sale or release of those properties to the landowner. The total net cost associated with the
former retail locations in 2006 and beyond (including environmental expenditures and proceeds from
voluntary clean-up reimbursements and sale of properties) is not expected to exceed $2 million.
With respect to the Verdigris, Oklahoma facility, Freeport-McMoRan Resource Partners, Limited
Partnership (a former owner and operator of the facility) retained liability for certain
environmental matters. With respect to the Beaumont, Texas facility, DuPont retains responsibility
for certain environmental costs and liabilities stemming from conditions or operations to the
extent such conditions or operations existed or occurred prior to its sale of the facility to Terra
in 1991. Likewise, with respect to the Billingham and Severnside, England facilities, the seller,
ICI, indemnified Terra, subject to certain conditions, for pre-December 31, 1997 environmental
contamination associated with the purchased assets. Known conditions are not expected to result in
material expenditures but discovery of unknown conditions or the failure of prior owners and
operators and indemnitors to meet their obligations could require significant expenditures.
In the wake of the September 11 tragedy, both the U.S. Congress and U.K. Parliament are considering
various additional security and handling requirements for hazardous chemicals, including AN, which
can be used to manufacture explosives. Terras facilities already have the basic plans and
vulnerability assessments in place that may be required under new legislation. Accordingly, such
legislation is unlikely to have an adverse impact on Terras operations, financial position, or
cash flow.
Terra may be required to install additional air and water quality control equipment, such as low
nitrous oxide burners, scrubbers, ammonia sensors and continuous emission monitors, at certain
facilities to comply with applicable environmental requirements. Terra estimates that the total
cost of additional equipment to comply with these requirements in 2006 and the next two years will
be less than $20 million.
Terra endeavors to comply in all material respects with applicable environmental, health and safety
regulations and has incurred substantial costs in connection with such compliance. Because these
regulations are expected to continue to change and generally to be more restrictive than current
requirements, the costs of compliance will likely increase. Terra does not expect its compliance
with such
13
regulations to have a material adverse effect on its results of operations, financial position or
net cash flows. However, there can be no guarantee that new regulations will not result in material
costs.
Terras capital expenditures related to environmental control in 2005, 2004 and 2003 were
approximately $1.3 million, $2.4 million and $1.3 million, respectively. Projected environmental
capital expenditures are $4.5 million for 2006 and $9.1 million for 2007.
Terra believes that its policies and procedures now in effect are in compliance with applicable
environmental laws and with the permits relating to the facilities in all material respects.
However, in the normal course of its business, Terra is exposed to risks relating to possible
releases of hazardous substances into the environment. Such releases could cause substantial
damages or injuries. Although environmental expenditures have not been material during the past
year, it is impossible to predict or quantify the impact of future environmental liabilities
associated with releases of hazardous substances from Terras facilities.
Revenues and Assets
Terras revenues from external customers, measure of profit and loss, total assets and
revenues and assets according to geography for the years 2002-2004 are set forth in Item 8 of this
Annual Report on Form 10-K under the caption Note 21 Industry Segment Data contained in the
Notes to Consolidated Financial Statements.
Employees
Terra had 1,209 full-time employees at December 31, 2005, 253 of which joined Terra through
its acquisition of MCC. All 386 U.K. employees are covered by a wage and working conditions
arrangement similar to a collective bargaining agreement.
Item 1A. Risk Factors
In addition to the other information contained in this Form 10-K, the following risk factors
should be considered carefully in evaluating Terras business. The Companys business, financial
condition, or results of operations could be materially adversely affected by any of these risks.
Please note that additional risks not presently known to Terra or that its management currently
deems immaterial may also impair the Companys business and operations.
Terras inability to predict future seasonal nitrogen products demand accurately could result in
low or excess inventory, potentially at costs in excess of market value.
The nitrogen products business is highly seasonal, with more nitrogen products used in North
America during the second quarter, in conjunction with spring planting activity, than in any other
quarter. Due to the seasonality of the business and the relatively brief periods during which
products can be used by customers, Terra and/or its customers generally build inventories during
the second half of the year in order to ensure timely product availability during the peak sales
season. This increases Terras working capital needs during this period as the Company funds these
inventory increases and supports its customers inventory carry. If Terra underestimates future
demand, profitability will be negatively
14
impacted and customers may acquire products from our competitors. If Terra overestimates future
demand, it will be left with excess inventory that will incur storage costs and/or Terra may
liquidate such additional inventory at sales prices below its costs.
A substantial portion of Terras operating expense is related to the cost of natural gas, and an
increase in such cost that is either unexpected or not accompanied by increases in selling prices
of products could result in reduced profit margins and lower product production.
The principal raw material used to produce nitrogen products is natural gas. Natural gas costs in
2005 comprised about 72% of total costs and expenses. A significant increase in the price of
natural gas (which can be driven by, among other things, supply disruptions, cold weather and oil
price spikes) that is not hedged or recovered through an increase in the price of related nitrogen
products could result in reduced profit margins and lower product production. Terra has in the
recent past idled one or more of its plants in response to high natural gas prices. A significant
portion of Terras competitors global nitrogen production occurs at facilities with access to
fixed-priced natural gas supplies. The competitors facilities natural gas costs have been and
likely will continue to be substantially lower than Terras.
Declines in the prices of Terras products may reduce profit margins.
Prices for nitrogen products are influenced by the global supply and demand conditions for ammonia
and other nitrogen-based products. Long-term demand is affected by population growth and rising
living standards that determine food consumption. Short-term demand is affected by world economic
conditions and international trade decisions. Supply is affected by increasing worldwide capacity
and the increasing availability of nitrogen product exports from major producing regions such as
the former Soviet Union, Canada, the Middle East, Trinidad and Venezuela. A substantial amount of
new ammonia capacity is expected to be added abroad in the foreseeable future. When industry
oversupply occurs, as is common in commodity businesses, the price at which Terra sells its
nitrogen products typically declines, which results in reduced profit margins, lower production of
products and plant closures. Supply in the U.S. and Europe is also
affected by trade regulatory measures, which restrict import supply
into those markets. Changes in those measures would likely adversely
impact available supply and pricing.
Terras products are subject to price volatility resulting from periodic imbalances of supply and
demand, which may cause the results of operations to fluctuate.
Historically, Terras products prices have reflected frequent changes in supply and demand
conditions. Changes in supply result from capacity additions or reductions and from changes in
inventory levels. Demand for products is dependent on demand for crop nutrients by the global
agricultural industry and on the level of industrial production. Periods of high demand, high
capacity utilization and increasing operating margins tend to result in new plant investment and
increased production until supply exceeds demand, followed by periods of declining prices and
declining capacity utilization until the cycle is repeated. In addition, markets for Terras
products are affected by general economic conditions. As a result of periodic imbalances of supply
and demand, product prices have been volatile, with frequent and significant price changes. During
periods of oversupply, the price at which Terra sells its products may be depressed and this could
have a material adverse effect on Terras business, financial condition and results of operations.
15
Terras products are global commodities and Terra faces intense competition from other nitrogen
fertilizer producers.
Nitrogen fertilizer products are global commodities and can be subject to intense price
competition from both domestic and foreign sources. Customers, including end-users, dealers and
other crop-nutrients producers and distributors, base their purchasing decisions principally on
the delivered price and availability of the product. Terra competes with a number of U.S.
producers and producers in other countries, including state-owned and government-subsidized
entities. The U.S. and the European Commission each have trade
regulatory measures in effect which are designed to address this type
of unfair trade. Changes in these measures could have an adverse
impact on Terras sales and profitability of the particular
products involved. Some of Terras principal competitors have greater total resources and are less
dependent on earnings from nitrogen fertilizer sales. In addition, a portion of global production
benefits from natural gas contracts that have been, and could continue to be, substantially lower
priced than our natural gas. Terras inability to compete successfully could result in the loss of
customers, which could adversely affect sales and profitability.
The Companys business is subject to risks related to weather conditions.
Adverse weather conditions may have a significant effect on demand for our nitrogen products.
Weather conditions that delay or intermittently disrupt field work during the planting and growing
season may cause agricultural customers to use less or different forms of nitrogen fertilizer,
which may adversely affect demand for the forms that Terra sells. Weather conditions following
harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also
have an adverse effect on crop yields, which lowers the income of growers and could impair their
ability to pay Terras customers.
Terra is substantially dependent on its manufacturing facilities, and any operational disruption
could result in a reduction of sales volumes and could cause Terra to incur substantial
expenditures.
Terras manufacturing operations may be subject to significant interruption if one or more of its
facilities were to experience a major accident or were damaged by severe weather or other natural
disaster. In addition, Terras operations are subject to hazards inherent in nitrogen fertilizer
manufacturing. Some of those hazards may cause personal injury and loss of life, severe damage to
or destruction of property and equipment and environmental damage, and may result in suspension of
operations and the imposition of civil or criminal penalties. For example, an explosion at Terras
Port Neal, Iowa facility in 1994 required Terra to rebuild nearly the entire facility. Also, a
mechanical outage at the Courtright, Ontario facility in April 2001 required Terra to shut down
that facility for approximately two months. Terra currently maintains property insurance,
including business interruption insurance although there can be no assurance that it has
sufficient coverage, or can in the future obtain sufficient coverage at reasonable costs.
Terra may be adversely affected by environmental regulations.
Terras operations are subject to various federal, state and local environmental, safety and
health laws and regulations, including laws relating to air quality, hazardous and solid wastes
and water quality. In the United States, Terras operations are subject to a comprehensive federal
and state regulatory regime, including the federal Clean Air Act, Clean Water Act, Resource
Conservation and Recovery Act, Emergency Planning and Community Right-to-Know Act, Toxic
Substances Control Act and their state analogs. Terras operations in Canada are also subject to
various federal and provincial regulations regarding such matters, including the Canadian
Environmental Protection Act administered by Environment Canada, and the Ontario Environmental
Protection Act administered by the Ontario Ministry of the Environment. Terras U.K. operations
are subject to similar regulations under a variety of
16
requirements, including those arising under the Integrated Pollution Prevention and Control
(IPPC) Program. Terra could incur substantial costs, including capital expenditures for
equipment upgrades, fines and penalties and third-party claims for damages, as a result of
compliance with, violations of or liabilities under environmental laws and regulations. Terra is
also involved in the manufacture, handling, transportation, storage and disposal of materials that
are or may be classified as hazardous or toxic by federal, state, provincial or other regulatory
agencies. If such materials have been or are disposed of or released at sites that require
investigation and/or remediation, Terra may be responsible under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, or CERCLA, or analogous laws for all or part
of the costs of such investigation and/or remediation, and for damages to natural resources. Under
some of these laws, responsible parties may be held jointly and severally liable for such costs,
regardless of fault or the legality of the original disposal or release.
Terra has liability as a potentially responsible party at certain sites under certain
environmental cleanup laws. The Company has also been subject to related claims by private parties
alleging property damage and possible personal injury arising from contamination relating to our
discontinued operations. Terra may be subject to additional liability or additional claims in the
future. Some of these matters may require the Company to expend significant amounts for
investigation and/or cleanup or other costs.
Terra may be required to install additional pollution control equipment at certain facilities in
order to maintain compliance with applicable environmental requirements.
Continued government and public emphasis on environmental issues can be expected to result in
increased future investments for environmental controls at ongoing operations. Terra may be
required to install additional air and water quality control equipment, such as low emission
burners, scrubbers, ammonia sensors and continuous emission monitors, at certain of its facilities
in order to maintain compliance with applicable environmental requirements. Such investments would
reduce income from future operations. Present and future environmental laws and regulations
applicable to operations, more vigorous enforcement policies and discovery of unknown conditions
may require substantial expenditures and may have a material adverse effect on results of
operations, financial position or net cash flows.
Government regulation and agricultural policy may reduce the demand for Terras products.
Existing and future government regulations and laws may reduce the demand for Terra products.
Existing and future agricultural and/or environmental laws and regulations may impact the amounts
and locations of fertilizer application and may lead to decreases in the quantity of nitrogen
fertilizer applied to crops. Any such decrease in the demand for fertilizer products could result
in lower unit sales and lower selling prices for nitrogen fertilizer products. U.S. and E.U.
governmental policies affecting the number of acres planted, the level of grain inventories, the
mix of crops planted and crop prices could also affect the demand and selling prices of Terras
products. In addition, Terra manufactures and sells ammonium nitrate (AN) in the U.K. and in the
U.S. Ammonium nitrate can be used as an explosive and was used in the Oklahoma City bombing in
April 1995. It is possible that either the U.S. or U.K. governments could impose limitations on
the use, sale or distribution of AN, thereby limiting Terras ability to manufacture or sell this
product.
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Terra is subject to risks associated with international operations.
Terras international business operations are subject to numerous risks and uncertainties,
including difficulties and costs associated with complying with a wide variety of complex laws,
treaties and regulations; unexpected changes in regulatory environments; currency fluctuations;
tax rates that may exceed those in the U.S.; earnings that may be subject to withholding
requirements; and the imposition of tariffs, exchange controls or other restrictions. During 2005
Terra derived approximately 24% of its net sales from outside of the U.S. Terras business
operations include a 50% interest in an ammonia production joint venture in the Republic of
Trinidad and Tobago and a 50% interest in an ammonia shipping joint venture that provides
transportation of ammonia from the Trinidad facility to the U.S. and other world markets.
Terras business may be adversely impacted by the Companys high-cost leverage, which requires the
use of a substantial portion of excess cash flow to service debt and may limit Terras access to
additional capital.
Terras debt could have important consequences on its business. For example, it could (i) increase
Terras vulnerability to adverse economic and industry conditions by limiting flexibility in
reacting to changes in the business industry, (ii) reduce Terras cash flow available to fund
working capital, capital expenditures and other general corporate purposes, (iii) place Terra at a
competitive disadvantage compared to competitors that have less leverage and (iv) limit Terras
ability to borrow additional funds and increase the cost of funds that Terra can borrow. Terra may
not be able to reduce its financial leverage when it chooses to do so, and may not be able to
raise capital to fund growth opportunities.
Terra may not be able to finance a change of control offer.
If Terra considers an offer that would result in a change of control (as defined in its bond
indentures and the instruments governing its Series A convertible preferred shares), it may need
to refinance large amounts of debt. If a change of control occurs, Terra must offer to buy back
the notes under its indentures and the Series A convertible preferred shares for a price equal to
101% of the notes principal amount or 100% of the liquidation value of the Series A convertible
preferred shares, as applicable, plus any interest or dividends which has accrued and remains
unpaid as of the repurchase date. There can be no assurance that there will be sufficient funds
available for any repurchases that could be required by a change of control.
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Item 1B. |
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Unresolved Staff
Comments |
Not applicable.
Terras manufacturing facilities and the Point Lisas manufacturing facility in which it owns a
50% interest, are designed to operate continuously, except for planned shutdowns (usually biennial)
for maintenance and efficiency improvements. Capacity utilization (gross tons produced divided by
capacity tons at expected operating rates and on-stream factors) of the nitrogen products
manufacturing facilities (excluding 2004 production at the Blytheville, Arkansas plant which closed
in May 2004, and the 2003 and 2004 production at the plants acquired in the Mississippi Chemical
acquisition) during 2005 was approximately 96%, 99% and 96% in 2005, 2004 and 2003, respectively.
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Terra owns all of its manufacturing facilities, unless otherwise indicated below. Substantially all
of Terras manufacturing facilities are mortgaged to secure indebtedness under the Companys credit
agreements and its notes due in 2008 and 2010.
Beaumont, Texas. The Beaumont facility is located six miles south of Beaumont, Texas on the Neches
River. Terra owns the plant and processing equipment at the Beaumont facility, which has an annual
methanol production capacity of 225 million gallons. The facility also contains an ammonia loop
which provides an annual ammonia production capacity of 255,000 tons. The facilitys real estate is
leased from E.I. DuPont de Nemours and Company (DuPont) at a nominal rate under a lease that
expires in 2090. The facility is entirely contained within an industrial complex owned and operated
by DuPont, and DuPont provides access to the facility as well as essential services such as
security, emergency response, product loading and unloading, and a waste water effluent system. The
facility also contains a methanol storage and distribution terminal containing two 7.5 million
gallon methanol storage tanks and one 20,000 ton ammonia storage tank. The Beaumont facility is
currently out of production, however Terra continues to operate the terminal. See further
discussion of the Beaumont facility under the Methanol Business Segment heading, which follows.
Donaldsonville, Louisiana. The Donaldsonville facility is located on approximately 766 acres
fronting the Mississippi River and, in 2004, included two ammonia plants, a urea plant and two
melamine crystal production plants. During 2005 all of these plants, except for one ammonia plant,
were decommissioned and sold for parts or scrap. The remaining ammonia plant has been mothballed.
The facility contains a deep-water port facility on the Mississippi River, allowing for barge
transportation and making Donaldsonville one of the northernmost points on the river capable of
receiving economical ocean-going vessels.
Port Neal, Iowa. The Port Neal facility is located approximately 12 miles south of Sioux City, Iowa
on the Missouri River. The facility consists of an ammonia plant, two urea plants, two nitric acid
plants and a UAN plant.
Verdigris, Oklahoma. The Verdigris facility is located on 650 acres northeast of Tulsa, Oklahoma,
near the Verdigris River. It is the second largest UAN production facility in North America. The
facility comprises two ammonia plants, two nitric acid plants, two UAN plants and a port terminal.
Terra owns the plants and leases the port terminal from the Tulsa-Rogers County Port Authority.
Terra renewed its leasehold interest in the port terminal for five years in April 2004, and has an
option to renew the lease for an additional five-year term in 2009.
Woodward, Oklahoma. The Woodward facility is located in rural northwest Oklahoma and consists of an
integrated ammonia/methanol plant, a nitric acid plant, a urea plant and a UAN plant.
Yazoo City, Mississippi. The Yazoo City facility is located on approximately 2,240 acres in Yazoo
County, Mississippi with approximately 60 acres of such land subject to a long-term lease with
Yazoo County. The facility includes two ammonia plants (one of which is mothballed), five nitric
acid plants, an AN plant, two urea plants, a UAN plant and a dinitrogen tetroxide production and
storage facility.
In July 2005, Terra entered into a 10-year agreement to supply industrial grade ammonium nitrate
(IGAN) and ammonium nitrate solution (ANS) to Orica USA Inc. Under the terms of this arrangement,
Terra will
19
modify the smaller of its Yazoo City facility ammonium nitrate (AN) towers, which is currently
limited to converting ANS to agricultural grade AN. When the modifications are complete, the tower
will be equipped to convert ANS to either agricultural grade AN or IGAN, a prilled, low-density
industrial grade product. Terra expects the tower modifications to be complete by September 2006.
Courtright, Ontario, Canada. The Courtright facility is located on 700 acres south of Sarnia,
Ontario near the St. Clair River. The facility consists of one ammonia plant, a UAN plant, a nitric
acid plant and two urea plants.
Billingham, U.K. The Billingham facility, located in the Teesside chemical area, is geographically
split among three separate areas: the main site contains an ammonia plant, three nitric acid plants
and a carbon dioxide plant; the Portrack site approximately two miles away contains an AN
fertilizer plant and the north Tees site approximately five miles away has an ammonia storage and
import/export facility that Terra uses under license from the Crown and under an agreement with a
third-party operator.
Severnside, U.K. The Severnside facility is located in southwestern England. The facility consists
of two ammonia plants, two nitric acid plants and an AN plant.
Trinidad. The Point Lisas Nitrogen facility in the Republic of Trinidad and Tobago is owned by a
50/50 joint venture with KNC Trinidad Limited. This facility has the capacity to produce annually
720,000 tons of ammonia from natural gas supplied under contract with the National Gas Company of
Trinidad and Tobago. Terra is obligated to buy 50% of the joint ventures ammonia output at market
prices, which is transported primarily to the U.S. Gulf Coast and resold to Terras customers. The
joint ventures natural gas costs have recently been significantly lower than U.S. natural gas
costs, which has made the joint venture substantially more profitable than comparable North
American facilities.
PLNL produced 636,935 tons of ammonia in 2005 of which Terra purchased 358,582 tons. All of the
PLNL ammonia tons purchased by Terra was delivered to Terras Donaldsonville terminal for
subsequent sale or delivery. Terra received in 2005 $42.8 million of cash distributions from PLNL.
|
|
|
Item 3. |
|
Legal Proceedings |
From time to time, the Company is involved in litigation, administrative proceedings and
claims, including environmental matters, arising in the ordinary course of business. Terra does not
believe that the matters in which it is currently involved, either individually or in the
aggregate, will have a material adverse effect on its business, results of operations, financial
position or net cash flows.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders of Terra during the fourth quarter of
2005.
20
Executive Officers of Terra
The following paragraphs set forth the name, age and offices of each present executive officer
of Terra, the period during which each executive officer has served as such and each executive
officers business experience during the past five years:
|
|
|
|
|
Present positions and offices with the Company |
Name |
|
and principal occupations during the past five years |
Michael L. Bennett
|
|
President and Chief Executive Officer of Terra since April 2001; Executive Vice President and Chief
Operating Officer of Terra from February 1997 to April 2001; President and Chief Executive Officer of
Terra Nitrogen Division since June 1998. Age 52. |
|
|
|
Joe A. Ewing
|
|
Vice President, Human Resources and Corporate Communications of Terra since December 2004; Vice
President, Human Resources of Mississippi Chemical Corporation from April 2003 to December 2004; Vice
President, Marketing and Distribution of Mississippi Chemical Corporation from 1999 to April 2003. Age
55. |
|
|
|
Joseph D. Giesler
|
|
Senior Vice President, Commercial Operations of Terra since December 2004; Vice President of Industrial
Sales and Operations of Terra from December 2002 to December 2004; Global Director, Industrial Sales of
Terra from September 2001 to December 2002; Director of Marketing of Terra from June 2000 to August
2001; and Director of Western Division of Terra from July 1998 to May 2000. Age 47. |
|
|
|
Daniel D. Greenwell
|
|
Vice President, Controller of Terra since April 2005; Corporate Controller for Belden CDT Inc. from
2002 to 2005; and Chief Financial Officer of Zoltek Companies Inc. from 1996 to 2002. Age 43. |
|
|
|
Mark A. Kalafut
|
|
Vice President, General Counsel and Corporate Secretary of Terra since June 2001; Vice President and
Associate General Counsel of Terra from April 1997 through June 2001. Age 52. |
|
|
|
Francis G. Meyer
|
|
Senior Vice President and Chief Financial Officer of Terra since November 1995. Age 53. |
|
|
|
W. Mark Rosenbury
|
|
Senior Vice President and Chief Administrative Officer of Terra since August
1999. Age 58. |
|
|
|
Richard S. Sanders Jr.
|
|
Vice President, Manufacturing of Terra since August
2003; Plant Manager, Verdigris, Oklahoma
manufacturing facility from 1995 to August, 2003.
Age 48. |
21
|
|
|
|
|
Present positions and offices with the Company |
Name |
|
and principal occupations during the past five years |
Paul Thompson
|
|
Vice President, Sales and Marketing of Terra since
December 2004; Global Director, Ag Sales and Terra
U.K. Managing Director from August 1999 to December
2004. Age 51. |
There are no family relationships among the executive officers and directors of Terra or
arrangements or understandings between any executive officer and any other person pursuant to which
any executive officer was selected as such. Officers of Terra are elected annually to serve until
their respective successors are elected and qualified.
PART II
|
|
|
Item 5. |
|
Market for Terras Common Equity and Related Stockholder Matters and
Issuer Purchases of Equity Securities |
The main market in which Terras common shares are traded is the NYSE. Set forth below are the
high and low sales prices of Terras common shares during each quarter specified as reported on the
NYSE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(per-share data and stock prices) |
|
March 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
9.27 |
|
|
$ |
7.88 |
|
|
$ |
8.59 |
|
|
$ |
6.65 |
|
Low |
|
|
7.29 |
|
|
|
6.27 |
|
|
|
6.10 |
|
|
|
4.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
6.66 |
|
|
$ |
6.55 |
|
|
$ |
8.95 |
|
|
$ |
9.38 |
|
Low |
|
|
3.20 |
|
|
|
4.15 |
|
|
|
5.50 |
|
|
|
7.00 |
|
As of March 1, 2006 there were approximately 6,906 record holders of Terras common stock.
22
|
|
|
Item 6. |
|
Selected Financial Data |
Financial Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
2005(1) |
|
|
2004(2) |
|
|
2003(3) |
|
|
2002(4) |
|
|
2001 |
|
|
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,939,065 |
|
|
$ |
1,509,110 |
|
|
$ |
1,351,055 |
|
|
$ |
1,043,983 |
|
|
$ |
1,037,310 |
|
Income (loss) from operations |
|
|
113,696 |
|
|
|
134,746 |
|
|
|
(23,560 |
) |
|
|
(5,407 |
) |
|
|
(61,818 |
) |
Net income (loss) from
continuing operations |
|
|
22,087 |
|
|
|
67,596 |
|
|
|
(12,481 |
) |
|
|
(36,174 |
) |
|
|
(79,843 |
) |
Net income (loss) |
|
|
22,087 |
|
|
|
67,596 |
|
|
|
(12,481 |
) |
|
|
(258,325 |
) |
|
|
(79,843 |
) |
Preferred share dividends |
|
|
(5,134 |
) |
|
|
(1,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
0.18 |
|
|
|
0.87 |
|
|
|
(0.16 |
) |
|
|
(3.43 |
) |
|
|
(1.06 |
) |
Discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.22 |
) |
|
|
|
|
Cumulative effect of change in
accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.73 |
) |
|
|
|
|
|
Basic income per share |
|
|
0.18 |
|
|
|
0.87 |
|
|
|
(0.16 |
) |
|
|
(3.43 |
) |
|
|
(1.06 |
) |
Diluted income per share |
|
$ |
0.18 |
|
|
$ |
0.85 |
|
|
$ |
(0.16 |
) |
|
$ |
(3.43 |
) |
|
$ |
(1.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,523,625 |
|
|
$ |
1,685,508 |
|
|
$ |
1,125,062 |
|
|
$ |
1,128,110 |
|
|
$ |
1,336,043 |
|
Long-term debt
and capital leases |
|
$ |
331,300 |
|
|
$ |
435,238 |
|
|
$ |
402,206 |
|
|
$ |
400,358 |
|
|
$ |
436,534 |
|
Preferred stock |
|
$ |
115,800 |
|
|
$ |
133,069 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
(1) |
|
The 2005 selected financial data includes data for Mississippi Chemical Corporation
(MCC), which was acquired on December 21, 2004. |
|
(2) |
|
The 2004 selected financial data includes the effects of the December 21, 2004
acquisition of MCC and the issuance of preferred shares during the 2004 fourth quarter. |
|
(3) |
|
The 2003 selected financial data includes a $53.1 million charge for impairment of
long-lived assets. |
|
(4) |
|
The 2002 selected financial data includes a $16.2 million loss from discontinued
operations and a $206.0 million charge relating to a cumulative effect of change in
accounting principle. |
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
Introduction
Terra Industries Inc. (Terra or the Company) produces and markets nitrogen products for
agricultural and industrial markets with production facilities located in North America and the
United Kingdom. During December 2004, the Company acquired Mississippi Chemical Corporation (MCC).
Nitrogen products are commodity chemicals that are sold at prices reflecting global supply and
demand conditions. The nitrogen products industry has cycles of oversupply, resulting in lower
prices and idled capacity, followed by supply shortages, resulting in high selling prices and
higher industry-wide
23
production rates. To be viable in this industry, a producer must be among the low-cost suppliers in
the markets it serves and have a financial position that can sustain it during periods of
oversupply.
Natural gas is the most significant raw material in the production of nitrogen products. North
American natural gas costs have increased substantially since 1999. Since some of the Companys
products compete with nitrogen products imported from regions with lower natural gas costs, the
Company and other North American producers have not always been able to increase selling prices to
levels necessary to cover the natural gas cost increases. This has resulted in curtailments of
North American nitrogen production. These curtailments contributed to reductions in global nitrogen
product supplies.
Imports, most of which are produced at facilities with access to fixed-price natural gas supplies,
account for a significant portion of United States of America (U.S.) nitrogen product supply.
Imported products natural gas costs have been and could continue to be substantially lower than
the delivered cost of natural gas to our facilities. Off-shore producers are most competitive in
regions close to North American points of entry for imports, including the Gulf Coast and East
Coast.
The Companys sales volumes depend primarily on its plants operations and imports from PLNL. The
Company may purchase product from other manufacturers or importers for resale; however, gross
margins on those volumes have historically been insignificant. Profitability and cash flows from
the Companys nitrogen products business are affected by the Companys ability to manage its costs and
expenses (other than natural gas), most of which do not materially change for different levels of
production or sales. Other factors affecting the Companys nitrogen products results include the
number of planted acres, transportation costs, weather conditions (particularly during planting
season), grain prices and other variables described in Item 1 Business and Item 2 Properties.
