10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) Of The Securities Exchange Act of 1934 For Quarter Ended December 31, 2000 OR [ ] Transition Report Pursuant to Section 13 or 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended December 31, 2000 Commission File Number 001-12217 MISSISSIPPI CHEMICAL CORPORATION Organized in the State of Mississippi Tax Identification No. 64-0292638 P. O. Box 388, Yazoo City, Mississippi 39194 Telephone No. 662+746-4131 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] The number of shares outstanding of each of the issuer's classes of common stock, as of December 31, 2000. Class Number of Shares ----- ---------------- Common Stock, $0.01 par value 26,131,917 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES INDEX Page Number ------ PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Consolidated Statements of Income 3 Three months ended December 31, 2000 and 1999, and Six months ended December 31, 2000 and 1999 Consolidated Balance Sheets 4 - 5 December 31, 2000 and June 30, 2000 Consolidated Statements of Shareholders' Equity 6 Fiscal Year Ended June 30, 2000 and Six months ended December 31, 2000 Consolidated Statements of Cash Flows 7 Six months ended December 31, 2000 and 1999 Notes to Consolidated Financial Statements 8 - 16 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 17 - 24 Item 3. Quantitative and Qualitative Disclosure About Market Risk 25 PART II. OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders 26 Item 6. Exhibits and Reports on Form 8-K 26 Signatures 26 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended Six months ended December 31, December 31, -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In thousands, except per share data) Revenues: Net sales $136,314 $107,312 $256,368 $204,310 Operating expenses: Cost of products sold 135,118 109,579 257,680 203,024 Selling, general and administrative 7,264 8,246 16,036 16,858 Other 2,945 86 6,382 2,626 -------- -------- -------- -------- 145,327 117,911 280,098 222,508 -------- -------- -------- -------- Operating loss (9,013) (10,599) (23,730) (18,198) Other (expense) income: Interest, net (7,111) (6,629) (14,269) (12,656) Other 922 646 2,380 1,281 -------- -------- -------- -------- Loss before income taxes (15,202) (16,582) (35,619) (29,573) Income tax benefit (5,991) (6,573) (14,162) (14,012) -------- -------- -------- -------- Net loss $ (9,211) $(10,009) $(21,457) $(15,561) ======== ======== ======== ======== Loss per share - basic and diluted (see Note 2) $ (0.35) $ (0.38) $ (0.82) $ (0.60) ======= ======= ======= =======
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS December 31, June 30, 2000 2000 ------------ --------- (In thousands, except per share data) Current assets: Cash and cash equivalents $ 2,278 $ 2,190 Accounts receivable, net 50,510 62,080 Inventories: Finished products 56,113 28,015 Raw materials and supplies 7,786 7,180 Replacement parts 36,221 37,322 --------- --------- Total inventories 100,120 72,517 Income tax receivable 3,635 10,080 Insurance receivable - 3,094 Prepaid expenses and other current assets 6,519 9,526 Deferred income taxes - 922 --------- --------- Total current assets 163,062 160,409 Investments in affiliates 93,855 89,508 Other assets 8,648 11,888 Property, plant and equipment, at cost 844,096 846,868 less accumulated depreciation, depletion and amortization (416,597) (401,014) --------- --------- Net property, plant and equipment 427,499 445,854 Goodwill, net of accumulated amortization 164,888 167,179 --------- --------- $ 857,952 $ 874,838 ========= =========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND SHAREHOLDERS' EQUITY December 31, June 30, 2000 2000 ------------ --------- (In thousands, except per share data) Current liabilities: Accounts payable $ 69,784 $ 54,661 Accrued liabilities 8,955 10,893 Deferred income taxes 3,037 - -------- -------- Total current liabilities 81,776 65,554 Long-term debt 325,524 330,307 Other long-term liabilities and deferred credits 10,688 9,995 Deferred income taxes 59,373 73,235 Shareholders' equity: Common stock ($.01 par; authorized 100,000 shares; issued 27,976) 280 280 Additional paid-in capital 305,901 305,901 Retained earnings 92,755 114,996 Accumulated other comprehensive income 11,234 4,149 Treasury stock, at cost (1,844 shares) (29,579) (29,579) -------- -------- 380,591 395,747 -------- -------- $857,952 $874,838 ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY DECEMBER 31, 2000 (Unaudited) Accumulated Additional Other Common Paid-In Retained Comprehensive Treasury Stock Capital Earnings Income Stock Total ------- -------- -------- ------------- -------- -------- (In thousands, except per share data) Balances, July 1, 1999 $ 280 $305,901 $143,626 $ 1,857 $(29,579) $422,085 Comprehensive loss: Net loss - - (23,664) - - (23,664) Net unrealized gain on hedges, net of tax - - - 2,292 - 2,292 ------- -------- -------- ------- -------- -------- Comprehensive loss - - (23,664) 2,292 - (21,372) Cash dividends paid ($0.19 per share) - - (4,966) - - (4,966) ------- -------- -------- ------- -------- -------- Balances, June 30, 2000 280 305,901 114,996 4,149 (29,579) 395,747 Comprehensive loss: Net loss - - (21,457) - - (21,457) Net unrealized gain on hedges, net of tax - - - 7,085 - 7,085 ------- -------- -------- --------- --------- -------- Comprehensive loss - - (21,457) 7,085 - (14,372) Cash dividends paid ($0.03 per share) - - (784) - - (784) ------- -------- -------- -------- --------- -------- Balances, December 31, 2000 $ 280 $305,901 $ 92,755 $ 11,234 $(29,579) $380,591 ======= ======== ======== ======== ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended December 31, 2000 1999 ---------- --------- (In thousands) Cash flows from operating activities: Net loss $(21,457) $(15,561) Reconciliation of net loss to net cash provided by (used in) operating activities: Net change in operating assets and liabilities 2,643 (31,051) Depreciation, depletion and amortization 23,702 23,358 Deferred gain on futures contracts, net of tax 11,234 - Deferred income taxes (7,422) (5,544) Equity earnings in unconsolidated affiliates (5,277) (8,184) Other (76) (442) -------- -------- Net cash provided by (used in) operating activities 3,347 (37,424) -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment (10,997) (9,188) Proceeds from sale of assets 12,581 87 Other 750 6,809 -------- -------- Net cash provided by (used in) investing activities 2,334 (2,292) -------- -------- Cash flows from financing activities: Debt proceeds 198,342 212,400 Debt payments (203,151) (169,200) Cash dividends paid (784) (3,398) -------- -------- Net cash (used in) provided by financing activities (5,593) 39,802 -------- -------- Net increase in cash and cash equivalents 88 86 Cash and cash equivalents - beginning of period 2,190 1,648 -------- -------- Cash and cash equivalents - end of period $ 2,278 $ 1,734 ======== ========
