þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland (State or other jurisdiction of incorporation or organization) |
52-1145429 (I.R.S. Employer Identification No.) |
Terra Centre P.O. Box 6000 600 Fourth Street Sioux City, Iowa (Address of principal executive offices) |
51102-6000 (Zip Code) |
Common Shares, without par value | 92,846,067 shares |
3 | ||||||||
4 | ||||||||
5 | ||||||||
7 | ||||||||
8 | ||||||||
27 | ||||||||
31 | ||||||||
32 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
34 | ||||||||
35 | ||||||||
Certification of CEO Pursuant to Section 302 | ||||||||
Certification of CFO Pursuant to Section 302 | ||||||||
Certification Pursuant to Section 906 |
2
March 31, | December 31, | March 31, | ||||||||||
2007 | 2006 | 2006 | ||||||||||
Assets |
||||||||||||
Cash and cash equivalents |
$ | 233,310 | $ | 179,017 | $ | 92,011 | ||||||
Accounts receivable, less allowance for
doubtful accounts of $410, $333 and $104 |
196,309 | 198,791 | 133,264 | |||||||||
Inventories |
232,854 | 211,017 | 209,455 | |||||||||
Other current assets |
26,667 | 31,680 | 26,744 | |||||||||
Total current assets |
689,140 | 620,505 | 461,474 | |||||||||
Property, plant and equipment, net |
708,645 | 720,897 | 728,475 | |||||||||
Equity method investments |
166,746 | 164,099 | 172,702 | |||||||||
Deferred plant turnaround costs, net |
36,615 | 44,558 | 29,995 | |||||||||
Intangible assets, net |
5,174 | 5,645 | 7,213 | |||||||||
Other assets |
23,942 | 17,009 | 27,751 | |||||||||
Total assets |
$ | 1,630,262 | $ | 1,572,713 | $ | 1,427,610 | ||||||
Liabilities |
||||||||||||
Accounts payable |
130,572 | 156,493 | 77,546 | |||||||||
Customer prepayments |
136,047 | 77,091 | 58,372 | |||||||||
Accrued expenses and other current liabilities |
63,002 | 75,863 | 69,816 | |||||||||
Total current liabilities |
329,621 | 309,447 | 205,734 | |||||||||
Long-term debt and capital lease obligations |
330,000 | 331,300 | 331,300 | |||||||||
Pension liabilities |
124,667 | 134,444 | 120,069 | |||||||||
Other liabilities |
126,063 | 104,039 | 91,235 | |||||||||
Minority interest |
98,850 | 94,687 | 91,662 | |||||||||
Total liabilities and minority interest |
1,009,201 | 973,917 | 840,000 | |||||||||
Preferred Stock - liquidation value of $120,000 |
115,800 | 115,800 | 115,800 | |||||||||
Common Shareholders Equity |
||||||||||||
Capital stock
|
||||||||||||
Common Shares, authorized 133,500 shares;
92,846, 92,630 and 95,171 outstanding |
145,192 | 144,976 | 146,994 | |||||||||
Paid-in capital |
694,621 | 693,896 | 708,089 | |||||||||
Accumulated other comprehensive loss |
(48,350 | ) | (63,739 | ) | (66,757 | ) | ||||||
Accumulated deficit |
(286,202 | ) | (292,137 | ) | (316,516 | ) | ||||||
Total common shareholders equity |
505,261 | 482,996 | 471,810 | |||||||||
Total liabilities and minority interest, preferred stock
and common shareholders equity |
$ | 1,630,262 | $ | 1,572,713 | $ | 1,427,610 | ||||||
3
Three Months Ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Revenues |
||||||||
Product revenues |
$ | 499,630 | $ | 397,744 | ||||
Other income |
2,656 | 1,176 | ||||||
Total revenues |
502,286 | 398,920 | ||||||
Costs and Expenses |
||||||||
Cost of sales |
426,176 | 423,517 | ||||||
Selling, general and administrative expense |
17,057 | 11,710 | ||||||
Equity in earnings of unconsolidated affiliates |
(5,617 | ) | (8,141 | ) | ||||
437,616 | 427,086 | |||||||
Income (loss) from operations |
64,670 | (28,166 | ) | |||||
Interest income |
2,887 | 1,584 | ||||||
Interest expense |
(8,909 | ) | (11,772 | ) | ||||
Loss on early retirement of debt |
(38,662 | ) | | |||||
Income (loss) before income taxes and
minority interest |
19,986 | (38,354 | ) | |||||
Income tax (provision) benefit |
(4,140 | ) | 13,766 | |||||
Minority interest |
(8,636 | ) | 597 | |||||
Net income (loss) |
7,210 | (23,991 | ) | |||||
Preferred share dividends |
(1,275 | ) | (1,275 | ) | ||||
Net Income (Loss) Available to Common Shareholders |
$ | 5,935 | $ | (25,266 | ) | |||
Basic and diluted income (loss) per share: |
||||||||
Basic |
$ | 0.06 | $ | (0.27 | ) | |||
Diluted |
$ | 0.06 | $ | (0.27 | ) | |||
Basic and diluted weighted average shares
outstanding: |
||||||||
Basic |
91,860 | 93,870 | ||||||
Diluted |
95,258 | 93,870 |
4
Three Months Ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Operating Activities |
||||||||
Net income (loss) |
$ | 7,210 | $ | (23,991 | ) | |||
Adjustments to reconcile net income (loss)
to net cash flows from operating activities: |
||||||||
Depreciation of property, plant and equipment and
amortization of deferred plant turnaround costs |
26,642 | 26,282 | ||||||
Deferred income taxes |
7,273 | (13,766 | ) | |||||
Minority interest in earnings |
8,636 | (597 | ) | |||||
Distributions in excess of (less than) equity earnings |
(5,617 | ) | 8,140 | |||||
Non-cash (gain) loss on derivatives |
(2,832 | ) | 5,861 | |||||
Share-based compensation |
2,868 | 1,141 | ||||||
Amortization of intangible and other assets |
2,341 | 1,396 | ||||||
Non cash loss on early retirement of debt |
4,662 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
2,867 | 73,752 | ||||||
Inventories |
(18,472 | ) | (17,350 | ) | ||||
Accounts payable and customer prepayments |
32,836 | (43,278 | ) | |||||
Other assets and liabilities, net |
11,174 | 4,793 | ||||||
Net cash flows from operating activities |
79,588 | 22,383 | ||||||
Investing Activities |
||||||||
Purchase of property, plant and equipment |
(6,736 | ) | (12,104 | ) | ||||
Plant turnaround expenditures |
(8,842 | ) | (11,467 | ) | ||||
Distributions received from unconsolidated affiliates |
| 1,594 | ||||||
Changes in restricted cash |
| 8,595 | ||||||
Net cash flows from investing activities |
(15,578 | ) | (13,382 | ) | ||||
Financing Activities |
||||||||
Issuance of debt |
330,000 | | ||||||
Payments under borrowings arrangements |
(328,800 | ) | (26 | ) | ||||
Payments for debt issuance costs |
(5,429 | ) | | |||||
Preferred share dividends paid |
(1,275 | ) | (1,275 | ) | ||||
Proceeds from exercise of stock options |
276 | | ||||||
Distributions to minority interests |
(4,474 | ) | | |||||
Net cash flows from financing activities |
(9,702 | ) | (1,301 | ) | ||||
Effect of exchange rate changes on cash |
