-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NCeHIuf0xsdwoepPUBlVEyRVuj/51c+ACMAG93lR8o59mClKBmQFQ6wRkiGpTQbb rbUo/FaX/CzHF3M1Aln2mg== 0000899243-97-001881.txt : 19970930 0000899243-97-001881.hdr.sgml : 19970930 ACCESSION NUMBER: 0000899243-97-001881 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI CHEMICAL CORP /MS/ CENTRAL INDEX KEY: 0000066895 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 640292638 STATE OF INCORPORATION: MS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12217 FILM NUMBER: 97687614 BUSINESS ADDRESS: STREET 1: HIGHWAY 49 EAST CITY: YAZOO CITY STATE: MS ZIP: 39194 BUSINESS PHONE: 6017464131 MAIL ADDRESS: STREET 1: P O BOX 388 CITY: YAZOO CITY STATE: MS ZIP: 39194 FORMER COMPANY: FORMER CONFORMED NAME: MISSISSIPPI CHEMICAL CORP DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 0-20411 MISSISSIPPI CHEMICAL CORPORATION ================================================================================ (Exact name of registrant as specified in its charter) MISSISSIPPI 64-0292638 - ------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) Highway 49 East, P.O. Box 388, Yazoo City, MS 39194 - --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 746-4131 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $.01 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ================================================================================ 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At August 31, 1997, Mississippi Chemical Corporation had 27,410,656 shares of common stock, par value $0.01, outstanding. The Company estimates that the aggregate market value of the common stock on August 31, 1997 (based upon the closing price of these shares on the New York Stock Exchange), held by nonaffiliates was approximately $582,884,306. ================================================================================ DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for fiscal year ended June 30, 1997 (Items 5, 6, 7 and 8 in Part II, and Item 14 in Part IV). Proxy Statement for Annual Meeting of Shareholders to be held on November 11, 1997 (Items 10, 11, 12 and 13 in Part III). 1 PART I ITEM 1. BUSINESS Mississippi Chemical Corporation (the "Company") was incorporated in Mississippi on May 23, 1994, and is the successor by merger, effective July 1, 1994, to a business which was formed in 1948 as the first fertilizer cooperative in the United States (the "Cooperative"). The address of the Company's principal executive office is Owen Cooper Administration Building, Highway 49 East, Yazoo City, Mississippi 39194, and its telephone number is (601) 746-4131. The Company maintains a site on the World Wide Web. The address of the Company's web site is www.misschem.com. The term "Company" includes Mississippi Chemical Corporation and its wholly owned subsidiaries, Mississippi Phosphates Corporation, Triad Nitrogen, Inc., and Mississippi Potash, Inc. References to the Company's operations prior to July 1, 1994, refer to the Cooperative's operations. The Cooperative was incorporated in Mississippi in September 1948 and operated as a cooperative in accordance with the applicable provisions of the Internal Revenue Code. The principal business of the Cooperative was to provide fertilizer products to its shareholders pursuant to preferred patronage rights that gave the shareholders the right to purchase fertilizer products and receive a patronage refund on fertilizer purchases. On June 28, 1994, the shareholders of the Cooperative approved a plan of reorganization (the "Reorganization"), pursuant to which the Cooperative was merged into the Company. Pursuant to the Reorganization, the capital stock of the Cooperative was converted into common stock and/or cash. As a result of the Reorganization, the Company no longer operates as a cooperative, but as a regular business corporation. In August 1996, the Company entered into an agreement to acquire the fertilizer businesses of First Mississippi Corporation ("First Mississippi") in an all-stock merger transaction. The transaction was completed on December 24, 1996. According to the terms of the merger, the Company issued approximately 6,902,000 shares of its common stock to former First Mississippi shareholders. Additionally, at closing, First Mississippi's fertilizer businesses had approximately $150 million in outstanding debt which was assumed by the Company. The fertilizer operations primarily included AMPRO Fertilizer, Inc. ("AMPRO"), and a 50 percent interest in Triad Chemical, both located on contiguous property at Donaldsonville, Louisiana. The Company already held the remaining 50 percent interest in Triad Chemical. Prior to this acquisition, the Company had the right to withdraw, at cost, approximately one-half of the production of Triad Chemical and was obligated to withdraw certain minimum quantities. Since closing of the transaction, the Company has merged AMPRO into, and has contributed its 50 percent interest in Triad Chemical to, First Mississippi and has changed the name of First Mississippi to Triad Nitrogen, Inc. ("Triad Nitrogen"). In August 1996, the Company, through two subsidiaries of its wholly owned subsidiary Mississippi Potash, Inc., acquired substantially all of the assets (including the right to use the corporate names) of New Mexico Potash Corporation and Eddy Potash, Inc., from Trans-Resources, Inc. Since the acquisition, New Mexico Potash Corporation has been merged into Mississippi Potash, Inc. Eddy Potash, Inc. ("Eddy Potash"), operates as a wholly owned subsidiary of Mississippi Potash, Inc. The original mine and refinery owned by Mississippi Potash, Inc., is now known as the "West Facility," and the former New Mexico Potash Corporation mine is known as the "East Facility." 2 NITROGEN FERTILIZER PRODUCTS The Company produces nitrogen fertilizers at its production facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana. In fiscal 1997, the Company sold approximately 2.0 million tons of nitrogen fertilizers to farmers, fertilizer dealers, and distributors located primarily in the southern United States. Sales of nitrogen fertilizer products by the Company in fiscal 1997 were $308.4 million, which represented approximately 59 percent of net sales. The Company's principal nitrogen products include ammonia; fertilizer-grade ammonium nitrate, which is sold under the Company's trade name Amtrate(R); UAN solutions, which are sold under the Company's trade name N-Sol; and urea. Although, to some extent, the various nitrogen fertilizers are interchangeable, each has its own distinct characteristics that produce agronomic preferences among end-users. Farmers determine which type of nitrogen fertilizer to apply based on the crop planted, soil and weather conditions, regional farming practices, and relative nitrogen fertilizer prices. AMMONIA. The basic nitrogen product is anhydrous ammonia, which is the simplest form of nitrogen fertilizer. Anhydrous ammonia, which is 82 percent nitrogen, is the most concentrated form of nitrogen fertilizer available. It is synthesized as a gas under high temperature and pressure. The raw materials used to produce anhydrous ammonia are natural gas, atmospheric nitrogen, and steam. In fiscal 1997, the Company produced approximately 1,151,000 tons of anhydrous ammonia at its Yazoo City and Donaldsonville facilities and purchased approximately 59,000 tons. The Company sold approximately 379,000 tons of anhydrous ammonia for direct-application fertilizer and industrial sales and used the balance as a raw material to manufacture its other nitrogen fertilizer products. The Company's subsidiary Mississippi Phosphates Corporation also purchased 116,000 tons of ammonia for use in its phosphate operations. See "Phosphate Fertilizer." In the Company's markets, ammonia is used primarily as a pre-emergent fertilizer for most row crops and for industrial uses. Although anhydrous ammonia is the least expensive form of nitrogen, its use as a primary fertilizer has remained constant in recent years. AMMONIUM NITRATE. The Company is the largest manufacturer and marketer of high-density ammonium nitrate fertilizer in the United States. Ammonium nitrate, which is 34 percent nitrogen, is produced by reacting anhydrous ammonia and nitric acid. Ammonium nitrate is less subject to volatilization (evaporation) losses than other nitrogen fertilizer forms. Due to its stable nature, ammonium nitrate is the product of choice for such uses as pastures and no-till row crops where fertilizer is spread upon the surface and is subject to volatilization losses. Although the consumption of ammonium nitrate in the United States has been stable in recent years, the use of conservation tillage, which reduces soil erosion, is increasing in the United States and should have a positive impact on ammonium nitrate demand. In fiscal 1997, the Company sold approximately 725,000 tons of solid ammonium nitrate fertilizer, substantially all of which was produced at the Company's Yazoo City facility. The ammonium nitrate produced at the Company's Yazoo City facility is sold under the registered trade name Amtrate(R). Due to 3 its superior shipping and storage characteristics, Amtrate(R) has established excellent brand name recognition and a reputation as a high-quality product. UAN SOLUTIONS. In fiscal 1997, the Company sold approximately 457,000 tons of UAN solutions, which it produced at its Yazoo City facility and sold under the trade name N-Sol. N-Sol is a 32 percent nitrogen product that is made by mixing urea liquor and ammonium nitrate liquor. N-Sol is used in direct application to cotton, corn, grains, and pastures, as well as for use in liquid fertilizer blends. Over the past 20 years, there has been a substantial increase in the use of UAN solutions as a part of the overall growth in the consumption of nitrogen fertilizers. UREA. In fiscal 1997, the Company sold approximately 297,000 tons of prilled urea and approximately 127,000 tons of urea melt, which it produces at its Donaldsonville facility. Under a long-term contract with Melamine Chemicals, Inc. ("Melamine"), the Company is obligated to sell up to 150,000 tons per year of urea melt at prevailing market prices to Melamine's facility located adjacent to the Triad Nitrogen facility. Urea is synthesized by the reaction of ammonia and carbon dioxide and then solidified in prill form. At 46 percent nitrogen by weight, urea is the most concentrated form of dry nitrogen. Because urea undergoes a complex series of changes within the soil before the nitrogen it contains is ultimately converted into a form that can be used by plants, it is considered a long-lasting form of nitrogen. As a fertilizer product, urea is acceptable as both a direct-application material and as an ingredient in fertilizer blends. Urea consumption has increased modestly in recent years. Most of the Company's prilled urea is broadcast on rice and winter wheat crops in Arkansas, Louisiana, Mississippi, Oklahoma, and Texas. Approximately 35 percent of the Company's urea sales are to industrial users and manufacturers of animal feeds. PRODUCTION AND PROPERTIES YAZOO CITY, MISSISSIPPI. The Yazoo City facility is a closely integrated, multiplant nitrogen fertilizer production complex located on approximately 1,180 acres. The complex includes an anhydrous ammonia plant, four nitric acid plants, an ammonium nitrate plant, two urea plants, and a UAN solutions plant. In 1996, the Company announced an expansion project at its Yazoo City facility. This project will include a 500-ton-per-day anhydrous ammonia plant and a 650-ton-per-day nitric acid plant, as well as modifications to its ammonium nitrate plant to increase production from approximately 750,000 tons per year to approximately 950,000 tons per year. The project is estimated to cost approximately $130 million and is scheduled for a phased completion, with the nitric acid, anhydrous ammonia, and a portion of the ammonium nitrate capacity being added in the first half of 1998. Total project completion is anticipated in early 1999. The Yazoo City facility includes a 20.5 megawatt cogeneration facility that produces significant savings by the sequential generation of electricity and process steam. The Yazoo City plant has direct access to water, rail, and truck transportation and is strategically located for the purchase of competitively priced natural gas. See "Raw Materials--Natural Gas." DONALDSONVILLE, LOUISIANA. The Triad Nitrogen facility is a closely integrated, multiplant nitrogen fertilizer complex located on approximately 740 acres fronting the Mississippi River at Donaldsonville, Louisiana, which produces anhydrous ammonia and urea. The facility consists of two anhydrous ammonia plants with a combined annual production of 1,080,000 tons, which includes a capacity expansion of approximately 125,000 tons per year that was completed during fiscal 1997. In addition, the facility consists of a urea plant with an annual production of approximately 560,000 tons. In the transaction with First Mississippi, the Company also acquired a 50 percent interest in an ammonia 4 storage terminal in Pasadena, Texas, and a 50 percent interest in a company that owns and operates 11 ammonia barges. In March 1997, the Company purchased the other 50 percent interest in the barge company for approximately $3.8 million. Triad Nitrogen has ready access to rail, truck, and pipeline transportation. The plant also is equipped with a deep-water port facility on the Mississippi River, allowing access to economical ship and barge transportation for its urea and ammonia products. The Triad Nitrogen facility is well-positioned for the purchase of competitively priced natural gas. See "Raw Materials--Natural Gas." TRINIDAD. The Company has entered into a 50-50 joint venture with Farmland Industries, Inc., known as Farmland MissChem Limited to construct and operate a 2,040-short-ton-per-day ammonia plant to be located near Point Lisas, The Republic of Trinidad and Tobago. The project is expected to cost approximately $330 million. Construction of the facility is underway with completion and start-up scheduled for late spring 1998. The Company has entered into a contract to purchase one-half of the ammonia (approximately 350,000 short tons per year) produced by the plant at a purchase price that approximates market price, but is subject to an agreed-upon floor price. The Company intends to use its portion of the production from the new facility as a raw material for upgrading into finished fertilizer products at its existing facilities and for sales into world markets. MARKETING AND DISTRIBUTION The Company sells its nitrogen fertilizer products to farmers, dealers, and distributors, as well as industrial users, located primarily in the southern farming regions of the United States where its facilities are located. In the fertilizer distribution chain, distributors operate as wholesalers supplying dealers who, in turn, sell directly to farmers. Larger customers (distributors and large multilocation dealers) arrange for distribution, storage, and financing of nitrogen fertilizer. The majority of the Company's sales are made to distributors and large dealers. The ten states that make up the Company's primary trade area are Mississippi, Texas, Alabama, Louisiana, Tennessee, Georgia, Kentucky, Arkansas, Oklahoma, and Florida. However, dealers and distributors located in this region re-market a substantial quantity of these nitrogen products to end-users outside of the southern United States. The Company maintains an experienced field sales force strategically located throughout the southern United States. This sales force maintains close communications with the customer base and plays an important role in the marketing and distribution of the Company's products. Through regular, personal contact with its customers, the Company is able to ascertain local demand for fertilizer products and arrange to have those products available from the most cost-effective source. The Company's sales force is also able to identify specific customer service needs that the Company can meet. Customer service helps differentiate the Company's products and enhance its position as a preferred supplier. The Company transports its nitrogen products by barge, rail, pipeline, and truck. The Company's distribution network is complemented by owned or leased warehouses and terminals strategically placed in high-consumption areas. 