The Company also produces methanol in the U.S. Similar to nitrogen products, methanol is a
commodity chemical manufactured from natural gas. Consequently, natural gas costs and the
supply/demand balance for methanol significantly affect methanol earnings and cash flows. A
significant portion of U.S. methanol demand is met by imports from regions with natural gas costs
lower than those available to U.S. producers. U.S. methanol demand has declined over the past year
and is expected to continue to decline due to reduced U.S. consumption of MTBE, a gasoline
oxygenate and octane enhancer that uses methanol as a feedstock. In December 2003, the Company
entered into contracts with the Methanex Corporation (Methanex) assigning it the Companys sales
contracts and providing it exclusive rights to all methanol production at the Beaumont facility for
five years as more fully described in Item 1 Business and
Item 2 Properties. As permitted under
these contracts, Methanex elected to shut down the Beaumont facility as of December 1, 2004. As
long as the Beaumont, Texas facility remains idle through the December 2008 termination of the
Methanex contract, the Company may realize revenues relating to the facility of up to $16.4 million
per year due to $4.4 million from annual amortization of deferred revenues plus one-half of the
annual cash margin based on the plants methanol production capacity, methanol reference prices and
natural gas costs. Due to the high cost of natural gas, there was no cash margin realized during
2005.
During the fourth quarter of 2005, the Company temporarily suspended all production at the
Woodward, Oklahoma facility, ammonia production at the Yazoo City, Mississippi facility and ammonia
production at the Billingham, Teeside facility in the U.K. These temporary suspensions of
production were due to the high cost of natural gas during the period.
24
Overview of Consolidated Results
The Companys revenues were $1.9 billion, $1.5 billion and $1.4 billion during 2005, 2004 and
2003, respectively. Terra generated net income (loss) of $22.1 million, $67.6 million and $(12.5)
million in 2005, 2004 and 2003, respectively. Diluted income (loss) per share was $0.18, $0.85 and
$(0.16) in 2005, 2004 and 2003, respectively.
Income (loss) from operations was $113.7 in 2005, $134.7 million in 2004 and $(23.6) million in
2003. Revenues for 2005 increased $423.6 million as compared to 2004, primarily due to the
Mississippi Chemical Corporation (MCC) acquisition in December 2004 and higher sales prices. The
sales prices were higher as a result of increased demand and lower supplies primarily due to
reduced production capacity in North America. Costs associated with the 2005 MCC revenues and
higher natural gas prices were the primary factors that increased cost of sales by $452.2 million
in 2005 as compared to 2004. The Company recognized $21.4 million of earnings from equity in
unconsolidated affiliates during 2005, primarily as a result of equity investments acquired in the
MCC acquisition. During 2005, the Company recorded a $27.2 million loss ($24.9 million, net of tax)
on the early repayment of debt and an $8.9 million gain ($8.9 million, net of tax) on change in
fair value of warrants issued.
The 2004 net income was increased by $27.9 million of income tax benefits due to a favorable
settlement with a foreign taxing authority. The 2004 net income also included $11.6 million
attributable to an insurance recovery of product claim costs (representing $17.9 million of
operating income less $6.3 million of related income taxes) and a $7.1 million loss from the early
retirement of long-term debt (representing $11.1 million of losses less $4.0 million of related
income taxes).
During 2003, the Company recorded a $27.0 million net charge for the impairment of its Blytheville,
Arkansas facility (representing a $53.1 million impairment charge to operating income less $9.9
million allocated to minority interest and $16.2 million of income tax benefit). The 2003 net loss
was reduced by $36.4 million of income tax benefits for a reduced assessment by a foreign taxing
authority and reversals of tax reserves that had been provided in prior years.
Other fluctuations to the Companys income (loss) from continuing operations for 2005, 2004 and
2003 were primarily related to increases in the selling prices of nitrogen products, decreases in
methanol sales due to an exclusivity agreement with Methanex and changes in the cost of natural
gas, the Companys primary raw material for manufacturing its products.
Factors That Affect Operating Results
Factors that may affect the Companys operating results include: the relative balance of
supply and demand for nitrogen fertilizers, industrial nitrogen and methanol, the availability and
cost of natural gas, the number of agriculture-planted acres (which is affected by both worldwide
demand and government policies), the types of crops planted, the effect of general weather patterns
on the timing and duration of field work for crop planting and harvesting, the effect of
environmental legislation on supply and demand for the Companys products, the availability of
financing sources to fund seasonal working capital needs, and the potential for interruption to
operations due to accidents or natural disasters.
The principal raw material used to produce nitrogen products and methanol is natural gas. Natural
gas costs in 2005 and 2004 accounted for approximately 72% and 60%, respectively, of the Companys
total
25
manufacturing costs and expenses. A significant increase in the price of natural gas that is not
hedged or recovered through an increase in the price of the Companys nitrogen and methanol
products would have an adverse effect on the Companys business, financial condition and results of
operations. A portion of global nitrogen products and methanol production is at facilities with
access to fixed-price natural gas supplies that have been, and could continue to be, substantially
lower priced than natural gas costs at the Companys North American and U.K. facilities. The
Companys facility at Point Lisas Nitrogen Limited, an unconsolidated subsidiary, is located in
Trinidad with access to such lower-cost natural gas.
The Company enters into forward pricing contracts for some of its natural gas requirements when
such arrangements would not result in costs greater than expected North American and U.K. selling
prices for the Companys finished products. The Companys December 31, 2005 forward positions
covered 16% of the Companys expected 2006 natural gas requirements (excluding the natural gas
requirements of Point Lisas Nitrogen Limited which purchases its gas under contract with the
Natural Gas Company of Trinidad and Tobago).
Prices for nitrogen products are influenced by the world supply and demand balance for ammonia and
other nitrogen-based products. Long-term demand is affected by population growth and rising living
standards that determine food consumption. Short-term demand is affected by world economic
conditions, international trade decisions and grain prices. Supply is affected by increasing
worldwide capacity and the availability of nitrogen product exports from major producing regions
such as the former Soviet Union, the Middle East and South America.
Methanol is used as a raw material in the production of formaldehyde, methyl tertiary-butyl ether
(MTBE), acetic acid and numerous other chemical derivatives. The price of methanol is influenced by
the supply and demand for each of these products. Environmental initiatives to ban or reduce the
use of MTBE as a fuel additive, such as those currently underway in the United States, could affect
demand for methanol.
Weather can have a significant effect on demand for the Companys nitrogen products. Weather
conditions that delay or intermittently disrupt field work during the planting and growing seasons
may cause agricultural customers to use forms of nitrogen fertilizer that are more or less
favorable to the Companys products. Weather conditions following harvest may delay or eliminate
opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop
yields, which lowers the income of growers and could affect their ability to pay for crop inputs
purchased from the Companys dealer customers.
The Companys nitrogen business segment is seasonal, with the majority of nitrogen products
consumed during the second quarter in conjunction with spring planting activity. Due to the
business seasonality and the relatively brief periods during which customers consume nitrogen
products, the Company and its customers generally build inventories during the second half of the
year in order to ensure product availability during the peak sales season. For the Companys
current level of sales, it may require lines of credit to fund inventory increases and to support
customer credit terms. The Company believes that its credit facilities are adequate for expected
2006 sales levels.
The Companys manufacturing operations may be subject to significant interruption if one or more of
its facilities were to experience a major accident or were damaged by severe weather or other
natural
26
disaster. The Company currently maintains insurance, including business interruption insurance,
which it believes is sufficient to allow it to recover from major damage to any of its facilities.
Critical Accounting Policies
The discussion and analysis of the Companys financial condition and results of operations are
based upon its consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires estimates and judgments that affect the amount of assets,
liabilities, revenues and expenses as of the date of the financial statements. Actual results may
differ from these estimates.
Critical accounting policies are defined as those that reflect significant judgments and
uncertainties, and potentially result in materially different results under different assumptions
and conditions.
Derivative and Financial Instruments
The Company enters into derivative financial instruments, including swaps, basis swaps and put and
call options, to manage the effect of changes in natural gas costs, to manage the prices of its
nitrogen products and to manage foreign currency risk. The Company reports the fair value of the
derivatives on its 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 hedge, and to the extent such hedge is determined to be effective, changes in fair
value are either (a) offset by the change in fair value of the hedged asset or liability or (b)
reported as a component of accumulated other comprehensive income (loss) in the period of change,
and subsequently recognized in the determination of net income in the period the offsetting hedged
transaction occurs. If an instrument is settled early, any gains or losses are immediately
recognized as adjustments to earnings.
Revenue Recognition
Revenue is recognized when persuasive evidence of a transaction exists, delivery has occurred, the
price is fixed or determinable, no obligations remain and collectibility is probable.
Revenues are primarily comprised of sales of the Companys products, including any realized hedging
gains or losses related to nitrogen product derivatives, and are reduced by estimated discounts and
trade allowances. Revenues include amounts related to shipping and handling charges to the
Companys customers.
Inventory Valuation
Inventories are stated at the lower of cost or estimated net realizable value. The cost of
inventories is determined by using the first-in, first-out method. The Company performs a monthly
analysis of its inventory balances to determine if the carrying amount of inventories exceeds their
net realizable value. The analysis of estimated realizable value is based on customer orders,
market trends and historical pricing. If the carrying amount exceeds the estimated net realizable
value, the carrying amount is reduced to the estimated net realizable value.
27
Equity Investments
Equity investments are carried at original cost adjusted for the Companys proportionate share of
the investees income, losses and distributions. The Company periodically assesses the carrying
value of its equity investment and will record a loss on equity investments when a decline in the
fair value of the investment that is other than temporary exists.
Pension Assets and Liabilities
Pension assets and liabilities are affected by the estimated market value of plan assets, estimates
of the expected return on plan assets and discount rates. Actual changes in the fair market value
of plan assets and differences between the actual return on plan assets and the expected return on
plan assets will affect the amount of pension expense ultimately recognized. The Companys pension
projected benefit obligation was $454.5 million at December 31, 2005, which was $139.2 million
higher than pension plan assets. The December 31, 2005 liability was computed based on an average
5.4% discount rate, which was based on yields for high-quality corporate bonds with a maturity
approximating the duration of the Companys pension liability. In addition, the pension liability
for its U.K. pension plan, which includes provisions to adjust benefit payments for general
inflation rates, was estimated based on an average 3.0% annual inflation rate. Declines in
comparable bond yields or higher U.K. inflation rates would increase the Companys pension
liability. The Companys net pension liability, after deduction of plan assets, could increase or
decrease depending on the extent to which returns on pension plan assets are lower or higher than
the discount rate.
Post-Retirement Benefits
Post-retirement benefits are determined on an actuarial basis and are affected by assumptions
including the discount rate and expected trends in health care costs. Changes in the discount rate
and differences between actual and expected health care costs could affect the recorded amount of
post-retirement benefits expense ultimately recognized.
Deferred Income Taxes
Deferred income tax assets and liabilities reflect (a) differences between financial statement
carrying amounts and corresponding tax bases and (b) temporary differences resulting from differing
treatment of items for tax and accounting purposes. Deferred tax assets also include the expected
benefits of carrying forward the Companys net operating losses. The Company regularly reviews
deferred tax assets for recoverability and reduces them if the Company cannot sufficiently
determine that they will be realized. The Company bases this determination on projected future
taxable income and the expected timing of the reversals of existing temporary differences.
At December 31, 2005, deferred tax assets representing future benefits for the Companys U.S. net
operating loss carryforwards totaled $167 million. If there is a material change in the effective
tax rates or time period when temporary differences become taxable or deductible, the Company may
have to additionally reduce all or a significant portion of its deferred tax assets.
28
Impairment of Long-Lived Assets
The Company reviews and evaluates its long-lived assets for impairment when events and changes in
circumstances indicate that the carrying amount of its asset may not be recoverable. Impairment is
considered to exist if the total estimated future cash flows on an undiscounted basis are less than
the carrying value of the asset. Future cash flows include estimates of production levels, pricing
of the Companys products, costs of natural gas and capital expenditures. If the assets are
impaired, a calculation of fair value is performed; if the fair value is less than the carrying
value of the assets, the assets are reduced to their fair value.
During 2005, events occurred that indicated that the carrying amount of the Beaumont, Texas assets
may not be recoverable. As of December 31, 2005, the Beaumont assets had a carrying value, net of
$14 million of deferred revenues, of approximately $96 million. The Company estimated the remaining
useful life of the Beaumont facility at 13 years, assuming normal investment in maintenance and
replacement capital throughout this 13-year period. The estimated cash flows over this 13-year
period were based on the Companys best estimate of future market and operating conditions at
December 31, 2005. The estimated cash flows exceeded the carrying value of the Beaumont assets,
therefore, no impairment charge was recorded. The cash flow estimates were made with the assumption
that the Beaumont facility will remain idle through 2008, the term of the Companys contract with
Methanex, and that once restarted, the Beaumont facility will produce at historic rates and selling
prices will be adequate to realize historic margins.
Results of Continuing Operations2005 Compared with 2004
Consolidated Results
The Company reported 2005 net income of $22.1 million on revenues of $1.9 billion compared
with a 2004 net income of $67.6 million on revenues of $1.5 billion. Diluted income per share for
2005 was $0.18 compared with $0.85 for 2004. The 2005 net income included a $27.2 million ($24.9
million, net of tax) loss related to the early retirement of debt and a $8.9 million ($8.9 million,
net of tax) gain relating to change in fair value of warrants.
The 2004 net income included $27.9 million of income tax benefits due to a favorable settlement
with a foreign taxing authority, $11.6 million of income attributable to an insurance recovery of
product claim costs (representing $17.9 million of operating income less $6.3 million of related
income taxes) and a $7.1 million loss from the early retirement of long-term debt (representing
$11.1 million of losses less $4.0 million of related income taxes).
The Company classifies its operations into two business segments: Nitrogen Products and Methanol.
The Nitrogen Products segment represents the sale of nitrogen products including that produced at
the Companys ammonia manufacturing and upgrading facilities. The Methanol segment represents sales
of methanol including that produced at the Companys two methanol manufacturing facilities.
29
Total revenues and operating income (loss) by segment for the years ended December 31, 2005 and
2004 were:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
Nitrogen products |
|
$ |
1,905,505 |
|
|
$ |
1,320,142 |
|
Methanol |
|
|
31,347 |
|
|
|
186,823 |
|
Other revenues |
|
|
2,213 |
|
|
|
2,145 |
|
|
|
|
$ |
1,939,065 |
|
|
$ |
1,509,110 |
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
Nitrogen products |
|
$ |
131,474 |
|
|
$ |
138,745 |
|
Methanol |
|
|
(14,089 |
) |
|
|
1,479 |
|
Other expensenet |
|
|
(3,689 |
) |
|
|
(5,478 |
) |
|
|
|
$ |
113,696 |
|
|
$ |
134,746 |
|
|
Nitrogen Products
Volumes and prices for 2005 and 2004 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes and Prices |
|
2005 |
|
|
2004 |
|
(quantities in |
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
thousands of tons) |
|
Volumes |
|
|
Unit Price* |
|
|
Volumes |
|
|
Unit Price* |
|
|
Ammonia |
|
|
1,898 |
|
|
$ |
303 |
|
|
|
1,391 |
|
|
$ |
266 |
|
Nitrogen solutions |
|
|
4,368 |
|
|
|
151 |
|
|
|
3,869 |
|
|
|
120 |
|
Urea |
|
|
151 |
|
|
|
262 |
|
|
|
376 |
|
|
|
195 |
|
Ammonium nitrate |
|
|
1,581 |
|
|
|
202 |
|
|
|
988 |
|
|
|
178 |
|
|
|
|
|
* |
|
After deducting outbound freight costs |
Nitrogen products revenues increased by $585.4 million to $1,905.5 million for 2005 compared with
$1,320.1 million for 2004 primarily as the result of the December 2004 acquisition of MCC and
higher sales prices. Higher selling prices contributed $253.7 million to 2005 revenues as the
result of increased demand and lower fertilizer supplies due to reduced production capacity in
North America. Sales volumes in 2005 were higher than those of the previous year due primarily to
the MCC acquisition.
Nitrogen products operating income decreased by $7.3 million to $131.5 million for 2005 from $138.7
million for 2004. Operating income in 2005 from the MCC business totaled $34.5 million, but was
more than offset by lower nitrogen margins on other operations and the absence of the $17.9 million
2004 insurance recovery of product claim costs. Nitrogen margins declined principally as the result
of increases to natural gas costs that outpaced selling price changes.
Natural gas costs increased $272.5 million from 2004 as unit costs, net of forward pricing gains
and losses, and were $7.50 per million British thermal units (MMBtu) during 2005 compared to
$5.37/MMBtu during 2004. As a result of forward price contracts, 2005 natural gas costs for the
nitrogen products segment were $0.7 million lower than spot prices.
30
Methanol
Methanol revenues were $31.3 million and $186.8 million for the years ended December 31, 2005
and 2004, respectively. Sales volumes declined approximately 87% from the prior year primarily due
to cessation of production from the Beaumont facility.
The methanol segment had an operating loss of $14.1 million during 2005 compared to operating
income of $1.5 million in 2004. The 2005 operating loss reflected lower sales volumes and idle
facility costs.
Other Operating ActivitiesNet
The Company had $3.7 million of charges from other operating activities in 2005 compared to
$5.5 million in 2004. The decrease in expense relates primarily to administrative and legal fees
for general corporate activities not allocable to any particular business segment.
Interest ExpenseNet
Net interest expense was $45.4 million in 2005 compared with $49.8 million in 2004. The
reduction in interest expense primarily related to higher cash balances during 2005 as compared to
2004, increased yields on the cash balances and a decrease in interest expense due to a 2004 fourth
quarter $70.7 million redemption of Senior Notes due in 2010.
Minority Interest
Minority interest represents interest in the earnings of the publicly held common units of
Terra Nitrogen Company, L.P. (TNCLP). The 2005 minority interest charge of $13.7 million reflected
nitrogen earnings for TNCLP, which were included in their entirety in consolidated operating
results. Minority interest charge of $11.2 million was recorded in 2004, which were included in
their entirety in consolidated operating results.
Income Taxes
Terras income tax expense was $14.2 million in 2005, or 39% of pretax income, based primarily
on statutory rates in the jurisdictions where the earnings arise.
Terras income tax benefit of $5.0 million in 2004 included reductions to tax reserves totaling
$27.9 million for a reduced assessment by a foreign taxing authority.
Results of Continuing Operations2004 Compared with 2003
Consolidated Results
The Company reported 2004 net income of $67.6 million on revenues of $1,509 million compared
with a 2003 net loss of $12.5 million on revenues of $1,351 million. Diluted income (loss) per
share for 2004 was $0.85 compared with $(0.16) for 2003. Results for 2004 and 2003 were favorably
affected by income tax benefits of $27.9 million and $36.4 million, respectively, for reduced
assessments by a foreign taxing authority and reversals of tax reserves established in prior
years.
31
The 2004 net income also included $11.6 million attributable to an insurance recovery of
product claim costs (representing $17.9 million of operating income less $6.3 million of related
income taxes) and a $11.1 million loss from the early retirement of long-term debt primarily
related to the Companys redemption of $70.7 million in Second Priority Senior Secured Notes due
2010 (there were no tax benefits associated with this loss.)
The 2003 net loss included a $27.0 million net charge for the impairment of the Companys
Blytheville facility (representing $53.1 million impairment charge to operating income less $9.9
million allocated to minority interest and $16.2 million income tax benefits).
The Company classifies its operations in two business segments: Nitrogen Products and Methanol. The
Nitrogen Products segment represents the sale of nitrogen products including that produced at the
Companys ammonia manufacturing and upgrading facilities. The Methanol segment represents sales of
methanol including that produced at the Companys two methanol manufacturing facilities.
MCC revenues and expense are included from the December 21, 2004, acquisition date and are not
significant for the year ended December 31, 2004 as compared to the year ended December 31, 2003.
Total revenues and operating income (loss) by segment for the years ended December 31, 2004 and
2003 were:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2004 |
|
2003 |
|
Revenues: |
|
|
|
|
|
|
|
|
Nitrogen products |
|
$ |
1,320,142 |
|
|
$ |
1,139,379 |
|
Methanol |
|
|
186,823 |
|
|
|
209,870 |
|
Other revenues |
|
|
2,145 |
|
|
|
1,806 |
|
|
|
|
$ |
1,509,110 |
|
|
$ |
1,351,055 |
|
|
Operating Income (Loss): |
|
|
|
|
|
|
|
|
Nitrogen products |
|
$ |
138,745 |
|
|
$ |
33,721 |
|
Impairment of long-lived assets
(nitrogen products) |
|
|
|
|
|
|
(53,091 |
) |
Methanol |
|
|
1,479 |
|
|
|
1,866 |
|
Other expensenet |
|
|
(5,478 |
) |
|
|
(6,056 |
) |
|
|
|
$ |
134,746 |
|
|
$ |
(23,560 |
) |
|
Nitrogen Products
Volumes and prices for 2004 and 2003 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volumes and Prices |
|
2004 |
|
2003 |
(quantities in |
|
Sales |
|
Average |
|
Sales |
|
Average |
thousands of tons) |
|
Volumes |
|
Unit Price* |
|
Volumes |
|
Unit Price* |
|
Ammonia |
|
|
1,391 |
|
|
$ |
266 |
|
|
|
1,400 |
|
|
$ |
229 |
|
Nitrogen solutions |
|
|
3,869 |
|
|
|
120 |
|
|
|
3,840 |
|
|
|
99 |
|
Urea |
|
|
376 |
|
|
|
195 |
|
|
|
545 |
|
|
|
173 |
|
Ammonium nitrate |
|
|
988 |
|
|
|
178 |
|
|
|
934 |
|
|
|
142 |
|
|
|
|
|
* |
|
After deducting outbound freight costs |
32
Nitrogen products revenues increased by $181 million to $1,320 million for 2004 compared with
$1,139 million for 2003 primarily as the result of higher sales prices. Selling prices were higher
as the result of increased demand and lower fertilizer supplies caused by industry-wide production
curtailments since mid-2003. Price increases also reflected higher imported product costs as the
result of U.S. currency declines relative to other currencies and increased international freight
rates. Sales volumes in 2004 were lower than those of the previous year due mostly to the
Blytheville production facilitys permanent closure in May 2004.
Nitrogen products operating income, excluding 2003 charges for the impairment of long-lived assets,
increased by $105.0 million to $138.7 million for 2004 from $33.7 million for 2003. Higher selling
prices and recovery of product claim costs contributed $180.4 million and $17.9 million,
respectively, to 2004 operating income. Theses factors were partly offset by higher natural gas
costs and increased expenses.
Natural gas costs increased $76.1 million from 2004 as unit costs, net of forward pricing gains and
losses, were $5.37 per million British thermal units during 2004 compared to $4.76/MMBtu during
2003. As a result of forward price contracts, 2004 natural gas costs for the nitrogen products
segment were $14.6 million lower than spot prices.
Selling, general and administrative expenses assigned to the nitrogen products business segment
totaled $41.9 million for 2004 compared to $30.2 million for 2003. The increase is primarily due to
incentive pay accruals based on net income, professional fees associated with Sarbanes-Oxley
compliance and changes in the allocation methods of centralized expense centers between the
nitrogen products and methanol business segments. During 2003, $5.6 million of the Companys
selling, general and administrative expenses were allocated to the methanol business segment. Those
allocations were discontinued in 2004 as a result of contracts transferring the marketing rights
for our methanol production to Methanex.
Impairment of Long-Lived Assets
During 2003, the Company recorded a $53.1 million charge for the impairment of the
Blytheville, Arkansas facility as it concluded that future market conditions may not justify
ongoing investment in the maintenance and replacement capital required to operate the Blytheville
facility for its established useful life. The Blytheville production capabilities were permanently
closed in May 2004.
Methanol
Methanol revenues were $186 million for the year ended December 31, 2004. Approximately 85% of
2004 methanol revenues were realized under a contract providing Methanex with exclusive rights to
all methanol production at our Beaumont, Texas facility. That contract was executed in December
2003 and requires the Company to sell the Beaumont production to Methanex at a price which will
generally approximate cash production costs. In addition, Methanex pays the Company one-half of the
cash margin attributable to Beaumonts production based on realized methanol prices and actual
natural gas costs. Other contract-related 2004 revenues include amounts received at signing that
are deferred and recognized over the life of the contract on a straight-line basis.
During 2004, the Company realized $8.2 million of margin-sharing and deferred revenues under the
Methanex contract. Methanol 2004 operating income also includes depreciation charges related to the
33
Beaumont facility and earnings realized on methanol sales from the Companys Woodward, Oklahoma
facility.
During 2003, methanol segment revenues were derived from market-based sales to third-party
customers. Operating income was largely a function of revenues over production costs, including
natural gas, and operating expenses.
Other Operating ActivitiesNet
The Company had $5.5 million of charges from other operating activities in 2004 compared to
$6.1 million in 2003. These losses represent charges for amortization of deferred financing costs
and legal fees related to general corporate activities not allocable to any particular business
segment.
Interest ExpenseNet
Net interest expense was $49.8 million in 2004 compared with $54.5 million in 2003. The
reduction in interest expense primarily related to higher cash balances and the fourth quarter
$70.7 million redemption of Senior Notes due in 2010.
Minority Interest
Minority interest represents interest in the earnings of the publicly held common units of
Terra Nitrogen Company, L.P. (TNCLP). The 2004 minority interest charge of $11.2 million reflected
nitrogen earnings for TNCLP, which were included in their entirety in consolidated operating
results. Minority interest benefits of $8.6 million were recorded in 2003 as the result of TNCLP
losses, which included an impairment charge for the Blytheville, Arkansas facility. These amounts
are directly related to TNCLP losses and earnings.
Income Taxes
Terras income tax benefit was $5.0 million in 2004 and included reductions to tax reserves
totaling $27.9 million for a reduced assessment by a foreign taxing authority. The 2004 benefit was
net of a $2.5 million charge to eliminate tax benefits associated with U.S. losses.
Terras income tax benefit was $57.0 million in 2003 and also included reductions to tax reserves
totaling $36.4 million for a reduced assessment by a foreign taxing authority and reversal of tax
reserves provided in prior years. The 2003 benefit was reduced to $0.8 million to eliminate tax
benefits associated with U.S. losses.
Liquidity and Capital Resources
The Companys primary uses of cash and cash equivalents is to fund its working capital
requirements, make payments on its debt and other obligations and make payments for plant
turnarounds and capital expenditures. The principal sources of funds are cash flow from operations
and borrowings under available bank facilities.
34
Unrestricted cash and cash equivalent balances at December 31, 2005, were $86.4 million. Restricted
cash and cash equivalent balances of $8.6 million at December 31, 2005 are restricted until
qualified capital expenditures at the Verdigris, Oklahoma facility have been performed.
During 2005, cash and cash equivalents decreased $147.4 million. Net cash provided by operating
activities was $10.8 million. Cash used in financing activities was $144.6 million, primarily
related to the early extinguishment of debt. Cash used for investing activities was $22.3 million,
primarily for capital expenditures and plant turnaround costs, offset by distributions received
from unconsolidated affiliates.
Net cash provided by 2005 operating activities of $10.8 million was composed of $174.2 million of
cash provided from operating activities and $163.4 million used by higher net working capital
balances. Net working capital balances increased $59.6 million and $45.6 million primarily as the
result of higher prices and natural gas costs on accounts receivable and finished goods inventory
values, respectively. Current liabilities also declined by $76.1 million during 2005 due to a
reduction in customer prepayment arrangements. The Company had $52.9 million in customer
prepayments at December 31, 2005 for the selling price and delivery costs of nitrogen products that
it will deliver during the first half of 2006.
During 2005, the Company repaid $125 million of debt obligations related to the MCC acquisition
during 2004.
During 2004, the Company issued 4.25% Cumulative Convertible Perpetual Series A Preferred Shares
with a liquidation value of $120 million for net proceeds of $115.8 million. The Series A preferred
shares are not redeemable by the Company, are convertible into common stock at a conversion price
of $9.96 per common share at the option of the holder and may at the Companys option be
automatically converted to common shares after December 20, 2009 if the closing price for common
shares exceeds 140% of the conversion price for any twenty days within a consecutive thirty day
period prior to such conversion. Upon the occurrence of a fundamental change to the Companys
capital structure, including a change of control, merger, or sale of the Company, holders of the
Series A preferred shares may require the Company to purchase any or all of their shares at a price
equal to their liquidation value plus any accumulated, but unpaid, dividends. The Company also has
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.
During 2005 and 2004, the Company funded plant and equipment purchases of $30.8 million and $18.5
million, respectively, primarily for replacement or stay-in-business capital needs. The Company
expects 2006 plant and equipment purchases to approximate $50 million consisting primarily of
expenditures for replacement of equipment or to improve operating results at its manufacturing
facilities.
Plant turnaround costs represent cash used for the periodic scheduled major maintenance of the
Companys continuous process production facilities that is performed at each plant, generally every
two years. The Company funded $22.3 million and $28.9 million of plant turnaround costs in 2005 and
2004, respectively. The Company estimates 2006 plant turnaround costs will approximate $40 million.
On December 21, 2004, the Company entered into revolving credit facilities totaling $200 million
that expire in June 2008. Borrowing availability under the credit facility is generally based on
eligible cash balances, 85% of eligible accounts receivable and 60% of eligible inventory, less
outstanding letters of
35
credit. These facilities include $50 million only available for the use of TNCLP, one of the
Companys consolidated subsidiaries. There were no outstanding revolving credit borrowings and
there were $15.6 million in outstanding letters of credit, resulting in remaining borrowing
availability of approximately $177.3 million under the facilities. The Company is required to
maintain a combined minimum unused borrowing availability of $30 million. The credit facility also
requires that the Company 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 the Companys borrowing
availability falls below a combined $60 million, it is 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 credit facility) for the preceding four quarters.