(15 | ) | (2,055 | ) | ||||
Increase (decrease) to cash and cash equivalents |
54,293 | 5,645 | ||||||
Cash and cash equivalents at beginning of period |
179,017 | 86,366 | ||||||
Cash and cash equivalents at end of period |
$ | 233,310 | $ | 92,011 | ||||
5
Three Months ended | ||||||||
March 31 | ||||||||
(in thousands) | 2007 | 2006 | ||||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 10,619 | $ | 316 | ||||
Income tax refunds received |
$ | 100 | $ | 600 | ||||
Income taxes paid |
$ | 4,566 | $ | 281 | ||||
Supplemental schedule of unconsolidated affiliates
distributions received: |
||||||||
Equity in earnings of unconsolidated affiliates |
$ | 5,617 | $ | 8,141 | ||||
Distribution in excess of (less than) equity earnings |
(5,617 | ) | 8,140 | |||||
Distributions received from unconsolidated affiliates |
| 1,594 | ||||||
Total cash distributions received from
unconsolidated affiliates |
$ | | $ | 17,875 | ||||
6
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Comprehensive | ||||||||||||||||||||
(in thousands) | Stock | Capital | Loss | Deficit | Total | Income | ||||||||||||||||||
Balance at January 1, 2007 |
$ | 144,976 | $ | 693,896 | $ | (63,739 | ) | $ | (292,137 | ) | $ | 482,996 | ||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||
Net income |
| | | 7,210 | 7,210 | $ | 7,210 | |||||||||||||||||
Foreign currency
translation adjustment |
| | 817 | | 817 | 817 | ||||||||||||||||||
Change in fair value of
derivatives, net of taxes
of $7,848 |
| | 14,572 | | 14,572 | 14,572 | ||||||||||||||||||
Comprehensive income |
$ | 22,599 | ||||||||||||||||||||||
Preferred share dividends |
| | | (1,275 | ) | (1,275 | ) | |||||||||||||||||
Exercise of stock options |
216 | 60 | | | 276 | |||||||||||||||||||
Share-based compensation |
| 665 | | | 665 | |||||||||||||||||||
Balance at March 31, 2007 |
$ | 145,192 | $ | 694,621 | $ | (48,350 | ) | $ | (286,202 | ) | $ | 505,261 | ||||||||||||
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Comprehensive | ||||||||||||||||||||
(in thousands) | Stock | Capital | Loss | Deficit | Total | Income | ||||||||||||||||||
Balance at January 1, 2006 |
$ | 146,994 | $ | 707,302 | $ | (70,143 | ) | $ | (291,250 | ) | $ | 492,903 | ||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||
Net loss |
| | | (23,991 | ) | (23,991 | ) | $ | (23,991 | ) | ||||||||||||||
Foreign currency
translation adjustment |
| | 876 | | 876 | 876 | ||||||||||||||||||
Change in fair value of
derivatives, net of taxes
of $1,414 |
| | 2,510 | | 2,510 | 2,510 | ||||||||||||||||||
Comprehensive loss |
$ | (20,605 | ) | |||||||||||||||||||||
Preferred share dividends |
| | | (1,275 | ) | (1,275 | ) | |||||||||||||||||
Share-based compensation |
| 787 | | | 787 | |||||||||||||||||||
Balance at March 31, 2006 |
$ | 146,994 | $ | 708,089 | $ | (66,757 | ) | $ | (316,516 | ) | $ | 471,810 | ||||||||||||
7
1. | Financial Statement Presentation | |
Basis of Presentation | ||
The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments necessary, in the opinion of management, to summarize fairly the financial position of Terra Industries Inc. and all majority-owned subsidiaries (Terra, the Company and it) and the results of operations for the periods presented. Because of the seasonal nature of Terras operations and effects of weather-related conditions in several of its marketing areas, results of any interim reporting period should not be considered as indicative of results for a full year. These statements should be read in conjunction with the Companys 2006 Annual Report on Form 10-K to Shareholders. | ||
Revenue Recognition | ||
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collectibility is probable. | ||
Revenues are primarily comprised of sales of 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 also include profit sharing revenue under the Methanex supply contract when the estimated margin on an annualized basis is probable. Revenues include amounts related to shipping and handling charges to the Companys customers. | ||
Cost of Sales | ||
Costs of sales are primarily related to manufacturing costs related to the Companys nitrogen- and methanol-based products, including any realized hedging gains or losses related to natural gas derivatives. Cost of sales includes amounts related to shipping and handling charges to the Companys customers. | ||
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. | ||
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. |
8
Impairment of Long-Lived Assets | ||
Terra reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the asset. | ||
Use of Estimates in Preparation of the Financial Statements | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
2. | Income (Loss) Per Share | |
Basic income (loss) per share data is based on the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share data is based on the weighted-average number of common shares outstanding and the effect of all dilutive potential common shares including stock options, nonvested shares, convertible preferred shares and common stock warrants. Nonvested stock carries dividend and voting rights, but is not involved in the weighted average number of common shares outstanding used to compute basic income (loss) per share. |
9
Three Months Ended | ||||||||
March 31, | ||||||||
(in thousands, except per-share amounts) | 2007 | 2006 | ||||||
Basic income (loss) per share
computation: |
||||||||
Income (loss) from continuing operations |
$ | 7,210 | $ | (23,991 | ) | |||
Less: Preferred share dividends |
(1,275 | ) | (1,275 | ) | ||||
Income (loss) available to
common shareholders |
$ | 5,935 | $ | (25,266 | ) | |||
Weighted average shares outstanding |
91,860 | 93,870 | ||||||
Basic income (loss) per common share |
$ | 0.06 | $ | (0.27 | ) | |||
Diluted income (loss) per share computation: |
||||||||
Income (loss) available to
common shareholders |
$ | 5,935 | $ | (25,266 | ) | |||
Add: Preferred share dividends |
| | ||||||
Income (loss) available to common
shareholders and assumed conversions |
$ | 5,935 | $ | (25,266 | ) | |||
Weighted average shares outstanding |
91,860 | 93,870 | ||||||
Add incremental shares from
assumed conversions: |
||||||||
Preferred shares |
| | ||||||
Nonvested stock |
607 | | ||||||
Common stock warrants |