[FN] The accompanying notes are an integral part of these consolidated financial statements. MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - INTERIM FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared by us without audit, and include Mississippi Chemical Corporation, its subsidiaries and affiliates. In our opinion, the financial statements reflect all adjustments necessary to present fairly our results of operations for the three-month and the six-month periods ended December 31, 2000 and 1999, our financial position at December 31, 2000 and June 30, 2000, our consolidated statements of shareholders' equity for the six months ended December 31, 2000 and the year ended June 30, 2000, and our cash flows for the six months ended December 31, 2000 and 1999. In our opinion, these adjustments are of a normal recurring nature which are necessary for a fair presentation of our financial position and results of operations for the interim periods. We have reclassified certain prior-year information to conform with the current year's presentation. Certain notes and other information have been condensed or omitted in our interim financial statements presented in this quarterly report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our 2000 annual report on Form 10-K and our consolidated financial statements and notes thereto included in our June 30, 2000, audited financial statements. Our business is seasonal; therefore, the results of operations for the periods ended December 31, 2000, are not necessarily indicative of the operating results for the full fiscal year. NOTE 2 - EARNINGS PER SHARE The number of shares used in our basic and diluted earnings per share computation are as follows: Three months ended Six months ended December 31, December 31, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (In thousands) Weighted average common shares outstanding, net of treasury shares, for basic earnings per share 26,132 26,132 26,132 26,132 Common stock equivalents for employee stock options - - - - ------ ------ ------ ------ Weighted average common shares outstanding for diluted earnings per share 26,132 26,132 26,132 26,132 ====== ====== ====== ======
Options outstanding were not included in our computations of diluted earnings per share for the three-month or six-month periods ended December 31, 2000 and 1999, because they were antidilutive. NOTE 3 - SEGMENT INFORMATION Our reportable operating segments, nitrogen, phosphate and potash, are strategic business units that offer different products. They are managed separately because each business unit requires different technology and marketing strategies. Our nitrogen segment produces ammonia, ammonium nitrate, urea, nitrogen solutions and nitric acid. We distribute these products to fertilizer dealers and distributors, and industrial users. Our phosphate segment produces diammonium phosphate fertilizer (commonly referred to as "DAP") that is marketed to agricultural users primarily in international markets through a separate export association. Our potash segment mines and produces granular and standard potash products and distributes them to agricultural and industrial users. Below is our segment information for the three-month and six-month periods ended December 31, 2000 and 1999. The Other caption includes corporate and consolidating eliminations. Three months ended December 31, 2000 ------------------------------------------------------------------------------ (In thousands) Nitrogen Phosphate Potash Other Total ------------------------------------------------------------------------------ Net sales - external customers $ 98,222 $ 22,862 $ 15,230 $ - $136,314 Net sales - intersegment 7,111 17 - (7,128) - Operating (loss) income (6,236) (3,893) 180 936 (9,013) Depreciation, depletion and amortization 7,719 1,350 1,682 913 11,664 Capital expenditures 3,797 1,556 1,121 28 6,502 Three months ended December 31, 1999 -------------------------------------------------------------------------------- (In thousands) Nitrogen Phosphate Potash Other Total -------------------------------------------------------------------------------- Net sales - external customers $ 65,557 $ 19,578 $ 22,177 $ - $107,312 Net sales - intersegment 3,079 29 - (3,108) - Operating (loss) income (8,847) (2,161) 822 (413) (10,599) Depreciation, depletion and amortization 7,666 1,526 1,549 968 11,709 Capital expenditures 3,456 642 427 59 4,584 Six months ended December 31, 2000 ------------------------------------------------------------------------------- (In thousands) Nitrogen Phosphate Potash Other Total ------------------------------------------------------------------------------- Net sales - external customers $169,548 $ 52,685 $ 34,135 $ - $256,368 Net sales - intersegment 14,681 32 - (14,713) - Operating (loss) income (16,099) (5,800) (2,245) 414 (23,730) Depreciation, depletion and amortization 15,666 2,855 3,289 1,892 23,702 Capital expenditures 5,674 1,849 3,441 33 10,997 Six months ended December 31, 1999 -------------------------------------------------------------------------------- (In thousands) Nitrogen Phosphate Potash Other Total -------------------------------------------------------------------------------- Net sales - external customers $107,833 $ 55,361 $ 41,116 $ - $204,310 Net sales - intersegment 8,787 45 - (8,832) - Operating (loss) income (18,058) 146 867 (1,153) (18,198) Depreciation, depletion and amortization 15,359 3,026 3,068 1,905 23,358 Capital expenditures 4,877 1,506 2,355 450 9,188
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME On July 1, 1998, we adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity. The components of comprehensive income that relate to us are net income or loss and unrealized gains or losses on our natural gas futures contracts, and, as permitted under the provisions of SFAS No. 130, are presented in the Consolidated Statements of Shareholders' Equity. The changes in the components of accumulated other comprehensive income during the six months ended December 31, 2000, are included below. In December 2000, we liquidated our natural gas futures contracts earlier than normal. Pursuant to hedge accounting rules, the gain on the sale of these contracts has been deferred and recorded as a component of accumulated other comprehensive income, net of taxes. This gain will be recognized in future periods, primarily the third fiscal quarter, based on the months for which the contracts were purchased and the amount of gas actually bought in those months. Tax Before-Tax (Expense) Net-of-Tax Amount Benefit Amount ---------------------------------- Net unrealized gain on natural gas futures contracts: Balances, June 30, 2000 $ 6,631 $ (2,482) $ 4,149 Net unrealized gain arising during period 24,168 (9,067) 15,101 Less: reclassification adjustment for net gains realized in net income (12,825) 4,809 (8,016) -------- ------- ------- Net unrealized gain 11,343 (4,258) 7,085 -------- -------- ------- Balances, December 31, 2000 $ 17,974 $ (6,740) $11,234 ======== ======== ======= NOTE 5 - GUARANTOR SUBSIDIARIES Payment obligations under our 7.25% Senior Notes, due November 15, 2017, issued pursuant to that certain indenture, dated as of November 25, 1997, are fully and unconditionally guaranteed on a joint and several basis by Mississippi Nitrogen, Inc., and MissChem Nitrogen, L.L.C. (the "Guarantor Subsidiaries"), our wholly owned direct subsidiary and our wholly owned indirect subsidiary, respectively. Condensed consolidating financial information regarding the parent company, Guarantor Subsidiaries and non- guarantor subsidiaries for December 31, 2000 and 1999 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries.