The Companys ability to meet credit facility 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 credit facility or could
result in termination of the facility. Access to adequate bank facilities is critical to funding
the Companys operating cash needs. Based on our December 31, 2005 financial position and the
current market conditions for the Companys finished products and for natural gas, the Company
anticipates that it will be able to comply with its covenants through 2006.
The Companys ability to manage its exposure to commodity price risk in the purchase of natural gas
through the use of financial derivatives may be affected by limitations imposed by its bank
agreement covenants.
Contractual obligations and commitments to make future payments at December 31, 2005 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In |
|
|
Less than |
|
One to |
|
Three to |
|
|
(in millions) |
|
One Year |
|
Three Years |
|
Five Years |
|
Thereafter |
|
Long-term debt |
|
$ |
|
|
|
$ |
200.0 |
|
|
$ |
131.3 |
|
|
$ |
|
|
Operating leases |
|
|
21.1 |
|
|
|
34.2 |
|
|
|
24.8 |
|
|
|
11.7 |
|
Interest expense on
fixed rate debt |
|
|
40.8 |
|
|
|
78.5 |
|
|
|
21.4 |
|
|
|
|
|
Ammonia purchase contract (1) |
|
|
112.6 |
|
|
|
225.2 |
|
|
|
225.2 |
|
|
|
900.8 |
|
Other purchase obligations |
|
|
188.3 |
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
4.4 |
|
|
Total |
|
$ |
362.8 |
|
|
$ |
540.1 |
|
|
$ |
404.9 |
|
|
$ |
916.9 |
|
|
|
|
|
(1) |
|
The Company has a contractual obligation to purchase one-half of the ammonia produced
by Point Lisas Nitrogen Limited. The purchase price is based on the average market price of
ammonia, F.O.B. Caribbean, less a discount. Obligations in the above table are based on
purchasing 360,000 short tons per year at the December 2005 average price paid. This
contract expires in October 2018. |
The Companys pension projected benefit obligations were $454.5 million at December 31, 2005, which
was $139.2 million higher than its pension plan assets. The pension projected benefit obligations
were computed based on a 5.4% discount rate, which was based on yields for high-quality corporate
bonds (Moodys Investor Service AA rated or equivalent) with a maturity approximating the
duration of the
36
Companys pension obligation. Future declines in comparable bond yields would increase the
Companys pension obligation and future increases in bond yields would decrease the Companys
pension obligation. The Companys pension obligation, net of plan assets, could increase or
decrease depending on the extent that returns on pension plan assets are lower or higher than the
discount rate. In addition, the pension obligation for the Companys U.K. pension plan, which
includes provisions to adjust benefit payments for general inflation rates, was estimated based on
a 3.0% inflation rate. The Companys pension obligation could increase or decrease based on actual
U.K. inflation rates. The Companys cash contributions to pension plans were $22.2 million in 2005
and are estimated at $8.3 million in 2006. Actual contributions could vary from these estimates
depending on actual returns for plan assets, legislative changes to pension funding requirements
and/or plan amendments.
Expenditures related to environmental, health and safety regulation compliance are primarily
composed of operating costs that totaled $15.7 million in 2005. Because environmental, health and
safety regulations are expected to continue to change and generally to be more restrictive than
current requirements, the costs of compliance will likely increase. The Company does not expect
compliance with such regulations will have a material adverse effect on the results of operations,
financial position or net cash flows.
The Company incurred $2.0 million of 2005 capital expenditures to ensure compliance with
environmental, health and safety regulations. The Company may be required to install additional air
and water quality control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors
and continuous emission monitors to continue to achieve compliance with the Clean Air Act and
similar requirements. These equipment requirements typically apply to competitors as well. The
Company estimates that the cost of complying with these existing requirements in 2006, 2007 and
2008 and beyond will be less than $20 million in the aggregate.
The Company owns 75.3% of the common units of TNCLP, which in accordance with the partnership
agreement, permits it to call all common units that it does not own.
During 2005, 2004 and 2003, TNCLP distributed $13.6 million, $8.1 million and $1.2 million,
respectively, to the minority TNCLP common unitholders. TNCLP distributions are based on Available
Cash (as defined in the Partnership Agreement).
During 2005, the Company paid $6.0 million for preferred share dividends.
Cash balances at December 31, 2005 were $95.0 million, of which $8.6 million is restricted.
Recently Issued Accounting Standards
In October 2004, The American Jobs Creation Act of 2004 (the Jobs Act) was signed into law.
The Act creates a temporary incentive for U.S. multinationals to repatriate accumulated income
earned outside the U.S. at an effective tax rate of 5.25%. On December 21, 2004, the Financial
Accounting Standards Board (FASB) issued their staff position, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004 Statement of Financial Accounting Standards (SFAS) 109-2. SFAS 109-2 allows companies
additional time to evaluate the impact of the law and to record the tax effect of repatriation over
several interim periods as they complete
37
their assessment of repatriating all or a portion of these unremitted earnings. The Company does
not plan to reinvest or repatriate any foreign earnings as a result of the Jobs Act.
In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS
123R requires measurement of all employee stock-based compensation awards using a fair-value method
and the recording of such expense in the consolidated financial statements. In addition, the
adoption of SFAS 123R requires additional accounting related to the income tax effects and
disclosure regarding the cash flow effects resulting from share-based payment arrangements. In
January 2005, the United States Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 107, which provides supplemental implementation guidance for SFAS 123R. SFAS 123R is
effective for the Companys first quarter of fiscal 2006. The Company has selected the
Black-Scholes option-pricing model as the most appropriate fair-value method for its awards and
will recognize compensation cost on a straight-line basis over its awards vesting periods. The
adoption of SFAS 123R will not have a material impact on the Companys results of operation.
However, uncertainties, including the Companys future stock-based compensation strategy, stock
price volatility, estimated forfeitures and employee stock option exercise behavior, make it
difficult to determine whether the stock-based compensation expense that the Company will incur in
future periods will be similar to the SFAS 123 pro forma disclosed in the notes to Consolidated
Financial Statements.
In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, (SFAS 153) an
amendment of APB Opinion No. 29. SFAS 153 addresses the measurement of exchanges of nonmonetary
assets and redefines the scope of transactions that should be measured based on the fair value of
the assets exchanged. SFAS 153 is effective for nonmonetary asset exchanges beginning in the
Companys first quarter of fiscal 2006. The Company does not expect the adoption of SFAS 153 to
have a material impact on results of operation or financial condition.
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations (FIN 47). FIN 47 is an interpretation of SFAS 143, Accounting for Asset
Retirement Obligations. FIN 47 addresses the recognition of an unconditional retirement obligation
when uncertainty exists about the timing and (or) method of settlement. The Company adopted FIN 47
during 2005. The effect of the adoption of FIN 47 was not material to the Companys financial
statements.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, (SFAS 154) which
replaces Accounting Principles Board Opinions No. 20 Accounting Changes and SFAS 3, Reporting
Accounting Changes in Interim Financial Statements An Amendment of APB Opinion No. 28. SFAS 154
provides guidance on the accounting for and reporting of accounting changes and error corrections.
It establishes retrospective application, or the earliest practicable date, as the required method
for reporting a change in accounting principle and restatement with respect to the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in
the first quarter of fiscal 2007.
In June 2005, the EITF reached a consensus on Issue No. 05-06, Determining the Amortization Period
for Leasehold Improvements (EITF 05-06). EITF 05-06 provides guidance for determining the
amortization period used for leasehold improvements acquired in a business combination or purchased
38
after the inception (of a lease, collectively referred to as subsequently acquired leasehold
improvement). EITF 05-06 provides that the amortization period used for the subsequently acquired
leasehold improvements to be the lesser of (a) the subsequently acquired leasehold improvements
useful lives, or (b) a period that reflects renewals that are reasonably assured upon the
acquisition or the purchase. EITF 05-06 is effective on a prospective basis for subsequently
acquired leasehold improvements purchased or acquired in periods beginning after the date of the
FASBs ratification, which was on June 29, 2005. The Company does not believe the adoption of EITF
05-06 will affect its results of operations and financial condition in fiscal 2006.
In March 2005, the FASB issued SFAS Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, which requires conditional asset retirement obligations to be recognized
if a legal obligation exists to perform asset retirement activities and a reasonable estimate of
the fair value of the obligation can be made. FIN 47 also provides guidance as to when an entity
would have sufficient information to reasonably estimate the fair value of an asset retirement
obligation. The Company adopted the provisions of FIN 47 on December 31, 2005 and the adoption has
not had a material affect on the Companys financial statements.
In July 2005, the FASB issued proposed guidance concerning the accounting for uncertain tax
positions. The proposal would require that an uncertain tax position meet a probable recognition
threshold based on the merits of the position in order for the benefit to be recognized in the
financial statements. The proposal also addresses the accrual of interest and penalties related to
tax uncertainties and the classification of liabilities on the balance sheet. If implemented in its
present form, the Company does not expect the adoption to have a material impact on the results of
operations or financial condition.
Forward-Looking Precautions
Information contained in this report, other than historical information, may be considered
forward-looking. Forward-looking information reflects managements current views of future events
and financial performance that involve a number of risks and uncertainties. The factors that could
cause actual results to differ materially include, but are not limited to, the following: changes
in financial markets, general economic conditions within the agricultural industry, competitive
factors and price changes (principally, sales prices of nitrogen and methanol products and natural
gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in
weather conditions, changes in agricultural regulations, and other risks detailed in the Factors
that Affect Operating Results section of this discussion.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Risk Management and Financial Instruments
Market risk represents the risk of loss that may impact the Companys financial position,
results of operations or cash flows due to adverse changes in financial and commodity market prices
and rates. The Company uses derivative financial instruments to manage risk in the areas of (a)
foreign currency fluctuations, (b) changes in natural gas prices and (c) changes in nitrogen prices
and (d) changes in interest rates. See Note 13 to the Consolidated Financial Statements for
additional information on the use of derivative financial instruments.
39
The Companys policy is to avoid unnecessary risk and to limit, to the extent practical, risks
associated with operating activities. The Companys management may not engage in activities that
expose the Company to speculative or non-operating risks and is expected to limit risks to
acceptable levels. The use of derivative financial instruments is consistent with the Companys
overall business objectives. Derivatives are used to manage operating risk within the limits
established by our Board of Directors, and in response to identified exposures, provided they
qualify as hedge activities. As such, derivative financial instruments are used to manage exposure
to interest rate fluctuations, to hedge specific assets and liabilities denominated in foreign
currency, to hedge firm commitments and forecasted natural gas purchase transactions, to set a
floor for nitrogen selling prices and to protect against foreign exchange rate movements between
different currencies that impact revenue and earnings expressed in U.S. dollars.
The use of derivative financial instruments subjects the Company to some inherent risks associated
with future contractual commitments, including market and operational risks, credit risk associated
with counterparties, product location (basis) differentials and market liquidity. The Company
continuously monitors the valuation of identified risks and adjusts the portfolio based on current
market conditions.
Foreign Currency Fluctuations
The Companys policy is to manage risk associated with foreign currency fluctuations by entering
into forward exchange and option contracts covering specific currency obligations or net foreign
currency operating requirements, as appropriate. Such hedging is limited to the amounts and
duration of the specific obligations being hedged and, in the case of operating requirements, no
more than 75% of the forecasted requirements. The primary currencies to which the Company is
exposed are the Canadian dollar and the British pound. At December 31, 2005, the Company had
nominal forward currency positions that were matched with committed capital expenditures.
Natural Gas PricesNorth American Operations
Natural gas is the principal raw material used to manufacture nitrogen and methanol. Natural gas
prices are volatile and the Company mitigates some of this volatility through the use of derivative
commodity instruments. The Companys current policy is to hedge natural gas provided that such
arrangements would not result in costs greater than expected selling prices for its finished
products. North American natural gas requirements for 2006 are approximately 100 million MMBtu. The
Company has hedged 18% of its expected 2006 North American requirements and none of its
requirements beyond December 31, 2006. The fair value of these instruments is estimated based, in
part, on quoted market prices from brokers, realized gains or losses and the Companys
computations. These instruments and other natural gas positions fixed natural gas prices at $14.1
million more than published prices for December 31, 2005 forward markets. Market risk is estimated
as the potential loss in fair value resulting from a hypothetical 10% adverse change in price. As
of December 31, 2005 the Companys market risk exposure related to future natural gas requirements
being hedged was $9.5 million based on a sensitivity analysis. Changes in the market value of these
derivative instruments have a high correlation to changes in the spot price of natural gas. Since
the Company enters into forward pricing agreements for only a portion of its natural gas
requirements, this hypothetical adverse impact on natural gas derivative instruments could be more
than offset by lower costs for all natural gas it purchases.
40
Natural Gas PricesTrinidad Operation
The natural gas requirements of Point Lisas Nitrogen Limited are supplied under contract with the
Natural Gas Company of Trinidad and Tobago. The cost of natural gas to the joint venture fluctuates
based on changes in the market price of ammonia.
Natural Gas PricesUnited Kingdom Operations
To meet natural gas production requirements at the Companys United Kingdom production facilities,
the Company generally enters into one- or two-year gas supply contracts and fixes prices for
approximately 20% to 80% of total volume requirements. Procurement requirements for 2006 U.K.
natural gas are approximately 26 million MMBtu. As of December 31, 2005, the Company had
fixed-price contracts for 8% of its expected 2006 U.K. natural gas requirements and none of its
2007 natural gas requirements. The Companys U.K. fixed-price derivative contracts for 2006 natural
gas purchases were at prices $2.0 million lower than published prices for December 31, 2005 forward
markets.
Nitrogen Prices
The prices for nitrogen products can be volatile and the Company mitigates some of this volatility
through the use of derivative commodity instruments. The Companys current policy is to hedge no
more than 20% of its expected production for the upcoming 12 months and no more than 50% of any
single months expected production. Deviation from this policy requires Board of Director approval.
The Company has not hedged any of its 2006 North American sales of nitrogen solutions.
Interest Rate Fluctuations
The table below provides information about the Companys financial instruments that are sensitive
to changes in interest rates. For debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates. The Company had no interest
rate financial derivatives outstanding at December 31, 2005.
41
Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Expected Maturity Date |
|
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
Long-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Notes,
fixed rate of 12.88% ($US) |
|
$ |
|
|
|
$ |
|
|
|
$ |
200.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
200.0 |
|
|
$ |
204.3 |
|
Senior Second Priority
Secured Notes,
fixed rate 11.50% ($US) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131.3 |
|
|
|
|
|
|
|
131.3 |
|
|
|
125.7 |
|
|
Total Long-Term Debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
200.0 |
|
|
$ |
|
|
|
$ |
131.3 |
|
|
$ |
|
|
|
$ |
331.3 |
|
|
$ |
455.4 |
|
|
Short-Term Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility,
notional amount ($US) |
|
$ |
150.0 |
|
|
$ |
150.0 |
|
|
$ |
150.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Variable interest rate,
LIBOR based |
|
|
4.34 |
% |
|
|
4.34 |
% |
|
|
4.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNLP revolving credit
facility, notional
amount ($US) |
|
$ |
50.0 |
|
|
$ |
50.0 |
|
|
$ |
50.0 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate,
LIBOR based |
|
|
4.34 |
% |
|
|
4.34 |
% |
|
|
4.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
86,366 |
|
|
$ |
233,798 |
|
Restricted cash |
|
|
8,595 |
|
|
|
|
|
Accounts receivable, less allowance for
doubtful accounts of $234 and $262 |
|
|
206,407 |
|
|
|
150,271 |
|
Inventories |
|
|
190,314 |
|
|
|
148,808 |
|
Income tax receivable |
|
|
|
|
|
|
11,500 |
|
Other current assets |
|
|
54,578 |
|
|
|
46,606 |
|
|
Total current assets |
|
|
546,260 |
|
|
|
590,983 |
|
|
Property, plant and equipment, net |
|
|
733,536 |
|
|
|
797,978 |
|
Deferred plant turnaround costs |
|
|
27,447 |
|
|
|
33,897 |
|
Equity investments |
|
|
183,884 |
|
|
|
215,939 |
|
Intangible assets |
|
|
7,526 |
|
|
|
24,884 |
|
Other assets |
|
|
24,972 |
|
|
|
21,827 |
|
|
Total assets |
|
$ |
1,523,625 |
|
|
$ |
1,685,508 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
Debt due within one year |
|
$ |
38 |
|
|
$ |
167 |
|
Accounts payable |
|
|
125,863 |
|
|
|
119,571 |
|
Customer prepayments |
|
|
52,913 |
|
|
|
115,347 |
|
Accrued and other current liabilities |
|
|
84,996 |
|
|
|
104,848 |
|
|
Total current liabilities |
|
|
263,810 |
|
|
|
339,933 |
|
|
Long-term debt and capital lease obligations |
|
|
331,300 |
|
|
|
435,238 |
|
Deferred income taxes |
|
|
65,998 |
|
|
|
58,224 |
|
Pension liabilities |
|
|
120,236 |
|
|
|
119,570 |
|
Other liabilities |
|
|
41,320 |
|
|
|
47,872 |
|
Minority interest |
|
|
92,258 |
|
|
|
92,197 |
|
|
Total liabilities and minority interest |
|
|
914,922 |
|
|
|
1,093,034 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares - liquidation value of
$120,000 and $137,269 |
|
|
115,800 |
|
|
|
133,069 |
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
|
|
Common Shares, authorized 133,500 shares;
95,171 and 92,994 shares outstanding |
|
|
146,994 |
|
|
|
144,531 |
|
Paid-in capital |
|
|
712,671 |
|
|
|
681,639 |
|
Accumulated other comprehensive loss |
|
|
(70,143 |
) |
|
|
(55,994 |
) |
Unearned compensation |
|
|
(5,369 |
) |
|
|
(2,568 |
) |
Accumulated deficit |
|
|
(291,250 |
) |
|
|
(308,203 |
) |
|
Total stockholders equity |
|
|
492,903 |
|
|
|
459,405 |
|
|
Total liabilities and stockholders equity |
|
$ |
1,523,625 |
|
|
$ |
1,685,508 |
|
|
See accompanying Notes to the Consolidated Financial Statements
43
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
(in thousands, except per-share amounts) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Revenues |
|
$ |
1,930,583 |
|
|
$ |
1,506,965 |
|
|
$ |
1,349,249 |
|
Other income, net |
|
|
8,482 |
|
|
|
2,145 |
|
|
|
1,806 |
|
|
Total Revenue |
|
|
1,939,065 |
|
|
|
1,509,110 |
|
|
|
1,351,055 |
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
1,800,236 |
|
|
|
1,348,077 |
|
|
|
1,281,663 |
|
Selling, general and administrative expense |
|
|
46,548 |
|
|
|
44,190 |
|
|
|
39,861 |
|
Equity in earnings of unconsolidated affiliates |
|
|
(21,415 |
) |
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
53,091 |
|
Recovery of product claim costs |
|
|
|
|
|
|
(17,903 |
) |
|
|
|
|
|
|
|
|
1,825,369 |
|
|
|
1,374,364 |
|
|
|
1,374,615 |
|
|
Income (loss) from operations |
|
|
113,696 |
|
|
|
134,746 |
|
|
|
(23,560 |
) |
Interest income |
|
|
8,086 |
|
|
|
3,307 |
|
|
|
534 |
|
Interest expense |
|
|
(53,478 |
) |
|
|
(53,134 |
) |
|
|
(55,072 |
) |
Loss on early retirement of debt |
|
|
(27,193 |
) |
|
|
(11,116 |
) |
|
|
|
|
Change in fair value of warrant liability |
|
|
8,860 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest |
|
|
49,971 |
|
|
|
73,803 |
|
|
|
(78,098 |
) |
Income tax benefit (provision) |
|
|
(14,217 |
) |
|
|
5,000 |
|
|
|
57,000 |
|
Minority interest |
|
|
(13,667 |
) |
|
|
(11,207 |
) |
|
|
8,617 |
|
|
Net income (loss) |
|
|
22,087 |
|
|
|
67,596 |
|
|
|
(12,481 |
) |
Preferred share dividends |
|
|
(5,134 |
) |
|
|
(1,029 |
) |
|
|
|
|
|
Income (Loss) Available to Common Stockholders |
|
$ |
16,953 |
|
|
$ |
66,567 |
|
|
$ |
(12,481 |
) |
|
|
Basic and Diluted Income (Loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.18 |
|
|
$ |
0.87 |
|
|
$ |
(0.16 |
) |
Diluted |
|
|
0.18 |
|
|
|
0.85 |
|
|
|
(0.16 |
) |
|
Basic and Diluted Weighted Average Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
92,537 |
|
|
|
76,478 |
|
|
|
75,676 |
|
Diluted |
|
|
94,935 |
|
|
|
79,859 |
|
|
|
75,676 |
|
See accompanying Notes to the Consolidated Financial Statements
44
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
22,087 |
|
|
$ |
67,596 |
|
|
$ |
(12,481 |
) |
Adjustments to reconcile net income (loss) to net cash
flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
110,342 |
|
|
|
102,230 |
|
|
|
107,370 |
|
Non-cash loss on early retirement of debt |
|
|
22,543 |
|
|
|
2,985 |
|
|
|
|
|
Change in fair value of warrant liability |
|
|
(8,860 |
) |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
13,538 |
|
|
|
(6,058 |
) |
|
|
(57,398 |
) |
Non-cash loss on derivatives |
|
|
4,091 |
|
|
|
|
|
|
|
|
|
Minority interest in earnings (loss) |
|
|
13,667 |
|
|
|
11,207 |
|
|
|
(8,617 |
) |
Equity in undistributed earnings |
|
|
(6,941 |
) |
|
|
|
|
|
|
|
|
Amortization of unearned compensation |
|
|
1,997 |
|
|
|
1,513 |
|
|
|
|
|
Term loan discount accretion |
|
|
1,773 |
|
|
|
|
|
|
|
|
|
Recovery of product claim costs |
|
|
|
|
|
|
(12,874 |
) |
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
53,091 |
|
Change in current assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(59,591 |
) |
|
|
27,647 |
|
|
|
(27,569 |
) |
Inventories |
|
|
(45,579 |
) |
|
|
(11,352 |
) |
|
|
(354 |
) |
Accounts payable and customer prepayments |
|
|
(60,136 |
) |
|
|
48,394 |
|
|
|
11,501 |
|
Other assets and liabilities, net |
|
|
1,944 |
|
|
|
(19,782 |
) |
|
|
16,879 |
|
|
Net Cash Flows from Operating Activities |
|
|
10,875 |
|
|
|
211,506 |
|
|
|
82,422 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(30,820 |
) |
|
|
(18,472 |
) |
|
|
(8,639 |
) |
Plant turnaround costs |
|
|
(22,331 |
) |
|
|
(28,878 |
) |
|
|
(28,080 |
) |
Acquisition, net of cash acquired |
|
|
|
|
|
|
(54,168 |
) |
|
|
|
|
Distributions received from unconsolidated affiliates |
|
|
31,901 |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(8,595 |
) |
|
|
|
|
|
|
|
|
Proceeds from the sale of property, plant and equipment |
|
|
7,560 |
|
|
|
|
|
|
|
1,755 |
|
Other |
|
|
|
|
|
|
966 |
|
|
|
(11,358 |
) |
|
Net Cash Flows used in Investing Activities |
|
|
(22,285 |
) |
|
|
(100,552 |
) |
|
|
(46,322 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Payments under borrowing arrangements |
|
|
(125,167 |
) |
|
|
(70,854 |
) |
|
|
(200,142 |
) |
Preferred share dividends paid |
|
|
(5,950 |
) |
|
|
|
|
|
|
|
|
Distributions to minority interests |
|
|
(13,607 |
) |
|
|
(8,072 |
) |
|
|
(1,153 |
) |
Proceeds from exercise of stock options |
|
|
142 |
|
|
|
447 |
|
|
|
68 |
|
Preferred share issuance, net of $4,200 issuance costs |
|
|
|
|
|
|
115,800 |
|
|
|
|
|
Deferred financing costs |
|
|
|
|
|
|
(2,598 |
) |
|
|
(8,581 |
) |
Issuance of long-term debt |
|
|
|
|
|
|
|
|
|
|
202,000 |
|
|
Net Cash Flows used in Financing Activities |
|
|
(144,582 |
) |
|
|
34,723 |
|
|
|
(7,808 |
) |
|
Effect of Exchange Rate Changes on Cash |
|
|
8,560 |
|
|
|
787 |
|
|
|
563 |
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
(147,432 |
) |
|
|
146,464 |
|
|
|
28,855 |
|
|
Cash and Cash Equivalents at Beginning of Year |
|
|
233,798 |
|
|
|
87,334 |
|
|
|
58,479 |
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
86,366 |
|
|
$ |
233,798 |
|
|
$ |
87,334 |
|
|
See accompanying Notes to the Consolidated Financial Statements
45
Consolidated Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
42,110 |
|
|
$ |
50,455 |
|
|
$ |
50,983 |
|
Income tax refunds received |
|
|
11,933 |
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
|
1,526 |
|
|
|
1,123 |
|
|
|
4,297 |
|
|
Supplemental schedule of non-cash investing and
financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred stock
to common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
$ |
2,066 |
|
|
$ |
|
|
|
$ |
|
|
Paid in Capital |
|
$ |
14,646 |
|
|
$ |
|
|
|
$ |
|
|
Consideration to fund acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
$ |
|
|
|
$ |
135,750 |
|
|
$ |
|
|
Series B preferred shares |
|
$ |
|
|
|
$ |
17,269 |
|
|
$ |
|
|
Assumed debt |
|
$ |
|
|
|
$ |
125,000 |
|
|
$ |
|
|
Stock Incentive Plan |
|
$ |
5,020 |
|
|
$ |
2,908 |
|
|
$ |
608 |
|
See accompanying Notes to the Consolidated Financial Statements
46
Consolidated Statements of Changes in Common Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Unearned |
|
|
Accumulated |
|
|
|
|
|
|
Comprehensive |
|
(in thousands) |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Compensation |
|
|
Deficit |
|
|
Total |
|
|
Income |
|
|
January 1, 2003 |
|
|
76,920 |
|
|
$ |
128,654 |
|
|
$ |
555,167 |
|
|
$ |
(63,668 |
) |
|
$ |
|
|
|
$ |
(362,289 |
) |
|
$ |
257,864 |
|
|
|
|
|
|
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,481 |
) |
|
|
(12,481 |
) |
|
$ |
(12,481 |
) |
Foreign currency
translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,631 |
|
|
|
|
|
|
|
|
|
|
|
27,631 |
|
|
|
27,631 |
|
Change in fair value of
derivatives, net of taxes
of $614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Minimum pension liability,
net of taxes of $1,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,560 |
) |
|
|
|
|
|
|
|
|
|
|
(8,560 |
) |
|
|
(8,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, net |
|
|
48 |
|
|
|
48 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
|
Stock Incentive Plan |
|
|
595 |
|
|
|
266 |
|
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
December 31, 2003 |
|
|
77,563 |
|
|
|
128,968 |
|
|
|
555,529 |
|
|
|
(44,596 |
) |
|
|
|
|
|
|
(374,770 |
) |
|
|
265,131 |
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,596 |
|
|
|
67,596 |
|
|
$ |
67,956 |
|
Foreign currency
translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,216 |
|
|
|
|
|
|
|
|
|
|
|
25,216 |
|
|
|
25,216 |
|
Change in fair value of
derivatives, net of taxes
of $690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,286 |
) |
|
|
|
|
|
|
|
|
|
|
(23,286 |
) |
|
|
(23,286 |
) |
Minimum pension liability,
net of taxes of $3,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,328 |
) |
|
|
|
|
|
|
|
|
|
|
(13,328 |
) |
|
|
(13,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
56,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,029 |
) |
|
|
(1,029 |
) |
|
|
|
|
Issuance of common stock |
|
|
14,995 |
|
|
|
14,995 |
|
|
|
120,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,750 |
|
|
|
|
|
Exercise of stock options |
|
|
198 |
|
|
|
198 |
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447 |
|
|
|
|
|
Restricted stock |
|
|
238 |
|
|
|
370 |
|
|
|
5,106 |
|
|
|
|
|
|
|
(4,081 |
) |
|
|
|
|
|
|
1,395 |
|
|
|
|
|
Amortization of unearned
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513 |
|
|
|
|
|
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
92,994 |
|
|
|
144,531 |
|
|
|
681,639 |
|
|
|
(55,994 |
) |
|
|
(2,568 |
) |
|
|
(308,203 |
) |
|
|
459,405 |
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,087 |
|
|
|
22,087 |
|
|
$ |
22,087 |
|
Foreign currency
translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,387 |
) |
|
|
|
|
|
|
|
|
|
|
(23,387 |
) |
|
|
(23,387 |
) |
Change in fair value of
derivatives, net of taxes
of $2,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,198 |
|
|
|
|
|
|
|
|
|
|
|
14,198 |
|
|
|
14,198 |
|
Minimum pension liability,
net of taxes of $5,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,960 |
) |
|
|
|
|
|
|
|
|
|
|
(4,960 |
) |
|
|
(4,960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,134 |
) |
|
|
(5,134 |
) |
|
|
|
|
Conversion of preferred shares |
|
|
2,066 |
|
|
|
2,066 |
|
|
|
14,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,712 |
|
|
|
|
|
Reclassification of
warrant liability |
|
|
|
|
|
|
|
|
|
|
12,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,240 |
|
|
|
|
|
Exercise of stock options |
|
|
39 |
|
|
|
39 |
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142 |
|
|
|
|
|
Restricted stock |
|
|
72 |
|
|
|
358 |
|
|
|
4,043 |
|
|
|
|
|
|
|
(4,798 |
) |
|
|
|
|
|
|
(397 |
) |
|
|
|
|
Amortization of unearned
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997 |
|
|
|
|
|
|
|
1,997 |
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
95,171 |
|
|
$ |
146,994 |
|
|
$ |
712,671 |
|
|
$ |
(70,143 |
) |
|
$ |
(5,369 |
) |
|
$ |
(291,250 |
) |
|
$ |
492,903 |
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the Consolidated Financial Statements
47
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation: The Consolidated Financial Statements include the accounts of Terra
Industries Inc. and all majority owned subsidiaries (Terra). All significant intercompany accounts
and transactions have been eliminated. Minority interest in earnings and ownership has been
recorded for the percentage of limited partnership common units not owned by Terra Industries Inc.
for each respective period presented.