5 PHOSPHATE FERTILIZER PRODUCTS The Company produces diammonium phosphate fertilizer ("DAP") at its facility in Pascagoula, Mississippi. In fiscal 1997, the Company sold approximately 723,000 tons of DAP, primarily into international markets. Sales of DAP by the Company in fiscal 1997 were $128 million, which represented approximately 25 percent of net sales. DAP is the most common form of phosphate fertilizer. DAP is produced by reacting phosphate rock with sulfuric acid to produce phosphoric acid, which is then combined with ammonia. DAP contains 18 percent nitrogen and 46 percent phosphate (P205) by weight. DAP is an important fertilizer product for both direct application and for use in blended fertilizers applied to all major types of row crops. PRODUCTION AND PROPERTIES The Company's phosphate production complex in Pascagoula, Mississippi, is located on approximately 1,500 acres. The Pascagoula facility is a closely integrated, multiplant phosphatic fertilizer complex where the primary facilities are a phosphoric acid plant, two sulfuric acid plants, and a DAP granulation plant. The plant has storage facilities for finished product (40,000 tons), as well as for the primary raw materials, phosphate rock (100,000 tons), sulfur (10,000 tons), and ammonia (25,000 tons). All of the phosphate rock used by the Company is purchased pursuant to a single supply contract with Office Cherifien des Phosphates ("OCP"), the national phosphate company of Morocco. See "Raw Materials--Phosphate Rock." The plant site fronts a deep-water channel that provides direct access to the Gulf of Mexico. The complex contains docks and off-loading facilities for receiving shipload quantities of phosphate rock, sulfur, and ammonia and for out-loading DAP. The plant's location on deep water provides the Company with an outbound freight cost advantage over central Florida DAP producers with respect to international shipments and domestic shipments along the Mississippi River system. The Company has begun construction of a new phosphogypsum disposal facility at Pascagoula that is expected to be operational by spring 1998, at an estimated cost of $17 million. In July 1997, the Company also initiated construction of an expansion of its diammonium phosphate manufacturing facilities at Pascagoula. This project will increase production from approximately 720,000 to 900,000 tons per year and will increase product storage capacity from approximately 40,000 to 80,000 tons at an estimated cost of $10.5 million. It is expected that this expansion will be fully operational by the end of fiscal 1998. MARKETING AND DISTRIBUTION In fiscal 1997, the Company sold substantially all of its DAP to Atlantic Fertilizer & Chemical Corporation ("Atlantic"). Atlantic maintains a network of sales agents in the major phosphate fertilizer-consuming nations around the world. Sales to Atlantic are made on an FOB Pascagoula basis at a price that reflects the price that Atlantic charges its customers, adjusted to reflect Atlantic's discount. Sales to Atlantic for the export market are backed by standby letters of credit. In July 1997, the Company announced that it is ending its exclusive DAP marketing agreement with Atlantic. The Company has agreed to become a member of the Phosphate Chemicals Export 6 Association, Inc., a Webb-Pomerene corporation known as PhosChem, effective October 1, 1997. All of the Company's export sales of DAP will be made through PhosChem. Also effective October 1, 1997, all domestic sales of DAP will be made through the Company's sales staff. In fiscal 1997, over 80 percent of the Company's DAP was sold into international markets. The largest export markets in fiscal 1997 were China, India and countries in Central and South America. Most domestic sales are made in barge-lot quantities to major fertilizer distributors and dealers located on the Mississippi River system. The vast majority of the Company's DAP is transported by ship and barge, although truck and rail access is also available. POTASH FERTILIZER PRODUCTS The Company produces potash at three mines and related facilities near Carlsbad, New Mexico. In fiscal 1997, the Company sold approximately 1,020,000 tons of potash, primarily in granular form. These sales were primarily to customers located west of the Mississippi River. Sales of potash fertilizer by the Company in fiscal 1997 were $82 million, which represented approximately 16 percent of net sales. The Company's potash is mined from subterranean salt deposits containing a mixture of potassium chloride and sodium chloride. The Carlsbad, New Mexico, potash deposits are located from 800 to 1,200 feet below the surface. Potash is produced in a refining process by which the potassium chloride is separated from the sodium chloride. The three principal grades of potash fertilizer are granular, coarse, and standard, with granular being the largest particle size. Granular potash is used as a direct-application fertilizer and, among the various grades, is particularly well suited for use in fertilizer blends. Potash is an important fertilizer product for both direct application and for use in blended fertilizer applied to all major types of row crops. In addition, the Company produces several grades of potash that are purchased by industrial users. PRODUCTION AND PROPERTIES Prior to the August 1996 acquisition, the Company operated only the West Facility, consisting of a potash mine and refinery located approximately 25 miles east of Carlsbad, New Mexico. This mine supplies ore to an above-ground refinery that separates the potassium chloride from the ore. The run-of-mine refined product is then transported to the Company's nearby compaction plant for conversion to granular form. Located contiguous to the compaction facility are storage and shipping facilities from which the finished product is transported by rail and truck into domestic and export markets. The West Facility is currently producing approximately 420,000 short tons per year of red potash, primarily in granular form. The Company's potash reserves are controlled under long-term federal and state potassium leases on approximately 60,000 acres. In addition, the Company holds mineral title to approximately 4,400 acres and fee title to approximately 10,000 acres. Revised estimates of potash ore reserves underlying the Carlsbad properties were compiled in 1981 and 1983. According to these estimates, the Company's reserves were estimated to contain 346.2 million tons of in situ ore with an average grade of 15.25 percent K20 or 297.9 million tons of recoverable ore with an average grade of 14.88 percent K20. Since these estimates were made, ore extracted would indicate remaining reserves of 330 million tons of in situ ore with an average grade of 15.26 percent K2O or 281 million tons of 7 recoverable ore with an average grade of 14.88 percent K2O. This reserve base is estimated to be equivalent to 55 million tons of muriate of potash. The East Facility and Eddy Potash, located near Carlsbad, New Mexico, have a combined annual production capacity of approximately 850,000 tons. The East Facility produces white potash for use by both agriculture and industry in standard, coarse, and granular forms. The Eddy Potash mine produces red potash for agriculture in standard form and white soluble grade for industrial users. On September 24, 1997, the Company announced that Eddy Potash intends to suspend operations on December 3, 1997. The higher-grade ore zone that Eddy Potash has been mining is nearly depleted and other ore zones are not presently economical. The Eddy Potash facilities will be maintained while the Company proceeds with ongoing evaluations of alternate mining methods for the Eddy Potash reserves. At current production rates, the Company's combined reserves at the East and West Facilities have a remaining life of several decades. MARKETING AND DISTRIBUTION The majority of the Company's agricultural potash sales are in domestic markets in the states west of the Mississippi River where it and other Carlsbad potash producers enjoy freight cost advantages over Canadian and overseas potash producers. Consistent with the Company's strategy to maximize "net backs" (sales less distribution and delivery expense) and increase profit margins, domestic sales are targeted for locations along the freight route of the Burlington Northern Santa Fe Railroad. Domestic potash marketing is performed by a separate sales group solely responsible for marketing potash products. The Company's export sales are made through Potash Corporation of Saskatchewan Sales Limited. While the typical primary export market for the Company's potash is Latin America, the majority of fiscal 1997 export sales were to Mexico, Brazil, and Japan. Potash for export is transported by rail to terminal facilities in Houston, Texas, where it is loaded onto ocean-going vessels for shipment to export markets. RAW MATERIALS NATURAL GAS Natural gas is the primary raw material used by the Company in the manufacture of nitrogen fertilizer products. Natural gas is used both as a chemical feedstock and as a fuel to produce anhydrous ammonia that is then upgraded into other nitrogen fertilizer products. During fiscal 1997, the cost of natural gas represented approximately 79 percent of the Company's cost of producing ammonia. Because there are no commercially feasible alternatives for natural gas in the production of ammonia, the economic success of the Company's nitrogen business depends upon the availability of competitively priced natural gas. In today's natural gas market, the Company's total natural gas cost generally consists of two components--the market price of the natural gas in the producing area at the point of delivery into a pipeline and the fee charged by the pipeline for transporting the natural gas to the Company's plants. The cost of the transportation component can vary substantially depending on whether or not the pipeline has to compete for the business. Therefore, it is extremely important to the Company's competitiveness that it have access to multiple natural gas sources and transportation services. In addition to the impact on transmission costs, access alternatives enable the Company to benefit from natural gas price 8 differences that may exist from time to time in the various natural gas- producing areas. In recent years, the Company has improved the natural gas- purchasing logistics of its nitrogen facilities. The majority of the 54,000 Mcf per day natural gas requirements of the Yazoo City facility is currently being furnished by Sonat Marketing Company ("Sonat"), an affiliate of Southern Natural Gas Company ("Southern"). Sonat deliveries are secured via a long-term natural gas purchase agreement that commenced on January 1, 1996. The Sonat agreement provides for market-sensitive pricing and a firm-delivery supply commitment. Another major supplier for the Yazoo City facility is Pursue Energy Corporation ("Pursue") from its natural gas reserves located in Rankin County, Mississippi. It is anticipated that the Pursue purchase arrangement will continue for the foreseeable future. The Yazoo City facility is directly connected to the interstate pipeline system operated by Southern. In addition, the Company's 60-mile, 12-inch-diameter natural gas pipeline provides the plant with direct access to the Pursue reserves, an additional interstate pipeline, and a large intrastate gathering and transmission system in southern Mississippi. Currently, plans are being implemented to establish an additional pipeline interconnect with another major interstate pipeline to provide further gas supply flexibility to the Yazoo City facility. As a result of this multiple-source access, the Company benefits from competition for the transportation and supply of natural gas. Natural gas requirements for the Triad Nitrogen facility are approximately 105,000 Mcf per day. The Triad Nitrogen facility is located in one of the primary gas-producing regions of the United States. The facility is currently connected to five intrastate pipeline systems and benefits from intense competition among the many suppliers that have transport capabilities on the intrastate lines. Current natural gas requirements are being supplied by all five intrastate lines under various pricing arrangements. The remaining requirements continue to be supplied via spot market 30-day or 90-day fixed- price contracts. As a result of Triad Nitrogen's favorable access to natural gas supplies, the Company believes that the loss of any particular supplier would not have a material impact on plant operations. There have been no significant supply interruptions at the Triad Nitrogen facility . Relative to fiscal 1996 levels, the Company's delivered cost of natural gas increased approximately 11 percent. The inability of gas suppliers to replenish depleted natural gas storage inventories after the harsh winter of 1995-1996 is responsible for much of this increase. Although long-term natural gas supplies appear adequate to meet projected demand, gas prices can be influenced significantly by short-term fundamentals such as weather, storage levels, gas transportation interruptions, and competing fuel prices. The Company uses natural gas futures contracts to hedge against the risk of short-term market fluctuations in the cost of natural gas. PHOSPHATE ROCK Phosphate rock is one of the primary raw materials used in the manufacture of DAP. The Pascagoula facility's requirements for phosphate rock are approximately 1.2 million tons per year. On September 15, 1991, the Company entered into a ten-year contract with OCP to supply all of the phosphate rock requirements of the Pascagoula facility, including the additional phosphate rock attributable to the announced capacity expansion. This contract has been amended and its term extended to June 30, 2016. OCP, the national phosphate company of Morocco, is the world's largest producer and exporter of phosphate rock and upgraded phosphates as a company. The contract price for phosphate rock is based on phosphate rock costs incurred by certain domestic competitors of the Company and on 9 the operating performance of the Company's phosphate operations. Under this formula, the Company realizes favorable phosphate rock prices and is afforded significant protection during periods when market conditions are depressed and its DAP operations are not profitable. As a result, the Company has been able to sustain its operations since resuming production at the Pascagoula facility in December 1991, despite a sustained period of low prices for phosphate products during fiscal 1993 and 1992. Conversely, in favorable markets, when the Company's DAP operations are profitable, the contract price of phosphate rock will escalate based on the profitability of its DAP operations. Pursuant to this contract, the Company and OCP are required to negotiate further adjustments as needed to maintain the viability and economic competitiveness of the Pascagoula plant. The strategic alliance with OCP has functioned effectively since inception, and the Company considers its relations with OCP to be good. SULFUR Sulfur is used in the manufacture of sulfuric acid at the Pascagoula plant. Sulfur is in adequate supply and is available on the open market in quantities sufficient to satisfy the Company's current requirements of 290,000 tons per year. The location of the Company's plant at Pascagoula, Mississippi, near major oil and gas fields that supply substantial amounts of sulfur, provides the Company with a strategic advantage in the purchase of sulfur over its Florida competitors. AMMONIA Demand for ammonia during fiscal 1997 was very heavy, and U.S. inventories declined from the prior year. However, prices are expected to come under some pressure later in the year as new production starts up at the various locations around the world. Prices are still at relatively high levels and demand is expected to remain strong. COMPETITION Since fertilizers are global commodities that are available from multiple sources, the primary competitive factor is delivered price. Other competitive factors include product quality, customer service, and availability of product. In each product category, the Company competes with a broad range of domestic producers, including farmer cooperatives, subsidiaries of larger companies, integrated energy companies, and independent fertilizer companies. Many of the Company's domestic competitors have larger financial resources and sales than the Company. The Company also competes with foreign producers. Foreign competitors are often owned or subsidized by their governments and, as a result, may have cost advantages over domestic companies. Additionally, foreign competitors are frequently motivated by nonmarket factors such as the need for hard currency. The Company produces and sells nitrogen fertilizer products primarily in the southern United States. However, dealers and distributors located in this region re-market a substantial quantity of these nitrogen products to end-users outside of the southern United States. Because competition is based largely on the delivered price, maintaining low production costs is critical to competitiveness. The Company believes it is a low-cost producer of nitrogen fertilizers in the United States. Natural gas comprises the vast majority of the raw materials cost of nitrogen fertilizers. Competitive natural gas purchasing is essential to maintaining the Company's low-cost position. Equally important is efficient use of this gas because of the energy-intensive nature of the nitrogen fertilizer business. Therefore, cost-competitive production facilities that allow flexible upgrading of ammonia to other finished products are critical to a low-cost competitive position. In the highly fragmented nitrogen fertilizer market, product quality and customer service also can be sources of product differentiation. 