CONDENSED CONSOLIDATING STATEMENT OF INCOME Three months ended December 31, 2000 -------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated -------------------------------------------------------------------------------- Revenues: Net sales $ - $44,376 $113,224 $(21,286) $136,314 Operating expenses: Cost of products sold - 47,747 110,611 (23,240) 135,118 Selling, general and admini- strative (949) 1,490 6,723 - 7,264 Other - 1,083 1,862 - 2,945 ------- ------- -------- -------- -------- (949) 50,320 119,196 (23,240) 145,327 ------- ------- -------- -------- -------- Operating income (loss) 949 (5,944) (5,972) 1,954 (9,013) Other (expense) income: Interest, net (7,607) (3,723) 4,219 - (7,111) Other (3,014) 1,883 98 1,955 922 ------- ------- -------- -------- -------- Loss before income taxes (9,672) (7,784) (1,655) 3,909 (15,202) Income tax benefit (461) (185) (5,315) (30) (5,991) ------- ------- -------- -------- -------- Net (loss) income $(9,211) $(7,599) $ 3,660 $ 3,939 $ (9,211) ======= ======= ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF INCOME Three months ended December 31, 1999 -------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated -------------------------------------------------------------------------------- Revenues: Net sales $ - $ 34,223 $108,328 $(35,239) $107,312 Operating expenses: Cost of products sold - 40,183 98,178 (28,782) 109,579 Selling, general and administrative 530 903 6,813 - 8,246 Other - - 86 - 86 -------- --------- -------- --------- --------- 530 41,086 105,077 (28,782) 117,911 -------- -------- -------- --------- --------- Operating (loss) income (530) (6,863) 3,251 (6,457) (10,599) Other (expense) income: Interest, net (6,039) (2,823) 2,233 - (6,629) Other (1,812) 2,568 518 (628) 646 -------- -------- -------- --------- --------- (Loss) income before income taxes (8,381) (7,118) 6,002 (7,085) (16,582) Income tax expense (benefit) 1,628 458 (6,583) (2,076) (6,573) -------- -------- -------- -------- --------- Net (loss) income $(10,009) $ (7,576) $ 12,585 $ (5,009) $ (10,009) ======== ======== ======== ======== =========
CONDENSED CONSOLIDATING STATEMENT OF INCOME Six months ended December 31, 2000 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Revenues: Net sales $ - $ 78,259 $258,037 $(79,928) $256,368 Operating expenses: Cost of products sold - 88,884 251,154 (82,358) 257,680 Selling, general and admini- strative (436) 2,963 13,509 - 16,036 Other - 2,683 3,699 - 6,382 ------- -------- --------- --------- --------- (436) 94,530 268,362 (82,358) 280,098 ------- -------- --------- --------- --------- Operating income (loss) 436 (16,271) (10,325) 2,430 (23,730) Other (expense) income: Interest, net (15,181) (7,211) 8,123 - (14,269) Other (8,116) 5,032 306 5,158 2,380 -------- -------- --------- --------- --------- Loss before income taxes (22,861) (18,450) (1,896) 7,588 (35,619) Income tax benefit (1,404) (2,245) (9,849) (664) (14,162) -------- -------- -------- -------- -------- Net (loss) income $(21,457) $(16,205) $ 7,953 $ 8,252 $(21,457) ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF INCOME Six months ended December 31, 1999 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Revenues: Net sales $ - $ 63,958 $206,544 $(66,192) $204,310 Operating expenses: Cost of products sold - 75,923 194,545 (67,444) 203,024 Selling, general and admini- strative 1,132 1,962 13,764 - 16,858 Other - - 2,626 - 2,626 -------- -------- --------- --------- --------- 1,132 77,885 210,935 (67,444) 222,508 -------- -------- --------- --------- --------- Operating loss (1,132) (13,927) (4,391) 1,252 (18,198) Other (expense) income: Interest, net (11,936) (5,457) 4,737 - (12,656) Other (1,557) (652) 817 2,673 1,281 -------- --------- --------- --------- --------- (Loss) income before income taxes (14,625) (20,036) 1,163 3,925 (29,573) Income tax expense (benefit) 936 (4,451) (8,421) (2,076) (14,012) -------- -------- -------- -------- -------- Net (loss) income $(15,561) $(15,585) $ 9,584 $ 6,001 $(15,561) ======== ======== ======== ======== ========
CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2000 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 2,202 $ 17 $ 59 $ - $ 2,278 Receivables, net 4,020 15,938 87,236 (53,049) 54,145 Inventories - 17,961 80,154 2,005 100,120 Prepaid expenses and other current assets 3,201 1,410 9,352 (7,444) 6,519 ------- -------- -------- ---------- --------- Total current assets 9,423 35,326 176,801 (58,488) 163,062 Investments in affiliates 688,747 354,865 77,613 (1,027,370) 93,855 Other assets 148,031 - 268,366 (407,749) 8,648 PP&E, net 9,945 144,011 273,543 - 427,499 Goodwill, net - - 164,888 - 164,888 -------- -------- -------- ----------- -------- Total assets $856,146 $534,202 $961,211 $(1,493,607) $857,952 ======== ======== ======== =========== ======== Liabilities and Shareholders' Equity -------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 35,792 $ 10,885 $ 86,999 $ (63,892) $ 69,784 Accrued liabilities 6,535 2,642 4,691 (4,913) 8,955 Other current liabilities 5,569 - - (2,532) 3,037 -------- --------- --------- ----------- --------- Total current liabilities 47,896 13,527 91,690 (71,337) 81,776 Long-term debt 425,932 152,804 129,513 (382,725) 325,524 Other long-term liabilities and deferred credits 1,727 32,909 60,515 (25,090) 70,061 Shareholders' equity: Common stock 280 1 58,941 (58,942) 280 Additional paid-in capital 305,901 324,715 543,649 (868,364) 305,901 Retained earnings 92,755 10,246 76,903 (87,149) 92,755 Accumulated other comprehensive income 11,234 - - - 11,234 Treasury stock, at cost (29,579) - - - (29,579) -------- -------- -------- ----------- -------- Total share- holders' equity 380,591 334,962 679,493 (1,014,455) 380,591 -------- -------- -------- ----------- -------- Total liabil- ities and shareholders' equity $856,146 $534,202 $961,211 $(1,493,607) $857,952 ======== ======== ======== =========== ========
CONDENSED CONSOLIDATING BALANCE SHEET June 30, 2000 ------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 2,085 $ 17 $ 88 $ - $ 2,190 Receivables, net 1,556 11,139 93,407 (30,848) 75,254 Inventories - 22,858 50,056 (397) 72,517 Prepaid expenses and other current assets 6,622 1,321 6,360 (3,855) 10,448 ------- -------- --------- ---------- --------- Total current assets 10,263 35,335 149,911 (35,100) 160,409 Investments in affiliates 700,062 350,635 72,776 (1,033,965) 89,508 Other assets 134,530 5 252,267 (374,914) 11,888 PP&E, net 12,296 148,828 284,730 - 445,854 Goodwill, net - - 167,179 - 167,179 -------- -------- -------- ----------- -------- Total assets $857,151 $534,803 $926,863 $(1,443,979) $874,838 ======== ======== ======== =========== ======== Liabilities and Shareholders' Equity ------------------------------------------------------------------------------ Current liabilities: Accounts payable $ 23,195 $ 11,404 $ 58,375 $ (38,313) $ 54,661 Accrued liabilities 7,254 3,028 5,879 (5,268) 10,893 -------- -------- -------- ----------- -------- Total current liabilities 30,449 14,432 64,254 (43,581) 65,554 Long-term debt 429,846 137,937 127,553 (365,029) 330,307 Other long-term liabilities and deferred credits 1,109 31,266 62,079 (11,224) 83,230 Shareholders' equity: Common stock 280 1 58,941 (58,942) 280 Additional paid-in capital 305,901 324,715 545,069 (869,784) 305,901 Retained earnings 114,996 26,452 68,967 (95,419) 114,996 Accumulated other com- prehensive income 4,149 - - - 4,149 Treasury stock, at cost (29,579) - - - (29,579) -------- --------- --------- ----------- --------- Total share- holders' equity 395,747 351,168 672,977 (1,024,145) 395,747 -------- --------- --------- ----------- --------- Total lia- bilities and share- holders' equity $857,151 $ 534,803 $ 926,863 $(1,443,979) $ 874,838 ======== ========= ========= =========== =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Six months ended December 31, 2000 -------------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated -------------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income $(21,457) $(16,205) $ 7,953 $ 8,252 $ (21,457) Reconcilia- tion of net (loss)income to net cash provided by (used in) operating