Description of business: Terra produces nitrogen products for agricultural dealers and industrial
users, and methanol for industrial users.
Foreign exchange: Results of operations for the foreign subsidiaries are translated using average
currency exchange rates during the period; assets and liabilities are translated using period-end
rates. Resulting translation adjustments are recorded as foreign currency translation adjustments
in accumulated other comprehensive income (loss) in stockholders equity.
Cash and cash equivalents: Cash and cash equivalents consist of all cash balances and all highly
liquid investments purchased with an original maturity of three months or less.
Restricted cash: Restricted cash consists of cash and cash equivalents that have been pledged as
collateral on outstanding debt. The restrictions on the balances lapse with the payments for
qualified expenditures at the Verdigris, Oklahoma facility.
Inventories: Inventories are stated at the lower of cost or estimated net realizable value. The
cost of inventories is determined using the first-in, first-out method. The Company performs a
monthly analysis of its inventory balances to determine if the carrying amount of inventories
exceeds their net realizable value. The analysis of estimated realizable value is based on customer
orders, market trends and historical pricing. If the carrying amount exceeds the estimated net
realizable value, the carrying amount is reduced to the estimated net realizable value.
The Company allocates fixed production overhead costs based on the normal capacity of its
production facilities and unallocated overhead costs are recognized as expense in the period
incurred.
Property, plant and equipment: Expenditures for plant and equipment additions, replacements and
major improvements are capitalized. Related depreciation is charged to expense on a straight-line
basis over estimated useful lives ranging from 15 to 22 years for buildings and 3 to 18 years for
plants and equipment. Equipment under capital leases is recorded in property with the corresponding
obligations in long-term debt. The amount capitalized is the present value at the beginning of the
lease term of the aggregate future minimum lease payments. Maintenance and repair costs are
expensed as incurred.
Plant turnaround costs: Costs related to the periodic scheduled major maintenance of continuous
process production facilities (plant turnarounds) are deferred and charged to product costs on a
straight-line basis during the period until the next scheduled turnaround, generally two years.
Amortization expense related to plant turnarounds of $27.6 million, $24.1 million and $29.0 million
was recorded for the years ended December 31, 2005, 2004 and 2003, respectively.
48
Equity investments: Equity investments are carried at original cost adjusted for the Companys
proportionate share of the investees income, losses and distributions. The Company periodically
assesses the carrying value of its equity investments and records a loss in value of the investment
when the assessment indicates that an other-than-temporary decline in the investment exists.
Intangible assets: The Companys intangible asset has a finite useful life and is amortized using
the straight-line method over the estimated useful life of five years. The Company monitors its
intangible asset and records an impairment loss on the intangible asset when circumstances indicate
that the carrying amount is not recoverable and that the carrying amount exceeds its fair value.
During 2005, the Company recorded $1.9 million of amortization expense. The estimated intangible
asset amortization expense is $1.9 million annually for 2006 through 2009.
Debt issuance costs: Costs associated with the issuance of debt are included in other noncurrent
assets and are amortized over the term of the related debt using the straight-line method.
Impairment of long-lived assets: The Company reviews and evaluates its long-lived assets for
impairment when events and changes in circumstances indicate that the carrying amount of its asset
may not be recoverable. Impairment is considered to exist if the total estimated future cash flows
on an undiscounted basis are less than the carrying value of the asset. Future cash flows include
estimates of production levels, pricing of the Companys products, costs of natural gas and capital
expenditures. If the assets are impaired, a calculation of fair value is performed; if the fair
value is less than the carrying value of the assets, the assets are reduced to their fair value.
Derivatives and financial instruments: The Company enters 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, to manage the prices of its nitrogen products and to manage
foreign currency risk. The Company reports the fair value of the derivatives on its 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 hedge, and to the extent
such hedge is determined to be effective, changes in fair value are either (a) offset by the change
in fair value of the hedged asset or liability or (b) reported as a component of accumulated other
comprehensive income (loss) in the period of change, and subsequently recognized in cost of sales
in the period the offsetting hedged transaction occurs. If an instrument is settled early, any
gains or losses are immediately recognized in cost of sales.
Revenue recognition: Revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable, no obligations remain and collectibility
is probable.
Revenues are primarily comprised of sales of the Companys nitrogen- and methanol-based products,
including any realized hedging gains or losses related to nitrogen product derivatives, and are
reduced by estimated discounts and trade allowances. Revenues include amounts related to shipping
and handling charges to the Companys customers.
Cost of sales and hedging transactions: Costs of sales are primarily related to manufacturing costs
related to the Companys nitrogen- and methanol-based products, including any realized hedging
gains or
49
losses related to natural gas derivatives. Costs of sales include amounts related to
shipping and handling charges to the Companys customers.
Share-based compensation: The Company accounts for stock options using the intrinsic value method.
No compensation cost has been recognized for options granted under any of the Companys share-based
compensation plans. The Company accounts for certain nonvested restricted grants as fixed-plan
awards since both the aggregate number of awards issued and the aggregate amount to be paid by the
participants for the common stock is known. The Company accounts for certain nonvested restricted
grants as variable-plan awards since the aggregate number of awards to be issued is not known. The
Company evaluates these awards each period for determining compensation cost. Compensation cost
related to all nonvested restricted stock grants is measured as the difference between the market
price of the Companys common stock at the grant date and the amount to be paid by the participants
for the common stock. Compensation costs associated with each restricted stock grant are amortized
on a straight-line basis to expense over the grants vesting period. The pro forma impact on basic
income and diluted income per share of accounting for share-based compensation using the fair value
method required by Statement of Financial Accounting Standards (SFAS) No. 123 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share data) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Income (loss) available to common
shareholders, as reported |
|
$ |
16,953 |
|
|
$ |
66,567 |
|
|
$ |
(12,481 |
) |
Add: Share based employee compensation
expense included in reported income,
net of related tax effects |
|
|
1,218 |
|
|
|
1,205 |
|
|
|
1,224 |
|
Deduct: Share based employee
compensation expense determined under
fair-value based method for all awards,
net of related tax effects |
|
|
(1,218 |
) |
|
|
(1,205 |
) |
|
|
(1,224 |
) |
|
Pro forma income (loss) available
to common shareholders |
|
$ |
16,953 |
|
|
$ |
66,567 |
|
|
$ |
(12,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.18 |
|
|
$ |
0.87 |
|
|
$ |
(0.16 |
) |
Basic pro forma |
|
|
0.18 |
|
|
|
0.87 |
|
|
|
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
0.18 |
|
|
$ |
0.85 |
|
|
$ |
(0.16 |
) |
Diluted pro forma |
|
|
0.18 |
|
|
|
0.85 |
|
|
|
(0.16 |
) |
Per share results: Basic earnings per share data are based on the weighted-average number of common
shares outstanding during the period. Diluted earnings per share data are based on the
weighted-average number of common shares outstanding and the effect of all dilutive potential
common shares including convertible preferred shares, common stock options, restricted stock and
common stock warrants.
Estimates: The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting
50
period. The significant areas requiring the use of managements
estimates relate to assumptions used to calculate pension and other post-retirement benefits costs,
valuation allowance for deferred tax assets, future cash flows from long-lived assets and the
useful lives utilized for depreciation, amortization and accretion calculations. Actual results
could differ from those estimates.
Recently issued accounting standards: In October 2004, The American Jobs Creation Act of 2004 (the
Job Act) was signed into law. The Act creates a temporary incentive for U.S. multinationals to
repatriate accumulated income earned outside the U.S. at an effective tax rate of 5.25%. On
December 21, 2004, the Financial Accounting Standards Board (FASB) issued their staff position,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004 Statement of Financial Accounting Standards (SFAS) 109-2.
SFAS 109-2 allows companies additional time to evaluate the impact of the law and to record the tax
effect of repatriation over several interim periods as they complete their assessment of
repatriating all or a portion of these unremitted earnings. The Company does not plan to reinvest
or repatriate any foreign earnings as a result of the Job Act.
In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS
123R requires measurement of all employee stock-based compensation awards using a fair-value method
and the recording of such expense in the consolidated financial statements. In addition, the
adoption of SFAS 123R requires additional accounting related to the income tax effects and
disclosure regarding the cash flow effects resulting from share-based payment arrangements. In
January 2005, the United States Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 107, which provides supplemental implementation guidance for SFAS 123R. SFAS 123R is
effective for the Companys first quarter of fiscal 2006. The Company has selected the
Black-Scholes option-pricing model as the most appropriate fair-value method for its awards and
will recognize compensation cost on a straight-line basis over its awards vesting periods. The
adoption of SFAS 123R will not have a material impact on the Companys results of operation.
However, uncertainties, including the Companys future stock-based compensation strategy, stock
price volatility, estimated forfeitures and employee stock option exercise behavior, make it
difficult to determine whether the stock-based compensation expense that the Company will incur in
future periods will be similar to the SFAS 123 pro forma disclosed in the notes to Consolidated
Financial Statements.
In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, (SFAS 153) an
amendment of APB Opinion No. 29. SFAS 153 addresses the measurement of exchanges of nonmonetary
assets and redefines the scope of transactions that should be measured based on the fair value of
the assets exchanged. SFAS 153 is effective for nonmonetary asset exchanges beginning in the
Companys first quarter of fiscal 2006. The Company does not expect the adoption of SFAS 153 to
have a material impact on results of operation or financial condition.
In May 2005, the FASB issued SFAS 154,
Accounting Changes and Error Corrections, (SFAS 154) which
replaces Accounting Principles Board Opinions No. 20 Accounting Changes and SFAS 3,
Reporting
Accounting Changes in Interim Financial Statements An Amendment of APB Opinion No. 28. SFAS 154
provides guidance on the accounting for and reporting of accounting changes and error corrections.
It establishes retrospective application, or the earliest practicable date, as the required method
for reporting a change in accounting principle and restatement with respect to the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made
in fiscal years
51
beginning after December 15, 2005 and is required to be adopted by the Company in
the first quarter of fiscal 2007.
In June 2005, the EITF reached a consensus on Issue No. 05-06, Determining the Amortization Period
for Leasehold Improvements (EITF 05-06). EITF 05-06 provides guidance for determining the
amortization period used for leasehold improvements acquired in a business combination or purchased
after the inception (of a lease, collectively referred to as subsequently acquired leasehold
improvement). EITF 05-06 provides that the amortization period used for the subsequently acquired
leasehold improvements to be the lesser of (a) the subsequently acquired leasehold improvements
useful lives, or (b) a period that reflects renewals that are reasonably assured upon the
acquisition or the purchase. EITF 05-06 is effective on a prospective basis for subsequently
acquired leasehold improvements purchased or acquired in periods beginning after the date of the
FASBs ratification, which was on June 29, 2005. The Company does not believe the adoption of EITF
05-06 will affect its results of operations and financial conditions in fiscal 2006.
In March 2005, the FASB issued SFAS Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, which requires conditional asset retirement obligations to be recognized
if a legal obligation exists to perform asset retirement activities and a reasonable estimate of
the fair value of the obligation can be made. FIN 47 also provides guidance as to when an entity
would have sufficient information to reasonably estimate the fair value of an asset retirement
obligation. The Company adopted the provisions of FIN 47 on December 31, 2005 and the adoption has
not had a material affect on the Companys financial statements.
In July 2005, the FASB issued proposed guidance concerning the accounting for uncertain tax
positions. The proposal would require that an uncertain tax position meet a probable recognition
threshold based on the merits of the position in order for the benefit to be recognized in the
financial statements. The proposal also addresses the accrual of interest and penalties related to
tax uncertainties and the classification of liabilities on the balance sheet. If implemented in its
present form, the Company does not expect the adoption to have a material impact on the results of
operations or financial condition.
2. Acquisition
On December 21, 2004, Terra acquired Mississippi Chemical Corporation (MCC) for a purchase
price valued at $213.5 million consisting of 15 million common shares, 172,690 Series B preferred
shares and cash of $54.2 million, including costs directly related to the acquisition. MCC
manufactured nitrogen-based fertilizers and industrial use products; had a 50% ownership interest
in Point Lisas Nitrogen Limited (PLNL), an ammonia production plant in Trinidad; and had a 50%
interest in an ammonia storage joint venture located in Houston, Texas. These equity investments
were acquired by the Company with the purchase of MCC. In connection with the acquisition, Terra
assumed $125.0 million of MCC long-term debt and $34.1 million of unfunded pension liabilities.
52
The following table summarizes the fair market values of the assets acquired and the liabilities
assumed at the acquisition date and subsequently adjusted to the final purchase price allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Purchase Price |
|
|
|
|
|
Final |
|
|
Allocation as Reported |
|
|
|
|
|
Purchase |
|
|
in December 31, 2004 |
|
|
|
|
|
Price |
(in thousands) |
|
Annual Report |
|
Adjustments |
|
Allocation |
|
Current assets |
|
$ |
97,278 |
|
|
$ |
1,899 |
|
|
$ |
99,177 |
|
Property, plant and equipment |
|
|
124,528 |
|
|
|
16,427 |
|
|
|
140,955 |
|
Equity investments |
|
|
213,300 |
|
|
|
(11,780 |
) |
|
|
201,520 |
|
Other assets |
|
|
|
|
|
|
3,464 |
|
|
|
3,464 |
|
Intangible assets |
|
|
15,550 |
|
|
|
(6,142 |
) |
|
|
9,408 |
|
|
Total assets acquired |
|
|
450,656 |
|
|
|
3,868 |
|
|
|
454,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
37,169 |
|
|
|
|
|
|
|
37,169 |
|
Long-term debt and warrants |
|
|
125,000 |
|
|
|
|
|
|
|
125,000 |
|
Pension and other long-term liabilities |
|
|
36,314 |
|
|
|
|
|
|
|
36,314 |
|
Deferred income taxes |
|
|
41,574 |
|
|
|
953 |
|
|
|
42,527 |
|
|
Total liabilities assumed |
|
|
240,057 |
|
|
|
953 |
|
|
|
241,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets acquired |
|
$ |
210,599 |
|
|
$ |
2,915 |
|
|
$ |
213,514 |
|
|
Intangible assets acquired represent customer relationships that will be amortized on a
straight-line basis over a period of approximately five years. The useful life of five years for
the customer base intangible asset was based on managements forecasts of customer turnover.
The following represents unaudited pro forma summary results of operations as if the acquisition of
MCC had occurred at the beginning of 2003.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
(in thousands, except per share data) |
|
2004 |
|
|
2003 |
|
|
Revenues |
|
$ |
1,886,953 |
|
|
$ |
1,637,873 |
|
Operating income (loss) |
|
|
179,349 |
|
|
|
(81,016 |
) |
Net income (loss) |
|
|
78,204 |
|
|
|
(85,886 |
) |
Basic income (loss) per share |
|
|
0.85 |
|
|
|
(1.10 |
) |
|
|
|
|
|
|
|
|
|
Selected costs included above: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
72,639 |
|
|
|
74,575 |
|
Depreciation and amortization |
|
|
117,994 |
|
|
|
124,005 |
|
Impairment losses included above |
|
|
|
|
|
|
116,003 |
|
The pro forma operating results were adjusted to include depreciation of the fair value of acquired
assets based on estimated useful lives at the acquisition dates, amortization of intangible assets,
interest expense on acquisition borrowings, the issuance of common stock and the effect of income
taxes. Pro forma operating results were also adjusted to exclude MCC discontinued operations as
well as reorganization
expenses and gains on the extinguishment of pre-petition liabilities in connection with MCCs
emergence from Chapter 11.
53
The pro forma information listed above does not purport to be indicative of the results that would
have been obtained if the operations were combined during the above periods, and is not intended to
be a projection of future operating results or trends.
3. Earnings Per Share
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, restricted shares, convertible preferred shares and common stock warrants.
Nonvested restricted stock carries dividend and voting rights, but is not involved in the weighted
average number of common shares outstanding used to compute basic income per share.
The following table provides a reconciliation between basic and diluted income per share for the
year ended December 31, 2005, 2004 and 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share data) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Basic income (loss) per share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
22,087 |
|
|
$ |
67,596 |
|
|
$ |
(12,481 |
) |
Less: Preferred share dividends |
|
|
(5,134 |
) |
|
|
(1,029 |
) |
|
|
|
|
|
Income (loss) available to common shareholders |
|
|
16,953 |
|
|
|
66,567 |
|
|
|
(12,481 |
) |
Weighted average shares outstanding |
|
|
92,537 |
|
|
|
76,478 |
|
|
|
75,676 |
|
|
Basic income (loss) per common share |
|
$ |
0.18 |
|
|
$ |
0.87 |
|
|
$ |
(0.16 |
) |
|
Diluted income (loss) per share computation: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common shareholders |
|
$ |
16,953 |
|
|
$ |
66,567 |
|
|
$ |
(12,481 |
) |
Add: Preferred share dividends |
|
|
|
|
|
|
1,029 |
|
|
|
|
|
|
Income
(loss) available to common shareholders and |
|
|
|
|
|
|
|
|
|
|
|
|
assumed conversions |
|
$ |
16,953 |
|
|
$ |
67,596 |
|
|
$ |
(12,481 |
) |
|
Weighted average shares outstanding |
|
|
92,537 |
|
|
|
76,478 |
|
|
|
75,676 |
|
Add incremental shares from assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares |
|
|
1,048 |
|
|
|
2,423 |
|
|
|
|
|
Restricted stock |
|
|
577 |
|
|
|
750 |
|
|
|
|
|
Common stock options |
|
|
179 |
|
|
|
208 |
|
|
|
|
|
Common stock warrants |
|
|
594 |
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
94,935 |
|
|
|
79,859 |
|
|
|
75,676 |
|
|
Diluted income (loss) per potential common share |
|
$ |
0.18 |
|
|
$ |
0.85 |
|
|
$ |
(0.16 |
) |
|
Common stock options totaling 0.1 million, 0.1 million and 0.9 million for the years ended December
31, 2005, 2004 and 2003, respectively, were excluded from the computation of diluted earnings per
share because the exercise prices of those options exceeded the average market price of Terras
stock for the respective periods, and the effect of their inclusion would be antidilutive.
Preferred shares of 0.1 million were excluded from the December 31, 2005 computation of diluted
earnings per share. These preferred shares were antidilutive using the if-converted method.
54
4. Inventories
Inventories consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Raw materials |
|
$ |
22,487 |
|
|
$ |
22,891 |
|
Supplies |
|
|
55,647 |
|
|
|
53,612 |
|
Finished goods |
|
|
112,180 |
|
|
|
72,305 |
|
|
Total |
|
$ |
190,314 |
|
|
$ |
148,808 |
|
|
Inventory is valued at actual first in-first out cost. Costs include raw materials, labor and
overhead.
5. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Land |
|
$ |
16,086 |
|
|
$ |
29,981 |
|
Buildings and improvements |
|
|
62,937 |
|
|
|
52,280 |
|
Plant and equipment |
|
|
1,339,799 |
|
|
|
1,350,433 |
|
Construction in progress |
|
|
27,510 |
|
|
|
15,346 |
|
|
|
|
|
1,446,332 |
|
|
|
1,448,040 |
|
Less accumulated depreciation and amortization |
|
|
(712,796 |
) |
|
|
(650,062 |
) |
|
Total |
|
$ |
733,536 |
|
|
$ |
797,978 |
|
|
6. Equity Investments
Terras investments in companies that are accounted for on the equity method of accounting
consist of the following: (1) 50% ownership interest in PLNL, 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, located in Verdigris, Oklahoma which produces CO2 at
Terras plant. As of December 31, 2005, the Point Lisas Nitrogen Limited investment is considered
significant as defined by applicable SEC regulations. These investments amounted to $183.9 million
and $215.9 million at December 31, 2005 and 2004, respectively.
55
The combined results of operations and financial position of the Terras equity basis
investments are summarized below:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Condensed income statement information: |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
181,818 |
|
|
$ |
6,664 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
62,723 |
|
|
$ |
1,788 |
|
|
|
|
|
|
|
|
|
|
|
Terras equity in net income of affiliates |
|
$ |
31,362 |
|
|
$ |
893 |
|
|
|
|
|
|
|
|
|
|
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
78,711 |
|
|
$ |
60,747 |
|
Long-lived assets |
|
|
194,548 |
|
|
|
251,488 |
|
|
Total assets |
|
$ |
273,259 |
|
|
$ |
312,235 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
37,804 |
|
|
$ |
15,221 |
|
Long-term liabilities |
|
|
75 |
|
|
|
527 |
|
Equity |
|
|
235,380 |
|
|
|
296,487 |
|
|
Total liabilities and equity |
|
$ |
273,259 |
|
|
$ |
312,235 |
|
|
The carrying value of these investments at December 31, 2005 was $66.2 million more than Terras
share of the equity method investments book value. The excess fair value assigned at the
acquisition date is attributable primarily to fixed asset values and will be amortized over a
period of approximately 15 years.
The Company has transactions in the normal course of business with PLNL, whereby the Company is
obliged to purchase 50 percent of the ammonia produced by PLNL at current market prices. During the
twelve-month period ended December 31, 2005, the Company purchased approximately $87.0 million of
ammonia from PLNL. As of December 31, 2005, PLNL made cash distributions to its shareholders, of
which the Companys portion was $43.8 million for the 12-month period.
7. Current Maturities of Long-Term Debt and Capital Lease Obligations
Debt due within one year consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Current maturities of long-term debt
and capital lease obligations |
|
$ |
38 |
|
|
$ |
167 |
|
|
The Company has revolving credit facilities totaling $200 million that expire June 30, 2008. The
revolving credit facility is secured by substantially all of the assets of the Company other than
the assets collateralizing the Senior Secured Notes. Borrowing availability is generally based on
100% of eligible cash balances, 85% of eligible accounts receivable and 60% of eligible finished
goods inventory less outstanding letters of credit issued under the facility. As of December 31,
2005, the Company had borrowing availability of $192.9 million. These facilities include $50
million only available for the use of
TNCLP, one of the Companys consolidated subsidiaries. Borrowings under the revolving credit
facility will bear interest at a floating rate plus an applicable margin, which can be either a
base rate, or, at the
56
Companys option, a London Interbank Offered Rate (LIBOR). At December 31,
2005, the LIBOR rate was 4.39%. 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 margin for base rate loans and LIBOR loans are 0.50% and 1.75%, respectively, at
December 31, 2005. The revolving credit facility requires an initial one-half percent (0.50%)
commitment fee on the difference between committed amounts and amounts actually borrowed.
At December 31, 2005, the Company had no outstanding revolving credit borrowings and $15.6 million
in outstanding letters of credit. The $15.6 million in outstanding letters of credit reduced the
Companys borrowing availability to $177.3 million at December 31, 2005. The credit facilities
require that the Company adhere to certain limitations on additional debt, capital expenditures,
acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in
lines of business and transactions with affiliates. If the Companys borrowing availability falls
below $60 million, the Company is required to have achieved minimum operating cash flows or
earnings before interest, income taxes, depreciation, amortization and other non-cash items of $60
million during the most recent four quarters.
8. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Derivative contracts |
|
$ |
25,576 |
|
|
$ |
16,852 |
|
Warrants issued in conjunction
with acquisition |
|
|
|
|
|
|
21,100 |
|
Payroll and benefit costs |
|
|
12,381 |
|
|
|
19,208 |
|
Pension liabilities |
|
|
8,326 |
|
|
|
9,641 |
|
Deferred taxes |
|
|
|
|
|
|
5,133 |
|
Accrued interest |
|
|
6,737 |
|
|
|
7,044 |
|
Deferred revenue |
|
|
5,224 |
|
|
|
4,779 |
|
Other |
|
|
26,752 |
|
|
|
21,091 |
|
|
Total |
|
$ |
84,996 |
|
|
$ |
104,848 |
|
|
9. Other Liabilities
Other liabilities consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Long-term medical and
closed facilities reserve |
|
$ |
24,415 |
|
|
$ |
25,356 |
|
Post retirement benefits |
|
|
4,844 |
|
|
|
7,161 |
|
Deferred revenue |
|
|
10,285 |
|
|
|
15,355 |
|
Other |
|
|
1,776 |
|
|
|
|
|
|
Total |
|
$ |
41,320 |
|
|
$ |
47,872 |
|
|
57
10. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Senior Secured Notes, 12.875%,
due 2008 |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
Term loan, due 2008, net of
$24.1 million unamortized discount |
|
|
|
|
|
|
103,900 |
|
Second Priority Senior
Secured Notes, 11.5%, due 2010 |
|
|
131,300 |
|
|
|
131,300 |
|
Other |
|
|
38 |
|
|
|
205 |
|
|
|
|
|
331,338 |
|
|
|
435,405 |
|
Less current maturities |
|
|
38 |
|
|
|
167 |
|
|
Total long-term debt |
|
$ |
331,300 |
|
|
$ |
435,238 |
|
|
In connection with the December 2004 acquisition of MCC, the Company assumed obligations due under
MCCs $125.0 million bank term loan and provided the debt holders five-year warrants to purchase
Terras common shares. The warrants were valued at $21.1 million, which was treated at a discount
to the par value of the debt. During 2005, the Company repaid the $125 million term loan.
In March 2005, the Company repaid $50.0 million of the term loan. The discounted book value of debt
prior to repayment was $41.9 million. As a result, the Company recognized a loss on the repayment
of $8.1 million and other related prepayment charges of $2.7 million during the first quarter of
2005. In June 2005, the Company repaid the remaining $75.0 million of the term loan. The discounted
book value of the debt prior to repayment was $63.7 million. As a result, the Company recognized a
loss on the repayment of $11.3 million and other prepayment charges of $5.1 million during the
second quarter of 2005.
During 2003, Terra Capital, Inc., (TCAPI) a subsidiary of Terra Industries Inc., issued $202
million of 11.5% Second Priority Senior Secured Notes due June 1, 2010. The notes were priced at
99.402% to yield 11.625% and are unconditionally guaranteed by the Company and its U.S.
subsidiaries. Part of the proceeds were used to repay existing debt. The Company redeemed $70.7
million of the 2010 notes during 2004. These notes and guarantees are secured by a second priority
security interest in all domestic inventory, domestic accounts receivable, intellectual property of
Terra Industries Inc. and its domestic subsidiaries and certain subsidiary capital stock. The
security interest is second in priority to a first priority security interest in the same assets in
favor of the lenders under the Companys revolving credit facility and is shared equally and
ratably with the Companys outstanding 12.875% Senior Secured Notes due 2008. The Indenture
governing these notes contains covenants that limit, among other things, the Companys ability to:
incur additional debt, pay dividends on common stock of Terra Industries Inc. or repurchase shares
of such common stock, make investments (other than in Terra Capital, Inc. or any guarantor), use
assets as security in other transactions, sell any of the Companys principal production facilities
or sell other assets outside the ordinary course of business, enter into transactions with
affiliates, limit dividends or other payments by the Companys restricted subsidiaries to the
Company, enter into sale and leaseback transactions, engage in other businesses, sell all or
substantially all of the Companys assets or merge with or into other companies, and reduce the
Companys insurance coverage. In addition, the Company is 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
58
accrued interest to the date of purchase. The Indenture governing these notes contains events of
default and remedies customary for a financing of this type.
On October 10, 2001, TCAPI issued $200 million of 12.875% Senior Secured Notes due in 2008. The
notes were priced at 99.43% to yield 13%. The proceeds were used to repay existing debt. The notes
are secured by a first priority interest in ownership or leasehold interest in substantially all
real property, machinery and equipment owned or leased by TCAPI and the guaranteeing subsidiaries,
the limited partnerships interest in Terra Nitrogen Company, L.P. (TNCLP) owned by TCAPI and the
guaranteeing subsidiaries, and certain intercompany notes issued to TCAPI by non-guaranteeing
subsidiaries. Payment obligations under the Senior Secured Notes are fully and unconditionally
guaranteed on a joint and several basis by Terra Industries Inc. (Parent) and certain of its U.S.
subsidiaries (the Guarantor Subsidiaries). Terra Nitrogen, Limited Partnership, TNCLP, the
general partner of TNCLP and the Parents foreign subsidiaries do not guarantee the notes (see Note
22Guarantor Subsidiaries for condensed consolidating financial information). The Parents ability
to receive dividends from its subsidiaries is limited by the revolving credit facility to amounts
required for the funding of operating expenses and debt service (not to exceed $40 million per
year), income tax payments on the earnings of TCAPI and its subsidiaries and liabilities associated
with discontinued operations (not to exceed $5 million per year). The Indenture governing the
Senior Secured Notes consists of covenants that limit, among other things, the Companys ability
to: incur additional debt, pay dividends on common stock of Terra Industries Inc. or repurchase
shares of such common stock, make investments (other than in Terra Capital or any guarantor), use
assets as security in other transactions, sell any of the Companys principle production facilities
or sell other assets outside the ordinary course of business, enter into transactions with
affiliates, limit dividends or other payments by the Companys restricted subsidiaries, enter into
sale and leaseback transactions, engage in other businesses, sell all or substantially all of the
Companys assets or merge with or into other companies, and reduce the Companys insurance
coverage. In addition, the Company is 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, plus accrued interest to the date of purchase. The Indenture governing these notes contains
events of default and remedies customary for a financing of this type.