10 The Company sells over two-thirds of its DAP in international markets. The U.S. phosphate industry has become more concentrated as a result of recent consolidations and joint ventures, and the Company is significantly smaller than most of its competitors in terms of resources and sales. Most of the Company's principal competitors have captive sources of some or all of the raw materials, and this may provide them with cost advantages. The Company's long-term phosphate rock contract with its flexible pricing mechanism is a key element to the Company's ability to compete. Most potash consumed in the United States is provided by large Canadian producers who have economies of scale and lower variable costs than their U.S. counterparts. Over 80 percent of U.S. potash production capacity is located in the Carlsbad, New Mexico, area. While the Carlsbad producers have higher mining costs than the Canadian producers, this disadvantage may be offset by logistical and freight advantages in certain markets in the southwestern United States and the lower United States corn belt. RESEARCH AND DEVELOPMENT The Company has a research and development staff of 12 full-time professional employees whose activities relate primarily to the improvement of existing products. The expenditures on research activities sponsored by the Company during fiscal 1997, 1996, and 1995 were approximately $1.3 million, $1.2 million, and $1.3 million, respectively. EMPLOYEES As of June 30, 1997, the Company employed approximately 1,700 persons throughout all of its locations. The Company considers its employee relations to be satisfactory. COMPLIANCE WITH ENVIRONMENTAL REGULATIONS The Company's operations are subject to federal, state, and local laws and regulations pertaining to the environment, among which are the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Emergency Response Compensation and Liability Act, the Toxic Substances Control Act, and various state statutes. The Company's facilities require operating permits that are subject to review by governmental agencies. The Company believes that its policies and procedures now in effect are generally in compliance with applicable laws and with the permits relating to the facilities. Since 1967, the Company has spent in excess of $50 million on its fertilizer production facilities in order to meet applicable federal and state pollution standards. The majority of the Company's environmental capital expenditures have been in response to the requirements of the Clean Air Act and the Clean Water Act. Capital expenditures related to environmental obligations for the past three fiscal years were approximately as follows: 1997--$8,400,000; 1996--$920,000; and 1995--$7,750,000. Environmental capital expenditures are expected to be approximately $13.2 million for fiscal 1998. These funds relate in large part to the development of a new gypsum disposal facility at Pascagoula. The estimated cost of this facility is $17.0 million, which amount will be expended until completion in early 1998. The Company has recently secured the necessary permits for its development. The Company is currently accruing costs for the future closure of the current gypsum disposal facility located at Pascagoula, Mississippi. These costs are reflected in "Cost of Products Sold" during the appropriate periods. The balance of the accrual at June 30, 1997, of $8.1 million relates to the 11 portion of the disposal facility utilized to date. In future years, the Company expects to record additional charges of approximately $1.9 million related to the future closure of the facility. These charges will be recorded over the estimated two-year remaining life of the facility. In the normal course of its business, the Company is exposed to risks relating to possible releases of hazardous substances into the environment. Such releases could cause substantial damage or injuries. Environmental expenditures have been and will continue to be significant. It is impossible to predict or quantify the impact of future environmental laws and regulations. OUTLOOK AND UNCERTAINTIES Certain information in this report may contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," the negatives thereof or other comparable terminology. Such statements are subject to inherent risks and uncertainties, including the following risk factors: Factors Affecting Fertilizer Demand and Prices. With virtually all of its nitrogen fertilizer net sales and approximately 94 percent of its total net sales in fiscal 1997 derived from domestic markets, the Company's operating results are highly dependent upon conditions in the U.S. agricultural industry. A variety of factors beyond the Company's control can materially affect domestic fertilizer demand and pricing. These factors include, but are not limited to, U.S. planted acreage, government agricultural policies, projected grain stocks, crop failure, weather and changes in agricultural production methods. Since fertilizers, particularly anhydrous ammonia, are also used for industrial applications, industrial markets and the general economy can also affect fertilizer demand and prices. International market conditions also significantly influence the Company's operating results. The market for fertilizers is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing fertilizers; foreign agricultural policies; the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets; changes in the hard currency demands of certain countries; and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment. The Company is also subject to general risks of doing business abroad, including risks associated with economic or political instability and potential import restrictions or quotas. In the past, fertilizer prices have been extremely volatile, with significant price changes from one growing season to the next. Fertilizers are global commodities and can be subject to intense price competition from domestic and foreign sources. No assurance can be given that average realized prices paid for the Company's fertilizer products will continue at current levels. Seasonality. The usage of fertilizer is highly seasonal, and the Company's quarterly results reflect the fact that, in its markets, significantly more fertilizer is purchased in the spring. Significant portions of the Company's net sales and operating income are generated in the last four months of its fiscal years (March through June). Quarterly results can vary significantly from one year to the next due primarily to weather-related shifts in planting schedules and purchase patterns. The Company incurs substantial expenditures for fixed costs throughout the year and substantial expenditures for inventory in advance of the spring planting season. 12 Dependence on Natural Gas. Natural gas is the primary raw material used in the manufacture of nitrogen fertilizer products. Natural gas is used as both a chemical feedstock and a fuel to produce anhydrous ammonia, which is then used in the production of all other nitrogen fertilizers. Anhydrous ammonia is also a raw material in the production of DAP. Accordingly, the Company's profitability is dependent upon the price and availability of natural gas. A significant increase in the price of natural gas that is not recovered through an increase in the price of the Company's fertilizer products, or an extended interruption in the supply of natural gas to its production facilities, could have a material adverse effect on its results of operations and financial condition. Environmental Regulations. The Company is subject to various environmental laws and regulations of federal, state and local governments. Significant capital expenditures and operating costs have been incurred and will continue to be incurred as a result of these laws and regulations. The Company cannot predict or quantify the impact of new or changed laws or regulations. In the normal course of business, the Company is exposed to risks such as possible release of hazardous substances into the environment. Such releases could cause substantial damage or injuries and result in material costs to the Company. Competition. Fertilizer products are global commodities and customers base their purchasing decisions principally on the delivered price of the product. As a result, markets for the Company's products are highly competitive. A number of U.S. producers compete with the Company in domestic and export markets, and producers in other countries, including state-owned and government- subsidized entities, compete with the Company in the Untied States and in foreign markets to which the Company exports. Many of the Company's competitors are significantly larger and have greater financial resources that the Company. ITEM 2. PROPERTIES The Company owns an administration building in Yazoo City that contains approximately 65,000 square feet of office space. The Company's plants are complete with necessary support facilities, such as roads, railroad tracks, storage, offices, laboratories, warehouses, machine shops, and loading facilities. Adequate supplies of water and electric power are available at all locations. In addition to the fertilizer storage facilities at Yazoo City and Pascagoula, Mississippi; Carlsbad, New Mexico; and Donaldsonville, Louisiana, the Company also owns or leases 25 major fertilizer storage and distribution facilities at other locations in Alabama, Arkansas, California, Florida, Georgia, Louisiana, Mississippi, Missouri, Tennessee, and Texas, with a total system-wide storage capacity of approximately 264,000 tons. During 1990, the Company entered into an agreement granting a third party the exclusive option, for a period of four years, to purchase the Company's undeveloped phosphate rock property, consisting of approximately 12,000 acres, in Hardee County, Florida. As of July 12, 1994, the Company and the option holder entered into new agreements with respect to this property whereby the Company conveyed a portion of the property to the third party and granted to the third party the exclusive option to purchase the remaining portion of the property. In addition, the Company was granted a put option whereby the Company has the right and option to sell the remaining portion of the property to the third party if the third party does not exercise its option to purchase the remaining property; and was granted an exclusive option to repurchase the previously conveyed portion in the event the third party does not exercise its option and the Company does not exercise its put option. The third party's option will expire on January 16, 1998. The Company's put option will expire six months after the third party's option expires, and its repurchase option will expire one year after the Company's put option expires. 13 ITEM 3. LEGAL PROCEEDINGS Cleve Reber CERCLA Site. Triad Chemical has received and responded to letters issued by the U.S. Environmental Protection Agency ("EPA") under Section 104 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") relative to the possible disposition of Triad waste at the disposal site identified as the Cleve Reber site in Ascension Parish, Louisiana. It is Triad's position that, based upon available information and records, Triad did not utilize the Cleve Reber site for the disposition of hazardous material, and it does not appear that Triad has any responsibility for investigation and cleanup on this site. The EPA is contemplating an action under the Resource Conservation and Recovery Act, Section 7003, as well as the CERCLA action mentioned above. The EPA has issued Section 106 orders against the major contributors at the site for cleanup. They are now engaged in negotiations for cleanup. In 1994, Triad received a supplemental 104(e) request for information from the EPA, indicating the EPA's renewed interest in pursuing Potential Responsible Persons at the site. Triad filed a Freedom of Information Act request to investigate allegations that some plant trash from Triad may have been disposed of at the Cleve Reber site. In the opinion of management, the likelihood of the CERCLA investigation resulting in a loss in a material amount is remote. Bayou Sorrel. In early 1996, a class action suit was brought in the U.S. District Court for the Middle District of Louisiana against Triad Chemical and other companies alleged to have resulted from the presence of contaminants at the Bayou Sorrel CERCLA site in Iberville Parish, Louisiana. Triad has not been served with process in this case. Triad is monitoring the case while awaiting service of process. In the opinion of management, based upon available information, the likelihood that these proceedings will result in a loss in a material amount is remote. Terra International, Inc. On August 31, 1995, the Company filed suit in federal court in Mississippi against Terra International, Inc. ("Terra"), seeking a declaratory judgment and other relief, establishing that certain technology relating to the design of an ammonium nitrate neutralizer which the Company licensed to Terra is not defective and was not the cause of an explosion which occurred in 1994 at Terra's Port Neal, Iowa, fertilizer facility. The Company is also seeking damages for defamation based on Terra's public statement related to the Company's alleged role in the explosion. Also, on August 31, 1995, Terra filed suit in federal court in Iowa against the Company seeking damages caused by the explosion. Terra alleges that the ammonium nitrate neutralizer technology licensed to Terra was defectively designed by the Company and that the design defect caused the Port Neal explosion. Both the Mississippi and Iowa federal district courts and the U.S. Eighth Circuit Court of Appeals have determined that the Mississippi federal district court is the proper venue to resolve all issues between the parties relating to the Port Neal explosion. It is expected that extensive discovery will be conducted by both parties to these proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is set forth in the Company's 1997 Annual Report to Shareholders under the caption "Quarterly Results," contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth in the Company's 1997 Annual Report to Shareholders under the caption "Financial Highlights," which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth in the Company's 1997 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of Arthur Andersen LLP dated July 25, 1997, appearing in the Company's 1997 Annual Report to Shareholders, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) The information required by this item regarding directors is set forth in the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under the captions "Nominees for Election to Serve Until 2000," "Directors Continuing to Serve Until 1999," and "Directors Continuing to Serve Until 1998," which information is incorporated herein by reference. (b) Executive officers are elected for a one-year term by the Board of Directors. The Company's executive officers are as follows: OFFICE AND EMPLOYMENT DURING THE NAME OF OFFICER Age LAST FIVE FISCAL YEARS - --------------- --- ----------------------------------------------------- Charles O. Dunn 49 President and Chief Executive Officer since April 1, 1993; Executive Vice President (1988-1993) David W. Arnold 60 Senior Vice President-Technical Group since July 1, 1991 C. E. McCraw 49 Senior Vice President-Operations since July 12, 1994; Senior Vice President-Fertilizer Group (1991-1994) Robert E. Jones 49 Senior Vice President-Corporate Development effective October 1, 1997; Senior Vice President and General Counsel (1996-1997); Vice President and General Counsel (1989-1996) John J. Duffy 63 Vice President-Marketing and Distribution since November 1, 1996; Vice President-Marketing (1995-1996); Vice President-Sales and Marketing (1994-1995); Director of Sales and Marketing (1991-1994) Timothy A. Dawson 43 Vice President-Finance and Chief Financial Officer since January 18, 1996; Director of Finance (1987-1996); Assistant to Senior Vice President-Finance (1984-1987) Ethel Truly 47 Vice President-Administration since January 18, 1996; Director of Administrative Services (1995-1996); Assistant General Counsel (1985-1995) Larry Holley 49 Vice President-Nitrogen Production since July 17, 1997; Director of Nitrogen Production (1997); Director of Energy (1991-1997); Manager of Energy (1987-1991) William L. Smith 47 General Counsel effective October 1, 1997; partner in the law firm of Brunini, Grantham, Grower & Hewes, PLLC (1982-1997) Rosalyn B. Glascoe 53 Corporate Secretary since June 24, 1986 (c) The information called for with respect to the identification of certain significant employees is not applicable to the Registrant. 