activities: Net change in opera- ting assets and liabi- lities 11,112 (1,089) (1,355) (6,025) 2,643 Deprecia- tion, depletion and amortiza- tion 1,891 6,436 15,375 - 23,702 Deferred gain on futures contracts, net of tax 11,234 - - - 11,234 Equity earnings in uncon- solidated affi- liates 9,698 (4,973) (4,844) (5,158) (5,277) Deferred income taxes and other (11,110) 1,771 (1,090) 2,931 (7,498) -------- -------- -------- -------- --------- Net cash provided by (used in) operating activities 1,368 (14,060) 16,039 - 3,347 -------- -------- -------- -------- --------- Cash flows from investing activities: Purchases of property, plant and equipment (33) (1,549) (9,415) - (10,997) Proceeds from sale of assets 4,733 - 7,848 - 12,581 Other - 742 8 - 750 -------- --------- --------- --------- -------- Net cash provided by (used in) investing activities 4,700 (807) (1,559) - 2,334 -------- ---------- --------- --------- -------- Cash flows from financing activities: Debt proceeds 198,342 - - - 198,342 Debt payments (203,151) - - - (203,151) Cash dividends paid (784) - - - (784) Net change in affiliate notes (358) 14,867 (14,509) - - -------- ---------- --------- --------- --------- Net cash (used in) provided by financing activities (5,951) 14,867 (14,509) - (5,593) -------- ---------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 117 - (29) - 88 Cash and cash equivalents - beginning of period 2,085 17 88 - 2,190 -------- ---------- --------- --------- --------- Cash and cash equivalents - end of period $ 2,202 $ 17 $ 59 $ - $ 2,278 ======== ========== ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Six months ended December 31, 1999 ----------------------------------------------------------------------------- Parent Guarantor Non-Guarantor (In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated ----------------------------------------------------------------------------- Cash flows from operating activities: Net (loss) income $ (15,561) $ (15,585) $ 9,584 $ 6,001 $ (15,561) Reconcilia- tion of net (loss) income to net cash used in operating activities: Net change in operating assets and lia- bilities 10,511 (1,805) (40,191) 434 (31,051) Depreciation, depletion and amort- ization 1,515 6,027 15,421 395 23,358 Equity earnings in uncon- solidated affi- liates (7,237) 1,719 (8,869) 6,203 (8,184) Deferred income taxes and other (2,678) 8,854 871 (13,033) (5,986) -------- -------- -------- -------- --------- Net cash used in operating activities (13,450) (790) (23,184) - (37,424) -------- -------- -------- -------- --------- Cash flows from investing activities: Purchases of property, plant and equipment (450) (1,827) (6,911) - (9,188) Other 13 5 6,878 - 6,896 -------- -------- -------- -------- --------- Net cash used in investing activities (437) (1,822) (33) - (2,292) -------- -------- -------- -------- --------- Cash flows from financing activities: Debt proceeds 212,400 - - - 212,400 Debt payments (169,200) - - - (169,200) Cash dividends paid (3,398) - - - (3,398) Net change in affiliate notes (26,025) 2,613 23,412 - - --------- -------- --------- --------- --------- Net cash provided by financing activities 13,777 2,613 23,412 - 39,802 --------- -------- --------- --------- --------- Net (decrease) increase in cash and cash equivalents (110) 1 195 - 86 Cash and cash equivalents - beginning of period 244 21 1,383 - 1,648 --------- -------- --------- --------- --------- Cash and cash equivalents - end of period $ 134 $ 22 $ 1,578 $ - $ 1,734 ========= ======== ========= ========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Our operations are organized into three strategic business units: nitrogen, phosphate and potash. Our nitrogen business unit produces nitrogen products for distribution to fertilizer dealers and distributors, and industrial users located primarily in the southern region of the United States. Our phosphate business unit produces diammonium phosphate fertilizer (commonly referred to as "DAP") and exports the majority of this production through Phosphate Chemicals Export Association, Inc., a Webb-Pomerene corporation known as "PhosChem." Our potash business unit mines and produces agricultural and industrial potash products for sale to farmers, fertilizer dealers and distributors, and industrial users for use primarily in the southern and western regions of the United States. The following is management's discussion and analysis of the financial condition and results of operations, which should be read in conjunction with our audited financial statements and related notes for the fiscal year ended June 30, 2000. Consistent with the historical nature of our business, the usage of fertilizer in our trade territory is highly seasonal, and our quarterly results reflect the fact that significantly more fertilizer is sold during the last four months of our fiscal year (March through June). Since interim period operating results reflect the seasonal nature of our business, they may not necessarily be indicative of results expected for the full fiscal year. In addition, quarterly results can vary significantly from year to year due to a number of factors as detailed under "Forward Looking Statements" in this report. We incur substantial expenditures for fixed costs and inventory throughout the year. For the quarter ended December 31, 2000, we incurred a net loss of $9.2 million (or $0.35 per diluted share) compared to a net loss of $10.0 million (or $0.38 per diluted share) for the same quarter during the prior year. Net sales increased to $136.3 million for the quarter ended December 31, 2000, from $107.3 million for the quarter ended December 31, 1999. We incurred an operating loss of $9.0 million for the quarter ended December 31, 2000, compared to an operating loss of $10.6 million for the quarter ended December 31, 1999. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter ended December 31, 2000, were $3.6 million compared to $1.8 million for the quarter ended December 31, 1999. NITROGEN The operating performance of our nitrogen business unit for the quarter ended December 31, 2000, was significantly impacted by a 67% increase in the average price of natural gas at our domestic production facilities compared to the prior year quarter ended December 31, 1999. Our corporate average natural gas price increased 69% during the current year quarter as compared to the prior year quarter. Natural gas is the primary raw material in the production of ammonia, which is our base nitrogen product used in the production of our other nitrogen products (urea, ammonium nitrate, nitrogen solutions and nitric acid). Extraordinarily high natural gas prices caused industry-wide production curtailments during calendar 2000, which, in turn, have tightened the availability of world supplies. As a result of improved global fundamentals and these production curtailments, our average sales prices increased 62% in the current year quarter as compared to the prior year quarter. During the quarter ended December 31, 2000, our nitrogen costs per ton increased 50% as compared to the prior year quarter primarily as a result of higher natural gas prices. In addition, we had higher per-ton fixed costs as a result of reduced operating rates, higher maintenance costs associated with a scheduled maintenance shutdown at our nitrogen facility in Donaldsonville, Louisiana, as well as additional costs related to third party purchases of ammonia. During the current year quarter, other operating expenses included idle plant costs at our nitrogen facilities at Yazoo City, Mississippi, and Donaldsonville, Louisiana, of approximately $2.9 million. Portions of our ammonia and nitric acid production capacities were idled for various periods during the current year quarter primarily due to the unfavorable relationship between product prices and natural gas prices and, to a lesser extent, miscellaneous mechanical problems. PHOSPHATE Our phosphate business unit experienced a 15% increase in sales during the quarter ended December 31, 2000, as compared to the quarter ended December 31, 1999. This increase included a 9% increase in sales prices and a 