2,610 | | ||||||
Common stock options |
181 | | ||||||
Dilutive potential common shares |
95,258 | 93,870 | ||||||
Diluted income (loss) per common share |
$ | 0.06 | $ | (0.27 | ) | |||
10
3. | Inventories | |
Inventories consisted of the following: |
March 31, | December 31, | March 31, | ||||||||||
(in thousands) | 2007 | 2006 | 2006 | |||||||||
Raw materials |
$ | 20,694 | $ | 26,583 | $ | 17,371 | ||||||
Supplies |
55,445 | 54,542 | 54,077 | |||||||||
Finished goods |
156,715 | 129,892 | 138,007 | |||||||||
Total |
$ | 232,854 | $ | 211,017 | $ | 209,455 | ||||||
Inventory is valued at actual first in first out cost. Costs include raw material, labor and overhead. | ||
4. | 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 (e.g., there is a high correlation between the hedge position and changes in market value of the hedge item). | ||
3. | The derivative financial instrument must be designated as a hedge of the item at the inception of the hedge. |
11
Other | Other | |||||||||||||||
Current | Current | Deferred | Net | |||||||||||||
(in thousands) | Assets | Liabilities | Taxes | Asset (Liability) | ||||||||||||
March 31, 2007 |
$ | 11,037 | $ | (3,949 | ) | $ | (1,474 | ) | $ | 5,614 | ||||||
December 31, 2006 |
4,731 | (22,591 | ) | 6,373 | (11,487 | ) | ||||||||||
March 31, 2006 |
6,307 | (16,686 | ) | 1,363 | (9,016 | ) |
Three Months Ended | ||||||||||||||||
March 31, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
(in thousands) | Gross | Net of tax | Gross | Net of tax | ||||||||||||
Beginning accumulated gain (loss) |
$ | (18,210 | ) | $ | (11,836 | ) | $ | (7,886 | ) | $ | (5,109 | ) | ||||
Reclassification into earnings |
2,727 | 1,773 | (30,939 | ) | (20,151 | ) | ||||||||||
Net increase in market value |
19,693 | 12,799 | 34,863 | 22,661 | ||||||||||||
Ending accumulated gain (loss) |
$ | 4,210 | $ | 2,736 | $ | (3,962 | ) | $ | (2,599 | ) | ||||||
12
At times, the Company also uses forward derivative instruments to fix or set floor prices for a portion of its nitrogen sales volumes. At March 31, 2007, the Company had no open contracts covering nitrogen solutions. When outstanding, the nitrogen solution contracts do not qualify for hedge treatment due to inadequate trading history to demonstrate effectiveness. Consequently, these contracts are marked-to-market and unrealized gains or losses are reflected in revenue in the statement of operations. For the three-month period ending March 31, 2007, the Company recognized a loss of $0.9 million on nitrogen forward derivative instruments. For the three-month period ending March 31, 2006, there were no gains or losses on nitrogen forward derivative instruments. | ||
5. | Unrecognized Tax Benefit | |
The Company adopted the provision of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty to Income Taxes (FIN 48), on January 1, 2007. Under FIN 48, tax benefits are recorded only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company's tax returns that do not meet these recognition and measurement standards. | ||
The primary jurisdictions in which the Company or one of its subsidiaries files income tax returns are the United States, Canada and the United Kingdom. In most United States jurisdictions, the Company has significant net operating loss (NOL) carryforwards that date back to 1999 and will remain subject to examination by tax authorities as those NOL positions may be used to offset future taxable earnings. For jurisdictions in Canada and the United Kingdom, income tax returns remain subject to examination by tax authorities for calendar years beginning in 2001 and 2005, respectively. | ||
The adoption of FIN 48 had no impact on the Company's financial statements. The Companys other liabilities include an unrecognized tax benefit of $33.5 million at March 31, 2007, which had been previously recognized under FASB Statement No. 5 "Accounting for Contingencies" or FASB Statement No. 109 "Accounting for Income Taxes." There were no changes in unrecognized tax positions during the period, and there are no expected changes in the next twelve months. If recognized, the $33.5 million of unrecognized tax benefit would have an impact on the effective tax rate. | ||
When applicable, the Company recognizes interest accrued and penalties related to unrecognized tax benefits in income taxes on the statement of operations. Due to the Companys NOL carryforward position, no interest or penalties were recognized at March 31, 2007. | ||
6. | Other Liabilities | |
Other liabilities consisted of the following: |
March 31, | December 31, | March 31, | ||||||||||
(in thousands) | 2007 | 2006 | 2006 | |||||||||
Deferred income taxes |
$ | 37,758 | $ | 63,851 | $ | 51,075 | ||||||
Unrecognized tax benefit |
33,560 | | | |||||||||
Long-term medical and
closed facilities reserve |
23,323 | 23,206 | 24,139 | |||||||||
Other |
31,422 | 16,982 | 16,021 | |||||||||
$ | 126,063 | $ | 104,039 | $ | 91,235 |
13
7. | 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 Point Lisas Nitrogen Limited, (PLNL) which operates an ammonia production plant in Trinidad (2) 50% interest in an ammonia storage joint venture located in Houston, Texas and (3) 50% interest in a joint venture in Oklahoma CO2 at Terras nitrogen plant. These investments were $166.7 million at March 31, 2007. Terra includes the net earnings of these investments as an element of income from operations since the investees operations provide additional capacity to Terra. | ||
The combined results of operations and financial position of Terras equity method investments are summarized below: |
Three Months Ended | ||||||||
March 31, | ||||||||
(in thousands) | 2007 | 2006 | ||||||
Condensed income statement
information: |
||||||||
Net sales |
$ | 29,363 | $ | 54,668 | ||||
Net income |
$ | 7,112 | $ | 16,282 | ||||
Terras equity in earnings of
unconsolidated affiliates |
$ | 5,617 | $ | 8,141 | ||||
March 31, | March 31, | |||||||
(in thousands) | 2007 | 2006 | ||||||
Condensed balance sheet information: |
||||||||
Current assets |
$ | 53,018 | $ | 61,501 | ||||
Long-lived assets |
204,146 | 204,268 | ||||||
Total assets |
$ | 257,164 | $ | 265,769 | ||||
Current liabilities |
$ | 25,356 | $ | 35,045 | ||||
Long-term liabilities |
| | ||||||