Scheduled principal payments of the Companys long-term debt and capital leases are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Priority |
|
|
|
|
|
|
Senior Secured |
|
Senior Secured |
|
Capital |
|
|
Year Ended |
|
Notes |
|
Notes |
|
Leases |
|
Total |
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
|
|
|
$ |
|
|
|
$ |
38 |
|
|
$ |
38 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
131,300 |
|
|
|
|
|
|
|
131,300 |
|
|
|
|
$ |
200,000 |
|
|
$ |
131,300 |
|
|
$ |
38 |
|
|
$ |
331,338 |
|
|
11. Commitments and Contingencies
The Company is committed to various non-cancelable operating leases for equipment, railcars
and production, office and storage facilities expiring on various dates through 2017.
59
Total minimum rental payments are as follows:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
2006 |
|
$ |
21,085 |
|
2007 |
|
|
18,721 |
|
2008 |
|
|
15,460 |
|
2009 |
|
|
13,260 |
|
2010 |
|
|
11,528 |
|
2011 and thereafter |
|
|
11,717 |
|
|
Net minimum lease payments |
|
$ |
91,771 |
|
|
Total rental expense under all leases, including short-term cancelable operating leases, was $17.5
million, $14.5 million and $16.4 million for the years ended December 31, 2005, 2004 and 2003,
respectively.
The Company has a contractual agreement to purchase one-half of the ammonia produced by Point Lisas
Nitrogen Limited, the Companys 50-50 joint venture ammonia plant located in Trinidad. The purchase
price is based on the average market price of ammonia, F.O.B. Caribbean, less a discount. Assuming
the Company purchases 360,000 short tons per year at the December 2005 average price paid, the
annual purchase obligation would be $112.6 million. The contract expires in October 2018.
The Company has entered into a commitment to purchase nitrogen at one of its manufacturing plants.
The purchase commitment requires the Company to purchase nitrogen through 2014 at an annual cost of
$1.1 million.
The Company has committed to purchasing various services and products relating to operations. The
total commitment relating to these services and products was approximately $187.2 million at
December 31, 2005. These commitments include open purchase orders, inventory purchase commitments
and firm utility and natural gas commitments.
The Company is liable for retiree medical benefits of employees of coal mining operations sold in
1993, under the Coal Industry Retiree Health Benefit Act of 1992, which mandated liability for
certain retiree medical benefits for union coal miners. The Company has provided reserves adequate
to cover the estimated present-value of these liabilities at December 31, 2005.
The Companys long-term medical and closed facilities reserve at December 31, 2005, includes $24.4
million for expected future payments for the coal operations retirees and other former employees.
The Company may recover a portion of these payments through its rights in bankruptcy against Harman
Coal Company (a former coal subsidiary), and subject to damages received by Harman Coal Company
through its on-going litigation with Massey Energy Company. No provision for such recoveries has
been made in the Companys financial statements.
FASB Interpretation Number 47, Accounting for Conditional Asset Retirement Obligations (FIN 47)
requires recognition of a liability for the fair value of a conditional asset retirement obligation
if the fair value of the liability can be reasonably estimated. The Company has certain facilities
that contain asbestos insulation around certain piping and heated surfaces. The asbestos insulation
is in adequate condition to prevent leakage and can remain in place as long as the facility is
operated or remains assembled. The Company plans to maintain the facilities in an adequate
condition to prevent leakage through its standard
60
repair and maintenance activities. The Company has not recorded a liability relating to the
asbestos insulation, as management believes that it is not possible to reasonably estimate a
settlement date for asbestos insulation removal because the facilities have an indeterminate life.
The Company is required to dismantle its operations at the Beaumont, Texas site at the termination
of its lease in 2090. In accordance with FIN 47, the Company has estimated the costs associated
with dismantling its operations. The Company has applied the guidance of SFAS 143, Accounting for
Asset Retirement Obligations to these estimated costs to determine that the present value of the
retirement obligation is not significant. The Company has not recorded a liability relating to this
obligation.
The Company is involved in various legal actions and claims, including environmental matters,
arising from the normal course of business. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the results of the Companys operations,
financial position or net cash flows.
12. Preferred Shares
The components of preferred shares outstanding at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
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) |
|
|
120,000 |
|
|
$ |
115,800 |
|
|
|
120,000 |
|
|
$ |
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Shares
(750,000 shares authorized,
$100 per share liquidation value) |
|
|
|
|
|
|
|
|
|
|
172,690 |
|
|
|
17,269 |
|
|
Total |
|
|
|
|
|
$ |
115,800 |
|
|
|
|
|
|
$ |
133,069 |
|
|
During the 2004 fourth quarter, the Company issued 120,000 shares of cumulative convertible
perpetual Series A preferred shares with a liquidation value of $1,000 per share for net proceeds
of $115.8 million. Cumulative dividends of $10.625 per share are payable quarterly. The Series A
preferred shares are not redeemable, but are convertible into the Companys 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 the
Companys common shares exceeds 140% of the conversion price for any twenty days within a
consecutive thirty day period prior to such conversion. Upon the occurrence of a fundamental change
to the Companys capital structure, including a change of control, merger, or sale of the Company,
holders of the Series A preferred shares may require the Company to purchase any or all of their
shares at a price equal to their liquidation value plus any accumulated, but unpaid, dividends. The
Company also has 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.
61
In connection with the acquisition of Mississippi Chemical Corporation on December 21, 2004, Terra
issued 172,690 Series B preferred shares with a liquidation value of $100 per share. During the
third quarter of 2005, the Company converted the Series B preferred shares to common stock.
13. Derivative Financial Instruments
Terra manages risk using derivative financial instruments for (a) changes in natural gas
supply prices; (b) interest rate fluctuations; (c) changes in nitrogen prices; and (d) currency.
Derivative financial instruments have credit risk and market risk.
To manage credit risk, Terra enters into derivative transactions only with counter-parties who are
currently rated as BBB or better or equivalent as recognized by a national rating agency. Terra
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.
Terra classifies a derivative financial instrument as a hedge if all of the following conditions
are met:
|
1. |
|
The item to be hedged must expose Terra 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 (i.e., there is a high
correlation between the hedge position and changes in market value of the hedge item). |
|
|
3. |
|
The derivative financial instrument must be designated as a hedge of the item at the
inception of the hedge. |
Natural gas supplies to meet production requirements at Terras North American and United Kingdom
(U.K.) production facilities are purchased at market prices. Natural gas market prices are volatile
and Terra effectively fixes prices for a portion of its natural gas production requirements and
inventory through the use of futures contracts, 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 Terras North American production facilities are
purchased at locations other than Henry Hub, which often creates a location basis differential
between the contract price and the physical price of natural gas. Accordingly, the use of financial
derivatives may not exactly offset the change in the price of physical gas. The U.K. contracts are
based on the International Petroleum Exchange (IPE) index price. Physical delivery prices in the
U.K. are based on the IPE index. 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 Terra 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
futures contracts require maintenance of cash balances generally 10% to 20% of the contract value
and option contracts require initial premium payments ranging from 2% to 5% of contract value.
Basis swap contracts require payments to or from Terra for the amount, if any, that monthly
published gas prices from the source specified in the contract differ from prices of NYMEX natural
gas futures during a specified period. There are no initial cash requirements related to the swap
and basis swap agreements.
62
Terra will also use a collar structure where it will enter into a swap, sell a call at a higher
price and buy a put. The collar structure allows for greater participation in a decrease to natural
gas prices and protects against moderate price increases. However, the collar exposes Terra to
large price increases.
The following summarizes the net position of open natural gas derivatives at December 31, 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
Contract |
|
Unrealized |
|
Contract |
|
Unrealized |
(in thousands) |
|
MMBtu |
|
Gain (Loss) |
|
MMBtu |
|
Gain (loss) |
|
Swaps |
|
|
17,621 |
|
|
$ |
10,630 |
|
|
|
27,715 |
|
|
$ |
(14,769 |
) |
Basis swaps |
|
|
8,410 |
|
|
|
(7,389 |
) |
|
|
8,410 |
|
|
|
85 |
|
Put options |
|
|
7,160 |
|
|
|
(1,812 |
) |
|
|
12,630 |
|
|
|
(5,252 |
) |
Sold call options |
|
|
6,540 |
|
|
|
(10,222 |
) |
|
|
12,630 |
|
|
|
3,107 |
|
Purchased call options |
|
|
2,700 |
|
|
|
(3,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(12,061 |
) |
|
|
|
|
|
$ |
(16,829 |
) |
|
Certain derivatives outstanding at December 31, 2005 and 2004, which settled on January 1, 2006 and
2005, respectively, are included in the net unrealized gain (loss) in the table above. The January
1, 2006 derivatives settled for an approximate $4.9 million loss. The January 1, 2005 derivatives
settled for an approximate $3.9 million loss.
Gains and losses on settlement of these contracts and premium payments on option 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 closes. Gains and
losses on the contracts that do not qualify for hedge treatment are credited or charged to cost of
sales based on the positions fair value. The risk and reward of outstanding natural gas positions
are directly related to increases or decreases in natural gas prices in relation to the underlying
NYMEX natural gas contract prices.
The following table sets forth the components of these positions carried in accumulated other
comprehensive income (loss) at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Unrealized losses of open positions |
|
$ |
(12,061 |
) |
|
$ |
(16,829 |
) |
Ineffective position charged to
cost of sales |
|
|
4,091 |
|
|
|
|
|
Income tax benefit (provision) |
|
|
2,861 |
|
|
|
(2,478 |
) |
|
Other comprehensive loss |
|
$ |
(5,109 |
) |
|
$ |
(19,307 |
) |
|
Compared with spot prices, natural gas hedging activities increased Terras 2005 natural gas costs
by $0.7 million and decreased 2004 natural gas costs by $19.4 million.
63
The activity to accumulated other comprehensive (income) loss, net of income taxes, relating to a
current period hedging transactions for the year ended December 31, 2005 and 2004 are:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
2004 |
|
Beginning accumulated gain (loss) |
|
$ |
(19,307 |
) |
|
$ |
3,979 |
|
Reclassification into earnings |
|
|
3,059 |
|
|
|
(7,244 |
) |
Net change associated with current period hedging transactions |
|
|
11,139 |
|
|
|
(16,042 |
) |
|
Ending accumulated gain (loss) |
|
$ |
(5,109 |
) |
|
$ |
(19,307 |
) |
|
Approximately $5.1 million of the accumulated loss at December 31, 2005 will be reclassified into
earnings during 2006.
At times, the Company also uses forward derivative instruments to fix or set floor prices for a
portion of its nitrogen sales volumes. At December 31, 2005, the Company had no open swap contracts
relating to nitrogen solutions. The nitrogen solution contracts do not qualify for hedged treatment
due to inadequate trading history to demonstrate effectiveness. Consequently, the contracts are
marked-to-market and unrealized gains or losses are reflected in cost of sales in the statement of
operations. For the year ending December 31, 2005, 2004 and 2003, the Company recognized losses of
$2.2 million, $8.2 million and $5.4 million, respectively, on these forward derivative instruments.
14. Financial Instruments and Concentrations of Credit Risk
The following table represents the carrying amounts and estimated fair values of Terras
financial instruments at December 31, 2005 and 2004. SFAS 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
(in millions) |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments |
|
$ |
86.4 |
|
|
$ |
86.4 |
|
|
$ |
233.8 |
|
|
$ |
233.8 |
|
Receivables |
|
|
206.4 |
|
|
|
206.4 |
|
|
|
150.3 |
|
|
|
150.3 |
|
Equity and other investments |
|
|
183.9 |
|
|
|
183.9 |
|
|
|
215.9 |
|
|
|
215.9 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
331.3 |
|
|
|
322.7 |
|
|
|
435.2 |
|
|
|
455.4 |
|
Preferred shares |
|
|
115.8 |
|
|
|
102.6 |
|
|
|
133.1 |
|
|
|
133.1 |
|
|
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. |
|
|
|
|
Equity and other investments: Investments in untraded companies are valued on the basis
of managements estimates and, when available, comparisons with similar companies whose shares are publicly traded. |
|
|
|
|
Short-term borrowings and long-term debt: The fair value of Terras short-term
borrowings and long-term debt is estimated by discounting expected cash flows at the rates
currently offered for debt of the same remaining maturities. |
64
|
|
|
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: Terra is subject to credit risk through trade receivables and
short-term investments. Although a substantial portion of its 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 December 31, 2005, Terra had letters of credit outstanding totaling $15.6
million, guaranteeing various insurance and financing activities.
15. 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. At December 31,
2005, 2.6 million common shares were
reserved for issuance upon award of restricted shares and exercise of employee stock options.
During 2004 and in connection with the MCC acquisition, Terra issued warrants to purchase 4.0
million of its common shares at $5.48 per share. These warrants were valued at $21.1 million at the
MCC closing. At December 31, 2004, the value of the warrants was carried as a current liability
pending shareholder approval to issue the underlying shares. During 2005, shareholders approved the
issuance of the underlying shares and the warrant value was reclassified to common stockholders
equity.
As of December 31, 2004, Terra authorized 16,500,000 Trust Shares for issuance. There were no Trust
Shares outstanding at December 31, 2004. During 2005, the Company retired all Trust Shares that had
been authorized.
16. Share-Based Compensation
The Company sponsors three share-based compensation plans the Inspiration Resources
Corporation 1992 Stock Incentive Plan (the 1992 Plan), the Terra Industries Inc. 1997 Stock
Incentive Plan (the 1997 Plan) and the Terra Industries Inc. Stock Incentive Plan of 2002 (the
2002 Plan). Upon the adoption of the 2002 Plan, the Company no longer issues share-based awards
from the 1992 Plan or the 1997 Plan, however, approximately 592,000 authorized shares have been
reserved for awards that were issued prior to the adoption of the 2002 plan. As of December 31,
2005, there were approximately 4,092,000 shares of common stock authorized for issuance under the
plans, including approximately 3,500,000, 559,000 and 33,000 authorized for the 2002 Plan, 1997
Plan and 1992 Plan, respectively. Shares for approximately 1,457,000 and 2,635,000 were available
and reserved, respectively, for share-based compensation grants as of December 31, 2005.
Awards granted under the plans may consist of incentive stock options (ISOs) or non-qualified stock
options (NQSOs), stock appreciation rights (SARs), restricted stock or other share-based awards
(i.e. performance shares), with the exception that non-employee director may not be granted SARs
and only employees of the Company may be granted ISOs.
65
The Compensation Committee of the Companys Board of Directors administers the plans and determines
the exercise price, exercise period, vesting period and all other terms of the grant. All
share-based awards to directors, officers and employees expire ten years after the date of grant.
ISOs and NQSOs, which are not exercised after vesting, expire ten years after the date of the
award. The vesting period for restricted stock is determined at the grant date of the award; the
vesting period is usually three years. The vesting date for other share-based awards is also set at
the time of the award but can vary in length; there is usually no expiration date for other
share-based awards.
During 2005, 301,000 shares of restricted stock were issued to directors and officers with a
weighted average fair value of $8.37 per share. During 2005, 298,000 shares with a weighted average
fair value of $8.40 per share were granted to officers under a performance plan over a three-year
performance period. Under this plan, officers may receive 0% to 200% of the shares awarded based on
operating results through the fourth quarter of 2007. There were no other share-based awards
granted during these periods.
There were 365,000 shares of restricted stock with a weighted average fair value of $5.99 per share
issued during 2004. There were 684,000 shares of restricted stock with a weighted average fair
value of $1.46 per share issued during 2003.
The Company accounts for stock options using the intrinsic value method. Accordingly, no
compensation cost has been recognized for options granted under any of the Companys share-based
compensation plans. The Company accounts for certain nonvested restricted grants as fixed-plan
awards since both the aggregate number of awards issued and the aggregate amount to be paid by the
participants for the common stock is known. The Company accounts for certain nonvested restricted
grants as variable-plan awards since the aggregate number of awards to be issued is not known. The
Company evaluates these awards each period for determining compensation cost. Compensation cost
related to the all nonvested restricted stock grants is measured as the difference between the
market price of the Companys common stock at the grant date and the amount to be paid by the
participants for the common stock. Compensation costs associated with each restricted stock grant
are amortized on a straight-line basis to expense over the grants vesting period. Compensation
expense related to share-based awards was $2.0 million, $1.2 million and $1.2 million for the years
ended December 31, 2005, 2004 and 2003, respectively.
A summary of Terras stock-based compensation activity related to stock options for the years ended
December 31 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(options in thousands) |
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Number |
|
|
Price |
|
|
Number |
|
|
Price |
|
|
Number |
|
|
Price |
|
|
Outstanding beginning of year |
|
|
660 |
|
|
$ |
5.51 |
|
|
|
930 |
|
|
$ |
4.72 |
|
|
|
1,657 |
|
|
$ |
5.28 |
|
Expired/terminated |
|
|
29 |
|
|
|
13.20 |
|
|
|
72 |
|
|
|
4.29 |
|
|
|
679 |
|
|
|
6.32 |
|
Exercised |
|
|
39 |
|
|
|
4.12 |
|
|
|
198 |
|
|
|
2.26 |
|
|
|
48 |
|
|
|
1.43 |
|
|
Outstandingend of year |
|
|
592 |
|
|
$ |
5.24 |
|
|
|
660 |
|
|
$ |
5.51 |
|
|
|
930 |
|
|
$ |
4.72 |
|
|
66
The following table summarizes information about stock options outstanding and exercisable at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(options
in thousands) |
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
Range
of |
|
Number |
|
|
Remaining |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
Exercise Prices |
|
Outstanding |
|
|
Life (years) |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
|
$ 1.43-$3.88 |
|
|
494 |
|
|
|
3.0 |
|
|
$ |
3.74 |
|
|
|
494 |
|
|
$ |
3.74 |
|
7.81-7.81 |
|
|
6 |
|
|
|
2.6 |
|
|
|
7.81 |
|
|
|
6 |
|
|
|
7.81 |
|
12.13-14.75 |
|
|
92 |
|
|
|
1.6 |
|
|
|
13.04 |
|
|
|
92 |
|
|
|
13.04 |
|
|
Total |
|
|
592 |
|
|
|
2.8 |
|
|
$ |
5.24 |
|
|
|
592 |
|
|
$ |
5.24 |
|
|
No options were granted during 2005, 2004 and 2003.
17. Retirement Benefit Plans
The Company maintains defined benefit pension plans that cover certain 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. The Company also has
certain non-qualified pension plans covering executives, which are unfunded. The Company accrues
pension costs based upon annual independent actuarial valuations for each plan and funds these
costs in accordance with statutory requirements.
The components of net periodic pension expense follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Service cost |
|
$ |
2,976 |
|
|
$ |
2,731 |
|
|
$ |
5,076 |
|
Interest cost |
|
|
23,550 |
|
|
|
15,669 |
|
|
|
13,323 |
|
Expected return on plan assets |
|
|
(21,575 |
) |
|
|
(12,280 |
) |
|
|
(13,024 |
) |
Amortization of prior service cost |
|
|
(28 |
) |
|
|
21 |
|
|
|
38 |
|
Amortization of actuarial loss |
|
|
5,632 |
|
|
|
4,889 |
|
|
|
6,007 |
|
Amortization of net assets |
|
|
|
|
|
|
49 |
|
|
|
(114 |
) |
Termination charge |
|
|
1,165 |
|
|
|
|
|
|
|
1,773 |
|
|
Pension expense |
|
$ |
11,720 |
|
|
$ |
11,079 |
|
|
$ |
13,079 |
|
|
The Company has defined benefit plans in the U.S., Canada and the U.K. The Company administers its
plans to comply with the laws set forth by each countrys regulators.
In connection with the 2004 acquisition of MCC, the Company assumed the obligations of MCCs
pension plan, which increased pension projected benefit obligations by $125.9 million and increased
pension plan assets by $91.8 million as of December 31, 2004.
67
The following table reconciles, by geographic location, the plans funded status to amounts
included in the Consolidated Statements of Financial Position at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
U.S. |
|
|
Canada |
|
|
U.K. |
|
|
Total |
|
|
Change in Projected Benefit Obligation Present Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year |
|
$ |
253,932 |
|
|
$ |
29,149 |
|
|
$ |
144,988 |
|
|
$ |
428,069 |
|
Service cost |
|
|
2,078 |
|
|
|
898 |
|
|
|
|
|
|
|
2,976 |
|
Interest cost |
|
|
14,196 |
|
|
|
1,854 |
|
|
|
7,499 |
|
|
|
23,549 |
|
Actuarial (gain) loss |
|
|
10,506 |
|
|
|
6,008 |
|
|
|
12,753 |
|
|
|
29,267 |
|
Termination charge |
|
|
|
|
|
|
|
|
|
|
1,165 |
|
|
|
1,165 |
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
1,460 |
|
|
|
(16,142 |
) |
|
|
(14,682 |
) |
Benefits paid |
|
|
(13,612 |
) |
|
|
(732 |
) |
|
|
(1,489 |
) |
|
|
(15,833 |
) |
|
Projected benefit obligationend of year |
|
|
267,100 |
|
|
|
38,637 |
|
|
|
148,774 |
|
|
|
454,511 |
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year |
|
|
162,415 |
|
|
|
25,443 |
|
|
|
101,287 |
|
|
|
289,145 |
|
Actual return on plan assets |
|
|
16,332 |
|
|
|
3,008 |
|
|
|
10,497 |
|
|
|
29,837 |
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
1,173 |
|
|
|
(11,263 |
) |
|
|
(10,090 |
) |
Employer contribution |
|
|
15,439 |
|
|
|
2,150 |
|
|
|
4,659 |
|
|
|
22,248 |
|
Benefits paid |
|
|
(13,612 |
) |
|
|
(732 |
) |
|
|
(1,489 |
) |
|
|
(15,833 |
) |
|
Fair value plan assetsend of year |
|
|
180,574 |
|
|
|
31,042 |
|
|
|
103,691 |
|
|
|
315,307 |
|
|
Funded Status |
|
|
(86,526 |
) |
|
|
(7,595 |
) |
|
|
(45,083 |
) |
|
|
(139,204 |
) |
Unrecognized net actuarial loss |
|
|
49,288 |
|
|
|
8,859 |
|
|
|
35,705 |
|
|
|
93,852 |
|
Unrecognized prior service cost |
|
|
(355 |
) |
|
|
|
|
|
|
|
|
|
|
(355 |
) |
Contributions |
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
Accrued benefit cost |
|
$ |
(37,423 |
) |
|
$ |
1,264 |
|
|
$ |
(9,378 |
) |
|
$ |
(45,537 |
) |
|
68
The following table reconciles, by geographic location, the plans funded status to amounts
included in the Consolidated Statements of Financial Position at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
U.S. |
|
|
Canada |
|
|
U.K. |
|
|
Total |
|
|
Change in Projected Benefit Obligation Present Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year |
|
$ |
118,246 |
|
|
$ |
25,537 |
|
|
$ |
116,473 |
|
|
$ |
260,256 |
|
Service cost |
|
|
1,947 |
|
|
|
784 |
|
|
|
|
|
|
|
2,731 |
|
Interest cost |
|
|
7,123 |
|
|
|
1,610 |
|
|
|
6,936 |
|
|
|
15,669 |
|
Actuarial (gain) loss |
|
|
6,208 |
|
|
|
|
|
|
|
13,072 |
|
|
|
19,280 |
|
Prior service cost |
|
|
(428 |
) |
|
|
|
|
|
|
|
|
|
|
(428 |
) |
Acquisitions |
|
|
125,931 |
|
|
|
|
|
|
|
|
|
|
|
125,931 |
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
1,862 |
|
|
|
9,620 |
|
|
|
11,482 |
|
Benefits paid |
|
|
(5,095 |
) |
|
|
(644 |
) |
|
|
(1,113 |
) |
|
|
(6,852 |
) |
|
Projected benefit obligationend of year |
|
|
253,932 |
|
|
|
29,149 |
|
|
|
144,988 |
|
|
|
428,069 |
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year |
|
|
60,396 |
|
|
|
21,667 |
|
|
|
83,087 |
|
|
|
165,150 |
|
Actual return on plan assets |
|
|
3,448 |
|
|
|
1,670 |
|
|
|
8,986 |
|
|
|
14,104 |
|
Foreign currency exchange rate changes |
|
|
|
|
|
|
1,631 |
|
|
|
6,762 |
|
|
|
8,393 |
|
Employer contribution |
|
|
11,857 |
|
|
|
1,119 |
|
|
|
3,558 |
|
|
|
16,534 |
|
Participants contributions |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
7 |
|
Acquisitions |
|
|
91,809 |
|
|
|
|
|
|
|
|
|
|
|
91,809 |
|
Benefits paid |
|
|
(5,095 |
) |
|
|
(644 |
) |
|
|
(1,113 |
) |
|
|
(6,852 |
) |
|
Fair value plan assetsend of year |
|
|
162,415 |
|
|
|
25,443 |
|
|
|
101,287 |
|
|
|
289,145 |
|
|
Funded Status |
|
|
(91,517 |
) |
|
|
(3,706 |
) |
|
|
(43,701 |
) |
|
|
(138,924 |
) |
Unrecognized net actuarial loss |
|
|
44,672 |
|
|
|
3,869 |
|
|
|
33,405 |
|
|
|
81,946 |
|
Unrecognized prior service cost |
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
|
(383 |
) |
Contributions |
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
Accrued benefit cost |
|
$ |
(47,065 |
) |
|
$ |
163 |
|
|
$ |
(10,296 |
) |
|
$ |
(57,198 |
) |
|
The amount recognized in the balance sheet for the plans described above are as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Accrued benefit cost |
|
$ |
46,974 |
|
|
$ |
57,198 |
|
Accumulated other comprehensive loss |
|
|
55,934 |
|
|
|
50,974 |
|
Deferred tax asset |
|
|
27,279 |
|
|
|
22,265 |
|
Funding subsequent to valuation |
|
|
(1,625 |
) |
|
|
(1,226 |
) |
|
Amount recognized |
|
|
128,562 |
|
|
|
129,211 |
|
Less: current portion |
|
|
(8,326 |
) |
|
|
(9,641 |
) |
|
Pension liabilities |
|
$ |
120,236 |
|
|
$ |
119,570 |
|
|
The assumptions used to determine the actuarial present value of benefit obligations and pension
expense during each of the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Weighted average discount rate |
|
|
5.4 |
% |
|
|
5.7 |
% |
|
|
5.8 |
% |
Long-term per annum compensation increase |
|
|
3.3 |
% |
|
|
3.5 |
% |
|
|
3.5 |
% |
Long-term return on plan assets |
|
|
7.7 |
% |
|
|
7.7 |
% |
|
|
7.5 |
% |
|
69
The Company employs a total return investment approach whereby a mix of equities and fixed income
investments are used to maximize the long-term return of plan assets for a prudent level of risk.
The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the
long run. Risk tolerance is established through careful consideration of plan liabilities, plan
funded status, and the Companys corporate financial condition. The investment portfolio contains a
diversified blend of equity and fixed income investments. Derivatives may be used to gain market
exposure in an efficient and timely manner; however, derivatives may not be used to leverage the
portfolio beyond the market value of the underlying investments. Investment risk is measured and
monitored on an ongoing basis through annual liability measurements, periodic asset/liability
studies, and quarterly investment portfolio reviews.
The Company selects a long-term rate of return of each of its plans individually. The Company
consults with each of its three actuaries, as well as each of the funds money managers. The
expected long-term rate of return is based on the portfolio as a whole and not on the sum of the
returns on individual asset categories. While historical returns are taken into consideration,
current market trends such as inflation and current equity and fixed income returns are also taken
into consideration.
The percentage of the Fair Market Value of the total plan assets for each major asset category of
the plans assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
Asset Allocation |
|
|
|
|
|
|
|
|
Equities |
|
|
56.4 |
% |
|
|
54.9 |
% |
Bonds |
|
|
14.2 |
% |
|
|
36.0 |
% |
Cash equivalents |
|
|
29.4 |
% |
|
|
9.1 |
% |
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
The Company expects to contribute $8.3 million to its pension plans in 2006.
The expected benefits to be paid from the pension plan are as follows:
|
|
|
|
|
(in thousands) |
|
Payments |
|
|
Estimated Future Benefit Payments |
|
|
|
|
2006 |
|
$ |
16,758 |
|
2007 |
|
|
17,240 |
|
2008 |
|
|
17,739 |
|
2009 |
|
|
18,380 |
|
2010 |
|
|
19,123 |
|
2011-2015 |
|
|
114,553 |
|
The Company also sponsors 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 the Companys contributions to these plans totaled $4.8 million
in 2005, $1.5 million in 2004 and $1.5 million in 2003.
70
18. Post-Retirement Benefits
The Company provides 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. The plan is unfunded.