6% increase in sales volumes. Our DAP cost per ton increased 16%, primarily the result of higher raw material costs for ammonia and sulfur. POTASH During the quarter ended December 31, 2000, our potash business unit experienced a 31% decrease in sales. This decrease was the result of a 36% decrease in sales volumes, partially offset by a 7% increase in sales prices. Sales volumes were lower due to reduced export volumes and the absence of a winter-fill program during the second fiscal quarter. Our potash costs per ton increased 8% in the current year quarter as compared to the prior year quarter. This increase was primarily the result of higher natural gas and electricity prices paid during the current year quarter, partially offset by lower spending levels in other cost areas. OUTLOOK We believe that our nitrogen segment will continue to benefit from the improved supply/demand outlook resulting from industry-wide production curtailments and permanent shutdowns. However, to maximize results in the current environment, we continue to determine operating levels for our plants based on the relationship between nitrogen product prices and natural gas prices and commitments to our customers. As we move into the spring season, these factors will continue to be a major determinant of whether our nitrogen facilities will operate at reduced rates or at all. Moreover, the cumulative effect of industry production curtailments over the last six months will significantly impact spring product availability and product prices. Since December 2000, we have experienced sustained strength in domestic nitrogen product prices; however, extraordinarily high natural gas prices and the seasonal nature of our business will make the spring season challenging. While natural gas prices have come down since the end of December, they remain volatile. If current natural gas prices remain high or continue to increase, it will have a material adverse impact on our performance if product prices do not experience corresponding increases. As a result of domestic production curtailments and improving market fundamentals, we have seen some improvement in DAP sales prices since June 30, 2000; however, we anticipate that DAP sales prices, weak international markets and increased raw material costs for ammonia will continue in the near-term to adversely affect our phosphate segment's financial results. Finally, we believe domestic potash demand will remain firm in the near-term; however, the performance of our potash segment will depend on maintaining improved ore grades. Other variables can affect our results of operations as stated elsewhere in the discussion under the headings titled "Results of Operations" and "Forward Looking Statements." RESULTS OF OPERATIONS Following are summaries of our sales results by product categories: Three months ended Six months ended December 31, December 31, ------------------ ------------------ 2000 1999 2000 1999 Net Sales (in thousands): -------- -------- -------- -------- Nitrogen $ 98,087 $ 65,371 $169,268 $107,392 DAP 22,556 19,559 51,936 55,314 Potash 15,230 22,177 34,135 41,116 Other 441 205 1,029 488 -------- -------- -------- -------- Net Sales $136,314 $107,312 $256,368 $204,310 ======== ======== ======== ======== Three months ended Six months ended December 31, December 31, ------------------ ----------------- 2000 1999 2000 1999 Tons Sold (in thousands): -------- -------- ------- ------- Nitrogen: Ammonia 219 209 434 381 Ammonium nitrate 204 234 308 318 Urea 154 129 297 263 Nitrogen solutions 108 173 154 260 Nitric acid 13 11 27 25 ------ ------ ------ ------ Total Nitrogen 698 756 1,220 1,247 DAP 163 154 386 383 Potash 165 256 380 472 Three months ended Six months ended December 31, December 31, ------------------ ----------------- 2000 1999 2000 1999 Average Sales Price Per Ton: -------- ------- ------- ------- Nitrogen $ 140 $ 87 $ 139 $ 86 DAP $ 138 $ 127 $ 135 $ 145 Potash $ 92 $ 87 $ 90 $ 87
NET SALES. Our net sales increased 27% to $136.3 million for the quarter ended December 31, 2000, from $107.3 million for the quarter ended December 31, 1999. This increase was primarily the result of higher sales prices for our nitrogen products partially offset by lower sales volumes for our potash products. During the current year quarter, nitrogen sales increased 50% as compared to the prior year quarter. A 62% increase in nitrogen sales prices, partially offset by an 8% decrease in nitrogen sales volumes, brought about this increase. Our ammonia sales prices increased 60% and sales volumes increased 5% in the current year quarter as compared to the prior year quarter. During calendar year 2000, unprecedented increases in the price for natural gas have forced the nitrogen industry to curtail domestic production. This has reduced the availability of world supply and increased the sales prices for our nitrogen products. Unfortunately, the sales price for ammonia has not increased adequately to overcome this unprecedented rise in natural gas prices. Just as the nitrogen industry reacted to this development, we operated our domestic ammonia plants at approximately 62% of capacity during the current year quarter. This curtailment reduced available product for sale resulting in our purchase of approximately 176,000 tons of ammonia from third parties to meet demand during the quarter. Our ammonium nitrate sales prices increased 32%, while our ammonium nitrate sales volumes decreased 13% during the current year quarter as compared to the prior year quarter. Reduced domestic production placed upward pressure on the price of ammonium nitrate. The impact of government actions against unfairly traded imports also contributed to the firming of prices during the current year quarter. Our ammonium nitrate operations ran at 75% of capacity for the current year quarter, reducing our product available for sale. Our ammonium nitrate inventory levels entering the spring season are substantially lower than prior-year levels. Urea sales prices increased 72% and sales volumes increased 19% during the current year quarter as compared to the prior year quarter. Improved market fundamentals favorably increased the sales price for our urea products. Sales volumes increased primarily as a result of product available from our Faustina, Louisiana, granular urea plant that we purchased in April 2000. The additional product produced at this facility helped to offset the market related production curtailments of urea at our Donaldsonville, Louisiana, facility. Our prilled urea facilities operated at 72% of capacity during the current year quarter and our granular urea facility operated at 69% of capacity during the current year quarter. Nitrogen solutions sales prices increased 78% while sales volumes decreased 38% during the current year quarter as compared to the prior year quarter. Improved market conditions have favorably led to increases in the selling price for this product. Low beginning inventory levels and the need to reserve inventory to meet customer commitments for the spring season reduced our nitrogen solutions tons available for sale during the quarter. We ran nitrogen solutions production near capacity during the current year quarter. At our phosphate business unit, DAP sales increased 15% in the current year quarter as compared to the prior year quarter. A 9% increase in sales prices and a 6% increase in sales volumes contributed to this increase. Curtailments of domestic industry production continue to impact the world supply/demand balance. In our potash business unit, sales decreased 31% during the current year quarter as compared to the prior year quarter. A 36% decrease in sales volumes, partially offset by a 7% increase in sales prices, was the primary factor for this change. Sales volumes were lower due to reduced export volumes and the absence of a winter-fill program during the current year quarter. During the prior year quarter, prices had been reduced as part of a winter-fill program. The absence of such a program this year resulted in firm to rising prices and less product movement to the dealer level. For the six-month period ended December 