Equity |
231,808 | 230,724 | ||||||
Total liabilities and equity |
$ | 257,164 | $ | 265,769 | ||||
14
During the first three months of 2007 there were no cash distributions from any of the Companys investments. During the first three months of 2006, there were $17.5 million of distributions from PLNL to the Company. The total distributions from all investments were $17.9 million for the three-month periods ended March 31, 2006. | ||
8. | Long-term Debt and Capital Lease Obligation | |
Long-term debt and capital lease obligations consisted of the following: |
March 31, | December 31, | March 31, | ||||||||||
(in thousands) | 2007 | 2006 | 2006 | |||||||||
Unsecured Senior Notes, 7.0%
due 2017 |
$ | 330,000 | $ | | $ | | ||||||
Secured Senior Notes, 12.875%
due 2008 |
| 200,000 | 200,000 | |||||||||
Second Priority Senior Secured
Notes, 11.5%, due 2010 |
2,500 | 131,300 | 131,300 | |||||||||
Other |
| 1 | 12 | |||||||||
Total long-term debt and
capital lease obligations |
332,500 | 331,301 | 331,312 | |||||||||
Less current maturities |
2,500 | 1 | 12 | |||||||||
Total long-term debt and
capital lease obligations |
$ | 330,000 | $ | 331,300 | $ | 331,300 | ||||||
15
In the first quarter of 2007, the Company amended the $200 million revolving credit facility to extend the expiration date to January 31, 2012. The revolving credit facility is secured by substantially all of the assets of the Company. Borrowing availability is generally based on 100% of eligible cash balances, 85% of eligible accounts receivable and 60% of eligible finished goods inventory less outstanding letters of credit issued under the facility. These facilities include $50 million only available for the use of Terra Nitrogen Company, L.P. (TNCLP), one of 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 Companys option, a London Interbank Offered Rate (LIBOR). At March 31, 2007, the LIBOR rate was 3.86%. The base rate is the highest of (1) Citibank, N.A.s base rate (2) the federal funds effective rate, plus one-half percent (0.50%) per annum and (3) the base three month certificate of deposit rate, plus one-half percent (0.50%) per annum, plus an applicable margin in each case. LIBOR loans will bear interest at LIBOR plus an applicable margin. The applicable margins for base rate loans and LIBOR loans are 0.50% and 1.75%, respectively, at March 31, 2007. 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 March 31, 2007, the Company had no outstanding revolving credit borrowings and $16.6 million in outstanding letters of credit. The $16.6 million in outstanding letters of credit reduced the Companys borrowing availability to $183.4 million at March 31, 2007. 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. | ||
9. | Pension Plans | |
Terra maintains defined benefit and defined contribution pension plans that cover substantially all salaried and hourly employees. Benefits are based on a pay formula. The defined benefit plans assets consist principally of equity securities and corporate and government debt securities. The Company also has certain non-qualified pension plans covering executives, which are unfunded. Terra accrues pension costs based upon annual actuarial valuations for each plan and funds these costs in accordance with statutory requirements. | ||
The estimated components of net periodic pension expense follow: |
Three Months Ended | ||||||||
March 31, | ||||||||
(in thousands) | 2007 | 2006 | ||||||
Service cost |
$ | 748 | $ | 744 | ||||
Interest cost |
6,231 | 5,888 | ||||||
Expected return on plan assets |
(6,056 | ) | (5,394 | ) | ||||
Amortization of prior service cost |
(9 | ) | (7 | ) | ||||
Amortization of actuarial loss |
1,409 | 1,408 | ||||||
Termination charge |
123 | 291 | ||||||
Pension Expense |
$ | 2,446 | $ | 2,930 | ||||
16
In the 2006 third quarter, the Pension Protection Act (PPA) was signed into law. Beginning in 2008, the PPA requires the Companys qualified pension plans to meet a funding target over seven years. Annual cash funding is expected to equal the value of benefits accrued during the year plus one-seventh of any under-funded amount. | ||
Terra 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 Company contributions to these plans for the three-month periods ending March 31, 2007 and 2006 totaled $1.2 million and $1.5 million, respectively. | ||
Terra 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. These costs are funded as paid. | ||
10. | 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 (loss) 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) pension and post-retirement benefit liabilities adjustments. | ||
The components of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2007 and 2006 follow: |
Foreign | ||||||||||||||||
Currency | Pension and Post- | |||||||||||||||
Translation | Fair Value of | Retirement Benefit | ||||||||||||||
(in thousands) | Adjustment | Derivatives | Liabilities | Total | ||||||||||||
Balance January 1, 2007 |
$ | 24,518 | $ | (11,836 | ) | $ | (76,421 | ) | $ | (63,739 | ) | |||||
Change in foreign translation
adjustment |
817 | | | 817 | ||||||||||||
Reclassification to earnings |
| 1,773 | | 1,773 | ||||||||||||
Change in fair value of derivatives |
| 12,799 | | 12,799 | ||||||||||||
Balance March 31, 2007 |
$ | 25,335 | $ | 2,736 | $ | (76,421 | ) | $ | (48,350 | ) | ||||||
Balance January 1, 2006 |
$ | (9,100 | ) | $ | (5,109 | ) | $ | (55,934 | ) | $ | (70,143 | ) | ||||
Change in foreign translation
adjustment |
876 | | | 876 | ||||||||||||
Reclassification to earnings |
| (20,151 | ) | | (20,151 | ) | ||||||||||
Change in fair value of derivatives |
| 22,661 | | 22,661 | ||||||||||||
Balance March 31, 2006 |
$ | (8,224 | ) | $ | (2,599 | ) | $ | (55,934 | ) | $ | (66,757 | ) | ||||
17
11. | Industry Segment Data | |
Terra classifies its operations into two business segments: nitrogen products and methanol. The nitrogen products business produces and distributes ammonia, urea, nitrogen solutions, ammonium nitrate and other products to farm distributors and industrial users. The methanol business manufactures and distributes methanol which is used in the production of a variety of chemical derivatives and in the production of methyl tertiary butyl ether (MTBE), an oxygenate and an octane enhancer for gasoline. Terra does not allocate interest, income taxes or corporate-related charges to business segments. Included in Other are general corporate activities not attributable to a specific industry segment. | ||