16 (d) There are no family relationships between the directors and executive officers listed above. There are no arrangements or understandings between any named officer and any other person pursuant to which such person was selected as an officer. The information required by this item regarding compliance with Section 16(a) of the Exchange Act is set forth in the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under the caption "Compliance with Section 16(a) of the Exchange Act," which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under the captions "Compensation of Named Executive Officers," "Annual Bonuses," "Stock Incentive Plan," and "Retirement Program," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under the captions "Security Ownership of Certain Beneficial Owners" and "Management Ownership of the Company's Stock," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under the caption "Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS AND SCHEDULES The consolidated financial statements, together with the report thereon of Arthur Andersen LLP dated July 25, 1997, appearing in the 1997 Annual Report to Shareholders, are incorporated by reference in this Form 10-K. With the exception of the aforementioned information and information incorporated by reference in Items 5, 6, 7, and 8, the 1997 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. The following financial statement schedule also should be read in conjunction with the financial statements in such 1997 Annual Report to Shareholders. Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of 50 percent or less owned persons accounted for by the equity method that are not shown herein have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary. (i) Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets, June 30, 1997 and 1996 Consolidated Statements of Income, Years Ended June 30, 1997, 1996 and 1995 Consolidated Statements of Shareholders' Equity, Years Ended June 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows, Years Ended June 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (B) EXHIBITS: Exhibits filed as part of this report are listed below. Certain exhibits have been filed previously with the Commission and are incorporated herein by reference. 18 SEC EXHIBIT REFERENCE NO. DESCRIPTION - ------------- ----------- 2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and among the Company, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New Mexico Potash Corporation; filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 0-20411, and incorporated herein by reference. 2.2 Agreement and Plan of Merger and Reorganization, dated as of August 27, 1996, by and among the Company, MISS SUB, INC., and First Mississippi Corporation; filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 0-20411, and incorporated herein by reference. 3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 3.2 Bylaws of the Company, as amended to date. 4.1 Mississippi Phosphates Corporation 401(k) Retirement Plan; filed as Exhibit 4.3(a) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.2 Mississippi Chemical Corporation Thrift Plan Plus; filed as Exhibit 4.3(b) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.3 Mississippi Chemical Corporation 1994 Stock Incentive Plan; filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.4 Mississippi Chemical Corporation 1995 Stock Option Plan for Nonemployee Directors; filed as Exhibit 4.3 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.5 Mississippi Chemical Corporation 1995 Restricted Stock Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.6 Shareholder Rights Plan; filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated August 15, 1994, SEC File No. 2-7803, and incorporated herein by reference. 10.1 Agreement effective as of October 1, 1991, entered into by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.1 to Amendment No. 1 to the Company's Report on Form 8 dated January 7, 1993, SEC File No. 2-7803, and incorporated herein by reference. 19 10.2 Amendment of Agreement, effective as of July 1, 1993, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.3 Amendment of Agreement, effective as of August 1, 1994, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference. 10.4 Agreement made and entered into as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 2-7803, and incorporated herein by reference. 10.5 Amendment No. 1, effective as of July 1, 1992, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(1) 10.6 Amendment No. 2, effective as of July 1, 1993, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(2) 10.7 Amendment No. 3, effective as of January 1, 1995, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(3) - ----------------------- (1) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from the first and second paragraphs of paragraph numbered 1 of Amendment No. 1 and an application for confidential treatment has been filed separately with the Commission. (2) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from paragraphs numbered 5 and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1, paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit D; and an application for confidential treatment has been filed separately with the Commission. (3) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Schedule 1 to Amendment No. 3, Exhibit B, and an application for confidential treatment has been filed separately with the Commission. 20 10.8 Amendment No. 4, effective as of January 1, 1997, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock. 10.9 Gas Sales Agreement entered into by the Company and Sonat Marketing Company as of July 13, 1995, for the sale and purchase of natural gas; filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(4) 10.10 Agreement for Real Estate Purchase Option dated July 16, 1990, for the sale of the Company's Hardee County, Florida, property and underlying phosphate reserves; filed as an exhibit to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, SEC File No. 2-7803, and incorporated herein by reference. 10.11 Form of Severance Agreement dated July 29, 1996, by and between the Company and each of its Executive Officers; filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 2-7803, and incorporated herein by reference. 10.12 Credit Agreement dated as of December 23, 1996, by and among First Mississippi Corporation; AMPRO Fertilizer, Inc.; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; Caisse Nationale de Credit Agricole and CIBC Inc. as Co-Agents; and the other lenders party thereto; filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 6, 1997, SEC File No. 0-20411, and incorporated herein by reference. 10.13 Credit Agreement dated as of December 23, 1996, by and among Mississippi Chemical Corporation; Mississippi Phosphates Corporation; Mississippi Potash, Inc.; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; Caisse Nationale de Credit Agricole and CIBC Inc. as Co-Agents; and the other lenders party thereto; filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 6, 1997, SEC File No. 0-20411, and incorporated herein by reference. 13.1 Annual Report to Shareholders for fiscal year ended June 30, 1997. 21 List of subsidiaries of the Company. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. (C) REPORTS ON FORM 8-K: No reports were filed on Form 8-K during the three months ended June 30, 1997. - ------------------------- (4) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Article IV, Price, and an application for confidential treatment has been filed separately with the Commission. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MISSISSIPPI CHEMICAL CORPORATION By: /s/ Charles O. Dunn ------------------- Charles O. Dunn President Principal Executive Officer By: /s/ Timothy A. Dawson --------------------- Timothy A. Dawson Vice President-Finance Principal Financial Officer and Chief Accounting Officer Date: September 29, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE Title DATE /s/ Charles O. Dunn Director, September 29, 1997 - -------------------------- President and Chief Executive Officer Charles O. Dunn (principal executive officer) /s/ Coley L. Bailey Director, Chairman of the Board September 29, 1997 - -------------------------- Coley L. Bailey /s/ John Sharp Howie Director, Vice Chairman of the Board September 29, 1997 - -------------------------- John Sharp Howie /s/ John W. Anderson Director September 29, 1997 - -------------------------- John W. Anderson /s/ Haley Barbour Director September 29, 1997 - -------------------------- Haley Barbour /s/ Frank R. Burnside, Jr. Director September 29, 1997 - -------------------------- Frank R. Burnside, Jr. /s/ Robert P. Dixon Director September 29, 1997 - -------------------------- Robert P. Dixon /s/ W. R. Dyess Director September 29, 1997 - -------------------------- W. R. Dyess /s/ Woods E. Eastland Director September 29, 1997 - -------------------------- Woods E. Eastland /s/ George D. Penick, Jr. Director September 29, 1997 - -------------------------- George D. Penick, Jr. /s/ David M. Ratcliffe Director September 29, 1997 - -------------------------- David M. Ratcliffe /s/ Wayne Thames Director September 29, 1997 - -------------------------- Wayne Thames
22 MISSISSIPPI CHEMICAL CORPORATION EXHIBIT INDEX TO FORM 10-K EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and among the Company, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New Mexico Potash Corporation; filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 0-20411, and incorporated herein by reference. 2.2 Agreement and Plan of Merger and Reorganization, dated as of August 27, 1996, by and among the Company, MISS SUB, INC., and First Mississippi Corporation; filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 0-20411, and incorporated herein by reference. 3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 3.2 Bylaws of the Company, as amended to date. 4.1 Mississippi Phosphates Corporation 401(k) Retirement Plan; filed as Exhibit 4.3(a) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.2 Mississippi Chemical Corporation Thrift Plan Plus; filed as Exhibit 4.3(b) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.3 Mississippi Chemical Corporation 1994 Stock Incentive Plan; filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 23 4.4 Mississippi Chemical Corporation 1995 Stock Option Plan for Nonemployee Directors; filed as Exhibit 4.3 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.5 Mississippi Chemical Corporation 1995 Restricted Stock Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.6 Shareholder Rights Plan; filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated August 15, 1994, SEC File No. 2-7803, and incorporated herein by reference. 10.1 Agreement effective as of October 1, 1991, entered into by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.1 to Amendment No. 1 to the Company's Report on Form 8 dated January 7, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.2 Amendment of Agreement, effective as of July 1, 1993, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.3 Amendment of Agreement, effective as of August 1, 1994, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference. 10.4 Agreement made and entered into as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 2-7803, and incorporated herein by reference. 24 10.5 Amendment No. 1, effective as of July 1, 1992, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference(5) 10.6 Amendment No. 2, effective as of July 1, 1993, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(6) 10.7 Amendment No. 3, effective as of January 1, 1995, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(7) 10.8 Amendment No. 4, effective as of January 1, 1997, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock. 10.9 Gas Sales Agreement entered into by the Company and Sonat Marketing Company as of July 13, 1995, for the sale and purchase of natural gas; filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(8) - -------------- (5) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from the first and second paragraphs of paragraph numbered 1 of Amendment No. 1 and an application for confidential treatment has been filed separately with the Commission. (6) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from paragraphs numbered 5 and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1, paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit D; and an application for confidential treatment has been filed separately with the Commission. (7) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Schedule 1 to Amendment No. 3, Exhibit B, and an application for confidential treatment has been filed separately with the Commission. (8) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Article IV, Price, and an application for confidential treatment has been filed separately with the Commission. 25 10.10 Agreement for Real Estate Purchase Option dated July 16, 1990, for the sale of the Company's Hardee County, Florida, property and underlying phosphate reserves; filed as an exhibit to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, SEC File No. 2-7803, and incorporated herein by reference. 10.11 Form of Severance Agreement dated July 29, 1996, by and between the Company and each of its Executive Officers; filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 2-7803, and incorporated herein by reference. 10.12 Credit Agreement dated as of December 23, 1996, by and among First Mississippi Corporation; AMPRO Fertilizer, Inc.; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; Caisse Nationale de Credit Agricole and CIBC Inc. as Co-Agents; and the other lenders party thereto; filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 6, 1997, SEC File No. 0-20411, and incorporated herein by reference. 10.13 Credit Agreement dated as of December 23, 1996, by and among Mississippi Chemical Corporation; Mississippi Phosphates Corporation; Mississippi Potash, Inc.; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; Caisse Nationale de Credit Agricole and CIBC Inc. as Co-Agents; and the other lenders party thereto; filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed January 6, 1997, SEC File No. 0-20411, and incorporated herein by reference. 13.1 Annual Report to Shareholders for fiscal year ended June 30, 1997. 21 List of subsidiaries of the Company. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. 