31, 2000, our net sales increased 25% to $256.4 million, from $204.3 million for the six-month period ended December 31, 1999. This increase was primarily the result of higher sales prices for our nitrogen products partially offset by lower sales prices for DAP and lower sales volumes for our potash products. During the current year six- month period, nitrogen sales increased 58% as compared to the prior year. This increase was the result of a 61% increase in nitrogen sales prices partially offset by a 2% decrease in nitrogen sales volumes. Our ammonia sales prices increased 59% and our ammonia sales volumes increased 14% over the prior year. Industry-wide production curtailments due to the unprecedented increases in natural gas prices have reduced world nitrogen supplies, resulting in higher prices. During the current year six-month period, we also curtailed production at both our Yazoo City, Mississippi and Donaldsonville, Louisiana ammonia facilities. As a result of these curtailments, we purchased approximately 234,000 tons of ammonia from third parties to meet customer demand. Our ammonium nitrate sales prices increased 28%, while our ammonium nitrate sales volumes decreased 3% during the current year six-month period as compared to the prior year six-month period. Sales prices increased as a result of reduced domestic production that placed upward pressure on prices. Urea sales prices increased 69% and sales volumes increased 13% during the current year six-month period as compared to the prior year six-month period. Sales prices increased as a result of improved market fundamentals. During the prior year period, urea sales prices were near their low point in the cycle. Sales volumes increased primarily as a result of product available from our Faustina, Louisiana, granular urea plant that we purchased in April 2000. Nitrogen solutions sales prices increased 82% and sales volumes decreased 41% during the current year six-month period as compared to the prior year six-month period. Sales prices increased as a result of the tight supply/demand balance caused by lower production levels and concerns about product availability. Sales volumes decreased as a result of lower production at our Yazoo City facility caused by scheduled maintenance shutdowns of our ammonia and urea synthesis plants earlier in the period, a low beginning inventory level and the need to reserve inventory to meet customer commitments for the spring season. In addition, low water levels in the Yazoo River for the majority of the period limited our ability to ship by barge, further reducing sales volumes for the period. During the six-month period ended December 31, 2000, our DAP sales decreased 6% as compared to the six-month period ended December 31, 1999. This decrease was the result of a 7% decrease in sales prices partially offset by a 1% increase in sales volumes. Sales prices decreased as a result of more than sufficient quantities of product in the world marketplace. Our potash sales decreased 17% during the current year six-month period as compared to the prior year six-month period. This decrease was the result of a 20% decrease in sales volumes partially offset by a 3% increase in sales prices. Sales volumes were lower due to reduced export volumes and the absence of a winter-fill program during the current year period. COST OF PRODUCTS SOLD. Our cost of products sold increased to $135.1 million for the quarter ended December 31, 2000, from $109.6 million for the quarter ended December 31, 1999. As a percentage of net sales, cost of products sold decreased to 99% for the current year quarter, from 102% for the prior year quarter. This decrease is primarily the result of higher nitrogen sales prices in the current year quarter partially offset by higher nitrogen and DAP costs per ton. During the quarter ended December 31, 2000, our nitrogen costs per ton increased 50% primarily as a result of higher natural gas costs at our domestic production facilities. The average price of natural gas increased approximately 67% during the current year quarter as compared to the prior year quarter. Our corporate average natural gas price increased 69% during the current year quarter as compared to the prior year quarter. In addition, we had additional costs related to a maintenance shutdown of our No. 1 ammonia plant at our Donaldsonville, Louisiana, facility. We also had higher per-ton fixed costs as a result of reduced operating rates and additional costs related to third party purchases of ammonia. During the current year quarter, our DAP costs per ton increased 16% as compared to the prior year quarter, primarily the result of higher raw material costs for ammonia and sulfur. Our potash costs per ton increased 8% in the current year quarter as compared to the prior year quarter. This increase was primarily the result of high natural gas and electricity prices paid during the current year quarter, partially offset by lower spending in other cost areas. For the six-month period ended December 31, 2000, our cost of products sold increased to $257.7 million, from $203.0 million for the six-month period ended December 31, 1999. As a percentage of net sales, cost of products sold increased to 101% for the six-month period ended December 31, 2000, from 99% for the six-month period ended December 31, 1999. Cost of products sold increased as a percentage of net sales as a result of higher costs per ton for our nitrogen, DAP and potash products and lower sales prices for DAP. The increases in cost were partially offset by higher sales prices for our nitrogen and potash products. Our nitrogen costs per ton increased 52% primarily as a result of higher natural gas costs at our domestic production facilities in the current year. Natural gas prices increased 64% during the current year six-month period as compared to the prior year six-month period. Our corporate average natural gas price increased 66% during the current year six-month period as compared to the prior year six-month period. We also incurred higher maintenance costs in the current year associated with scheduled maintenance shutdowns at our nitrogen facilities in Yazoo City, Mississippi and Donaldsonville, Louisiana. In addition, we had lower equity earnings in the current year quarter from our joint venture ammonia plant in Trinidad, Farmland MissChem Limited ("Farmland MissChem"), primarily the result of recording in the prior year a $3.4 million business interruption claim for downtime that occurred in March and April of 1999. Our portion of the earnings from Farmland MissChem was $4.8 million in the current year as compared to $5.5 million, without the business interruption claim, in the prior year. During the current year, Farmland MissChem incurred higher gas cost as a result of its gas contract being tied to the market price of ammonia. Additionally, Farmland MissChem's sales prices in the current year were below market as a result of its product offtake agreements with us and Farmland Industries, Inc., which require Farmland MissChem to make sales at prices lower than market to recover amounts paid in excess of market price in previous periods. DAP costs per ton increased 4% during the six-month period ended December 31, 2000, as compared to the prior year six-month period. This increase was primarily the result of higher raw material costs for ammonia. Potash costs per ton increased 13% during the current year six-month period as compared to the prior year six-month period. This increase was primarily the result of higher per-ton beginning inventory values and high per-ton production costs early in the year. Later in the current year period, we incurred lower per-ton production costs that offset some of the higher cost experienced earlier in the year. In addition, our current year costs per ton were higher as a result of higher natural gas prices paid. These higher costs were partially offset by reduced spending in other areas. SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and administrative expenses decreased to $7.3 million for the quarter ended December 31, 2000, from $8.2 million for the