The following summarizes operating results by business segment: |
Three Months Ended | ||||||||
March 31, | ||||||||
(in thousands) | 2007 | 2006 | ||||||
Revenues Nitrogen Products |
$ | 487,099 | $ | 396,371 | ||||
Methanol |
12,531 | 1,373 | ||||||
Other |
2,656 | 1,176 | ||||||
Total revenues |
$ | 502,286 | $ | 398,920 | ||||
Income (loss) from operations |
||||||||
Nitrogen Products |
$ | 64,061 | $ | (24,987 | ) | |||
Methanol |
788 | (2,792 | ) | |||||
Other |
(179 | ) | (387 | ) | ||||
Income (loss) from operations |
$ | 64,670 | $ | (28,166 | ) | |||
Three Months Ended | ||||||||
March 31, | ||||||||
(in thousands) | 2007 | 2006 | ||||||
United States |
$ | 398,546 | $ | 307,364 | ||||
Canada |
13,873 | 16,323 | ||||||
United Kingdom |
89,867 | 75,233 | ||||||
$ | 502,286 | $ | 398,920 | |||||
12. | Commitments and Contingencies | |
The Company is involved in various claims and legal actions arising in the ordinary course of business, including employee injury claims. Based on the facts currently available, management believes that the ultimate disposition of these matters will not have a material adverse effect on the Companys consolidated financial position, results of operation or liquidity and that the likelihood that a loss contingency will occur in connection with these claims is remote. | ||
The Company has entered into natural gas supply agreements through December 31, 2007 for approximately 47.6 million MMBtus. As of March 31, 2007, these natural gas commitments were $1.9 million above the respective index prices. |
18
13. | Share Information | |
On April 25, 2006, the Board of Directors authorized the Company to repurchase a maximum of 10 percent, or 9,516,817 shares, of its outstanding common stock. The stock buyback program has been and will be conducted on the open market, in private transactions or otherwise at such times prior to June 30, 2008, and at such prices, as determined appropriate by the Company. Purchases may be commenced or suspended at any time without notice. In 2006 there were 2.7 million shares repurchased which resulted in a balance of 6.8 million shares available for repurchase under the program. There were no stock repurchases during the first quarter of 2007. | ||
14. | New Accounting Pronouncements | |
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, (SFAS 157). SFAS 157 is definitional and disclosure oriented and addresses how companies should approach measuring fair value when required by generally accepted accounting principles (GAAP); it does not create or modify any current GAAP requirements to apply fair value accounting. SFAS 157 provides a single definition for fair value that is to be applied consistently for all accounting applications, and also generally describes and prioritizes according to reliability the methods and input used in valuations. SFAS 157 prescribes various disclosures about financial statement categories and amounts which are measured at fair value, if such disclosures are not already specified elsewhere in GAAP. The new measurement and disclosure and requirements of SFAS 157 are effective for the Company in 2008 first quarter and the Company expects no significant impact from adopting the Standard. | ||
In February 2007, the FASB issued Statement of Financial Accounting Standards (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. SFAS 159 is effective for the Company beginning in the first quarter of 2008. The Company is currently assessing the impact SFAS 159 may have on its financial statements. | ||
15. | Guarantor Subsidiaries | |
The consolidating statement of financial position of Terra Industries Inc. (the Parent), Terra Capital, Inc. (TCAPI), the Guarantor Subsidiaries and subsidiaries of the Parent that are not guarantors of the Senior Secured Notes due 2012 for March 31, 2007; December 31, 2006; and March 31, 2006 are presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. Statements of operations and statements of cash flows for the three months ended March 31, 2007 and 2006 are presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. The guarantees of the Guarantor Subsidiaries are full and unconditional. The Subsidiary issuer and the Guarantor Subsidiaries guarantees are joint and several with the Parent. | ||
Guarantor subsidiaries include subsidiaries that own the Woodward, Oklahoma; Port Neal, Iowa; Yazoo City, Mississippi, and Beaumont, Texas plants as well as the corporate headquarters facility in Sioux City, Iowa. All guarantor subsidiaries are wholly owned by the Parent. All other company facilities are owned by non-guarantor subsidiaries. |
19
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | 124,896 | $ | | $ | 108,415 | $ | (2 | ) | $ | 233,310 | |||||||||||
Accounts receivable, net |
| | 89,668 | 106,642 | (1 | ) | 196,309 | |||||||||||||||||
Inventories |
| | 113,286 | 125,653 | (6,085 | ) | 232,854 | |||||||||||||||||
Other current assets |
7,460 | 37 | 11,194 | 8,644 | (668 | ) | 26,667 | |||||||||||||||||
Total current assets |
7,461 | 124,933 | 214,148 | 349,354 | (6,756 | ) | 689,140 | |||||||||||||||||
Property, plant and
equipment, net |
| 34 | 370,873 | 337,736 | 2 | 708,645 | ||||||||||||||||||
Equity investments |
| | 11,544 | 155,202 | | 166,746 | ||||||||||||||||||
Intangible assets, other assets
and deferred plant
turnaround costs |
(1,839 | ) | 8,851 | 19,614 | 50,464 | (11,359 | ) | 65,731 | ||||||||||||||||
Investments in and advanced
to (from) affiliates |
690,275 | 276,800 | 1,675,902 | 394,957 | (3,037,934 | ) | | |||||||||||||||||
Total assets |
$ | 695,897 | $ | 410,618 | $ | 2,292,081 | $ | 1,287,713 | $ | (3,056,047 | ) | $ | 1,630,262 | |||||||||||
Liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 21 | $ | | $ | 60,456 | $ | 70,094 | $ | 1 | $ | 130,572 | ||||||||||||
Accrued expenses and
other current liabilities |
14,319 | 5,894 | 221,102 | 86,913 | (129,179 | ) | 199,049 | |||||||||||||||||
Total current liabilities |
14,340 | 5,894 | 281,558 | 157,007 | (129,178 | ) | 329,621 | |||||||||||||||||