The following table indicates the components of the post-retirement medical benefits obligation
included in the Companys Consolidated Statements of Financial Position at December 31:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Change in Benefit Obligation |
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year |
|
$ |
4,171 |
|
|
$ |
2,986 |
|
Service cost |
|
|
12 |
|
|
|
11 |
|
Interest cost |
|
|
230 |
|
|
|
172 |
|
Participants contributions |
|
|
222 |
|
|
|
238 |
|
Amendments |
|
|
|
|
|
|
899 |
|
Actuarial (gain) loss |
|
|
346 |
|
|
|
316 |
|
Foreign currency exchange rate changes |
|
|
28 |
|
|
|
50 |
|
Benefits paid |
|
|
(807 |
) |
|
|
(501 |
) |
|
Projected benefit obligationend of year |
|
|
4,202 |
|
|
|
4,171 |
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year |
|
|
|
|
|
|
|
|
Employer contribution |
|
|
585 |
|
|
|
263 |
|
Participants contributions |
|
|
222 |
|
|
|
238 |
|
Benefits paid |
|
|
(807 |
) |
|
|
(501 |
) |
|
Fair value plan assetsend of year |
|
|
|
|
|
|
|
|
|
Funded Status |
|
|
(4,202 |
) |
|
|
(4,171 |
) |
Unrecognized net actuarial gain |
|
|
(220 |
) |
|
|
(536 |
) |
Unrecognized prior service cost |
|
|
982 |
|
|
|
978 |
|
Employer contribution |
|
|
138 |
|
|
|
60 |
|
|
Accrued benefit cost |
|
$ |
(3,302 |
) |
|
$ |
(3,669 |
) |
|
Net periodic post-retirement medical benefit (income) expense consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Service cost |
|
$ |
12 |
|
|
$ |
11 |
|
|
$ |
8 |
|
Interest cost |
|
|
230 |
|
|
|
172 |
|
|
|
195 |
|
Amortization of prior service cost |
|
|
44 |
|
|
|
(43 |
) |
|
|
(40 |
) |
Amortization of actuarial gain |
|
|
(13 |
) |
|
|
(45 |
) |
|
|
(43 |
) |
|
Post-retirement medical benefit expense |
|
$ |
273 |
|
|
$ |
95 |
|
|
$ |
120 |
|
|
The Company limits its future obligation for post-retirement medical benefits by capping at 5% the
annual rate of increase in the cost of claims it assumes under the plan. The weighted average
discount rate used in determining the accumulated post-retirement medical benefit obligation was
5.63% in 2005, 5.83% in 2004 and 6.16% in 2003. The assumed annual health care cost trend rate was
5% in 2005, 2004 and 2003. The impact on the benefit obligation of a 1% increase in the assumed
health care cost trend rate
71
would be approximately $0.1 million while a 1% decline in the rate would decrease the benefit
obligation by approximately $0.4 million.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and
a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. The subsidy is based on approximately 28% of an
individual beneficiarys annual prescription drug costs between $250 and $5,000. The effects of the
subsidy were factored into the 2005 annual year-end valuation. The reduction in the benefit
obligation attributable to past service cost was approximately $0.6 million and has been reflected
as an actuarial gain.
Future benefit payments expected to be paid for post-retirement medical benefits are as follows:
|
|
|
|
|
(in thousands) |
|
Payments |
|
|
Estimated Future Benefit Payments |
|
|
|
|
2006 |
|
$ |
334 |
|
2007 |
|
|
315 |
|
2008 |
|
|
283 |
|
2009 |
|
|
280 |
|
2010 |
|
|
252 |
|
2011-2015 |
|
|
1,721 |
|
19. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) refers to revenues, expenses, gains and losses
that under accounting principles generally accepted in the United States are recorded as an element
of shareholders equity but are excluded from net income. Terras accumulated other comprehensive
income (loss) is comprised of (a) adjustments that result from translation of Terras foreign
entity financial statements from their functional currencies to United States dollars, (b)
adjustments that result from translation of intercompany foreign currency transactions that are of
a long-term investment nature (that is, settlement is not planned or anticipated in the foreseeable
future) between entities that are consolidated in Terras financial statements, (c) the offset to
the fair value of derivative assets and liabilities (that qualify as hedged relationships) recorded
on the balance sheet, and (d) minimum pension liability adjustments.
72
The components of accumulated other comprehensive income (loss), net of tax, for the years ended
December 31, 2005 and 2004 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
Minimum |
|
|
|
|
Translation |
|
Fair Value of |
|
Pension |
|
|
(in thousands) |
|
Adjustment |
|
Derivatives |
|
Liability |
|
Total |
|
Balance December 31, 2003 |
|
$ |
(10,929 |
) |
|
$ |
3,979 |
|
|
$ |
(37,646 |
) |
|
$ |
(44,596 |
) |
Change in foreign currency translation adjustment |
|
|
25,216 |
|
|
|
|
|
|
|
|
|
|
|
25,216 |
|
Reclassification to earnings |
|
|
|
|
|
|
(7,244 |
) |
|
|
|
|
|
|
(7,244 |
) |
Change in fair value of derivatives |
|
|
|
|
|
|
(16,042 |
) |
|
|
|
|
|
|
(16,042 |
) |
Change in minimum pension liabilities |
|
|
|
|
|
|
|
|
|
|
(13,328 |
) |
|
|
(13,328 |
) |
|
Balance December 31, 2004 |
|
|
14,287 |
|
|
|
(19,307 |
) |
|
|
(50,974 |
) |
|
|
(55,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment |
|
|
(23,387 |
) |
|
|
|
|
|
|
|
|
|
|
(23,387 |
) |
Reclassification to earnings |
|
|
|
|
|
|
3,059 |
|
|
|
|
|
|
|
19,307 |
|
Change in fair value of derivatives |
|
|
|
|
|
|
11,139 |
|
|
|
|
|
|
|
(5,109 |
) |
Change in minimum pension liabilities |
|
|
|
|
|
|
|
|
|
|
(4,960 |
) |
|
|
(4,960 |
) |
|
Balance December 31, 2005 |
|
$ |
(9,100 |
) |
|
$ |
(5,109 |
) |
|
$ |
(55,934 |
) |
|
$ |
(70,143 |
) |
|
20. Income Taxes
Components of the income tax provision (benefit) applicable to continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Foreign |
|
|
679 |
|
|
|
1,058 |
|
|
|
398 |
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679 |
|
|
|
1,058 |
|
|
|
398 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
4,196 |
|
|
|
2,570 |
|
|
|
(79,400 |
) |
Foreign |
|
|
9,102 |
|
|
|
(8,628 |
) |
|
|
22,002 |
|
State |
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,538 |
|
|
|
(6,058 |
) |
|
|
(57,398 |
) |
|
Total income tax provision (benefit) |
|
$ |
14,217 |
|
|
$ |
(5,000 |
) |
|
$ |
(57,000 |
) |
|
73
The following table reconciles the income tax provision (benefit) per the Consolidated Statements
of Operations to the federal statutory provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
Income (loss) from continuing
operations before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
560 |
|
|
$ |
(7,516 |
) |
|
$ |
(100,117 |
) |
Foreign |
|
|
35,744 |
|
|
|
70,112 |
|
|
|
30,636 |
|
|
|
|
|
36,304 |
|
|
|
62,596 |
|
|
|
(69,481 |
) |
|
Statutory income tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
196 |
|
|
|
(2,631 |
) |
|
|
(34,915 |
) |
Foreign |
|
|
11,057 |
|
|
|
21,934 |
|
|
|
9,785 |
|
|
|
|
|
11,253 |
|
|
|
19,303 |
|
|
|
(25,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction to foreign tax assessments
and reserves |
|
|
|
|
|
|
(27,877 |
) |
|
|
(36,421 |
) |
Foreign exchange gain (loss) |
|
|
(1,302 |
) |
|
|
1,548 |
|
|
|
4,883 |
|
Debt repayment losses |
|
|
7,807 |
|
|
|
|
|
|
|
|
|
Warrant fair value gain |
|
|
(3,278 |
) |
|
|
|
|
|
|
|
|
Valuation reserve |
|
|
964 |
|
|
|
2,460 |
|
|
|
840 |
|
Other |
|
|
(1,227 |
) |
|
|
(434 |
) |
|
|
(1,172 |
) |
|
Income tax provision (benefit) |
|
$ |
14,217 |
|
|
$ |
(5,000 |
) |
|
$ |
(57,000 |
) |
|
The tax effect of net operating loss (NOL), tax credit carryforwards and significant temporary
differences between reported and taxable earnings that gave rise to net deferred tax assets
(liabilities) were as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
Current deferred tax asset (liability)
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
1,944 |
|
|
$ |
(5,061 |
) |
Inventory valuation |
|
|
(1,019 |
) |
|
|
(72 |
) |
Unsettled derivative losses |
|
|
1,341 |
|
|
|
|
|
|
Net current deferred tax asset (liability) |
|
|
2,266 |
|
|
|
(5,133 |
) |
|
Non-current deferred tax liability |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(188,977 |
) |
|
|
(213,753 |
) |
Investments in partnership |
|
|
(7,235 |
) |
|
|
(5,127 |
) |
Investment in affiliates |
|
|
(37,589 |
) |
|
|
(39,183 |
) |
Intangible asset |
|
|
(2,785 |
) |
|
|
|
|
Unfunded employee benefits |
|
|
13,117 |
|
|
|
10,465 |
|
Discontinued business costs |
|
|
8,257 |
|
|
|
9,863 |
|
Valuation allowance |
|
|
(61,728 |
) |
|
|
(56,490 |
) |
NOL, capital loss and tax credit carryforwards |
|
|
180,548 |
|
|
|
212,954 |
|
Accumulated other comprehensive income |
|
|
30,141 |
|
|
|
22,955 |
|
Other |
|
|
254 |
|
|
|
92 |
|
|
Net noncurrent deferred tax liability |
|
|
(65,997 |
) |
|
|
(58,224 |
) |
|
Net deferred tax liability |
|
$ |
(63,731 |
) |
|
$ |
(63,357 |
) |
|
During 1996, after receiving a favorable ruling from Revenue Canada, Terra refreshed its tax basis
in plants and equipment at its Canadian subsidiary by entering into a transaction with a Canadian
subsidiary of Anglo American plc, resulting in a deferred tax asset. In 2000, Revenue Canada
challenged the
74
refreshed amount of this tax basis, and Terra established a reserve against the previously recorded
tax asset. Terra contested Revenue Canadas position and realized a reduction to the tax assessment
during 2003 with a final settlement during 2004. In connection with the tax assessment reductions,
final settlement of the issues and new company structure opportunities, Terra eliminated tax
reserves of $27.9 million in 2004.
On December 20, 2004, Anglo American plc (Anglo), through its wholly-owned subsidiaries,
completed sales of its interests in Terra. The sale of Anglos common shares resulted in a change
of control (as defined in Section 382 of the Internal Revenue Code of 1986, as amended) for
purposes of utilizing tax benefits from net operating loss carryforwards and certain other tax
attributes available to the Company. As a result of the change of control, Terra will generally be
limited to an annual loss carryforward utilization of $36.4 million. Consequently, realization of
tax benefits from the Companys operating loss carryforwards could be delayed by these limitations
or could possibly be lost due to expiration of our carryforward periods beginning in 2018.
In October, The American Jobs Creation Act of 2004 (the Jobs Act) was signed into law. The Jobs Act
creates a temporary incentive for U.S. multinationals to repatriate accumulated income earned
outside the U.S. at an effective tax rate of 5.25%. The Company did not reinvest or repatriate any
foreign earnings as a result of the Jobs Act.
21. Industry Segment Data
Terra operates in two principal industry segmentsNitrogen Products and Methanol. The Nitrogen
Products business produces and distributes ammonia, urea, nitrogen solutions, ammonium nitrate and
other nitrogen products to agricultural and industrial users. The Methanol business manufactures
and, prior to 2004, distributed methanol, which is principally used as a raw material in the
production of a variety of chemical derivatives and in the production of methyl tertiary butyl
ether (MTBE), an oxygenate and octane enhancer for gasoline. Management evaluates performance based
on operating earnings of each segment. Terra does not allocate interest, income taxes or infrequent
items to the business segments. Included in Other are general corporate activities not attributable
to a specific industry segment.
75
The following summarizes additional information about Terras industry segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Products |
|
|
Methanol |
|
|
Other |
|
|
Total |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,905,505 |
|
|
$ |
31,347 |
|
|
$ |
2,213 |
|
|
$ |
1,939,065 |
|
Operating income (loss) |
|
|
131,474 |
|
|
|
(14,089 |
) |
|
|
(3,689 |
) |
|
|
113,696 |
|
Total assets |
|
|
1,298,289 |
|
|
|
102,811 |
|
|
|
122,525 |
|
|
|
1,523,625 |
|
Depreciation and amortization |
|
|
90,638 |
|
|
|
10,993 |
|
|
|
8,711 |
|
|
|
110,342 |
|
Capital expenditures |
|
|
29,967 |
|
|
|
59 |
|
|
|
794 |
|
|
|
30,820 |
|
Equity earnings |
|
|
21,415 |
|
|
|
|
|
|
|
|
|
|
|
21,415 |
|
Equity investments |
|
|
183,884 |
|
|
|
|
|
|
|
|
|
|
|
183,884 |
|
Minority interest in earnings |
|
|
13,667 |
|
|
|
|
|
|
|
|
|
|
|
13,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,320,142 |
|
|
$ |
186,823 |
|
|
$ |
2,145 |
|
|
$ |
1,509,110 |
|
Operating income (loss) |
|
|
138,745 |
|
|
|
1,479 |
|
|
|
(5,478 |
) |
|
|
134,746 |
|
Total assets |
|
|
1,440,103 |
|
|
|
122,273 |
|
|
|
123,132 |
|
|
|
1,685,508 |
|
Depreciation and amortization |
|
|
76,175 |
|
|
|
13,019 |
|
|
|
13,036 |
|
|
|
102,230 |
|
Capital expenditures |
|
|
17,038 |
|
|
|
53 |
|
|
|
1,381 |
|
|
|
18,472 |
|
Equity earnings |
|
|
442 |
|
|
|
|
|
|
|
|
|
|
|
442 |
|
Equity investments |
|
|
215,939 |
|
|
|
|
|
|
|
|
|
|
|
215,939 |
|
Minority interest in earnings |
|
|
11,207 |
|
|
|
|
|
|
|
|
|
|
|
11,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,139,379 |
|
|
$ |
209,870 |
|
|
$ |
1,806 |
|
|
$ |
1,351,055 |
|
Operating income (loss) |
|
|
(19,370 |
) |
|
|
1,866 |
|
|
|
(6,056 |
) |
|
|
(23,560 |
) |
Total assets |
|
|
898,437 |
|
|
|
157,187 |
|
|
|
69,438 |
|
|
|
1,125,062 |
|
Depreciation and amortization |
|
|
80,246 |
|
|
|
13,242 |
|
|
|
13,882 |
|
|
|
107,370 |
|
Capital expenditures |
|
|
6,708 |
|
|
|
1,571 |
|
|
|
360 |
|
|
|
8,639 |
|
Equity earnings |
|
|
803 |
|
|
|
|
|
|
|
|
|
|
|
803 |
|
Equity investments |
|
|
2,255 |
|
|
|
|
|
|
|
|
|
|
|
2,255 |
|
Minority interest in losses |
|
|
(8,617 |
) |
|
|
|
|
|
|
|
|
|
|
(8,617 |
) |
|
The following summarizes geographic information about Terra:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
Long-lived Assets |
|
(in thousands) |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
United States |
|
$ |
1,464,375 |
|
|
$ |
1,061,261 |
|
|
$ |
983,936 |
|
|
$ |
512,572 |
|
|
$ |
570,031 |
|
|
$ |
461,690 |
|
Canada |
|
|
55,641 |
|
|
|
61,395 |
|
|
|
57,618 |
|
|
|
55,625 |
|
|
|
51,036 |
|
|
|
55,010 |
|
United Kingdom |
|
|
419,049 |
|
|
|
386,454 |
|
|
|
309,501 |
|
|
|
219,045 |
|
|
|
257,520 |
|
|
|
251,105 |
|
|
|
|
$ |
1,939,065 |
|
|
$ |
1,509,110 |
|
|
$ |
1,351,055 |
|
|
$ |
787,242 |
|
|
$ |
878,587 |
|
|
$ |
767,805 |
|
|
76
22. Guarantor Subsidiaries
The 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, TCAPI, the Guarantor
Subsidiaries and subsidiaries of the Parent that are not guarantors of the Senior Secured Notes
(see Note 13 Long-term Debt) for December 31, 2005, 2004 and 2003 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 and
Beaumont, Texas plants as well as the corporate headquarters facility in Sioux City, Iowa. All
other company facilities are owned by non-guarantor subsidiaries.
77
Condensed Consolidating Statement of Financial Position for the Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
restricted cash |
|
$ |
1 |
|
|
$ |
11,508 |
|
|
$ |
75,967 |
|
|
$ |
7,486 |
|
|
$ |
(1 |
) |
|
$ |
94,961 |
|
Accounts receivable, net |
|
|
|
|
|
|
1,563 |
|
|
|
54,486 |
|
|
|
150,357 |
|
|
|
1 |
|
|
|
206,407 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
60,350 |
|
|
|
119,061 |
|
|
|
10,903 |
|
|
|
190,314 |
|
Other current assets |
|
|
9,198 |
|
|
|
12,704 |
|
|
|
9,720 |
|
|
|
22,763 |
|
|
|
193 |
|
|
|
54,578 |
|
|
Total current assets |
|
|
9,199 |
|
|
|
25,775 |
|
|
|
200,523 |
|
|
|
299,667 |
|
|
|
11,096 |
|
|
|
546,260 |
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
275,223 |
|
|
|
458,313 |
|
|
|
|
|
|
|
733,536 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,884 |
|
|
|
|
|
|
|
183,884 |
|
Deferred plant turnaround
costs, intangible and
other assets |
|
|
|
|
|
|
10,861 |
|
|
|
7,299 |
|
|
|
42,139 |
|
|
|
(354 |
) |
|
|
59,945 |
|
Investments in and advances
to (from) affiliates |
|
|
747,233 |
|
|
|
536,937 |
|
|
|
1,358,920 |
|
|
|
618,155 |
|
|
|
(3,261,245 |
) |
|
|
|
|
|
Total Assets |
|
$ |
756,432 |
|
|
$ |
573,573 |
|
|
$ |
1,841,965 |
|
|
$ |
1,602,158 |
|
|
$ |
(3,250,503 |
) |
|
$ |
1,523,625 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt due within one year |
|
$ |
|
|
|
$ |
|
|
|
$ |
26 |
|
|
$ |
12 |
|
|
$ |
|
|
|
$ |
38 |
|
Accounts payable |
|
|
210 |
|
|
|
|
|
|
|
48,501 |
|
|
|
77,152 |
|
|
|
|
|
|
|
125,863 |
|
Accrued and other
liabilities |
|
|
3,119 |
|
|
|
92,984 |
|
|
|
54,855 |
|
|
|
63,670 |
|
|
|
(76,719 |
) |
|
|
137,909 |
|
|
Total current liabilities |
|
|
3,329 |
|
|
|
92,984 |
|
|
|
103,382 |
|
|
|
140,834 |
|
|
|
(76,719 |
) |
|
|
263,810 |
|
|
Long-term debt and capital
Lease obligations |
|
|
|
|
|
|
331,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331,300 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,088 |
|
|
|
(4,090 |
) |
|
|
65,998 |
|
Pension and other liabilities |
|
|
148,793 |
|
|
|
|
|
|
|
11,173 |
|
|
|
1,591 |
|
|
|
(1 |
) |
|
|
161,556 |
|
Minority interest |
|
|
|
|
|
|
18,049 |
|
|
|
74,209 |
|
|
|
|
|
|
|
|
|
|
|
92,258 |
|
|
Total liabilities and
minority interest |
|
|
152,122 |
|
|
|
442,333 |
|
|
|
188,764 |
|
|
|
212,513 |
|
|
|
(80,810 |
) |
|
|
914,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
146,994 |
|
|
|
|
|
|
|
73 |
|
|
|
49,709 |
|
|
|
(49,782 |
) |
|
|
146,994 |
|
Paid in capital |
|
|
712,671 |
|
|
|
150,218 |
|
|
|
1,741,688 |
|
|
|
1,473,065 |
|
|
|
(3,364,971 |
) |
|
|
712,671 |
|
Accumulated other
comprehensive income
income (loss) and
unearned compensation |
|
|
(63,728 |
) |
|
|
|
|
|
|
|
|
|
|
5,232 |
|
|
|
(17,016 |
) |
|
|
(75,512 |
) |
Retrained earnings (deficit) |
|
|
(307,427 |
) |
|
|
(18,978 |
) |
|
|
(88,560 |
) |
|
|
(138,361 |
) |
|
|
262,076 |
|
|
|
(291,250 |
) |
|
Total stockholders equity |
|
|
488,510 |
|
|
|
131,240 |
|
|
|
1,653,201 |
|
|
|
1,389,645 |
|
|
|
(3,169,693 |
) |
|
|
492,903 |
|
|
Total liabilities and
stockholders equity |
|
$ |
756,432 |
|
|
$ |
573,573 |
|
|
$ |
1,841,965 |
|
|
$ |
1,602,158 |
|
|
$ |
(3,250,503 |
) |
|
$ |
1,523,625 |
|
|
78
Condensed Consolidating Statement of Operations for the Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
576,993 |
|
|
$ |
1,353,589 |
|
|
$ |
1 |
|
|
$ |
1,930,583 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
7,189 |
|
|
|
1,293 |
|
|
|
|
|
|
|
8,482 |
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
584,182 |
|
|
|
1,354,882 |
|
|
|
1 |
|
|
|
1,939,065 |
|
|
Cost and Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
3,510 |
|
|
|
603,372 |
|
|
|
1,242,991 |
|
|
|
(49,637 |
) |
|
|
1,800,236 |
|
Selling, general and
administrative expenses |
|
|
2,817 |
|
|
|
(8,183 |
) |
|
|
(4,425 |
) |
|
|
6,848 |
|
|
|
49,491 |
|
|
|
46,548 |
|
Equity in the (earnings) loss
of subsidiaries |
|
|
40,800 |
|
|
|
(209,743 |
) |
|
|
(89,609 |
) |
|
|
(79,915 |
) |
|
|
317,052 |
|
|
|
(21,415 |
) |
|
Total cost and expenses |
|
|
43,617 |
|
|
|
(214,416 |
) |
|
|
509,338 |
|
|
|
1,169,924 |
|
|
|
316,906 |
|
|
|
1,825,369 |
|
|
Income (loss) from operations |
|
|
(43,617 |
) |
|
|
214,416 |
|
|
|
74,844 |
|
|
|
184,958 |
|
|
|
(316,905 |
) |
|
|
113,696 |
|
Interest income |
|
|
|
|
|
|
2,049 |
|
|
|
5,291 |
|
|
|
(612 |
) |
|
|
1,358 |
|
|
|
8,086 |
|
Interest expense |
|
|
(1,860 |
) |
|
|
(44,843 |
) |
|
|
(16 |
) |
|
|
(6,758 |
) |
|
|
(1 |
) |
|
|
(53,478 |
) |
Loss on early retirement
of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,193 |
) |
|
|
|
|
|
|
(27,193 |
) |
Change in fair value
of warrant liability |
|
|
8,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,860 |
|
|
Income (loss) before tax
and minority interests |
|
|
(36,617 |
) |
|
|
171,622 |
|
|
|
80,119 |
|
|
|
150,395 |
|
|
|
(315,548 |
) |
|
|
49,971 |
|
Income tax benefit (provision) |
|
|
(4,435 |
) |
|
|
|
|
|
|
|
|
|
|
(9,782 |
) |
|
|
|
|
|
|
(14,217 |
) |
Minority interest |
|
|
|
|
|
|
(2,679 |
) |
|
|
(10,989 |
) |
|
|
|
|
|
|
1 |
|
|
|
(13,667 |
) |
|
Net Income (Loss) |
|
$ |
(41,052 |
) |
|
$ |
168,943 |
|
|
$ |
69,130 |
|
|
$ |
140,613 |
|
|
$ |
(315,547 |
) |
|
$ |
22,087 |
|
|
79
Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(41,052 |
) |
|
$ |
168,943 |
|
|
$ |
69,130 |
|
|
$ |
140,613 |
|
|
$ |
(315,547 |
) |
|
$ |
22,087 |
|
Non-cash loss on early
retirement of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,543 |
|
|
|
|
|
|
|
22,543 |
|
Change in fair value
of warrant liability |
|
|
(8,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,860 |
) |
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
43,506 |
|
|
|
64,838 |
|
|
|
1,998 |
|
|
|
110,342 |
|
Non-cash loss on derivatives |
|
|
|
|
|
|
|
|
|
|
4,091 |
|
|
|
|
|
|
|
|
|
|
|
4,091 |
|
Deferred taxes |
|
|
13,538 |
|
|
|
|
|
|
|
|
|
|
|
(5,400 |
) |
|
|
5,400 |
|
|
|
13,538 |
|
Minority interest in earnings
(loss) |
|
|
|
|
|
|
2,679 |
|
|
|
10,989 |
|
|
|
|
|
|
|
(1 |
) |
|
|
13,667 |
|
Equity earnings in excess of
profit distributions |
|
|
40,800 |
|
|
|
(209,743 |
) |
|
|
|
|
|
|
(79,915 |
) |
|
|
241,917 |
|
|
|
(6,941 |
) |
Amortization of unearned
compensation |
|
|
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997 |
|
Term loan discount accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,773 |
|
|
|
|
|
|
|
1,773 |
|
Change in operating assets
and liabilities |
|
|
11,645 |
|
|
|
147,075 |
|
|
|
(56,723 |
) |
|
|
(107,064 |
) |
|
|
(158,295 |
) |
|
|
(163,362 |
) |
|
Net Cash Flows from
Operating Activities |
|
|
18,068 |
|
|
|
108,954 |
|
|
|
70,993 |
|
|
|
37,388 |
|
|
|
(224,528 |
) |
|
|
10,875 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
(3,331 |
) |
|
|
(27,489 |
) |
|
|
|
|
|
|
(30,820 |
) |
Plant turnaround costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,331 |
) |
|
|
|
|
|
|
(22,331 |
) |
Distributions received from
unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,901 |
|
|
|
|
|
|
|
31,901 |
|
Proceeds from the sale of
property, plant
and equipment |
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
7,392 |
|
|
|
|
|
|
|
7,560 |
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
(8,595 |
) |
|
|
|
|
|
|
|
|
|
|
(8,595 |
) |
|
Net Cash Flows from
Investing Activities |
|
|
168 |
|
|
|
|
|
|
|
(11,926 |
) |
|
|
(10,527 |
) |
|
|
|
|
|
|
(22,285 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments under
borrowing arrangements |
|
|
|
|
|
|
|
|
|
|
(104 |
) |
|
|
(125,063 |
) |
|
|
|
|
|
|
(125,167 |
) |
Proceeds from exercise of
stock options |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142 |
|
Stock issuance |
|
|
|
|
|
|
|
|
|
|
(9,190 |
) |
|
|
|
|
|
|
9,190 |
|
|
|
|
|
Change in investments and
advances from (to)
affiliates |
|
|
(12,428 |
) |
|
|
(299,473 |
) |
|
|
|
|
|
|
239,000 |
|
|
|
72,901 |
|
|
|
|
|
Preferred share dividends paid |
|
|
(5,950 |
) |
|
|
|
|
|
|
|
|
|
|
(133,875 |
) |
|
|
133,875 |
|
|
|
(5,950 |
) |
80
Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2005 continued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Distributions to minority
interests |
|
|
|
|
|
|
(2,664 |
) |
|
|
(10,944 |
) |
|
|
|
|
|
|
1 |
|
|
|
(13,607 |
) |
|
Net Cash Flows from
Financing Activities |
|
|
(18,236 |
) |
|
|
(302,137 |
) |
|
|
(20,238 |
) |
|
|
(19,938 |
) |
|
|
215,967 |
|
|
|
(144,582 |
) |
|
Effect of Foreign Exchange
Rate on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,560 |
|
|
|
8,560 |
|
|
Increase (Decrease) in Cash
and Cash Equivalents |
|
|
|
|
|
|
(193,183 |
) |
|
|
38,829 |
|
|
|
6,923 |
|
|
|
(1 |
) |
|
|
(147,432 |
) |
|
Cash and Cash Equivalents
at Beginning of Year |
|
|
1 |
|
|
|
204,691 |
|
|
|
28,543 |
|
|
|
563 |
|
|
|
|
|
|
|
233,798 |
|
|
Cash and Cash Equivalents
at End of Year |
|
$ |
1 |
|
|
$ |
11,508 |
|
|
$ |
67,372 |
|
|
$ |
7,486 |
|
|
$ |
(1 |
) |
|
$ |
86,366 |
|
|
81
Condensed Consolidating Statement of Financial Position for the Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
restricted cash |
|
$ |
1 |
|
|
$ |
204,691 |
|
|
$ |
28,543 |
|
|
$ |
563 |
|
|
$ |
|
|
|
$ |
233,798 |
|
Accounts receivable |
|
|
7 |
|
|
|
(75 |
) |
|
|
31,181 |
|
|
|
119,158 |
|
|
|
|
|
|
|
150,271 |
|
Inventories |
|
|
60 |
|
|
|
|
|
|
|
32,243 |
|
|
|
116,504 |
|
|
|
1 |