quarter ended December 31, 1999. This decrease was primarily the result of lower labor costs in the current year due to the effects of attrition, an early retirement program and reduction in workforce. We also had decreased advertising costs in the current year quarter. These reductions were partially offset by additional severance costs incurred in the current year as a result of a reduction in force. As a percentage of net sales, selling, general and administrative expenses decreased to 5% for the quarter ended December 31, 2000, from 8% for the quarter ended December 31, 1999. For the six months ended December 31, 2000, our selling, general and administrative expenses decreased to $16.0 million, from $16.9 million for the six months ended December 31, 1999. This decrease was primarily the result of lower labor costs in the current year. Also during the prior year, we incurred costs related to the reorganization of our sales, marketing and distribution division. These lower costs were partially offset by costs incurred in the current year related to an early retirement program and severance costs related to a reduction in force. As a percentage of net sales, selling, general and administrative expenses decreased to 6% for the six months ended December 31, 2000, from 8% for the six months ended December 31, 1999. OTHER. Our other operating expenses increased to $2.9 million for the quarter ended December 31, 2000, from $86,000 for the quarter ended December 31, 1999. For the six months ended December 31, 2000, our other operating expenses increased to $6.4 million, from $2.6 million for the six months ended December 31, 1999. These increases are the result of higher idle plant costs at our nitrogen facilities in the current year periods. During both the three-month and six-month periods ended December 31, 2000, portions of our ammonia and nitric acid production capacities were idled for various periods primarily due to the unfavorable relationship between product prices and natural gas prices and, to a lesser extent, miscellaneous mechanical problems. In August and September of the prior year, our Donaldsonville, Louisiana, facility had idle plant costs due to our No. 2 ammonia plant being idled. During the current year six-month period ended December 31, 2000, our granular urea production at our Faustina, Louisiana, facility was idled for various periods due to IMC-Agrico's ammonia plant being down. Since the Faustina facility requires carbon dioxide from IMC-Agrico's ammonia process to produce urea, we are unable to operate the Faustina facility when there is no ammonia production at the IMC-Agrico facility. OPERATING LOSS. As a result of the above factors, we incurred an operating loss of $9.0 million for the quarter ended December 31, 2000, as compared to an operating loss of $10.6 million for the quarter ended December 31, 1999. For the six months ended December 31, 2000, we incurred an operating loss of $23.7 million as compared to an operating loss of $18.2 million for the six months ended December 31, 1999. INTEREST, NET. For the quarter ended December 31, 2000, our net interest expense increased to $7.1 million from $6.6 million for the quarter ended December 31, 1999. For the six months ended December 31, 2000, our net interest expense increased to $14.3 million from $12.7 million for the six months ended December 31, 1999. These increases were primarily the result of higher average interest rates during the current year periods. OTHER INCOME. For the quarter ended December 31, 2000, other income increased to $922,000 from $646,000 for the quarter ended December 31, 1999. For the six months ended December 31, 2000, other income increased to $2.4 million from $1.3 million for the six months ended December 31, 1999. These increases were primarily the result of gains on the sale of non-core assets during the current year periods. INCOME TAX BENEFIT. For the quarter ended December 31, 2000, our income tax benefit decreased to $6.0 million from $6.6 million for the quarter ended December 31, 1999. For the six months ended December 31, 2000, our income tax benefit increased to $14.2 million from $14.0 million for the six months ended December 31, 1999. These income tax benefits are the result of our net losses. For the six months ended December 31, 1999, we also recorded a one-time benefit in the amount of $2.0 million related to settlement agreements made with the Internal Revenue Service for fiscal years 1994, 1995 and 1996. NET LOSS. As a result of the foregoing, we incurred a net loss of $9.2 million for the quarter ended December 31, 2000, as compared to a net loss of $10.0 million for the quarter ended December 31, 1999. For the six months ended December 31, 2000, we incurred a net loss of $21.5 million as compared to a net loss of $15.6 million for the six months ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, we had cash and cash equivalents of $2.3 million, compared to $2.2 million at June 30, 2000, an increase of approximately $100,000. OPERATING ACTIVITIES. For the six months ended December 31, 2000, our net cash provided by operating activities was $3.3 million compared to net cash used in operating activities of $37.4 million for the six months ended December 31, 1999. INVESTING ACTIVITIES. Our net cash provided by investing activities was $2.3 million for the six months ended December 31, 2000, compared to net cash used in investing activities of $2.3 million for the six months ended December 31, 1999. During the current year six-month period, our capital expenditures were $11.0 million compared to $9.2 million during the prior year six-month period. Our current year expenditures were for normal improvements and modifications to our facilities. During the current year six-month period, our net cash provided by investing activities included approximately $12.6 million in proceeds from the sale of substantially all of the assets of our barge company, TNI Barge, Inc., as well as certain other non-core assets held by us. FINANCING ACTIVITIES. Our net cash used in financing activities was $5.6 million for the six months ended December 31, 2000, compared to net cash provided by financing activities of $39.8 million for the six months ended December 31, 1999. During the current year six-month period, the amounts used in financing activities included $203.2 million in debt payments and $784,000 in cash dividends. These payments were partially offset by debt proceeds of $198.3 million. During the prior year six-month period, the amounts provided by financing activities included $212.4 million in debt proceeds partially offset by $169.2 million in debt payments and $3.4 million in cash dividends. In August 1997, we issued $14.5 million in industrial revenue bonds, a portion of which were tax-exempt, to finance the development of our new phosphogypsum disposal facility at our Pascagoula, Mississippi, DAP manufacturing plant. On April 1, 1998, we issued $14.5 million in fully tax- exempt industrial revenue bonds, the proceeds of which were used to redeem the initial industrial revenue bonds issued in August 1997. The bonds issued on April 1, 1998, mature on March 1, 2022, and carry a 5.8% fixed rate. The bonds may be redeemed at our option at a premium from March 1, 2008, to February 28, 2010, and may be redeemed at face value at any time after February 28, 2010, through the maturity date. On November 25, 1997, we issued $200.0 million of 7.25% Senior Notes (the "Senior Notes") due November 15, 2017. The holders may elect to have the Notes repaid on November 15, 2007. The Senior Notes were issued under a $300.0 million shelf registration statement filed with the Securities and Exchange Commission in November 1997. We have a secured revolving credit facility (the "Facility") with Harris Trust and Savings Bank and a syndicate of other commercial banks totaling $200.0 million. The Facility matures on November 25, 2002, and bears interest at rates related to the Prime Rate, the London Interbank Offered Rate or Federal Funds Rate. At December 31, 2000, we had letters of credit outstanding in the amount of $21.1 million primarily