26 EX-3.2 2 BY-LAWS EXHIBIT 3.2 BYLAWS OF MISSISSIPPI CHEMICAL CORPORATION (a Mississippi corporation) - -------------------------------------------------------------------------------- ARTICLE I. IDENTIFICATION -------------- Section 1.01. NAME. The name of this corporation is Mississippi Chemical Corporation. The corporation may conduct operations under such other names as the Board of Directors may designate. SECTION 1.02. SEAL. The corporation shall be authorized, but not required, to use a corporate seal, which if used shall be circular in form and contain the name of the corporation and the words "Corporate Seal, Mississippi." The corporate seal shall be affixed by the Secretary upon such instruments or documents as may be deemed necessary. The presence or absence of such seal on any instrument shall not, however, affect its character or validity or legal effect in any respect. Section 1.03. OFFICES. The address of the principal office of the corporation shall be Highway 49 East, P. O. Box 388, Yazoo City, Mississippi 39194-0388. The corporation may also have offices at such other places as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II. CAPITAL STOCK ------------- Section 2.01. CONSIDERATION FOR SHARES. Except as otherwise permitted by law, capital stock of the corporation may be issued for such consideration as shall be fixed from time to time by the Board of Directors. SECTION 2.02. PAYMENT FOR SHARES. The consideration for the issuance of shares may be paid, in whole or in part, in money, in other property, tangible or intangible, or in other benefit to the corporation, including promissory notes, labor or services already performed, contracts for services to be performed or other securities of the corporation. Before the corporation issues shares, the Board of Directors shall determine that the consideration is adequate, which determination is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. When the corporation receives the consideration for which the Board authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable. The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict 1 transfer of the shares, and may credit distributions in respect of the shares against their purchase price until the services are performed, the note is paid or the benefits received. Such escrow arrangements may provide that if the services are not performed, the note is not paid or the benefits are not received, then the shares escrowed or restricted and the distributions credited may be cancelled in whole or in part. SECTION 2.03. CERTIFICATES REPRESENTING SHARES. The certificates of stock of the corporation shall be numbered consecutively and entered in the books of the corporation as they are issued. The Board of Directors may authorize the issuance of some or all of the shares without certificates. Such authorization shall not affect shares already represented by certificates. Each certificate issued shall be signed, either manually or by facsimile, by two officers of the corporation and may bear the corporate seal or its facsimile. If the corporation is authorized to issue different classes of shares or different series within a class, then each certificate shall have noted thereon a summary of the designations, relative rights, preferences, rights and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series. Certificates evidencing shares of the corporation shall set forth thereon the statements prescribed by Section 79-4-6.25 of the Mississippi Business Corporation Act and by any other applicable provision of law. If a person who signed, either manually or in facsimile, a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid. SECTION 2.04. SHARE TRANSFERS. Upon compliance with any provisions restricting the transferability of shares that may be set forth in the Articles of Incorporation, these Bylaws, or any written agreement in respect thereof, transfers of shares of the corporation shall be made only on the books of the corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, or with a transfer agent or a registrar and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon, if any. Except as may be otherwise provided by law or these Bylaws, the person in whose name shares stand on the books of the corporation shall be deemed the owner thereof for all purposes as regards the corporation; provided that whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary of the corporation, shall be so expressed in the entry of transfer. ARTICLE III. MEETINGS OF SHAREHOLDERS ------------------------ Section 3.01. PLACE OF MEETINGS. Meetings of the shareholders of the corporation shall be held at the principal office of the corporation or at such other place in or out of the state of Mississippi as shall be determined by the Board of Directors. SECTION 3.02. ANNUAL MEETINGS. The annual meeting of the shareholders shall be held at such time and place as the Board of Directors shall designate, at which annual meeting the shareholders shall elect a number of members of the Board of 2 Directors equal to the number of directors whose terms expire at such meeting, and transact such other business as may properly come before the meeting. Failure to hold the annual meeting at the designated time shall not affect the validity of any corporate action. SECTION 3.03. SPECIAL MEETINGS. Special meetings of the shareholders shall be held on such call as may be specified in the Articles of Incorporation, on call of the Board of Directors or on call of the holders of at least twenty-five percent (25%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting if such holders sign, date and deliver to the Secretary one or more written demand(s) for the meeting. Any written demand for a meeting shall state the purpose(s) of the proposed meeting and only business within such purpose(s) described in the notice may be conducted at such meeting. SECTION 3.04. NOTICE OF MEETINGS - WAIVER. Written notice stating the place, date and time of the meeting, and in case of a special meeting, the purpose(s) for which the meeting is called, shall be delivered not less than ten (10) days or more than sixty (60) days before the date of the meeting, either personally or by mail, to each shareholder entitled to vote at such meeting. Only the shareholders whose names appear on the stock transfer books at the close of business the day before the first notice is delivered to shareholders shall be entitled to notice of and to vote at such meeting, notwithstanding the transfer of shares thereafter. The corporation shall give notice to shareholders not entitled to vote in any instance where such notice is required by the provisions of the Mississippi Business Corporation Act. A shareholder may waive notice before or after the date and time stated in the notice. The waiver must be in writing, must be signed by the shareholder entitled to notice and must be delivered to the corporation for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting waives objection to lack of notice or defective notice of the meeting unless at the beginning of the meeting (or promptly upon arrival) the shareholder objects to holding the meeting or transacting business at the meeting. A shareholder's attendance at a meeting also waives objection to consideration of a particular matter which is not within the purpose(s) described in the notice unless the shareholder objects when the matter is presented. SECTION 3.05. RECORD DATE. The Board of Directors may fix a record date for one (1) or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action; provided, that a record date fixed under this sentence may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. The stock transfer books of the corporation need not be closed. The record date may precede the date on which the record date is established. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. 3 SECTION 3.06. SHARES HELD BY NOMINEES. The corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure. SECTION 3.07. SHAREHOLDERS' LIST. After fixing a record date for a meeting, the corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of shareholders' meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and show the address of and number of shares held by each shareholder. The shareholders' list must be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, his or her agent or attorney is entitled on written demand to inspect and, subject to the requirements of Section 79-4-16.02(c) of the Mississippi Business Corporation Act, to copy the list during regular business hours and at his or her expense, during the period it is available for inspection. The corporation shall make the shareholders' list available at the meeting, and any shareholder, his or her agent or attorney, is entitled to inspect the list at any time during the meeting or any adjournment. SECTION 3.08. QUORUM. Unless otherwise required by law or the Articles of Incorporation, a majority of the votes entitled to be cast on the matter by a voting group, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders for action on that matter. Holders of shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is or must be set for the adjourned meeting of shareholders for action on that matter. The shareholders present at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of a number of shareholders so that less than a quorum remains. A meeting may be adjourned despite the absence of a quorum. SECTION 3.09. MEANING OF CERTAIN TERMS. As used herein in respect to the right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an outstanding share or shares and to a holder or holders of record of outstanding shares when the corporation is authorized to issue only one (1) class of shares, and said reference is also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Articles of Incorporation confer such rights where there are two (2) or more classes or series of shares or upon which or upon whom the Mississippi Business Corporation Act confers such rights 4 notwithstanding that the Articles of Incorporation may provide for more than one (1) class or series of shares, one (1) or more of which are limited or denied such rights thereunder. SECTION 3.10. PROXIES AND VOTING. Except as otherwise provided by law or the Articles of Incorporation, each outstanding share, regardless of class, is entitled to one (1) vote on each matter voted on at a shareholders' meeting. A shareholder may vote either in person or by proxy. A shareholder may appoint a proxy by signing an appointment form, either personally or by his attorney-in- fact, and delivering it to the Secretary or other officer of the corporation who is authorized to tabulate votes. An appointment of a proxy is revocable unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Such an appointment becomes revocable when the interest is extinguished. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Unless the Articles of Incorporation provide otherwise, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting in which a quorum is present. SECTION 3.11 CONDUCT OF MEETING. Meetings of the shareholders shall be presided over by one of the following in the order of seniority and if present and acting; the Chairman of the Board, if any; the Vice Chairman of the Board, if any; the President, a Vice President, if any; or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the shareholders. The Secretary of the corporation, or in his or her absence, an Assistant Secretary, shall act as secretary of every meeting, but, if neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint a secretary of the meeting. SECTION 3.12. ACTION WITHOUT A MEETING. Action required or permitted by the Mississippi Business Corporation Act to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one (1) or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. The corporation must give any required notice to nonvoting shareholders, if any. 5 ARTICLE IV. BOARD OF DIRECTORS ------------------ Section 4.01. NUMBER AND QUALIFICATIONS. A director need not be a shareholder, a citizen of the United States, or a resident of the state of Mississippi. The business and affairs of the corporation shall be managed under the direction of, and all corporate powers shall be exercised by or under the authority of, its Board of Directors. The Board of Directors of the corporation shall, effective as of the date of adoption of these Bylaws, consist of twelve (12) members and thereafter shall consist of such number of members not less than nine (9) or more than fifteen (15) as determined from time to time by resolution of a majority of the Board of Directors. As long as the size of the Board of Directors shall be fixed at twelve (12) members, the Board shall be divided in three (3) classes of four (4) directors each, with the Board of Directors designating nominees for each class and the shareholders of the Company electing the initial directors serving in such classes to initial terms expiring in the three (3) successive years following such initial election (Class I-1995, Class II-1996 and Class III-1997). In the event a different number of directors is established but is nine (9) or more, the Board of Directors shall be divided into three (3) classes consisting of equal numbers of directors to the extent possible. The Board of Directors may fill any vacancies on the Board of Directors, pursuant to Section 4.06 hereof, designating new directors to one (1) of the three (3) classes of directors. At each annual meeting of the shareholders following such initial election, the number of directors equal to the number of the class whose term expires at the time of such meeting shall be elected to hold office until the third succeeding annual meeting after their election or until their earlier retirement from the Board. Any vacancy arising from the earlier retirement of a director shall be filled by vote of the Board, and the term of any such director shall be for the balance of the term of the retiring director. SECTION 4.02. ELECTION. At each annual meeting at which directors are elected, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election. Each director shall hold office for the term for which he or she is elected and until his or her successor shall be elected and qualified. SECTION 4.03. ELECTION OF OFFICERS OF BOARD OF DIRECTORS. At the first meeting or at any subsequent meeting called for the purpose, the directors shall elect a Chairman of the Board of Directors and a Vice Chairman of the Board of Directors. Such officers shall hold office until the next annual election of officers, and until their successors are elected and qualify. SECTION 4.04. THE CHAIRMAN AND VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board shall preside at all meetings of the Board of Directors. The Vice Chairman shall act as Chairman in the absence of the Chairman. SECTION 4.05. REMOVAL OF DIRECTORS. The directors or the shareholders may remove one (1) or more director(s) only for cause, as defined in the Articles of 6 Incorporation. A director may be removed only if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director. A director may be removed by the shareholders or directors only at a meeting called for the purpose of removing the director, and the meeting notice must state that the purpose or one of the purposes of the meeting is the removal of directors. SECTION 4.06. VACANCIES. Unless the Articles of Incorporation provide otherwise, if a vacancy occurs in the Board of Directors, including a vacancy resulting from an increase in the number of directors: (a) the Board of Directors may fill the vacancy; or (b) if the directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. A decrease in the number of directors does not shorten an incumbent director's term. A vacancy that will occur at a specified later date may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. SECTION 4.07. PLACE OF MEETING. Meetings of the Board of Directors, regular or special, may be held either in or out of the state of Mississippi. SECTION 4.08. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting. SECTION 4.09. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held upon notice. Unless the Articles of Incorporation provide for a longer or shorter period, special meetings of the Board of Directors must be preceded by at least two (2) days' notice of the date, time and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the Articles of Incorporation. Attendance in person at or participation in a special meeting waives any required notice of the meeting unless at the beginning of the meeting (or promptly upon arrival) the director objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Notice of any meeting of the Board of Directors may be waived before or after the date and time stated in the notice if in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records. SECTION 4.10. QUORUM AND VOTING. A quorum of the Board shall consist of a majority of the directors in office immediately before the meeting begins. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board. A director who is present at a meeting of the Board when corporate action is taken is deemed to have assented to the action taken unless: 7 (a) he or she objects at the beginning of the meeting (or promptly upon arrival) to holding the meeting or transacting business at the meeting; (b) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) he or she delivers written notice of dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. SECTION 4.11. CONDUCT OF MEETINGS. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director who so participates in a meeting is deemed to be present in person at the meeting. SECTION 4.12. COMMITTEES OF THE BOARD. Unless the Articles of Incorporation provide otherwise, the Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them. Each committee must have two (2) or more members, who shall serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members to it must be approved by a majority of all the directors in office when the action is taken. The requirements applicable to the Board of Directors with regard to meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements apply to committees and their members as well. The Board of Directors may delegate to such committee(s) all such authority of the Board that it deems desirable except the authority to: (a) authorize distributions; (b) approve or propose to the shareholders action required to be approved by shareholders; (c) fill vacancies on the Board of Directors or on any of its committees; (d) amend the Articles of Incorporation; (e) adopt, amend or repeal Bylaws; (f) approve a plan of merger not requiring shareholder approval; 8 (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits specifically prescribed by the Board of Directors. SECTION 4.13. ACTION WITHOUT MEETING. Action required or permitted by the Mississippi Business Corporation Act to be taken at a Board of Directors' meeting may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this paragraph is effective when the last director signs the consent, unless the consent specifies a different prior or subsequent effective date. ARTICLE V. OFFICERS -------- Section 5.01. OFFICERS. The officers of the corporation shall consist of a President and Secretary and, as deemed appropriate by the Board of Directors, a Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, General Counsel, Treasurer, one (1) or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and assistant officers and agents as may be deemed necessary by the Board of Directors. Any two (2) or more offices may be held by the same person. The Board of Directors shall delegate to one (1) of the officers the responsibility of preparing minutes of directors' and shareholders' meetings and of authenticating records of the corporation. Officers need not be directors or shareholders of the corporation. SECTION 5.02. VACANCIES. Vacancies occurring in any office shall be filled by the Board of Directors at any regular or special meeting. SECTION 5.03. THE PRESIDENT. The President shall be responsible for the active, executive management and supervision of the operations of the corporation and shall perform such duties as the Board of Directors may prescribe or his or her capacity as President by custom may provide. SECTION 5.04. THE VICE PRESIDENT. Vice Presidents shall perform such duties as the Board of Directors may prescribe. Each Vice President shall report to the President or his or her delegate who shall be responsible for the Vice President's actions. SECTION 5.05. THE SECRETARY. The Secretary shall attend all meetings of the shareholders and of the Board of Directors, and shall keep a true and complete record of the proceedings of these meetings. The Secretary shall be custodian of the 9 records of the corporation and shall attend to the giving of all notices, attest, when requested, to the authority of the President or other officers, as revealed by the minutes or these Bylaws, to execute legal documents binding the corporation, and shall perform such other duties as these Bylaws may provide or the Board of Directors may prescribe. SECTION 5.06. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep correct and complete records of account, showing accurately at all times the financial condition and results of operations of the corporation. The Chief Financial Officer shall be the legal custodian of all moneys, notes, securities and other valuables that may from time to time come into the possession of the corporation. The Chief Financial Officer shall immediately deposit all funds of the corporation coming into his or her hands in some reliable bank or other depository to be designated by the Board of Directors, and shall keep this bank account in the name of the corporation. The Chief Financial Officer shall furnish at meetings of the Board of Directors, or whenever requested, a statement of the financial condition and results of operations of the corporation, and shall perform such other duties as these Bylaws may provide or the Board of Directors may prescribe. The Chief Financial Officer may be required to furnish bond in such amount as shall be determined by the Board of Directors. SECTION 5.07. OTHER OFFICERS. The duties of other officers elected by the Board of Directors shall be such as are customary to their respective offices and as shall be assigned to them by the President. SECTION 5.08. RESIGNATION AND REMOVAL. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date provided the successor does not take office until the effective date. The Board of Directors may remove any officer at any time with or without cause and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer. 10 ARTICLE VI. REGISTERED OFFICE AND AGENT --------------------------- The address of the initial registered office of the corporation and the name of the initial registered agent of the corporation are set forth in the original Articles of Incorporation. ARTICLE VII. FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE VIII. AMENDMENTS ---------- These Bylaws may be altered, amended or repealed and new Bylaws adopted by the affirmative vote of the holders of a majority of the outstanding stock at any regular meeting of the shareholders or special meeting called for the purpose, or by the affirmative vote of a majority of the entire Board of Directors at any regular or special meeting of the Board, unless the shareholders in amending or repealing a particular Bylaw provide expressly that the Board of Directors may not amend or repeal that Bylaw; provided, however, that the Board of Directors may not amend these Bylaws to take any action which is reserved exclusively by the shareholders pursuant to the Mississippi Business Corporation Act. If any shareholder or director, as the case may be, should object to the consideration of any proposed amendment, the proposal may not be voted upon unless notice of the proposed amendment was given at least ten (10) days prior to the meeting at which such objecting shareholder or director is entitled to vote. Any amendment, modification, repeal or addition to these Bylaws adopted by the Board of Directors may be amended or repealed by the shareholders. A Bylaw that fixes a greater quorum or voting requirement for the Board of Directors may be amended or repealed: (a) if originally adopted by the shareholders, only by the shareholders; or (b) if originally adopted by the Board of Directors, either by the shareholders or the Board of Directors. Action by the Board of Directors to adopt or amend a Bylaw originally adopted by the Board of Directors fixing a greater quorum or voting requirement must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater. The Board is without authority to amend this Article VIII. 11 EX-10.8 3 AMEND. NO. 4 OF AGREEMENT EXHIBIT 10.8 AMENDMENT NO. 4 OF AGREEMENT This Amendment No. 4 of Agreement ("Amendment No. 4") is effective as of January 1, 1997, between Office Cherifien des Phosphates ("OCP") and Mississippi Phosphates Corporation ("MPC"). WHEREAS, MPC and OCP are parties to that certain Agreement with an effective date of September 15, 1991, for the sale and purchase of all MPC's requirements of phosphate rock at its Pascagoula, plant ("Agreement"); and WHEREAS, the Agreement has been amended by Amendment No. 1 effective as of July 1, 1992, Amendment No. 2 effective as of July 1, 1993, and Amendment No. 3 effective as of January 1, 1995; and WHEREAS, MPC and OCP desire to further amend the Agreement as hereinafter set forth; and WHEREAS, MISSISSIPPI CHEMICAL CORPORATION, the parent company of MPC, agrees to be substituted to MPC in taking responsibility of the latest with respect to the environmental problems linked to the gypsum stacks; and NOW, THEREFORE, MPC and OCP hereby agree as follows: 1. Article I of the Agreement is hereby amended by changing the second sentence of the first paragraph thereof to read in its entirety as follows: The term of this Agreement shall commence on the Effective Date and shall continue until June 30, 2016. 2. The Agreement is hereby amended by adding thereto a new Article XIII, which shall read in its entirety as follows: ARTICLE XIII Subject to its timely receipt of all required governmental permits, authorizations and approvals in acceptable form, MPC intends to construct a new phosphogypsum disposal facility (the "New Gypsum Facility"), at an estimated cost of $16.2 million, which will ultimately replace the phosphogypsum disposal facility currently being utilized by MPC (the "Old Gypsum Facility"). With respect to the New Gypsum Facility and the Old Gypsum Facility, MPC and OCP agree as follows: (a) Cost of Products Sold, as defined in Article IV hereof, shall include depreciation expense related to the actual cost of the New Gypsum Facility. As each ton of phosphogypsum is placed in the New Gypsum Facility, Cost of Products Sold shall be increased by a "units- of-production" depreciation charge equal to the quotient of (i) the undepreciated cost of the New Gypsum Facility divided by (ii) the estimated number of tons of unused capacity remaining in the New Gypsum Facility. It is expected that this capacity will be utilized at reasonably uniform rates over its estimated useful life of 18 years. (b) Cost of Products Sold, as defined in Article IV hereof, shall include charges related to the estimated cost of closing the New Gypsum Facility. As each ton of phosphogypsum is placed in the New Gypsum Facility, Cost of Products Sold shall be increased by a closure charge equal to the quotient of (i) the unamortized estimated cost of closing the New Gypsum Facility divided by (ii) the estimated number of tons of unused capacity remaining in the New Gypsum Facility. The estimated cost of closing the New Gypsum Facility is $13.5 million. Closure charges related to the Old Gypsum Facility will continue to be recognized as its remaining capacity is utilized. The estimated closure cost of the Old Gypsum Facility is $9.4 million, out of which an amount of $2.24 million has to be amortized as from July 1, 1996, till saturation of the Old Gypsum storage. (c) If, prior to the actual closure of either the New Gypsum Facility or the Old Gypsum Facility, a third party assumes responsibility for the cost of closing either the New Gypsum Facility or the Old Gypsum Facility, then MPC agrees to pay to OCP an amount equal to fifty percent (50%) of the unspent portion of all closure charges which have been recognized and reflected in all previous calculations of Additional Price pursuant to Article IV of this Agreement and which relate to the facility for which the third party has assumed responsibility to close. MPC further agrees that OCP shall have no responsibility for effecting the actual closure of either the New Gypsum Facility or the Old Gypsum Facility. 3. The Agreement is hereby amended by adding thereto a new Article XIV, which shall read in its entirety as follows: ARTICLE XIV Subject to its timely receipt of all required governmental permits, authorizations and approvals in acceptable form, MPC intends to construct an expansion of the Pascagoula Plant (the "Pascagoula Plant Expansion"), which is expected to increase the Pascagoula Plant's annual production rate to approximately 900,000 short tons, at an estimated cost of $10.45 million. Cost of Products Sold, as defined in Article IV hereof, shall include depreciation expense related to the actual cost of the assets comprising the Pascagoula Plant Expansion. The assets comprising the Pascagoula Plant Expansion will be depreciated on a "straight-line" basis over their estimated useful lives, which range from five (5) to eighteen (18) years and set forth in the table hereto as Schedule 1 to this Amendment No. 4. 2 4. The Agreement is hereby amended by adding thereto a new Article XV, which shall read in its entirety as follows: ARTICLE XV MPC agrees to indemnify, hold harmless and defend OCP from and against any and all losses, costs, damages, injuries, liabilities, claims, demands, penalties, or causes of action arising out of or in connection with the environmental conditions at the Old Gypsum Facility and the New Gypsum Facility. In any case including MPC failure, MISSISSIPPI CHEMICAL CORPORATION, the parent company of MPC, will be sole responsible and will pay for all losses, costs, damages, injuries, liabilities, claims, demands, penalties, or causes of action arising out of or in connection with the environmental conditions at the Old Gypsum Facility and the New Gypsum Facility. 5. The Agreement is amended by attaching thereto Exhibit F which is attached as Schedule 1 to this Amendment No. 4. 6. Except as specifically set forth in this Amendment No. 4, all of the terms and conditions of the Agreement, as heretofore amended, shall continue in full force and effect. 7. All capitalized terms used in this Amendment No. 4 and not otherwise defined herein shall have the meanings set forth in the Agreement. IN WITNESS WHEREOF, MPC and OCP have caused this Amendment No. 4 to be duly executed as of the 1st day of January, 1997. MADE OUT IN DUPLICATE ON FEBRUARY 20, 1997. MISSISSIPPI PHOSPHATES CORPORATION OFFICE CHERIFIEN DES PHOSPHATES AND MISSISSIPPI CHEMICAL CORPORATION By: /s/ Charles O. Dunn By: /s/ Mourad Cherif ------------------- ----------------- Charles O. Dunn Mourad Cherif President General Manager 3 SCHEDULE 1 TO AMENDMENT NO. 4 OF AGREEMENT EXHIBIT F THE PASCAGOULA PLANT EXPANSION The Pascagoula Plant Expansion shall consist of all the new equipments and facilities and all improvements and modifications to the existing production units and storage facilities at the Pascagoula Plant which are assembled, constructed and installed in order to increase the Pascagoula Plant's annual production rate to approximately 900,000 short tons. The major components of the Pascagoula Plant Expansion are set forth hereinafter together with their estimated useful lives and straight-line depreciation in US$/year. SCHEDULE 1 TO AMENDMENT NO. 4 OF AGREEMENT EXHIBIT F THE PASCAGOULA PLANT EXPANSION
CAPITAL COST AND PRELIMINARY DEPRECIATION SCHEDULE INCREASE DAP PRODUCTION CAPACITY ST. LINE USEFUL LIFE DEPRECIATION COST (YRS) ESTIMATED $/Year ----------- --------------- ------------ I. PHOSPHORIC ACID PLANT EXPANSION A. Additional Digestor & Cooling $ 1,251,000 10 Years $125,100 B. Filte and Evaporator Upgrades $ 1,765,000 10 Years $176,500 C. Recycle & Sulfuric Acid System Modification in Phos Acid $ 214,000 10 Years $ 21,400 D. Sulfuric Acid Transfer Piping $ 513,000 10 Years $ 51,300 ----------- $ 3,743,000 II. DAP STORAGE $ 3,499,000 18 Years $194,389 III. DAP PLANT EXPANSION A. Neutralizer Addition $ 586,000 15 Years $ 39,067 B. Weak Acid Scrubber $ 231,000 15 Years $ 15,400 Modification C. Product Cooler Upgrade $ 475,000 15 Years $ 31,667 D. Sulfuric Acid Catalyst $ 430,000 5 Years $ 86,000 Replacement E. Granulator Upgrade $ 373,000 15 Years $ 24,867 F. Upgrade Recycle Circuit $ 477,000 15 Years $ 31,800 G. Reslope Dryer $ 141,000 15 Years $ 9,400 ----------- $ 2,713,000 IV. ENGINEERING AND SUPERVISION $ 498,000 13.75 Years $ 36,218 ----------- TOTAL I, II, III & IV $10,453,000 -----------