|
|
|
148,808 |
|
Other current assets |
|
|
1,520 |
|
|
|
21,149 |
|
|
|
9,540 |
|
|
|
26,888 |
|
|
|
(991 |
) |
|
|
58,106 |
|
|
Total current assets |
|
|
1,588 |
|
|
|
225,765 |
|
|
|
101,507 |
|
|
|
263,113 |
|
|
|
(990 |
) |
|
|
590,983 |
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
306,020 |
|
|
|
499,170 |
|
|
|
(7,212 |
) |
|
|
797,978 |
|
Deferred plant turnaround
costs, intangible and
other assets |
|
|
237 |
|
|
|
14,177 |
|
|
|
14,365 |
|
|
|
42,560 |
|
|
|
9,269 |
|
|
|
80,608 |
|
Equity investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,939 |
|
|
|
|
|
|
|
215,939 |
|
Investments in and advances
to (from) affiliates |
|
|
735,357 |
|
|
|
237,464 |
|
|
|
1,366,624 |
|
|
|
192,787 |
|
|
|
(2,532,232 |
) |
|
|
|
|
|
Total Assets |
|
$ |
737,182 |
|
|
$ |
477,406 |
|
|
$ |
1,788,516 |
|
|
$ |
1,213,569 |
|
|
$ |
(2,531,165 |
) |
|
$ |
1,685,508 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt due within
one year |
|
$ |
|
|
|
$ |
|
|
|
$ |
104 |
|
|
$ |
63 |
|
|
$ |
|
|
|
$ |
167 |
|
Accounts payable |
|
|
515 |
|
|
|
1,600 |
|
|
|
26,385 |
|
|
|
94,218 |
|
|
|
(3,147 |
) |
|
|
119,571 |
|
Accrued and other
liabilities |
|
|
50,466 |
|
|
|
7,426 |
|
|
|
79,233 |
|
|
|
84,058 |
|
|
|
(988 |
) |
|
|
220,195 |
|
|
Total current liabilities |
|
|
50,981 |
|
|
|
9,026 |
|
|
|
105,722 |
|
|
|
178,339 |
|
|
|
(4,135 |
) |
|
|
339,933 |
|
|
Long-term debt and
capital lease obligations |
|
|
|
|
|
|
331,300 |
|
|
|
26 |
|
|
|
103,912 |
|
|
|
|
|
|
|
435,238 |
|
Deferred income taxes |
|
|
(19,322 |
) |
|
|
|
|
|
|
|
|
|
|
75,488 |
|
|
|
2,058 |
|
|
|
58,224 |
|
Pension and other
liabilities |
|
|
112,020 |
|
|
|
|
|
|
|
15,343 |
|
|
|
36,935 |
|
|
|
3,144 |
|
|
|
167,442 |
|
Minority interest |
|
|
|
|
|
|
18,034 |
|
|
|
74,164 |
|
|
|
|
|
|
|
(1 |
) |
|
|
92,197 |
|
|
Total liabilities and
minority interest |
|
|
143,679 |
|
|
|
358,360 |
|
|
|
195,255 |
|
|
|
394,674 |
|
|
|
1,066 |
|
|
|
1,093,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares |
|
|
133,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
144,531 |
|
|
|
|
|
|
|
72 |
|
|
|
49,709 |
|
|
|
(49,781 |
) |
|
|
144,531 |
|
Paid in capital |
|
|
681,639 |
|
|
|
150,218 |
|
|
|
1,750,879 |
|
|
|
892,400 |
|
|
|
(2,793,497 |
) |
|
|
681,639 |
|
Accumulated other
comprehensive
income (loss) |
|
|
(55,994 |
) |
|
|
(52,994 |
) |
|
|
|
|
|
|
21,885 |
|
|
|
31,109 |
|
|
|
(55,994 |
) |
Unearned compensation |
|
|
(2,568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,568 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
(deficit) |
|
|
(307,174 |
) |
|
|
21,822 |
|
|
|
(157,690 |
) |
|
|
(145,099 |
) |
|
|
279,938 |
|
|
|
(308,203 |
) |
|
Total stockholders equity |
|
|
460,434 |
|
|
|
119,046 |
|
|
|
1,593,261 |
|
|
|
818,895 |
|
|
|
(2,532,231 |
) |
|
|
459,405 |
|
|
Total liabilities and
stockholders equity |
|
$ |
737,182 |
|
|
$ |
477,406 |
|
|
$ |
1,788,516 |
|
|
$ |
1,213,569 |
|
|
$ |
(2,531,165 |
) |
|
$ |
1,685,508 |
|
|
82
Condensed Consolidating Statement of Operations for the Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
535,977 |
|
|
$ |
961,472 |
|
|
$ |
9,516 |
|
|
$ |
1,506,965 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
10,972 |
|
|
|
689 |
|
|
|
(9,516 |
) |
|
|
2,145 |
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
546,949 |
|
|
|
962,161 |
|
|
|
|
|
|
|
1,509,110 |
|
|
Cost and Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
504,037 |
|
|
|
848,825 |
|
|
|
(4,785 |
) |
|
|
1,348,077 |
|
Selling, general and
administrative expenses |
|
|
3,780 |
|
|
|
(9,823 |
) |
|
|
30,173 |
|
|
|
11,294 |
|
|
|
8,766 |
|
|
|
44,190 |
|
Product claim costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,903 |
) |
|
|
|
|
|
|
(17,903 |
) |
Equity in the (earnings)
loss of subsidiaries |
|
|
(45,792 |
) |
|
|
(97,064 |
) |
|
|
(74,338 |
) |
|
|
(442 |
) |
|
|
217,636 |
|
|
|
|
|
|
Total cost and expenses |
|
|
(42,012 |
) |
|
|
(106,887 |
) |
|
|
459,872 |
|
|
|
841,774 |
|
|
|
221,617 |
|
|
|
1,374,364 |
|
|
Income (loss) from
operations |
|
|
42,012 |
|
|
|
106,887 |
|
|
|
87,077 |
|
|
|
120,387 |
|
|
|
(221,617 |
) |
|
|
134,746 |
|
Interest income |
|
|
1 |
|
|
|
1,856 |
|
|
|
4,261 |
|
|
|
1,838 |
|
|
|
(4,649 |
) |
|
|
3,307 |
|
Interest expense |
|
|
(3,077 |
) |
|
|
(49,643 |
) |
|
|
(29 |
) |
|
|
(5,172 |
) |
|
|
4,787 |
|
|
|
(53,134 |
) |
Loss on early retirement
of debt |
|
|
|
|
|
|
(11,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.116 |
) |
|
Income (loss) before
income taxes and
minority interest |
|
|
38,936 |
|
|
|
47,984 |
|
|
|
91,309 |
|
|
|
117,053 |
|
|
|
(221,479 |
) |
|
|
73,803 |
|
Income tax benefit (provision) |
|
|
28,660 |
|
|
|
|
|
|
|
|
|
|
|
(23,660 |
) |
|
|
|
|
|
|
5,000 |
|
Minority interest |
|
|
|
|
|
|
(2,192 |
) |
|
|
(9,015 |
) |
|
|
|
|
|
|
|
|
|
|
(11,207 |
) |
|
Net Income |
|
$ |
67,596 |
|
|
$ |
45,792 |
|
|
$ |
82,294 |
|
|
$ |
93,393 |
|
|
$ |
(221,479 |
) |
|
$ |
67,596 |
|
|
83
Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
67,596 |
|
|
$ |
45,792 |
|
|
$ |
82,294 |
|
|
$ |
93,393 |
|
|
$ |
(221,479 |
) |
|
$ |
67,596 |
|
Adjustments to reconcile net
loss to net cash flows from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early retirement
of debt |
|
|
|
|
|
|
2,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,985 |
|
Depreciation and
amortization |
|
|
|
|
|
|
4,086 |
|
|
|
47,676 |
|
|
|
50,468 |
|
|
|
|
|
|
|
102,230 |
|
Deferred income taxes |
|
|
(49,601 |
) |
|
|
|
|
|
|
|
|
|
|
46,362 |
|
|
|
(2,819 |
) |
|
|
(6,058 |
) |
Minority interest in earnings |
|
|
|
|
|
|
2,192 |
|
|
|
9,015 |
|
|
|
|
|
|
|
|
|
|
|
11,207 |
|
Equity in earnings (loss)
of subsidiaries |
|
|
45,792 |
|
|
|
97,064 |
|
|
|
74,338 |
|
|
|
442 |
|
|
|
(217,636 |
) |
|
|
|
|
Unearned compensation |
|
|
1,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513 |
|
Change in operating assets
and liabilities |
|
|
32,800 |
|
|
|
(29,558 |
) |
|
|
59,830 |
|
|
|
3,139 |
|
|
|
(21,304 |
) |
|
|
44,907 |
|
Claim cost recovery |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,874 |
) |
|
|
|
|
|
|
(12,874 |
) |
|
Net Cash Flows from
Operating Activities |
|
|
98,100 |
|
|
|
122,561 |
|
|
|
273,153 |
|
|
|
180,930 |
|
|
|
(463,238 |
) |
|
|
211,506 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
(4,250 |
) |
|
|
(14,222 |
) |
|
|
|
|
|
|
(18,472 |
) |
Plant turnaround costs |
|
|
|
|
|
|
|
|
|
|
(12,103 |
) |
|
|
(16,775 |
) |
|
|
|
|
|
|
(28,878 |
) |
Acquisitions, net of cash
received |
|
|
175,250 |
|
|
|
|
|
|
|
|
|
|
|
(229,418 |
) |
|
|
|
|
|
|
(54,168 |
) |
Other |
|
|
22,872 |
|
|
|
(4 |
) |
|
|
(10,963 |
) |
|
|
(13,672 |
) |
|
|
2,733 |
|
|
|
966 |
|
|
Net Cash Flows from
Investing Activities |
|
|
198,122 |
|
|
|
(4 |
) |
|
|
(27,316 |
) |
|
|
(274,087 |
) |
|
|
2,733 |
|
|
|
(100,552 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on
long-term debt |
|
|
|
|
|
|
(70,700 |
) |
|
|
(95 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
(70,854 |
) |
Stock issuance |
|
|
116,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,247 |
|
Deferred financing costs |
|
|
|
|
|
|
(2,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,598 |
) |
Distributions to minority
interests |
|
|
|
|
|
|
(1,575 |
) |
|
|
(6,497 |
) |
|
|
|
|
|
|
|
|
|
|
(8,072 |
) |
Change in investments and
advances from (to)
affiliates |
|
|
(412,468 |
) |
|
|
82,376 |
|
|
|
(216,441 |
) |
|
|
86,815 |
|
|
|
459,718 |
|
|
|
|
|
|
Net Cash Flows from
Financing Activities |
|
|
(296,221 |
) |
|
|
7,503 |
|
|
|
(223,033 |
) |
|
|
86,756 |
|
|
|
459,718 |
|
|
|
34,723 |
|
|
Effect of Foreign Exchange
Rate on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
787 |
|
|
|
787 |
|
|
Increase (Decrease) in Cash
and Short-term Investments |
|
|
1 |
|
|
|
130,060 |
|
|
|
22,804 |
|
|
|
(6,401 |
) |
|
|
|
|
|
|
146,464 |
|
|
Cash and Short-term Investments
at Beginning of Year |
|
|
|
|
|
|
74,631 |
|
|
|
5,739 |
|
|
|
6,964 |
|
|
|
|
|
|
|
87,334 |
|
|
Cash and Short-term
Investments at End of Year |
|
$ |
1 |
|
|
$ |
204,691 |
|
|
$ |
28,543 |
|
|
$ |
563 |
|
|
$ |
|
|
|
$ |
233,798 |
|
` |
84
Condensed Consolidating Statement of Financial Position for the Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
74,631 |
|
|
$ |
5,739 |
|
|
$ |
6,964 |
|
|
$ |
|
|
|
$ |
87,334 |
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
49,642 |
|
|
|
83,838 |
|
|
|
|
|
|
|
133,480 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
26,337 |
|
|
|
64,532 |
|
|
|
|
|
|
|
90,869 |
|
Other current assets |
|
|
7,541 |
|
|
|
6,267 |
|
|
|
16,836 |
|
|
|
12,221 |
|
|
|
454 |
|
|
|
43,319 |
|
|
Total current assets |
|
|
7,541 |
|
|
|
80,898 |
|
|
|
98,554 |
|
|
|
167,555 |
|
|
|
454 |
|
|
|
355,002 |
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
343,379 |
|
|
|
366,321 |
|
|
|
(2,035 |
) |
|
|
707,665 |
|
Investment in and
advanced to (from)
affiliates |
|
|
380,076 |
|
|
|
425,301 |
|
|
|
1,257,814 |
|
|
|
82,676 |
|
|
|
(2,145,867 |
) |
|
|
|
|
Deferred plant turnaround costs,
intangible and other assets |
|
|
|
|
|
|
18,650 |
|
|
|
10,037 |
|
|
|
34,126 |
|
|
|
(418 |
) |
|
|
62,395 |
|
|
Total Assets |
|
$ |
387,617 |
|
|
$ |
524,849 |
|
|
$ |
1,709,784 |
|
|
$ |
650,678 |
|
|
$ |
(2,147,866 |
) |
|
$ |
1,125,062 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt due within
one year |
|
$ |
|
|
|
$ |
|
|
|
$ |
95 |
|
|
$ |
58 |
|
|
$ |
|
|
|
$ |
153 |
|
Accounts payable |
|
|
669 |
|
|
|
|
|
|
|
29,426 |
|
|
|
49,468 |
|
|
|
|
|
|
|
79,563 |
|
Accrued and other
liabilities |
|
|
851 |
|
|
|
27,456 |
|
|
|
41,213 |
|
|
|
72,818 |
|
|
|
|
|
|
|
142,338 |
|
|
Total current liabilities |
|
|
1,520 |
|
|
|
27,456 |
|
|
|
70,734 |
|
|
|
122,344 |
|
|
|
|
|
|
|
222,054 |
|
|
Long-term debt and
capital lease obligations |
|
|
|
|
|
|
402,000 |
|
|
|
130 |
|
|
|
76 |
|
|
|
|
|
|
|
402,206 |
|
Deferred income taxes |
|
|
30,279 |
|
|
|
|
|
|
|
|
|
|
|
(12,448 |
) |
|
|
|
|
|
|
17,831 |
|
Pension and other
liabilities |
|
|
90,687 |
|
|
|
(3,680 |
) |
|
|
23,019 |
|
|
|
18,750 |
|
|
|
2 |
|
|
|
128,778 |
|
Minority interest |
|
|
|
|
|
|
17,421 |
|
|
|
71,641 |
|
|
|
|
|
|
|
|
|
|
|
89,062 |
|
|
Total liabilities and
minority interest |
|
|
122,486 |
|
|
|
443,197 |
|
|
|
165,524 |
|
|
|
128,722 |
|
|
|
2 |
|
|
|
859,931 |
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
128,968 |
|
|
|
|
|
|
|
72 |
|
|
|
49,709 |
|
|
|
(49,781 |
) |
|
|
128,968 |
|
Paid in capital |
|
|
555,529 |
|
|
|
150,218 |
|
|
|
1,819,036 |
|
|
|
725,546 |
|
|
|
(2,694,800 |
) |
|
|
555,529 |
|
Accumulated other
comprehensive
income (loss) |
|
|
(44,596 |
) |
|
|
(44,596 |
) |
|
|
|
|
|
|
16,090 |
|
|
|
28,506 |
|
|
|
(44,596 |
) |
Retained earnings
(deficit) |
|
|
(374,770 |
) |
|
|
(23,970 |
) |
|
|
(274,848 |
) |
|
|
(269,389 |
) |
|
|
568,207 |
|
|
|
(374,770 |
) |
|
Total stockholders equity |
|
|
265,131 |
|
|
|
81,652 |
|
|
|
1,544,260 |
|
|
|
521,956 |
|
|
|
(2,147,868 |
) |
|
|
265,131 |
|
|
Total liabilities and
stockholders equity |
|
$ |
387,617 |
|
|
$ |
524,849 |
|
|
$ |
1,709,784 |
|
|
$ |
650,678 |
|
|
$ |
(2,147,866 |
) |
|
$ |
1,125,062 |
|
|
85
Condensed Consolidating Statement of Operations for the Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
518,188 |
|
|
$ |
828,702 |
|
|
$ |
2,359 |
|
|
$ |
1,349,249 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
3,387 |
|
|
|
778 |
|
|
|
(2,359 |
) |
|
|
1,806 |
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
521,575 |
|
|
|
829,480 |
|
|
|
|
|
|
|
1,351,055 |
|
|
Cost and Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
511,940 |
|
|
|
776,073 |
|
|
|
(6,350 |
) |
|
|
1,281,663 |
|
Selling, general and
administrative expenses |
|
|
5,620 |
|
|
|
(1,046 |
) |
|
|
24,403 |
|
|
|
11,240 |
|
|
|
(356 |
) |
|
|
39,861 |
|
Impairment of long-lived
assets |
|
|
|
|
|
|
|
|
|
|
12,436 |
|
|
|
40,655 |
|
|
|
|
|
|
|
53,091 |
|
Equity in the (earnings)
loss of subsidiaries |
|
|
78,197 |
|
|
|
41,861 |
|
|
|
57,354 |
|
|
|
(804 |
) |
|
|
(176,608 |
) |
|
|
|
|
|
Total cost and expenses |
|
|
83,817 |
|
|
|
40,815 |
|
|
|
606,133 |
|
|
|
827,164 |
|
|
|
(183,314 |
) |
|
|
1,374,615 |
|
|
Income (loss) from
continuing operations
before income taxes |
|
|
(83,817 |
) |
|
|
(40,815 |
) |
|
|
(84,558 |
) |
|
|
2,316 |
|
|
|
183,314 |
|
|
|
(23,560 |
) |
Interest income |
|
|
47 |
|
|
|
3,043 |
|
|
|
3,989 |
|
|
|
145 |
|
|
|
(6,690 |
) |
|
|
534 |
|
Interest expense |
|
|
(12,911 |
) |
|
|
(42,110 |
) |
|
|
(39 |
) |
|
|
(6,679 |
) |
|
|
6,667 |
|
|
|
(55,072 |
) |
|
Loss before income taxes
and minority interest |
|
|
(96,681 |
) |
|
|
(79,882 |
) |
|
|
(80,608 |
) |
|
|
(4,218 |
) |
|
|
183,291 |
|
|
|
(78,098 |
) |
Income tax benefit (provision) |
|
|
84,200 |
|
|
|
|
|
|
|
|
|
|
|
(27,200 |
) |
|
|
|
|
|
|
57,000 |
|
Minority interest |
|
|
|
|
|
|
1,685 |
|
|
|
6,932 |
|
|
|
|
|
|
|
|
|
|
|
8,617 |
|
|
Net Loss |
|
$ |
(12,481 |
) |
|
$ |
(78,197 |
) |
|
$ |
(73,676 |
) |
|
$ |
(31,418 |
) |
|
$ |
183,291 |
|
|
$ |
(12,481 |
) |
|
86
Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,481 |
) |
|
$ |
(78,197 |
) |
|
$ |
(73,676 |
) |
|
$ |
(31,418 |
) |
|
$ |
183,291 |
|
|
$ |
(12,481 |
) |
Adjustments to reconcile net
loss to net cash flows from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
12,436 |
|
|
|
40,655 |
|
|
|
|
|
|
|
53,091 |
|
Depreciation and
amortization |
|
|
|
|
|
|
3,816 |
|
|
|
49,753 |
|
|
|
53,801 |
|
|
|
|
|
|
|
107,370 |
|
Deferred income taxes |
|
|
(39,873 |
) |
|
|
(19,422 |
) |
|
|
|
|
|
|
4,379 |
|
|
|
(2,482 |
) |
|
|
(57,398 |
) |
Minority interest in earnings |
|
|
|
|
|
|
(1,685 |
) |
|
|
(6,932 |
) |
|
|
|
|
|
|
|
|
|
|
(8,617 |
) |
Equity in earnings (loss)
of subsidiaries |
|
|
(78,197 |
) |
|
|
(41,861 |
) |
|
|
(57,354 |
) |
|
|
804 |
|
|
|
176,608 |
|
|
|
|
|
Change in operating assets
and liabilities |
|
|
(7,462 |
) |
|
|
(1,893 |
) |
|
|
(86,180 |
) |
|
|
23,734 |
|
|
|
72,258 |
|
|
|
457 |
|
|
Net Cash Flows from
Operating Activities |
|
|
(138,013 |
) |
|
|
(139,242 |
) |
|
|
(161,953 |
) |
|
|
91,955 |
|
|
|
429,675 |
|
|
|
82,422 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
(2,831 |
) |
|
|
(5,808 |
) |
|
|
|
|
|
|
(8,639 |
) |
Plant turnaround costs |
|
|
|
|
|
|
|
|
|
|
(5,981 |
) |
|
|
(22,099 |
) |
|
|
|
|
|
|
(28,080 |
) |
Proceeds from the sale of
property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
1,755 |
|
|
|
|
|
|
|
|
|
|
|
1,755 |
|
Other |
|
|
(479 |
) |
|
|
|
|
|
|
12,168 |
|
|
|
(1,538 |
) |
|
|
(21,509 |
) |
|
|
(11,358 |
) |
|
Net Cash Flows from
Investing Activities |
|
|
(479 |
) |
|
|
|
|
|
|
5,111 |
|
|
|
(29,445 |
) |
|
|
(21,509 |
) |
|
|
(46,322 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on
long-term debt |
|
|
(200,000 |
) |
|
|
|
|
|
|
(88 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
(200,142 |
) |
Change in investments and
advances from (to)
affiliates |
|
|
338,423 |
|
|
|
5,291 |
|
|
|
163,597 |
|
|
|
(164,672 |
) |
|
|
(342,639 |
) |
|
|
|
|
Issuance of long-term debt |
|
|
|
|
|
|
202,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,000 |
|
Deferred financing costs |
|
|
|
|
|
|
(8,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,581 |
) |
Distributions to minority
interests |
|
|
|
|
|
|
(225 |
) |
|
|
(928 |
) |
|
|
|
|
|
|
|
|
|
|
(1,153 |
) |
Stock issuance |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
Net Cash Flows from
Financing Activities |
|
|
138,491 |
|
|
|
198,485 |
|
|
|
162,581 |
|
|
|
(164,726 |
) |
|
|
(342,639 |
) |
|
|
(7,808 |
) |
|
Effect of Foreign Exchange
Rate on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563 |
|
|
|
563 |
|
|
Increase (Decrease) in Cash
and Short-term Investments |
|
|
(1 |
) |
|
|
59,243 |
|
|
|
5,739 |
|
|
|
(102,216 |
) |
|
|
66,090 |
|
|
|
28,855 |
|
|
Cash and Short-term Investments
at Beginning of Year |
|
|
1 |
|
|
|
15,388 |
|
|
|
|
|
|
|
109,180 |
|
|
|
(66,090 |
) |
|
|
58,479 |
|
|
Cash and Short-term
Investments at End of Year |
|
$ |
|
|
|
$ |
74,631 |
|
|
$ |
5,739 |
|
|
$ |
6,964 |
|
|
$ |
|
|
|
$ |
87,334 |
|
|
87
23 Agreements of Limited Partnerships
Terra Nitrogen Company L.P. (TNCLP)
Terra owns a 1% General Partnership interest and 75.3% of the Common Units of TNCLP at December 31,
2005. Terra consolidates TNCLP results with the publicly held TNCLP Common Units reflected in
Terras financial statements as a minority interest.
In accordance with the TNCLP limited partnership agreement, quarterly distributions to unitholders
and Terra are made in an amount equal to 100% of its available cash, as defined in the partnership
agreement. The General Partner receives a combined minimum 2% of total cash distributions, and as
an incentive, the general partners participation increases if cash distributions exceed specified
target levels.
If at any time less than 25% of the issued and outstanding units are held by non-affiliates of the
General Partner, TNCLP may call, or assign to the General Partner or its affiliates, its right to
acquire all such outstanding units held by non-affiliated persons with at least 30 but not more
than 60 days notice of its decision to purchase the outstanding units. The purchase price per unit
will be the greater of (1) the average of any previous twenty trading days closing prices as of
the date five days before the purchase is announced and (2) the highest price paid by the General
Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is
announced.
24. Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share data) |
|
March 31 |
|
|
June 30 |
|
|
Sept 30 |
|
|
Dec 31 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
450,012 |
|
|
$ |
489,993 |
|
|
$ |
485,694 |
|
|
$ |
513,366 |
|
Operating income (loss) |
|
$ |
30,823 |
|
|
$ |
69,761 |
|
|
$ |
31,977 |
|
|
$ |
(18,865 |
) |
Net income (loss) |
|
$ |
4,431 |
|
|
$ |
21,702 |
|
|
$ |
11,086 |
|
|
$ |
(15,132 |
) |
Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share |
|
$ |
0.03 |
|
|
$ |
0.20 |
|
|
$ |
0.10 |
|
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
361,029 |
|
|
$ |
416,768 |
|
|
$ |
376,667 |
|
|
$ |
354,646 |
|
Operating income |
|
$ |
45,587 |
|
|
$ |
39,284 |
|
|
$ |
25,288 |
|
|
$ |
24,587 |
|
Net income |
|
$ |
18,230 |
|
|
$ |
17,865 |
|
|
$ |
6,453 |
|
|
$ |
24,019 |
|
Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
$ |
0.23 |
|
|
$ |
0.23 |
|
|
$ |
0.08 |
|
|
$ |
0.28 |
|
88
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited the accompanying consolidated statements of financial position of Terra Industries
Inc. and subsidiaries (Terra) as of December 31, 2005 and 2004, and the related consolidated
statements of operations, cash flows and changes in stockholders equity for each of the three
years in the period ended December 31, 2005. Our audits also included the consolidated financial
statement schedule listed in the Index as Item 15. These financial statements and the financial
statement schedule are the responsibility of Terras management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Terra Industries Inc. and subsidiaries at December 31, 2005 and 2004, and
the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2005 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Terras internal control over financial reporting as of
December 31, 2005, based on the criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 8, 2006 expressed an unqualified opinion on managements assessment of the effectiveness of Terras
internal control over financial reporting and an unqualified opinion on the effectiveness of
Terras internal control over financial reporting.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 8, 2006
89
Quarterly Financial Data
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
None.
Item 9A. Controls And Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Companys management, including the
Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the
design and operation of the Companys disclosure controls and procedures as of December 31, 2005.
Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective.
Managements Annual Report on Internal Control Over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal
control over financial reporting. Under the supervision and with the participation of the Companys
management, including the Chief Executive Officer and Chief Financial Officer, the Company
evaluated the effectiveness of the design and operation of its internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer concluded that the Companys internal control
over financial reporting was effective as of December 31, 2005.
Deloitte & Touche LLP, the Companys independent registered public accounting firm, audited
managements assessment of the effectiveness of internal control over financial reporting and,
based on that audit, issued the report set forth on the following page.
Changes in Internal Controls Over Financial Reporting
There were no changes in the Companys internal controls over financial reporting during the
quarterly period ending December 31, 2005, that have materially affected, or are reasonably likely
to materially affect, the Companys internal controls over financial reporting.
90
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited managements assessment, included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting, that Terra Industries Inc. and subsidiaries (Terra)
maintained effective internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Terras management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of Terras internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Terra maintained effective internal control over
financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on
the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, Terra
maintained, in all material respects, the effective internal control over financial reporting as of
December 31, 2005, based on the
91
criteria established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of
and for the year ended December 31, 2005 of Terra and our report dated March 8, 2006 expressed an
unqualified opinion on those financial statements and financial statement schedule.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 8, 2006
92
Item 9B. Other Information
None.
Part III
Item 10. Directors and Executive Officers of Terra
Information with respect to directors of Terra is set forth under the caption Election of
Directors in the proxy statement for the Annual Meeting of Stockholders of Terra to be held on May
2, 2006, and is incorporated herein by reference. Information with respect to executive officers of
Terra is set forth under the caption Executive Officers of Terra in Part I hereof and is
incorporated herein by reference.
Terra has a Code of Ethics and Business Conduct that applies to its principal executive officer and
its principal financial officer. The code also applies to Terras other officers, directors and
employees. The Code of Ethics and Business Conduct is posted on Terras web site,
www.terraindustries.com, in the Investor Information section and is available on hard copy upon
request. In addition, the information set forth under Equity Security Ownership in Section 16(a)
Beneficial Ownership Reporting Compliance in the proxy statement is incorporated herein by
reference.
Item 11. Executive Compensation
Information with respect to executive and director compensation is set forth under the
captions Executive Compensation and Other Information and Board of Directors and Committees in
Director Compensation and Compensation Committee Interlocks and Insider Participation in the
proxy statement for the Annual Meeting of Stockholders of Terra to be held on May 2, 2006, is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to security ownership of certain beneficial owners and management
under the caption Equity Security Ownership in the proxy statement for the Annual Meeting of
Stockholders of Terra to be held on May 2, 2006 is incorporated herein by reference.