Long-term debt and capital
lease obligations |
| 330,000 | | | | 330,000 | ||||||||||||||||||
Pension and other liabilities |
128,538 | (171 | ) | (104,736 | ) | 171,341 | 55,758 | 250,730 | ||||||||||||||||
Minority interest |
| 19,304 | 79,545 | | 1 | 98,850 | ||||||||||||||||||
Total liabilities and
minority interest |
142,878 | 355,027 | 256,367 | 328,348 | (73,419 | ) | 1,009,201 | |||||||||||||||||
Preferred stock |
115,800 | | | | | 115,800 | ||||||||||||||||||
Common Shareholders Equity |
||||||||||||||||||||||||
Common stock |
145,192 | | 73 | 49,709 | (49,782 | ) | 145,192 | |||||||||||||||||
Paid-in capital |
694,621 | 150,218 | 2,035,412 | 1,274,009 | (3,459,639 | ) | 694,621 | |||||||||||||||||
Accumulated other
comprehensive income
(loss) compensation |
(77,432 | ) | | | 14,031 | 15,051 | (48,350 | ) | ||||||||||||||||
Retained earnings (deficit) |
(325,162 | ) | (94,627 | ) | 229 | (378,384 | ) | 511,742 | (286,202 | ) | ||||||||||||||
Common shareholders equity |
437,219 | 55,591 | 2,035,714 | 959,365 | (2,982,628 | ) | 505,261 | |||||||||||||||||
Total liabilities and
minority interest,
preferred stock and common
shareholders equity |
$ | 695,897 | $ | 410,618 | $ | 2,292,081 | $ | 1,287,713 | $ | (3,056,047 | ) | $ | 1,630,262 | |||||||||||
20
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Product revenues |
$ | | $ | | $ | 242,091 | $ | 257,539 | $ | | $ | 499,630 | ||||||||||||
Other revenues |
| | 1,947 | 708 | 1 | 2,656 | ||||||||||||||||||
Total revenues |
| | 244,038 | 258,247 | 1 | 502,286 | ||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales |
| | 227,160 | 211,764 | (12,748 | ) | 426,176 | |||||||||||||||||
Selling, general and
administrative expenses |
531 | (2,291 | ) | 918 | 5,152 | 12,747 | 17,057 | |||||||||||||||||
Equity in the (earnings) loss
of subsidiaries |
45,796 | (73,344 | ) | (6,147 | ) | (13,741 | ) | 41,819 | (5,617 | ) | ||||||||||||||
Total cost & expenses |
46,327 | (75,635 | ) | 221,931 | 203,175 | 41,818 | 437,616 | |||||||||||||||||
Income (loss) from operations |
(46,327 | ) | 75,635 | 22,107 | 55,072 | (41,817 | ) | 64,670 | ||||||||||||||||
Interest income |
| 572 | 1,769 | 546 | | 2,887 | ||||||||||||||||||
Interest expense |
(465 | ) | (8,330 | ) | (4 | ) | 45 | (155 | ) | (8,909 | ) | |||||||||||||
Loss on debt |
| (38,662 | ) | | | | (38,662 | ) | ||||||||||||||||
Income (loss) before income
taxes and minority interest |
(46,792 | ) | 29,215 | 23,872 | 55,663 | (41,972 | ) | 19,986 | ||||||||||||||||
Income tax benefit |
(4,914 | ) | | | 774 | | (4,140 | ) | ||||||||||||||||
Minority interest |
| (1,667 | ) | (6,970 | ) | | 1 | (8,636 | ) | |||||||||||||||
Net income |
$ | (51,706 | ) | $ | 27,548 | $ | 16,902 | $ | 56,437 | $ | (41,971 | ) | $ | 7,210 | ||||||||||
21
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Operating Activities |
||||||||||||||||||||||||
Net income (loss) |
$ | (51,706 | ) | $ | 27,548 | $ | 16,902 | $ | 56,437 | $ | (41,971 | ) | $ | 7,210 | ||||||||||
Adjustments to reconcile net
income (loss) to net cash
flows from operating
activities: |
||||||||||||||||||||||||
Depreciation and amortization |
| | 20,964 | 5,678 | | 26,642 | ||||||||||||||||||
Deferred income taxes |
| | | 7,273 | 7,273 | |||||||||||||||||||
Minority interest in earnings |
| 803 | 7,833 | | | 8,636 | ||||||||||||||||||
Distributions in excess of (less
than) equity earnings |
68,102 | 70,678 | (5,617 | ) | 25,666 | (164,446 | ) | (5,617 | ) | |||||||||||||||
Non-cash loss on derivatives |
| | 1,830 | (4,336 | ) | (326 | ) | (2,832 | ) | |||||||||||||||
Share-based compensation |
3,085 | | | | (217 | ) | 2,868 | |||||||||||||||||
Amortization of intangible
and other assets |
| | 2,341 | | | 2,341 | ||||||||||||||||||
Non-cash loss on early
retirement |
| 4,662 | | | | 4,662 | ||||||||||||||||||
Change in operating assets
and liabilities |
(65,338 | ) | 576 | 2,651 | 117,646 | (27,130 | ) | 28,405 | ||||||||||||||||
Net Cash Flows from
Operating Activities |
(45,857 | ) | 104,267 | 46,904 | 208,364 | (234,090 | ) | 79,588 | ||||||||||||||||
Investing Activities |
||||||||||||||||||||||||
Purchase of property,
plant and equipment |
| (34 | ) | (1,796 | ) | (4,940 | ) | 34 | (6,736 | ) | ||||||||||||||
Plant turnaround expenditures |
| | (7,511 | ) | (1,157 | ) | (174 | ) | (8,842 | ) | ||||||||||||||
Net Cash Flows from
Investing Activities |
| (34 | ) | (9,307 | ) | (6,097 | ) | (140 | ) | (15,578 | ) | |||||||||||||
Financing Activities |
||||||||||||||||||||||||
Issuance of debt |
| 330,000 | | | | 330,000 | ||||||||||||||||||
Principal payments under
borrowing arrangements |
| (331,300 | ) | (1 | ) | | 2,501 | (328,800 | ) | |||||||||||||||
Payments for
debt issuance costs |
| (5,429 | ) | | | | (5,429 | ) | ||||||||||||||||
Proceeds from options |
61 | | | | 215 | 276 | ||||||||||||||||||
Preferred share dividends paid |
(1,275 | ) | | | | | (1,275 | ) | ||||||||||||||||
Change in investments and
advances from (to) affiliates |
47,071 | (73,344 | ) | (33,122 | ) | (172,119 | ) | 231,514 | | |||||||||||||||
Distributions to minority
interests |
| | (4,474 | ) | | | (4,474 | ) | ||||||||||||||||
Net Cash Flows from
Financing Activities |
45,857 | (80,073 | ) | (37,597 | ) | (172,119 | ) | 234,230 | (9,702 | ) | ||||||||||||||
Effect of Foreign Exchange
Rate on Cash |
| | | (15 | ) | | (15 | ) | ||||||||||||||||
Increase (decrease) in Cash
and Cash Equivalents |
| 24,160 | | 30,133 | | 54,293 | ||||||||||||||||||
Cash and Cash Equivalents
at Beginning of Year |
1 | 100,736 | | 78,282 | (2 | ) | 179,017 | |||||||||||||||||
Cash and Cash Equivalents
at End of Year |
$ | 1 | $ | 124,896 | $ | | $ | 108,415 | $ | (2 | ) | $ | 233,310 | |||||||||||
22
Guarantor | Non-Guarantor | |||||||||||||||||||||||
Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash, cash equivalents and
restricted cash |
$ | 1 | $ | 100,736 | $ | | $ | 78,282 | $ | (2 | ) | $ | 179,017 | |||||||||||
Accounts receivable, net |
| | 75,466 | 123,325 | | 198,791 | ||||||||||||||||||
Inventories |
| | 84,924 | 117,958 | 8,135 | 211,017 | ||||||||||||||||||
Other current assets |
3,166 | 1,319 | 12,918 | 18,355 | (4,078 | ) | 31,680 | |||||||||||||||||
Total current assets |