associated with purchases of imported nitrogen products that lower our availability under the Facility, and we had borrowings outstanding in the amount of $111.4 million. We had $67.5 million available under the Facility at December 31, 2000. The facility contains covenants that prohibit us from exceeding a threshold ratio of debt to total capital and require us to maintain a minimum level of tangible net worth. In addition, we have covenants that require minimum levels of interest coverage and restrict dividends if such interest coverages are not met. During the quarter ended September 30, 2000, we discontinued our normal quarterly dividends. Dividends would have been restricted under the Facility for the quarter ended December 31, 2000. Amounts outstanding under the Facility are subject to a requirement that the total amount outstanding under the Facility not exceed a certain asset value calculation. The facility also prohibits the repurchase of our outstanding shares, and establishes maximum levels of capital expenditures by year. The Facility lenders have security interests in substantially all of our assets, as allowed by the Indenture governing the Senior Notes. For our quarter ended March 31, 2001, the Facility requires the ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest to be no less than one to one. Because of the current volatility of natural gas and product prices, it is possible that this requirement will not be met. Although there can be no assurances, we believe that we would be able to negotiate an amendment or waiver with our lenders. In December 2000, as a result of the unprecedented high prices for natural gas, we liquidated earlier than normal all of our natural gas futures contracts for a pre-tax gain of approximately $16 million. Although the cash from the transaction was collected during the current year quarter, pursuant to hedge accounting rules, income recognition will occur primarily in our third fiscal quarter. Based on natural gas market prices as of the date of this filing, and the hedge positions we have entered into since December 31, 2000, we believe that our existing cash, cash generated from operations, available credit facilities, and cash realized from the anticipated sale of non-core assets will be sufficient to satisfy our financing requirements for operations and capital projects through fiscal 2001. There has been unprecedented volatility in natural gas prices in recent months with our corporate natural gas costs increasing 69% in the second quarter of the current fiscal year over the prior fiscal year second quarter. If natural gas prices remain at these levels, or increase without corresponding increases in the market prices for our products, our natural gas costs will have a material adverse impact on our liquidity. We estimate our capital expenditure requirements for the remainder of fiscal 2001 to be approximately $13.0 million, which includes normal improvements and modifications to our facilities. FORWARD-LOOKING STATEMENTS Except for the historical statements and discussion contained herein, statements set forth in this report constitute "forward-looking statements." Since these forward-looking statements rely on a number of assumptions concerning future events, risks and other uncertainties that are beyond our ability to control, readers are cautioned that actual results may differ materially from such forward-looking statements. Future events, risks and uncertainties that could cause a material difference in such results include, but are not limited to, (i) changes in matters which affect the global supply and demand of fertilizer products, (ii) the volatility of the natural gas market, (iii) a variety of conditions in the agricultural industry such as grain prices, planted acreage, projected grain stocks, U.S. government policies, weather, and changes in agricultural production methods, (iv) possible unscheduled plant outages and other operating difficulties, (v) price competition and capacity expansions and reductions from both domestic and international competitors, (vi) foreign government agricultural policies (in particular, the policies of the governments of India and China regarding fertilizer imports), (vii) the relative unpredictability of international and local economic conditions, (viii) the relative value of the U.S. dollar, (ix) environmental regulations, and (x) other important factors affecting the fertilizer industry and us as detailed under "Outlook and Uncertainties" and elsewhere in our most recent Annual Report on Form 10-K which is on file with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosure about Market Risk. We are exposed to market risk, including changes in natural gas prices and interest rates. To manage our natural gas price risks, we enter into derivative transactions. We do not hold or issue derivative financial instruments for trading purposes. We maintain formal policies with respect to entering into and monitoring derivative transactions. Our derivative transactions are intended to hedge our future natural gas costs. The volume of natural gas hedged varies from time to time based on management's judgment of market conditions, particularly natural gas prices and product prices. For more information about how we manage specific risk exposures, see Note 12 - Hedging Activities, and Note 5 - Credit Agreements and Long-Term Debt, in our Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2000. We use natural gas futures contracts to reduce the impact of changes in natural gas prices. In December 2000, as a result of the unprecedented high prices for natural gas, we liquidated earlier than normal all of our natural gas futures contracts. As a result of the sale, we realized a pre-tax gain of approximately $16 million that will be recognized in future periods, primarily our third fiscal quarter, based on the months for which the contracts were purchased and the amount of gas actually bought in those months. As of December 31, 2000, we did not have any open futures contracts. The estimated fair value for our Senior Notes was computed using current market quotes for securities similar to our Senior Notes. The estimated fair value for our industrial revenue bonds was computed using the effective yield on state and local bonds. At December 31, 2000, we believe that the fair value of our Senior Notes had decreased from June 30, 2000, due to market quotes for similar securities. At December 31, 2000, we believe the fair value of our industrial revenue bonds had not significantly changed from June 30, 2000. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Two matters were voted on by our shareholders at the annual meeting of shareholders held on November 7, 2000. Shareholders reelected Coley L. Bailey, Woods E. Eastland, John Sharp Howie, and W. A. Percy II, to serve on our Board of Directors until 2003. The shareholders also elected Rueben V. Anderson to serve on our Board of Directors until 2001. Voting tabulations for elections of the above directors were: Name For Against Withheld ---- --- ------- -------- Rueben V. Anderson 20,180,395 -0- 246,859 Coley L. Bailey 20,182,762 -0- 244,492 Woods E. Eastland 20,181,360 -0- 245,894 John Sharp Howie 20,175,993 -0- 251,261 W. A. Percy II 20,181,508 -0- 245,746
Shareholders also approved the Amended and Restated 1995 Stock Option Plan for Non-Employee Directors. Voting tabulations were: For Against Abstained --- ------- --------- 19,688,486 604,339 133,426 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits filed as part of this report are listed below. SEC Exhibit Reference No. Description Exhibit Index to Form 10-Q 10.1 Amended and Restated 1995 Stock Option Plan for Non-Employee Directors 27 Financial Data Schedule (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MISSISSIPPI CHEMICAL CORPORATION Date: February 2, 2001 /s/ Timothy A. Dawson ---------------- -------------------------------- Timothy A. Dawson Senior Vice President and Chief Financial Officer Date: February 2, 2001 /s/ Rosalyn B. Glascoe ---------------- -------------------------------- Rosalyn B. Glascoe Corporate Secretary