93
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information |
|
|
(a) |
|
(b) |
|
(c) |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
Number of |
|
|
|
|
|
for future issuance |
|
|
securities to be |
|
|
|
|
|
under equity |
|
|
issued upon |
|
Weighted-average |
|
compensation plans |
|
|
exercise of |
|
exercise price of |
|
(excluding |
|
|
outstanding |
|
outstanding |
|
securities |
|
|
options, warrants |
|
options, warrants |
|
reflected in column |
Plan category |
|
and rights |
|
and rights |
|
(a)) |
Equity compensation
plans approved by
security holders |
|
|
592,000 |
|
|
|
$5.24 |
|
|
|
1,458,000 |
|
Equity compensation
plans not approved
by security holders |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Total |
|
|
592,000 |
|
|
|
$5.24 |
|
|
|
1,458,000 |
|
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related transactions is set forth under
the caption Certain Relationships and Related Transactions in the proxy statement and is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Principal Accountant Audit Fees and Services Fees
Information with respect to principal accountant audit fees and service fees is set forth
under the caption Proposal 2: Ratification of Selection of Independent AccountsPrincipal
Accountant Audit Fees and Service Fees in the proxy statement, and is incorporated herein by
reference.
Audit Committee Pre-Approval Policies and Procedures
Pursuant to its charter, the Audit Committee is responsible for reviewing and approving, in
advance, any audit and any permissible non-audit engagement or relationship between Terra and its
independent auditors. Deloitte & Touche LLPs engagement to conduct the audit of Terra was approved
by the Audit Committee on February 14, 2006. Additionally, each permissible non-audit engagement or
relationship between Terra and services performed by Deloitte & Touch LLP since May 2003 has been
reviewed and approved in advance by the Audit Committee, as provided in its charter.
94
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents Filed as a Part of this Report
1. |
|
Consolidated Financial Statements of Terra and its
subsidiaries are included in Item 8
herein. |
|
|
|
Consolidated Statements of Financial Position at December 31, 2005 and 2004 |
|
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2005,
2004 and 2003 |
|
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2005,
2004 and 2003 |
|
|
|
|
Consolidated Statements of Changes in Stockholders Equity for the years ended
December 31, 2005, 2004 and 2003 |
|
|
|
|
Notes to the Consolidated Financial Statements |
|
|
|
|
Report of Independent Registered Accounting Firm |
2. |
|
Index to Financial Statement Schedules, Reports and Consents |
|
|
|
See Index to Financial Statement Schedules of Terra and its subsidiaries at page
S-1 |
3. |
|
Other Financial Statements |
|
|
|
Individual financial statements of the Companys 50% owned joint venture in
Trinidad, Point Lisas Nitrogen Limited, accounted for on the equity method, have
been included because the equity investment constitutes a significant
subsidiary. Other 50% owned joint ventures accounted for on the equity basis
considered in the aggregate would not constitute a significant subsidiary.
Therefore, those financial statements have been omitted. |
(b) Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
Stock Purchase Agreement dated as
of August 6, 2004 among Terra Industries Inc., MissChem
Acquisition Inc. and Mississippi Chemical Corporation, filed as Exhibit 99.2 to
Terra Industries Inc.s Form 8-K dated August 9, 2004, is incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
Articles of Restatement of Terra Industries Inc. filed with the
State Department of Assessments and Taxation of Maryland on August 3, 2005,
restating the Charter of Terra Industries Inc., filed as Exhibit 3.1 to Terra
Industries Inc.s August 4, 2005 Form 8-K, are incorporated herein by
reference. |
95
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated By-Laws of Terra Industries Inc.,
effective as of August 3, 2005, filed as Exhibit 3.2 to Terra Industries Inc.s
August 4, 2005 Form 8-K, are incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
3.3 |
|
|
Certificate of Incorporation of Terra Capital, Inc. filed as
Exhibit 3.i.(a) to Terra Capital, Inc.s Registration Statement filed on Form
S-4 on November 13, 2001, is incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
3.4 |
|
|
Certificate of Incorporation of Beaumont Ammonia Inc. filed as
Exhibit 3.i.(b) to Terra Capital, Inc.s Registration Statement filed on Form
S-4 on November 13, 2001, is incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
Certificate of Incorporation of Beaumont Holdings Corporation
filed as Exhibit 3.i.(c) to Terra Capital, Inc.s Registration Statement filed
on Form S-4 on November 13, 2001, is incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
3.6 |
|
|
Certificate of Incorporation of BMC Holdings Inc. filed as
Exhibit 3.i.(d) to Terra Capital, Inc.s Registration Statement filed on Form
S-4 on November 13, 2001, is incorporated herein by reference. |
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3.7 |
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Certificate of Incorporation of Port Neal Corporation filed as
Exhibit 3.i.(e) to Terra Capital, Inc.s Registration Statement filed on Form
S-4 on November 13, 2001, is incorporated herein by reference. |
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3.8 |
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Certificate of Incorporation of Terra (UK) Holdings Inc. filed
as Exhibit 3.i.(f) to Terra Capital, Inc.s Registration Statement filed on
Form S-4 on November 13, 2001, is incorporated herein by reference. |
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3.9 |
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Certificate of Incorporation of Terra Capital Holdings, Inc.
filed as Exhibit 3.i.(g) to Terra Capital, Inc.s Registration Statement filed
on Form S-4 on November 13, 2001, is incorporated herein by reference. |
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3.10 |
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Certificate of Incorporation of Terra International (Oklahoma)
Inc. filed as Exhibit 3.i.(k) to Terra Capital, Inc.s Registration Statement
filed on Form S-4 on November 13, 2001, is incorporated herein by reference. |
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3.11 |
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Certificate of Incorporation of Terra International, Inc. filed
as Exhibit 3.i.(l) to Terra Capital, Inc.s Registration Statement filed on
Form S-4 on November 13, 2001, is incorporated herein by reference. |
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3.12 |
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Certificate of Incorporation of Terra Methanol Corporation
filed as Exhibit 3.i.(m) to Terra Capital, Inc.s Registration Statement filed
on Form S-4 on November 13, 2001, is incorporated herein by reference. |
96
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3.13 |
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Certificate of Incorporation of Terra Nitrogen Corporation
filed as Exhibit 3.i.(n) to Terra Capital, Inc.s Registration Statement filed
on Form S-4 on November 13, 2001, is incorporated herein by reference. |
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3.14 |
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Certificate of Incorporation of Terra Real Estate Corporation
filed as Exhibit 3.i.(o) to Terra Capital, Inc.s Registration Statement filed
on Form S-4 on November 13, 2001, is incorporated herein by reference. |
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3.15 |
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By-Laws of Terra Capital, Inc. filed as Exhibit 3.ii.(a) to
Terra Capital, Inc.s Registration Statement filed on Form S-4 on November 13,
2001, is incorporated herein by reference. |
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3.16 |
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By-Laws of Beaumont Ammonia Inc. filed as Exhibit 3.ii.(b) to
Terra Capital, Inc.s Registration Statement filed on Form S-4 on November 13,
2001, is incorporated herein by reference. |
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3.17 |
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By-Laws of Beaumont Holdings Corporation filed as Exhibit
3.ii.(c) to Terra Capital, Inc.s Registration Statement filed on Form S-4 on
November 13, 2001, is incorporated herein by reference. |
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3.18 |
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By-Laws of BMC Holdings, Inc. filed as Exhibit 3.ii.(d) to
Terra Capital, Inc.s Registration Statement filed on Form S-4 on November 13,
2001, is incorporated herein by reference. |
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3.19 |
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By-Laws of Port Neal Corporation filed as Exhibit 3.ii.(e) to
Terra Capital, Inc.s Registration Statement filed on Form S-4 on November 13,
2001, is incorporated herein by reference. |
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3.20 |
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By-Laws of Terra (UK) Holdings Inc. filed as Exhibit 3.ii.(f)
to Terra Capital, Inc.s Registration Statement filed on Form S-4 on November
13, 2001, is incorporated herein by reference. |
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3.21 |
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By-Laws of Terra Capital Holdings, Inc. filed as Exhibit
3.ii.(g) to Terra Capital, Inc.s Registration Statement filed on Form S-4 on
November 13, 2001, is incorporated herein by reference. |
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3.22 |
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By-Laws of Terra International (Oklahoma) Inc. filed as Exhibit
3.ii.(i) to Terra Capital, Inc.s Registration Statement filed on Form S-4 on
November 13, 2001, is incorporated herein by reference. |
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3.23 |
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By-Laws of Terra International, Inc. filed as Exhibit 3.ii.(j)
to Terra Capital, Inc.s Registration Statement filed on Form S-4 on November
13, 2001, is incorporated herein by reference. |
97
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3.24 |
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By-Laws of Terra Methanol Corporation filed as Exhibit 3.ii.(k)
to Terra Capital, Inc.s Registration Statement filed on Form S-4 on November
13, 2001, is incorporated herein by reference. |
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3.25 |
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By-Laws of Terra Nitrogen Corporation filed as Exhibit 3.ii.(l)
to Terra Capital, Inc.s Registration Statement filed on Form S-4 on November
13, 2001, is incorporated herein by reference. |
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3.26 |
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By-Laws of Terra Real Estate Corporation filed as Exhibit
3.ii.(m) to Terra Capital, Inc.s Registration Statement filed on Form S-4 on
November 13, 2001, is incorporated herein by reference. |
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3.27 |
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Certificate of Incorporation of Terra Nitrogen GP Inc., filed
as Exhibit 3.2 to the September 7, 2005 Terra Nitrogen
Company, L.P.s Form 8-K, is incorporated herein
by reference. |
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3.28 |
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By-Laws of Terra Nitrogen GP Inc., filed as Exhibit 3.3 to the
September 7, 2005 TNCLP Form 8-K, are incorporated herein by reference. |
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3.29* |
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Certificate of Incorporation of Terra Nitrogen GP Holdings Inc. |
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3.30* |
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By-Laws of Terra Nitrogen GP Holdings Inc. |
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4.1 |
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Indenture dated as of October 10, 2001 among Terra Capital,
Inc., certain guarantors and U.S. Bank National Association, as trustee,
including the form of
note, filed as Exhibit 4.1 to Terra Industries Form 8-K dated October 10,
2001, is incorporated herein by reference. |
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4.2 |
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Amendment No. 1 to the Amended and Restated Credit Agreement
dated January 26, 2005, among Terra Capital, Inc., Mississippi Chemical
Corporation and Terra Nitrogen (U.K.) Limited (collectively Borrowers), Terra
Industries Inc., Terra Capital Holdings, Inc., the financial institutions from
time to time party thereto as issuing banks (Issuers) and Citicorp USA Inc.,
as administrative agent and collateral agent for Lenders and Issuers, filed as
Exhibit 4.3 to Terra Industries Form 10-Q for the fiscal quarter ended
September 30, 2005, is incorporated herein by reference. |
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4.3 |
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Amendment No. 2 to the Amended and Restated Credit Agreement
dated July 29, 2005, among Terra Capital, Inc., Terra Mississippi Holdings
Corporation (f/k/a Mississippi Chemical Corporation) and Terra Nitrogen (U.K.)
Limited (collectively Borrowers), Terra Industries Inc., Terra Capital
Holdings, Inc., the Lenders party hereto and Citicorp USA Inc. as
administrative agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.4 to Terra Industries Inc.s Form 10-Q for the fiscal quarter ended
September 30, 2005, is incorporated herein by reference. |
98
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4.4 |
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Amendment No. 1 to the Credit Agreement dated July 29, 2005
among Terra Nitrogen, Limited Partnership (Borrower), Terra Nitrogen Company,
L.P., the Lenders party hereto and Citicorp USA Inc. as administrative agent
and collateral agent for the Lenders and Issuers, filed as Exhibit 4.5 to Terra
Industries Form 10-Q for the quarter ended September 30, 2005, is incorporated
herein by reference. |
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4.5 |
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Indenture dated May 21, 2003 between the Company, the
guarantors party hereto, and U.S. National Bank Association as Trustee, with
respect to the 11.5% Second Priority Senior Secured Notes due 2010 (including
the form of 11.5% Second Priority Senior Secured Notes), previously filed as
Exhibit 4.i to Amendment No. 1 to the Registrants Registration Statement of
Form S-4 filed on June 12, 2003 and incorporated by reference herein, filed as
Exhibit 4.6 to Terra Industries Form10-Q for the quarter ended June 30, 2003,
is incorporated herein by reference. |
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4.6 |
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Articles Supplementary of Terra Industries Inc. relating to the
Retirement of the Companys Trust Shares, filed as Exhibit 3.1 to Terra
Industries Inc.s August 3, 2005 Form 8-K, are incorporated herein by
reference. |
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4.7 |
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Articles Supplementary of Terra Industries Inc. relating to the
Reclassification of the Companys Series B Cumulative Redeemable Preferred
Shares, filed as Exhibit 3.2 to Terra Industries Inc.s August 3, 2005 Form
8-K, are incorporated herein by reference. |
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4.8 |
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Registration Rights Agreement dated as of October 7, 2004,
among Terra and Citigroup Global Markets Inc., as Representative of the Initial
Purchasers, filed as Exhibit 4.6 to Terras Form S-3 dated January 4, 2005, is
incorporated herein by reference. |
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4.9 |
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Registration Rights Agreement, dated as of August 6, 2004,
among Terra Industries Inc., Taurus Investments S.A. and the other shareholders
named therein, filed as Exhibit 99.1 to Terras Form 8-K dated August 16, 2004,
is incorporated herein by reference. |
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4.10 |
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Registration Rights Agreement, dated as of December 16, 2004,
among Terra Industries Inc. and the initial purchasers named therein, filed as
Exhibit 4.7 to Terras Form S-3/A filed February 9, 2005, is incorporated by
reference. |
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4.11 |
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Registration Rights Agreement, dated as of December 21, 2004,
among Terra Industries Inc., Värde Investment Partners, L.P., Perry Principals
Investments LLC, Citigroup Global Markets, Inc., filed as Exhibit 10.1 to
Terras Form 8-K dated December 27, 2004, is incorporated by reference. |
99
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4.12 |
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Form of Indenture relating to the 4.25% Convertible
Subordinated Debentures, filed as Exhibit 4.7 to Terras Form S-3 dated January
4, 2005, is incorporated herein by reference. |
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4.13 |
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Purchase Agreement, dated October 7, 2004, among Terra
Industries Inc. and the initial purchasers named therein relating to the sale
of Terras 4.25% Series A Cumulative Convertible Perpetual Preferred Shares,
filed as Exhibit 1 to Terras Form S-3 filed on January 4, 2005, is
incorporated by reference. |
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4.14 |
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$150,000,000 Amended and Restated Credit Agreement dated as of
December 21, 2004, among Terra Capital, Inc., Terra Nitrogen (U.K.) Limited,
Mississippi Chemical Corporation, as Borrowers; Terra Industries Inc. and Terra
Capital Holdings, Inc., as Guarantors; and the Lenders and Issuers Party
thereto; and Citicorp USA, Inc., as Administrative Agent and Collateral Agent,
Citigroup Global Markets Inc. as Lead Arranger and Sole Book Runner, filed as
Exhibit 4.18 to the Terra Industries Form 10-K for the fiscal year ended
December 31, 2004, is incorporated herein by reference. |
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4.15 |
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$50,000,000 Credit Agreement dated as of December 21, 2004
among Terra Nitrogen, Limited Partnership, as Borrower; Terra Nitrogen Company,
L.P., as a Guarantor; and the Lenders and Issuers Party thereto; and Citicorp
USA, Inc., as Administrative Agent and Collateral Agent; and Citigroup Global
Markets Inc., as Lead Arranger and Sole Book Runner, filed as Exhibit 4.19 to
the Terra Industries Form 10-K for the fiscal year ended December 31, 2004, is
incorporated herein by reference. |
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10.1.1 |
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|
Resolution adopted by the Personnel Committee of the Board of Directors of
Terra Industries with respect to supplemental retirement benefits for certain
senior executive officers of Terra Industries, filed as Exhibit 10.4.2 to Terra
Industries Form 10-Q for the fiscal quarter ended March 31, 1991, is
incorporated herein by reference. |
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10.1.2 |
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Excess Benefit Plan of Terra Industries, as amended effective as of January
1, 1992, filed as Exhibit 10.1.13 to Terra Industries Form 10-K for the year
ended December 31, 1992, is incorporated herein by reference. |
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10.1.3 |
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Amendment to the Terra Industries Inc. Excess Benefit Plan, dated July 26,
2000, filed as Exhibit 10.1.6.a to Terra Industries Form 10-K for the year
ended December 31, 2000, is incorporated herein by reference. |
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10.1.4 |
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Terra Industries Inc. Supplemental Deferred Compensation Plan effective as of
December 20, 1993 filed as Exhibit 10.1.9 to Terra Industries Form 10-K for
the year ended December 31, 1993, is incorporated herein by reference. |
100
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10.1.5 |
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Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred
Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries Form 10-Q for
the quarter ended September 30, 1995, is incorporated herein by reference. |
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10.1.5.a |
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|
Amendment No. 2 to the Terra Industries Inc. Supplemental Deferred
Compensation Plan, dated July 26, 2000, filed as Exhibit 10.1.8.a to the Terra
Industries Form 10-K for the year ended December 31, 2000, is incorporated
herein by reference. |
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10.1.5.b |
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Amendment No. 3 to the Terra Industries Inc. Supplemental Deferred
Compensation Plan, dated March 29, 2002, filed as Exhibit 10.1.8.b. to the
Terra Industries Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference. |
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10.1.6 |
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1992 Stock Incentive Plan of Terra Industries Inc. filed as Exhibit 10.1.6 To
Terra Industries Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference. |
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10.1.7 |
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Revised Form of Incentive Stock Option Agreement of Terra Industries Inc.
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.12 to Terra
Industries Form 10-K for the year ended December 31, 1996, is incorporated
herein by reference. |
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10.1.8 |
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|
Revised Form of Nonqualified Stock Option Agreement of Terra Industries Inc.
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.13 to Terra
Industries Form 10-K for the year ended December 31, 1996, is incorporated
herein by reference. |
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10.1.9 |
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1997 Stock Incentive Plan of Terra
Industries Inc., filed as Exhibit 10.1.14 to
Terra Industries Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference. |
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10.1.9.a |
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Amendment No. 1 dated as of February 20, 1997 to the 1997 Stock Incentive
Plan of Terra Industries Inc. filed as Exhibit 10.1.21 to Terra Industries
Form 10-K for the year ended December 31, 1999, is incorporated herein by
reference. |
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10.1.10 |
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|
Form of Incentive Stock Option
Agreement of Terra Industries Inc. under its 1997
Stock Incentive Plan filed as Exhibit 10.1.13 to Terra Industries Form 10-K
for the year ended December 31, 1999, is incorporated herein by reference. |
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10.1.11 |
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Form of Nonqualified Stock Option
Agreement of Terra Industries Inc. under its
1997 Stock Incentive Plan filed as Exhibit 10.1.14 to Terra Industries Form
10-K for the year ended December 31, 1999, is incorporated herein by reference. |
101
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10.1.12 |
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Form of Performance Share Award of Terra Industries under its 1997 Stock
Incentive Plan, filed as Exhibit 10.1.15 to Terra Industries Form 10-K for the
year ended December 31, 1998, is incorporated herein by reference. |
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10.1.13 |
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Form of Executive Retention Agreement for Other Executive Officers, filed as
Exhibit 10.1.19 to Terra Industries Form 10-K for the year ended December 31,
1998, is incorporated herein by reference. |
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10.1.14 |
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Form of Non-Employee Director Stock Option Agreement under the 1997 Stock
Incentive Plan, filed as Exhibit 10.2.21 to Terra Industries Inc.s Form 10-Q
for the quarter ended September 30, 1999, is incorporated herein by reference. |
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10.1.15 |
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Form of Performance Share Award of Terra Industries Inc. under its 1997
Stock Incentive Plan, dated February 16, 2000, filed as Exhibit 10.1.22 of the
Terra Industries Form 10-K for the year ended December 31, 2000, is
incorporated herein by reference. |
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10.1.16 |
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Form of Non-Employee Director Performance Share Award of Terra Industries
Inc. under its 1997 Stock Incentive Plan, dated May 2, 2000, filed as Exhibit
10.1.23 to the Terra Industries Form 10-K for the year ended December 31,
2000, is incorporated herein by reference. |
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10.1.17 |
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Terra Industries Inc. Stock Incentive Plan of 2002, filed as Exhibit 10.1.23
to the Terra Industries Form 10-K for the year ended December 31, 2001, is
incorporated herein by reference. |
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10.1.18 |
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Form of Restricted Stock Award to Non-Employee Directors under the Terra
Industries Inc. Stock Incentive Plan of 2002, filed as Exhibit 10.1.23 to the
Terra Industries Form 10-K for the year ended December 31, 2002, is
incorporated herein by reference. |
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10.1.19 |
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Form of Restricted Stock Award to Officers and Other Key Employees under the
Terra Industries Inc. Stock Incentive Plan of 2002, filed as Exhibit 10.1.24 to
the Terra Industries Form 10-K for the year ended December 31, 2002, is
incorporated herein by reference. |
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10.1.20 |
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Revised Form of Restricted Stock Award of Terra Industries Inc. under its
Stock Incentive Plan of 2002, filed as Exhibit 10.9 to the Terra Industries
Form 10-Q for the fiscal quarter ended September 30, 2005, is incorporated
herein by reference. |
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10.1.21 |
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Form of Long-Term Incentive Award for Time and Performance Based Shares of
Terra Industries Inc. under its Stock Incentive Plan of 2002, filed as Exhibit
10.10 to the Terra Industries 10-Q for the fiscal quarter ended September 30,
2005, is incorporated herein by reference. |
102
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10.1.22 |
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Form of Long-Term Incentive Award for Phantom Time and Performance Based
Shares of Terra Industries Inc. under its Stock Incentive Plan of 2002, filed
as Exhibit 10.11 to the Terra Industries Form 10-Q for the fiscal quarter ended
September 30, 2005, is incorporated herein by reference. |
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10.1.23* |
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Form of Long-Term Incentive Award for Performance Shares of Terra
Industries Inc. under its Stock Incentive Plan of 2002. |
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10.1.24* |
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Form of Long-Term Incentive Award for Phantom Performance Shares of Terra
Industries Inc. under its Stock Incentive Plan of 2002. |
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10.1.25* |
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Terra Industries Inc. 2006 Officers and Key Employees Incentive Plan. |
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10.1.26* |
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Terra Industries Inc. Description of Compensatory Arrangements for 2006
Applicable to Named Executive Officers |
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10.2 |
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First Amended and Restated Agreement of Limited Partnership of
Terra Nitrogen, Limited Partnership dated September 1, 2005,
filed as Exhibit
10.3 to the September 7, 2005 Terra Nitrogen Company, L.P.s Form 8-K, is
incorporated herein by reference. |
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10.3 |
|
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First Amended and Restated Agreement of Limited Partnership of
Terra Nitrogen, Limited Partnership dated September 1, 2005, filed as Exhibit
10.3 to the September 7, 2005 Terra Nitrogen Company, L.P.s Form 8-K, is
incorporated herein by reference. |
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10.4 |
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Amendment No. 1 to the General and Administrative Service
Agreement regarding Services by Terra Industries Inc. dated September 1, 2005,
filed as Exhibit 10.4 to the September 7, 2005 Terra Nitrogen Company, L.P.s
Form 8-K, is incorporated herein by reference. |
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10.5 |
|
|
Amendment No. 1 to the General and Administrative Services
Agreement regarding Services by Terra Nitrogen Corporation dated September 1,
2005, filed as Exhibit 10.5 to the September 7, 2005 Terra Nitrogen Company,
L.P.s Form 8-K, is incorporated herein by reference. |
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10.6 |
|
|
Reorganization Agreement among Terra Nitrogen Company, L.P.,
(the MLP), Terra Nitrogen, Limited Partnership (the OLP) and Terra Nitrogen
Corporation (the GP) dated September 1, 2005, filed as Exhibit 10.1 to the
September 7, 2005 Terra Nitrogen Company, L.P.s Form 8-K, is incorporated
herein by reference. |
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10.7 |
|
|
Conveyance, Assignment and Assumption Agreement by and between
Terra Nitrogen Corporation (the Company) and Terra Nitrogen GP Inc. (the New
GP) dated September 1, 2005, filed as Exhibit 10.2 to the September 7, 2005
Terra Nitrogen Company, L.P.s Form 8-K, is incorporated herein by reference. |
103
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10.8 |
|
|
Sale of Business Agreement dated November 20, 1997 between ICI
Chemicals & Polymers Limited, Imperial Chemical Industries PLC, Terra Nitrogen
(U.K.) Limited (f/k/a Terra Industries Limited) and Terra Industries Inc. filed
as Exhibit 2 to Terra Industries Form 8-K/A dated December 31, 1997, is
incorporated herein by reference. |
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10.9 |
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Ammonium Nitrate Agreement dated December 31, 1997 between
Terra International (Canada) Inc and ICI Chemicals & Polymers Limited filed as
Exhibit 99 to Terra Industries Form 8-K/A dated December 31, 1997, is
incorporated herein by reference. |
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10.10 |
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Asset Sale and Purchase Agreement dated as of May 3, 1999 by
and between Terra Industries Inc. and Cenex/Land OLakes Agronomy Company,
filed as Exhibit 10.12 to Terra Industries Form 8-K dated May 3, 1999, is
incorporated herein by reference. |
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10.11 |
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Asset Purchase and Methanol Exclusivity Agreement among Terra Industries
Inc., BMC Holdings Inc., and Methanex Methanol Company dated December 15, 2003,
filed as Exhibit 10.9 to Terra Industries From 10-K for the year ended
December 31, 2003, is incorporated herein by reference. |
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10.11.1 |
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Services Agreement among Terra Industries Inc., BMC Holdings Inc., and
Methanex Methanol Company dated December 15, 2003 included as Schedule E to
Exhibit 10.9 herein, filed as Exhibit 10.91.1 to Terra Industries Form 10-K
for the year ended December 31, 2003, is incorporated herein by reference. |
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10.12 |
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First Amendment to Asset Purchase and Methanol Exclusivity Agreement dated
February 20, 2004, filed as Exhibit 10.10 to Terra Industries Form 10-K for
the year ended December 31, 2003, is incorporated herein by reference. |
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10.13 |
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Warrant Agreement dated December 21, 2004 among Terra
Industries Inc., Perry Principals Investments LLC, Citigroup Financial Products
Inc. and Värde Investment Partners, L.P., filed as Exhibit 10.11 to Terra
Industries Form 10-K for the year ended December 31, 2004, is incorporated
herein by reference. |
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10.14 |
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Ammonium Nitrate Supply Agreement between Terra Mississippi Nitrogen, Inc.
and Orica USA Inc. dated July 21, 2005, filed as Exhibit 10.7 to Terra
Industries Inc.s Form 10-Q for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference. |
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10.15 |
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Conversion Agreement by and between Terra Mississippi Nitrogen, Inc. and
Orica USA Inc. dated July 21, 2005, filed as exhibit 10.8 to the Terra
Industries Inc. Form 10-Q for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference. |
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12.1* |
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Ratio of Earnings to Financial Charges |
104
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21.1* |
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Subsidiaries of Terra Industries Inc. |
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23.1* |
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Consent of Deloitte & Touche LLP |
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31.1* |
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Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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31.2* |
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Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. |
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32* |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
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99* |
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Financial statements for Point Lisas Nitrogen Limited for the
fiscal year ended December 31, 2005. |
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* |
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Filed herewith. |
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Confidential treatment has been requested for portions of this document. |
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Exhibits 10.1.1 through 10.1.26 are management contracts or compensatory plans or arrangements. |
105
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
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TERRA INDUSTRIES INC. |
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Date: March 10, 2006
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By:
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/s/ FRANCIS G. MEYER |
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Francis G. Meyer
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Senior Vice President and Chief Financial |
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Officer |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated:
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Signature |
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Title |
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/s/HENRY R. SLACK
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Chairman of the Board |
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/s/MICHAEL L. BENNETT
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Director, President and Chief Executive Officer |
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(Principal Executive Officer) |
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/s/FRANCIS G. MEYER
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Senior Vice President and Chief Financial Officer |
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Francis G. Meyer
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(Principal Financial Officer and Principal |
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Accounting Officer) |
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/s/DAVID E. FISHER
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Director |
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David E. Fisher |
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/s/DOD A. FRASER
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Director |
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/s/MARTHA O. HESSE
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Director |
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Martha O. Hesse
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/s/PETER S. JANSON
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Director |
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Peter S. Janson |
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Date: March 10, 2006 |
106
Index to Financial Statement Schedules
Schedule No.
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I Condensed Financial Information of Registrant, is included in Item 8 herein,
Footnote 22, Column 1, Parent. |
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II Valuation and Qualifying Accounts:
Years Ended December 31, 2005, 2004 and 2003
S-2 |
Financial statement schedules not included in this report have been omitted because they are
not applicable or the required information is shown in the consolidated financial statements or the
notes thereto.
S-1
Schedule II
Terra Industries Inc.
Valuation and Qualifying Accounts
Years Ended December 31, 2004, 2003, and 2002
(in thousands)
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Less Write- |
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Additions |
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offs, and |
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Balance at |
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Charged to |
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Transfers, |
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Balance |
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Beginning of |
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Costs and |
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Net of |
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at End |
Description |
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Period |
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Expenses |
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Recoveries |
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of Period |
Year Ended December 31, 2005: |
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Allowance for Doubtful Accounts |
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$ |
262 |
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$ |
824 |
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$ |
(852 |
) |
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$ |
234 |
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Year Ended December 31, 2004: |
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Allowance for Doubtful Accounts |
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$ |
87 |
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$ |
11 |
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$ |
164 |
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$ |
262 |
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Year Ended December 31, 2003: |
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Allowance for Doubtful Accounts |
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$ |
135 |
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$ |
1,510 |
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$ |
(1,558 |
) |
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$ |
87 |
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S-2