3,167 | 102,055 | 173,308 | 337,920 | 4,055 | 620,505 | ||||||||||||||||||
Property, plant and
equipment, net |
| | 381,987 | 338,912 | (2 | ) | 720,897 | |||||||||||||||||
Equity investments |
| | 10,710 | 153,389 | | 164,099 | ||||||||||||||||||
Deferred plant turnaround
costs, intangible and
other assets |
(1,839 | ) | 7,582 | 22,117 | 39,351 | 1 | 67,212 | |||||||||||||||||
Investments in and advances
to (from) affiliates |
758,377 | 347,478 | 1,622,696 | 422,436 | (3,150,987 | ) | | |||||||||||||||||
Total Assets |
$ | 759,705 | $ | 457,115 | $ | 2,210,818 | $ | 1,292,008 | $ | (3,146,933 | ) | $ | 1,572,713 | |||||||||||
Liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 109 | $ | | $ | 63,634 | $ | 92,750 | $ | | $ | 156,493 | ||||||||||||
Accrued and other
liabilities |
28,119 | 5,927 | 61,782 | 62,354 | (5,228 | ) | 152,954 | |||||||||||||||||
Total current liabilities |
28,228 | 5,927 | 125,416 | 155,104 | (5,228 | ) | 309,447 | |||||||||||||||||
Long-term debt and capital
lease obligations |
| 331,300 | | | | 331,300 | ||||||||||||||||||
Pension and other liabilities |
188,246 | | 7,386 | 45,060 | (2,209 | ) | 238,483 | |||||||||||||||||
Minority interest |
| 18,501 | 76,186 | | | 94,687 | ||||||||||||||||||
Total liabilities and
minority interest |
216,474 | 355,728 | 208,988 | 200,164 | (7,437 | ) | 973,917 | |||||||||||||||||
Preferred stock |
115,800 | | | | | 115,800 | ||||||||||||||||||
Stockholders equity |
||||||||||||||||||||||||
Common stock |
144,975 | | 73 | 49,709 | (49,781 | ) | 144,976 | |||||||||||||||||
Paid in capital |
693,895 | 150,218 | 2,007,811 | 1,246,129 | (3,404,157 | ) | 693,896 | |||||||||||||||||
Accumulated other
comprehensive
income (loss) |
(92,187 | ) | | 6,373 | 30,828 | (8,753 | ) | (63,739 | ) | |||||||||||||||
Retrained earnings (deficit) |
(319,252 | ) | (48,831 | ) | (12,427 | ) | (234,822 | ) | 323,195 | (292,137 | ) | |||||||||||||
Total stockholders equity |
427,431 | 101,387 | 2,001,830 | 1,091,844 | (3,139,496 | ) | 482,996 | |||||||||||||||||
Total liabilities and
stockholders equity |
$ | 759,705 | $ | 457,115 | $ | 2,210,818 | $ | 1,292,008 | $ | (3,146,933 | ) | $ | 1,572,713 | |||||||||||
23
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | (27,962 | ) | $ | 72,023 | $ | 47,950 | $ | (1 | ) | $ | 92,011 | ||||||||||
Accounts receivable, net |
| | 35,267 | 97,997 | | 133,264 | ||||||||||||||||||
Inventories |
| | 67,046 | 135,850 | 6,559 | 209,455 | ||||||||||||||||||
Other current assets |
3,675 | 2,804 | 10,588 | 9,677 | | 26,744 | ||||||||||||||||||
Total current assets |
3,676 | (25,158 | ) | 184,924 | 291,474 | 6,558 | 461,474 | |||||||||||||||||
Property, plant and
equipment, net |
| | 268,163 | 460,310 | 2 | 728,475 | ||||||||||||||||||
Equity method investments |
| | | 172,702 | | 172,702 | ||||||||||||||||||
Intangible assets, other assets
and deferred plant
turnaround costs |
| 9,778 | 5,476 | 49,707 | (2 | ) | 64,959 | |||||||||||||||||
Investments in and advanced
to (from) affiliates |
757,256 | 583,061 | 1,379,180 | 480,795 | (3,200,292 | ) | | |||||||||||||||||
Total assets |
$ | 760,932 | $ | 567,681 | $ | 1,837,743 | $ | 1,454,988 | $ | (3,193,734 | ) | $ | 1,427,610 | |||||||||||
Liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | 18 | $ | | $ | 24,383 | $ | 53,144 | $ | 1 | $ | 77,546 | ||||||||||||
Accrued expenses and
other current liabilities |
1,212 | 96,550 | 39,754 | 61,192 | (70,520 | ) | 128,188 | |||||||||||||||||
Total current liabilities |
1,230 | 96,550 | 64,137 | 114,336 | (70,519 | ) | 205,734 | |||||||||||||||||
Long-term debt and capital
lease obligations |
| 331,300 | | | | 331,300 | ||||||||||||||||||
Pension and other liabilities |
148,401 | (168 | ) | 10,549 | 52,523 | (1 | ) | 211,304 | ||||||||||||||||
Minority interest |
| 17,934 | 73,728 | | | 91,662 | ||||||||||||||||||
Total liabilities and
minority interest |
149,631 | 445,616 | 148,414 | 166,859 | (70,520 | ) | 840,000 | |||||||||||||||||
Preferred stock |
115,800 | | | | | 115,800 | ||||||||||||||||||
Common Shareholders Equity |
||||||||||||||||||||||||
Common stock |
146,994 | | 73 | 49,709 | (49,782 | ) | 146,994 | |||||||||||||||||
Paid-in capital |
714,873 | 150,218 | 1,797,069 | 1,529,005 | (3,483,076 | ) | 708,089 | |||||||||||||||||
Accumulated other
comprehensive income
(loss) compensation |
(68,711 | ) | | | 17,370 | (15,416 | ) | (66,757 | ) | |||||||||||||||
Retained earnings (deficit) |
(297,655 | ) | (28,153 | ) | (107,813 | ) | (307,955 | ) | 425,060 | (316,516 | ) | |||||||||||||
Common shareholders equity |
495,501 | 122,065 | 1,689,329 | 1,288,129 | (3,123,214 | ) | 471,810 | |||||||||||||||||
Total liabilities and
minority interest,
preferred stock and common
shareholders equity |
$ | 760,932 | $ | 567,681 | $ | 1,837,743 | $ | 1,454,988 | $ | (3,193,734 | ) | $ | 1,427,610 | |||||||||||
24
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Product revenues |
$ | | $ | | $ | 114,939 | $ | 282,804 | $ | 1 | $ | 397,744 | ||||||||||||
Other revenues |
| | 1,790 | (614 | ) | | 1,176 | |||||||||||||||||
Total revenues |
| | 116,729 | 282,190 | 1 | 398,920 | ||||||||||||||||||
Cost and Expenses |
||||||||||||||||||||||||
Cost of sales |
| | 136,529 | 293,574 | (6,586 | ) | 423,517 | |||||||||||||||||
Selling, general and
administrative expenses |
525 | (1,842 | ) | 1,539 | 5,227 | 6,261 | 11,710 | |||||||||||||||||
Equity in the (earnings) loss
of subsidiaries |
(9,175 | ) | (2,097 | ) | | (31,454 | ) | 34,585 | (8,141 | ) | ||||||||||||||
Total cost & expenses |
(8,650 | ) | (3,939 | ) | 138,068 | 267,347 | 34,260 | 427,086 | ||||||||||||||||
Income (loss) from operations |
8,650 | 3,939 | (21,339 | ) | 14,843 | (34,259 | ) | (28,166 | ) | |||||||||||||||
Interest income |
| 570 | 1,607 | 1,014 | (1,607 | ) | 1,584 | |||||||||||||||||
Interest expense |
(465 | ) | (11,702 | ) | (2 | ) | (1,705 | ) | 2,102 | (11,772 | ) | |||||||||||||
Income (loss) before income
taxes and minority interest |
8,185 | (7,193 | ) | (19,734 | ) | 14,152 | (33,764 | ) | (38,354 | ) | ||||||||||||||
Income tax benefit |
10,762 | | | 3,004 | | 13,766 | ||||||||||||||||||
Minority interest |
| 115 | 481 | | 1 | 597 | ||||||||||||||||||
Net (loss) income |
$ | 18,947 | $ | (7,078 | ) | $ | (19,253 | ) | $ | 17,156 | $ | (33,763 | ) | $ | (23,991 | ) | ||||||||