EX-13 4 ANNUAL REPORT EXHIBIT 13.1 MISSISSIPPI CHEMICAL CORPORATION [MAP APPEARS HERE] 1997 ANNUAL REPORT TABLE OF CONTENTS President's Message 3 The Year In Review 8 Production And Distribution Facilities 19 Products And Markets 20 & 21 Financial Highlights 23 Management's Discussion And Analysis Of Financial Condition And Results Of Operations 25 Consolidated Balance Sheets 34 Consolidated Statements Of Income 35 Consolidated Statements Of Shareholders' Equity 36 Consolidated Statements Of Cash Flows 37 Notes To Consolidated Financial Statements 38 Report Of Independent Public Accountants 56 Directors And Officers 57 Shareholder Information 58 To compete in the fertilizer market today, a successful company must adopt both a local and global perspective. On the local level, manufacturing operations and distribution facilities must be managed as efficiently and productively as possible. At the same time, a company must anticipate and respond to supply, demand and pricing factors around the globe. Over the past three years, the primary strategic emphasis of Mississippi Chemical has been to position itself to conduct business effectively on both a local and global level. Its products are sold to customers in markets as near as the southern United States and as far away as China and India; a significant portion of its raw materials are now sourced from Morocco and, beginning in 1998, The Republic of Trinidad and Tobago. This year's Annual Report, Rooted Locally, Working Globally, will provide insight into Mississippi Chemical's operations in both the local and global marketplace. To Our Shareholders For producers and marketers of fertilizer products, the term global economy rings particularly true. Ours is an industry in which the forces of both supply and demand truly are international and are becoming more so every day. Thus, at Mississippi Chemical,/1/ we make products that are used in markets as nearby as the Mississippi River delta or as far away as China and India. Not only are our markets global in scope, but so are our operations to an increasing degree. For example, we annually import more than 1 million tons of phosphate rock from Morocco as the primary raw material for our Pascagoula plant. Within the next year, we will start producing ammonia in The Republic of Trinidad and Tobago at a plant now under construction. Many of Mississippi Chemical's accomplishments during fiscal 1997 reflect our efforts to position the Company to compete in a worldwide business environment characterized by favorable long-term trends for fertilizer demand. Among the major strategic developments of the past year were the following: . Our acquisition of the fertilizer operations of First Mississippi Corporation was completed by mid-fiscal year. Through this transaction, we have added substantial anhydrous ammonia and urea capacity and augmented our distribution network with a fleet of ammonia barges and an interest in an ammonia storage terminal at Pasadena, Texas. We believe that our expanded production and distribution capacity will provide important competitive advantages in the increasingly international marketplace. The acquisition also makes Mississippi Chemical an important marketer of nitrogen to industrial users. . In Trinidad, we made continued progress at our joint venture anhydrous ammonia plant project. Construction was approximately 50 percent complete at the end of fiscal 1997, and we remain on track to start production during the spring of 1998. . To strengthen our ability to market products to customers worldwide, we agreed to join the Phosphate Chemicals Export Association, Inc., known as PhosChem. Effective Oct. 1, 1997, PhosChem will handle all export sales of our diammonium phosphate. This marketing consortium is a major force in promoting the export of U.S. concentrated phosphate products and will help support the expansion of our diammonium phosphate sales to world markets. . Our long-standing supply contract with Office Cherifien des Phosphates (OCP), the national phosphate company of Morocco, was recently extended for an additional 13 years. This arrangement should ensure a competitive supply of phosphate rock through fiscal year 2016. . We continued to invest in capacity growth at existing facilities, most notably an expansion of our nitrogen complex in Yazoo City, budgeted at $130 million, and an $11 million project to expand production at our Pascagoula diammonium phosphate plant by more than 20 percent. . In August 1996, Mississippi Chemical completed the acquisition of two potash mines in Carlsbad, N.M. The acquisition of these mines has expanded the Company's product line, providing CHARLES O. DUNN President & Chief Executive Officer THE COMPANY'S NITROGEN FERTILIZER COMPLEX IN YAZOO CITY IS UNDERGOING A MAJOR EXPANSION AT A COST OF $130 MILLION. THE EXPANSION WILL ADD A NITRIC ACID PLANT, AN AMMONIA PLANT AND ENHANCED AMMONIUM NITRATE CAPACITY. Mississippi Chemical Corporation and Subsidiaries 3 additional grades of agricultural and industrial products to our existing potash mix. This acquisition makes Mississippi Potash, Inc. the largest producer of potash in the U.S. . Mississippi Chemical's common stock began trading on the New York Stock Exchange early in the second quarter under the symbol GRO. We believe that listing on the world's premier stock market will enhance the Company's visibility with investors and benefit shareholders through improved trading liquidity. Before I discuss these developments and their implications in greater detail, let me review our results for the fiscal year. OPERATING AND FINANCIAL HIGHLIGHTS Net sales for fiscal 1997 were $520.6 million, an increase of 21.4 percent from the $428.8 million reported in fiscal 1996. Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $122.9 million in fiscal 1997, up 18.1 percent from the fiscal 1996 figure of $104.1 million. Operating income rose 7.5 percent, to $91.2 million from $84.8 million. Net income for fiscal 1997 was $55.8 million, or $2.29 per share, compared with $54.2 million, or $2.46 per share, for the prior fiscal year. There were 24,375,000 weighted average common shares outstanding in fiscal 1997, versus 21,980,000 in fiscal 1996. Our financial results partly reflected the contributions from recent acquisitions. The addition of First Mississippi's fertilizer operations during the second half of this year was largely responsible for the 14.3 percent rise in the volume of nitrogen products sold, which totaled 2 million tons for fiscal 1997. Potash volume increased 144.2 percent to 1 million tons, due to the acquisition of the Trans-Resources, Inc. potash mines in Carlsbad, N.M. A number of factors affected our performance during fiscal 1997. We experienced prolonged adverse weather conditions in our primary trade area during late winter and early spring. These conditions caused a delay in the planting season and reduced sales of nitrogen fertilizers during our third quarter. Nitrogen demand was also impacted by significant changes in crop patterns as a greater-than-expected number of farmers made the economic decision to shift from corn and cotton to soybeans which require essentially no nitrogen fertilizer. The above factors, coupled with soft international nitrogen demand due primarily to reduced urea imports in China, traditionally the world's largest importer, caused nitrogen prices to decline during the fourth quarter of fiscal 1997. In phosphates, prices declined from prior-year levels due to erratic purchase patterns by China and India, the world's largest importers of phosphates. By the end of the year, export demand had improved and diammonium phosphate prices had stabilized. Potash experienced strong demand and pricing throughout fiscal 1997. However, during early 1997, production costs increased due to low ore grade and other operational difficulties. By year's end, Mississippi Chemical Corporation and Subsidiaries 4 ore grade had improved and the other operational issues were largely resolved. A plan has been implemented to further improve ore grade by year end. Looking ahead, we see continued product price uncertainty; however, most industry analysts expect relatively high planted acres and strong fertilizer demand for 1998. STRATEGIC POSITIONING As a result of the acquisitions and expansion initiatives of the past year, Mississippi Chemical enters fiscal 1998 with significantly higher production capacity, more extensive distribution resources and a growing industrial market base to augment our traditional agricultural customers. I would like to review these developments in some detail, to provide insight as to how they have strategically positioned the Company for the opportunities we will face in the global marketplace in the years ahead. First Mississippi Acquisition. The purchase of the First Mississippi fertilizer operations was a strategic move with significant positive implications for the future of our Company. In this single transaction, we obtained full ownership of Triad Chemical, which we previously had owned jointly with First Mississippi, while also acquiring a large, modern ammonia plant adjacent to Triad. The combination of these assets, all based in Donaldsonville, La., has given us one of the premier nitrogen fertilizer complexes in the U.S., which now operates as Triad Nitrogen, Inc. It consists of two anhydrous ammonia plants with combined capacity of 1,080,000 tons per year, a urea plant with a 560,000 ton capacity, dock facilities on the Mississippi River capable of receiving ocean-going vessels and a connection to the ammonia pipeline into the Midwest. The acquisition also included interests in an ammonia storage terminal in Pasadena, Texas, and a fleet of 11 ammonia barges. Nitrogen Expansion. We have also continued with plans to expand our existing Yazoo City, Miss., nitrogen fertilizer facilities, which are on track for completion during the first half of calendar year 1998. We are adding a nitric acid plant with a 650 ton-per-day capacity and a 500 ton-per-day ammonia plant, while also expanding our ammonium nitrate capacity by 200,000 tons per year. After completion of the project, we will have additional nitric acid for sale to industrial markets. Trinidad Ammonia Plant. Another critical link in our strategy to enhance self-sufficiency and cost-effectiveness in nitrogen fertilizer operations is the ongoing construction of our anhydrous ammonia plant in The Republic of Trinidad and Tobago, developed as a joint venture with Farmland Industries, Inc. The advantages of this operation include Trinidad's abundant supply of natural gas, along with a long-term contract that ties the pricing of this key raw material to the market price of the finished product. In combination, the First Mississippi acquisition, the Yazoo City expansion and the Trinidad ammonia plant represent a sizable commitment to nitrogen fertilizer products. While on the surface Mississippi Chemical Corporation and Subsidiaries 5 this may appear to be an overconcentration of resources in one segment, we believe it will ultimately enhance our flexibility and growth prospects. For example, there are considerable opportunities to more efficiently utilize the assets of the Triad Nitrogen complex. The new Yazoo City ammonia plant and Trinidad project will increase our ammonia self-sufficiency and overall cost- effectiveness. The ammonia storage terminal and barge fleet acquired with the First Mississippi transaction have strategically improved our distribution capabilities in the U.S. industrial market. And, we have improved our ability to reach more international ammonia customers, especially those in Latin America, via Trinidad. We believe that Mississippi Chemical's investment in the nitrogen segment will prove to be well-timed, as global demand for our products in the agricultural and industrial markets should justify the growth in capacity over the long term. The forces driving fertilizer usage include the demand for more food to serve a growing population. Improving diet in many emerging nations will also increase the demand for agricultural products and require additional fertilizer application. Potash and Phosphate Products. At the same time we were investing to make our nitrogen operations more productive and more flexible, we continued to expand our other product areas. The two potash mines we acquired in Carlsbad, N.M., are adjacent to our existing potash operation and have increased our capacity to approximately 1.2 million tons per year. The larger of the acquired facilities has significant associated potash reserves which should last for several decades. At the second facility, the Company is mining in an ore zone which may be fully depleted as early as fiscal 1998. The Company is continuously monitoring its options with respect to this property. Alternatives include mining in a different ore zone, the implementation of solution mining and mine closure. The acquired mines also have provided us with additional types of potash, including those suitable for industrial users. While production from the new mines was impeded earlier in the year by a low-grade ore zone and other operational difficulties, we have largely resolved these issues. At our diammonium phosphate operation in Pascagoula, Miss., we are well along in our program to expand production and product and gypsum storage facilities. Upon completion, scheduled for June 1998, we will add approximately 180,000 tons of diammonium phosphate production per year while enhancing our cost-effectiveness. Our phosphate business will also benefit from the extension of our raw material supply agreement with Morocco's OCP and our new international marketing partnership with PhosChem, as described earlier. ENVIRONMENTAL STEWARDSHIP No Mississippi Chemical annual report to shareholders would be complete without a comment on our important environmental preservation activities. Two years ago, we committed to devote a Mississippi Chemical Corporation and Subsidiaries 6 percentage of the Company's profits to land conservation. In keeping with that commitment, we are acquiring a 3,900-acre tract of land north of Vicksburg, Miss., on the Mississippi River. We currently have a 50 percent ownership interest in the property and expect to purchase the remainder over the next few years. The project calls for the replanting of native hardwoods, the preservation of wetlands and the restoration of some barren areas. The property will be maintained as a wildlife preserve and will be made available for research and the promotion of wildlife management. It is an exciting venture. LOOKING AHEAD As we look toward fiscal 1998 and beyond, we are very optimistic about the prospects for our Company and our industry. Domestic planting appears to be poised for a strong year, and the international markets should continue to provide attractive growth opportunities. Our emphasis during the next year will be on completing the integration of operations acquired from First Mississippi and Trans-Resources; continuing the expansion projects in Yazoo City, Pascagoula and Trinidad; developing more industrial markets; and, in general, maximizing the potential of the domestic and international markets for our products. We enter the new fiscal year as a larger company and one with a stronger strategic position in the global fertilizer industry. What has not changed, however, is the value system and culture of Mississippi Chemical. We are a business that prizes the stability and dedication of our workforce, the loyalty of our customers, the confidence of our shareholders and the support of our communities. And, we are determined to work constructively with all of these constituencies so that we can grow and prosper together. The theme of this annual report is rooted locally, working globally. As you read through it, you will see how we draw upon the strengths of our local operations to create a Company with a strong presence in the worldwide marketplace. We thank you for your continued support and assure you of our commitment to making your association with Mississippi Chemical a beneficial one. /s/Charles O. Dunn Charles O. Dunn President & Chief Executive Officer - --------------------- /1/ In this annual report, the terms "Mississippi Chemical" and "Company" include all subsidiaries and affiliates of Mississippi Chemical Corporation. In many cases, the activities or assets described are those of a subsidiary or an affiliate rather than of Mississippi Chemical directly. Mississippi Chemical Corporation and Subsidiaries 7 MISSISSIPPI CHEMICAL: ROOTED LOCALLY, WORKING GLOBALLY The changing dynamics of the fertilizer industry are creating new challenges and new opportunities worldwide. The forces of supply and demand have become truly global, and events that take place in a market in one part of the world will have almost immediate implications for every other major market. Mississippi Chemical is well positioned to meet the challenges and benefit from the opportunities in this increasingly international marketplace. The Company does business on a broad international scale, both sourcing and selling its products in a variety of regions. Despite operating in diverse locations, Mississippi Chemical adapts its activities to the needs and opportunities in each locality, as well as in the worldwide market. Thus, the theme of this year's annual report is: Rooted Locally, Working Globally. GLOBAL DYNAMIC: SUPPLY AND DEMAND Mississippi Chemical's activities in the world fertilizer market should be viewed in the context of the global developments in supply and demand. By the year 2005, it is estimated that the population of the world will be over 6.5 billion. This is approximately 1.25 billion more people than in 1990 -- an increase of nearly 24 percent in just 15 years./2/ Population growth on such a wide scale has been, and should continue to be, an important driver of fertilizer use worldwide. Experts believe that much of the world has under- invested in agriculture for the past decade, leading grain stocks to grow at a slower pace than population. As a result, world grain inventories are near the lowest levels of the past 35 years, while population is significantly higher. Besides population growth, several other forces are expected to add to the pressure for greater efficiency in the use of agricultural resources -- efficiency gains that rely heavily on the application of fertilizer products. The gradual shift to free-market economies in China, other Asian nations and Eastern European countries, along with enhanced wealth in emerging