25
Guarantor | Non-Guarantor | |||||||||||||||||||||||
(in thousands) | Parent | TCAPI | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Operating Activities |
||||||||||||||||||||||||
Net income (loss) |
$ | 18,947 | $ | (7,078 | ) | $ | (19,253 | ) | $ | 17,156 | $ | (33,763 | ) | $ | (23,991 | ) | ||||||||
Adjustments to reconcile net
income (loss) to net cash
flows from operating
activities: |
||||||||||||||||||||||||
Depreciation and amortization |
| | 8,785 | 17,184 | 313 | 26,282 | ||||||||||||||||||
Deferred income taxes |
| | | (13,766 | ) | | (13,766 | ) | ||||||||||||||||
Minority interest in earnings |
| (115 | ) | (480 | ) | | (2 | ) | (597 | ) | ||||||||||||||
Distributions in excess (less
than) equity earnings |
9,175 | 2,097 | | (15,173 | ) | 12,041 | 8,140 | |||||||||||||||||
Non-cash loss on derivatives |
| | 2,780 | 3,081 | | 5,861 | ||||||||||||||||||
Share-based compensation |
1,397 | | | | (1 | ) | 1,396 | |||||||||||||||||
Change in operating assets
and liabilities |
(1,146 | ) | 15,944 | 6,045 | 80,376 | (82,161 | ) | 19,668 | ||||||||||||||||
Net Cash Flows from
Operating Activities |
28,373 | 10,848 | (2,123 | ) | 88,858 | (103,573 | ) | 22,383 | ||||||||||||||||
Investing Activities |
||||||||||||||||||||||||
Purchase of property,
plant and equipment |
| | (1,725 | ) | (10,458 | ) | 79 | (12,104 | ) | |||||||||||||||
Plant turnaround expenditures |
| | (82 | ) | (11,386 | ) | 1 | (11,467 | ) | |||||||||||||||
Distributions received from
unconsolidated affiliates |
| | | 1,594 | | 1,594 | ||||||||||||||||||
Restricted cash |
| | 8,595 | | | 8,595 | ||||||||||||||||||
Net Cash Flows from
Investing Activities |
| | 6,788 | (20,250 | ) | 80 | (13,382 | ) | ||||||||||||||||
Financing Activities |
||||||||||||||||||||||||
Principal payments under
borrowing arrangements |
| | (14 | ) | (12 | ) | | (26 | ) | |||||||||||||||
Preferred share dividends paid |
(1,275 | ) | | | | | (1,275 | ) | ||||||||||||||||
Change in investments and
advances from (to) affiliates |
(27,098 | ) | (50,318 | ) | | (26,077 | ) | 103,493 | | |||||||||||||||
Net Cash Flows from
Financing Activities |
(28,373 | ) | (50,318 | ) | (14 | ) | (26,089 | ) | 103,493 | (1,301 | ) | |||||||||||||
Effect of Foreign Exchange
Rate on Cash |
| | | (2,055 | ) | | (2,055 | ) | ||||||||||||||||
Increase (decrease) in Cash
and Cash Equivalents |
| (39,470 | ) | 4,651 | 40,464 | | 5,645 | |||||||||||||||||
Cash and Cash Equivalents
at Beginning of Year |
1 | 11,508 | 67,372 | 7,486 | (1 | ) | 86,366 | |||||||||||||||||
Cash and Cash Equivalents
at End of Year |
$ | 1 | $ | (27,962 | ) | $ | 72,023 | $ | 47,950 | $ | (1 | ) | $ | 92,011 | ||||||||||
26
27
(in thousands) | 2007 | 2006 | ||||||
REVENUES: |
||||||||
Nitrogen Products |
$ | 487,099 | $ | 396,371 | ||||
Methanol |
12,531 | 1,373 | ||||||
Other |
2,656 | 1,176 | ||||||
$ | 502,286 | $ | 398,920 | |||||
INCOME (LOSS) FROM OPERATIONS: |
||||||||
Nitrogen Products |
$ | 64,061 | $ | (24,987 | ) | |||
Methanol |
788 | (2,792 | ) | |||||
Other |
(179 | ) | (387 | ) | ||||
$ | 64,670 | $ | (28,166 | ) | ||||
2007 | 2006 | |||||||||||||||
Sales | Average | Sales | Average | |||||||||||||
(quantities in thousands of tons) | Volumes | Unit Price* | Volumes | Unit Price* | ||||||||||||
Ammonia |
420 | $ | 330 | 400 | $ | 363 | ||||||||||
Nitrogen solutions |
1,074 | $ | 161 | 705 | $ | 157 | ||||||||||
Urea |
32 | $ | 298 | 38 | $ | 297 | ||||||||||
Ammonium nitrate |
318 | $ | 225 | 224 | $ | 225 | ||||||||||
28
29
30
31
32
33
Total Number of | ||||||||||||||||
Total | Shares Purchased as | Maximum Number of | ||||||||||||||
Month of | Number of | Average | Part of Publicly | Shares that May Yet Be | ||||||||||||
Share | Shares | Price Paid | Announced Plans or | Purchased Under the | ||||||||||||
Purchases | Purchased | per Share | Programs | Plans or Programs | ||||||||||||
January 2007 |
| $ | | 2,675,100 | 6,841,717 | |||||||||||
February 2007 |
| $ | | 2,675,100 | 6,841,717 | |||||||||||
March 2007 |
| $ | | 2,675,100 | 6,841,717 |
34
(a) Exhibits | ||||
Exhibit 4.1 | Indenture, dated February 2, 2007, by and among Terra Capital, Inc., Terra Industries Inc., the guarantors named therein and U.S. Bank National Association, as trustee, relating to the 7% Senior Notes due 2017, filed as Exhibit 4.1 to Terra Industries Inc.s Form 8-K dated February 5, 2007, is incorporated herein by reference. | |||
Exhibit 4.2 | Third Supplement to Indenture, dated as of January 29, 2007, by and among Terra Capital, Inc., the guarantors named therein and U.S. Bank National Association, as trustee, with respect to the 12 7/8% Senior Secured Notes due 2008, filed as Exhibit 4.1 to Terra Industries Inc.s Form 8-K dated January 30, 2007, is incorporated herein by reference. | |||
Exhibit 4.3 | Third Supplement to Indenture, dated as of January 29, 2007, by and among Terra Capital, Inc., the guarantors named therein and U.S. Bank National Association, as trustee, with respect to the 11 1/2% Second Priority Senior Secured Notes due 2010, filed as Exhibit 4.2 to Terra Industries Inc.s Form 8-K dated January 30, 2007, is incorporated herein by reference. | |||
Exhibit 10.1 | Registration Agreement, dated as of February 2, 2007, by and among Terra Capital, Inc., the guarantors named therein and Citigroup Global Markets Inc., relating to the 7% Senior Notes due 2017, filed as Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated February 5, 2007, is incorporated herein by reference. | |||
Exhibit 10.2 | Purchase Agreement, dated as of January 25, 2007, by and among Terra Capital, Inc., the guarantors named therein and Citigroup Global Markets Inc., relating to the 7% Senior Notes due 2017, filed as Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated January 30, 2007, is incorporated herein by reference. | |||
Exhibit *31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Exhibit *31.2 | Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
Exhibit *32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | filed herewith |
35
TERRA INDUSTRIES INC. | ||||
Date:
May 1, 2007
|
/s/ Francis G. Meyer | |||
Francis G. Meyer | ||||
Senior Vice President and Chief Financial Officer and a duly authorized signatory |
36