economies elsewhere, are creating higher standards of living and, thus, dietary improvements. At the same time, the supply of arable land is declining as industrialization becomes more commonplace. Therefore, the required increases in agricultural yields must be achieved through more advanced farming techniques, including fertilizer usage. For Mississippi Chemical and the world's other leading fertilizer producers, the long-term implications of these trends are very positive. The worldwide consumption of fertilizer is expected to grow at rates ranging from 2.5-3.5 percent for nitrogen products, 3-4 percent for phosphates and 4-5 percent for potash./3/ EACH YEAR, MORE THAN 1 MILLION TONS OF PHOSPHATE ROCK LEAVE MOROCCO, DESTINED FOR THE COMPANY'S DAP PLANT IN PASCAGOULA, MISSISSIPPI. THE COMPANY HAS A LONG- TERM SUPPLY CONTRACT WITH THE MOROCCAN PHOSPHATE COMPANY THROUGH 2016. Mississippi Chemical Corporation and Subsidiaries 8 [BLANK PAGE APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 9 [BLANK PAGE APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 10 At the same time, significant additions are being made to capacity. For instance, China and India have built new nitrogen fertilizer plants or are now constructing them; North Africa and several Middle Eastern nations are in the midst of projects to add phosphate capacity; and some Latin American countries, such as Brazil, may bring more potash capacity on-stream. While world nitrogen supply may exceed demand in the next few years due to this capacity growth, overall fertilizer supply and demand will be in balance over the long term. Mississippi Chemical is prepared to compete in this global business environment. It has moved selectively into international markets: striking a new agreement to market phosphate products overseas, constructing an ammonia plant in Trinidad and obtaining raw material from Morocco. At the same time, the Company has strengthened its presence in the U.S. market through the acquisition of First Mississippi's fertilizer operations and Trans-Resources' potash operations, as well as several capacity expansion programs elsewhere. To provide a perspective on how Mississippi Chemical is rooted locally, but working globally, we have chosen to focus on several of its operations around the world. TRINIDAD: TRAINING TOMORROW'S WORKERS In The Republic of Trinidad and Tobago, Mississippi Chemical is constructing the world's largest single-train ammonia facility through a venture jointly owned with Farmland Industries, Inc. The Trinidad project is important to the Company's future, as it will not only increase its ammonia capacity by 350,000 short tons, but will also ensure a plentiful and cost-effective supply of natural gas. Since natural gas is a basic and critical raw material for fertilizer products, its cost can, by itself, determine profitability. The plant is expected to be in operation by the late spring of 1998. To meet the staffing needs of its new facilities, Mississippi Chemical draws on expertise honed during nearly 50 years of constructing and operating plants. The Company has developed an approach to teaching basic skills and best practices to inexperienced employees in a new plant. The use of the Company's approach by the Trinidad facility in meeting its staffing needs illustrates the interplay of global and local aspects of the Company's operations. In the case of the Trinidad facility, all but two of the plant's new employees are native Trinidadians. While the majority of new employees have had experience in the fertilizer industry, a substantial number THE COMPANY AND ITS JOINT VENTURE PARTNER ARE BUILDING THE WORLD'S LARGEST SINGLE-TRAIN AMMONIA PLANT IN TRINIDAD, PROVIDING ACCESS TO AN ABUNDANT SUPPLY OF COMPETITIVELY PRICED NATURAL GAS AND A BETTER OPPORTUNITY TO REACH LATIN AMERICAN MARKETS. Mississippi Chemical Corporation and Subsidiaries 11 must be trained. Therefore, the Trinidad plant management formed a relationship with a local technical training institute to meet the educational needs of its workforce of 84 workers, virtually all of whom have already been hired to prepare for the start up of operating systems, development of manuals, training and other activities related to starting up the plant. The training institute provided classroom facilities and faculty and developed the basic plant operating course. Experienced operating supervisors and senior technical managers then refined the course. Working together with assistance from the plant construction firm and numerous equipment manufacturers, the institute and senior plant personnel developed 34 operating manuals. After an intensive three- month classroom-training regimen now in progress, the employees participating in the program will have another three-months of hands-on training on site. By start-up, even inexperienced workers will be ready to work alongside veteran operators in the new plant. FOSTERING INTERNATIONAL COOPERATION As a leading U.S.-based fertilizer producer, Mississippi Chemical frequently plays host to visiting delegations of industry executives, trade organization personnel and government officials from other countries. In recent years, the Company has participated in such information exchange programs with representatives from England, France, India and Morocco. Recently, a group organized by the Chinese Ministry for the Chemical Industry visited Yazoo City and met with personnel from the Company's operations, technical, marketing, communications and other departments. They also visited local farms and fertilizer dealers. Among a number of presentations by their U.S. counterparts, the Chinese delegation heard about the strong market-driven orientation of Mississippi Chemical and other American fertilizer producers, as well as our emphasis on safety and the environment. In return, Mississippi Chemical gained insights into the Chinese market and distribution infrastructure and formed relationships that may be valuable in future business ventures. China is the world's largest fertilizer consumer with about one-fourth of total world consumption. In international trade, the Chinese are second only to the U.S., representing about 15 percent of total fertilizer imports. With these impressive numbers, Mississippi Chemical Corporation was eager to exchange views with such a large buyer and consumer of fertilizer products. WHEN REPRESENTATIVES OF CHINA, ONE OF THE WORLD'S LEADING FERTILIZER CONSUMERS, WANTED TO EXCHANGE INDUSTRY INSIGHTS, ONE OF THE COMPANIES THEY VISITED WAS MISSISSIPPI CHEMICAL. Mississippi Chemical Corporation and Subsidiaries 12 [BLANK PAGE APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 13 [BLANK PAGE APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 14 U.S.: EXPANDING MARKETING, SALES AND DISTRIBUTION A world tour of Mississippi Chemical's activities would not be complete without a visit to its operations in the United States. One of the Company's strengths is its domestic marketing and distribution network, which has grown and evolved during Mississippi Chemical's nearly 50 years in the U.S. fertilizer industry. The Company serves a diverse customer base of independent fertilizer dealers, farm cooperatives and regional and national distributors, as well as feed and industrial product manufacturers, located across the Southern and Midwestern regions of the U.S. Domestic distribution of fertilizer products is accomplished by rail, trucks, pipeline, barges and ocean-going vessels and is supported by 31 distribution terminals. In fiscal 1997, this distribution infrastructure was expanded through the acquisition of First Mississippi's fertilizer operations, which included interests in 11 ammonia barges plying the U.S. inland and intracoastal canal systems, plus an interest in an ammonia storage terminal near Houston, Texas. The Company also has two modern ocean-going vessels on long-term charter, beginning in 1998, to facilitate the movement of anhydrous ammonia from the Trinidad plant. With this extensive network, the Company has the ability to supply not only agricultural customers in its core region, but, increasingly, industrial users as well. MOROCCO: ENSURING STABLE SUPPLY Since 1991, Mississippi Chemical has enjoyed the benefits of a long-term supply contract with Office Cherifien des Phosphates (OCP), the national phosphate company of Morocco. Under this arrangement, the price for phosphate rock is based on costs incurred by certain domestic competitors of the Company, as well as the financial performance of Mississippi Chemical's phosphate operations. The Company's contract with OCP was recently extended through fiscal year 2016. This strategic relationship with OCP should sustain the Pascagoula plant as an economically competitive phosphate operation for years to come. Both the Company and OCP have made renewed commitments which will enhance the plant facilities at Pascagoula. An expansion of this facility is now under construction. DEEP BENEATH THE EARTH'S SURFACE, THE COMPANY EXTRACTS POTASH FROM ITS CARLSBAD, NEW MEXICO MINES. THE PURCHASE OF TWO ADDITIONAL MINES EARLY IN FISCAL 1997 DOUBLED THE COMPANY'S POTASH CAPACITY, BROUGHT NEW GRADES OF POTASH PRODUCTS ON STREAM AND EXPANDED THE COMPANY'S INDUSTRIAL CUSTOMER BASE. Mississippi Chemical Corporation and Subsidiaries 15 PHOSCHEM: INCREASING INTERNATIONAL ACCESS To broaden its access to the world markets for phosphate products, the Company joined the Phosphate Chemicals Export Association, Inc., effective October 1997. The organization, known as PhosChem, handles overseas marketing and distribution for the leading phosphate fertilizer producers in North America. In calendar 1996, PhosChem members exported approximately 4.4 million short tons of diammonium phosphate (DAP). India and China have been the largest international consumers of DAP in recent years, with Argentina, Australia, Japan, Pakistan and Thailand also becoming increasingly important customers. Mississippi Chemical's DAP export business should benefit from PhosChem's network of sales representatives and its strong international contacts. At the same time, because of its deep-water port in Pascagoula, the Company will contribute significantly to PhosChem's global distribution capabilities. Plans are in progress to expand these facilities and add additional storage. EXPORTING A CORPORATE CULTURE Although it operates in diverse markets, the Company believes in treating its employees, customers, suppliers and other business associates in every region with the same measure of integrity, fairness and respect. For nearly 50 years, since its start as a cooperative, Mississippi Chemical has fostered a culture that might be best summed up by the phrase doing the right thing. A deep concern for workplace safety and environmental stewardship are also part of the company-wide ethic. This well-established corporate culture may be Mississippi Chemical's most important export. As a result, its 1,700 employees share core values that transcend national borders -- core values which are equally crucial to doing business locally or globally. - --------------------- SOURCES: /2/ The World Bank. /3/ Brokerage firm reports. FOLLOWING THE COMPANY'S ACQUISITION OF FIRST MISSISSIPPI'S HALF INTEREST IN TRIAD CHEMICAL AND ITS ADJACENT AMPRO AMMONIA PLANT, THE COMPANY OPERATES ONE OF THE PREMIER NITROGEN FERTILIZER COMPLEXES IN THE U.S. AT DONALDSONVILLE, LOUISIANA. Mississippi Chemical Corporation and Subsidiaries 16 [BLANK PAGE APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 17 OUR CORPORATE HISTORY In September of 1948, under the general laws of Mississippi, an agricultural cooperative called Mississippi Chemical Corporation was organized. As a cooperative, Mississippi Chemical's primary business was to provide fertilizer products to over 16,000 shareholders pursuant to preferred patronage rights. The shareholder-patron received a patronage refund on purchases to the extent of the purchase price of the product over the cost of manufacturing and distributing such product minus any allocated reserve. In 1950, Mississippi Chemical constructed the first cooperative nitrogen manufacturing plant in the world at Yazoo City, Miss. On June 28, 1994, Mississippi Chemical shareholders approved a Plan of Reorganization whereby the Company began its operations as a regular business corporation as of July 1, 1994. Today, approximately 200,000 farmers receive their fertilizer supplies from Mississippi Chemical Corporation. The Company manufactures nitrogen fertilizers at its facilities in Yazoo City, Miss., and at an ammonia and urea fertilizer complex in Donaldsonville, La., owned by the Company's wholly owned subsidiary, Triad Nitrogen, Inc. Another subsidiary of the Company, Mississippi Potash, Inc., owns and operates potash mines and refineries near Carlsbad, N.M. Diammonium phosphate (DAP) is produced at the Pascagoula, Miss., facility, which is owned by the Mississippi Phosphates Corporation, a wholly owned subsidiary of the Company. The majority of Mississippi Phosphates' DAP production is placed in international markets. Following the reorganization in 1994, Mississippi Chemical has maintained its traditional customer base and continues marketing its products to fertilizer users in the United States as well as international markets. Mississippi Chemical Corporation and Subsidiaries 18 PRODUCTION AND DISTRIBUTION FACILITIES [UNITED STATES MAP APPEARS HERE] *PRODUCTION FACILITIES *DISTRIBUTION FACILITIES *POTASH SALES OFFICE FACILITIES AND PRODUCTION CAPACITIES MISSISSIPPI CHEMICAL CORPORATION Yazoo City, Mississippi Anhydrous Ammonia -- 500,000 ton capacity Ammonium Nitrate (Amtrate(R) -- 750,000 ton capacity Nitrogen Solutions (N-Sol 32(R) -- 600,000 ton capacity MISSISSIPPI PHOSPHATES CORPORATION PASCAGOULA, MISSISSIPPI Diammonium Phosphate (DAP) -- 720,000 ton capacity MISSISSIPPI POTASH, INC./1/ CARLSBAD, NEW MEXICO Agricultural Grade Potash -- 984,000 ton capacity Industrial Grade Potash -- 306,000 ton capacity TRIAD NITROGEN, INC. DONALDSONVILLE, LOUISIANA Urea Synthesis -- 560,000 ton capacity Prilled Urea -- 420,000 ton capacity Ammonia -- 1,080,000 ton capacity /1/ Capacities shown represent Mississippi Potash and its wholly owned subsidiary, Eddy Potash, Inc. Mississippi Chemical Corporation and Subsidiaries 19 [GRAPH APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 20 [GRAPH APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 21 Products and Markets Yazoo City, Miss. Donaldsonville, La. MCC's nitrogen products include anhydrous ammonia, fertilizer-grade ammonium nitrate which is sold under the Company's trade name Amtrate(R), urea/ammonium nitrate (UAN) solutions which are sold under the Company's trade name N-Sol 32(R), nitric acid and urea. Ammonia N The basic nitrogen product is anhydrous ammonia, which contains 82 percent nitrogen and is the most concentrated form of nitrogen fertilizer available. Ammonia is synthesized from natural gas, atmospheric nitrogen and steam. Anhydrous ammonia is used directly as a preemergent fertilizer for most row crops. Most of the ammonia produced by MCC is used as a raw material for the manufacture of other nitrogen fertilizer products. Ammonium Nitrate N Ammonium nitrate contains 34 percent nitrogen and is manufactured by reacting anhydrous ammonia and nitric acid. Due to its stable nature, ammonium nitrate is the fertilizer of choice for such uses as pastures and no-till row crops where fertilizer is spread upon the surface and is subject to volatilization losses. MCC is the largest manufacturer and marketer of ammonium nitrate in the U.S. Nitric Acid N Nitric acid is made by oxidizing ammonia with air. It is a primary ingredient in the production of ammonium nitrate fertilizer. Nitric acid is also used in the industrial market to produce end products such as nylon fibers, polyurethane foams, rubber chemicals and specialty fibers like Kevlar(R). MCC is the largest producer of nitric acid in one location in the U.S. UAN Solutions (N-Sol 32(R)) N N-Sol 32(R) is a 32 percent nitrogen liquid product made by mixing urea liquor and ammonium nitrate liquor. N-Sol 32(R) is used in direct application to cotton, corn, grains and pastures as well as being used in liquid fertilizer blends. Over the past 20 years, there has been a shift in product preference from directly applied ammonia to UAN solutions because of the difficulties of applying and the high cost of application equipment for ammonia. Urea -- MCC sold approximately 297,000 tons of prilled urea and approximately 127,000 tons of urea melt which it produces primarily at its Triad facility. Urea is synthesized by the reaction of ammonia and carbon dioxide and then solidified in prill form. With a 46 percent nitrogen content, urea is the most concentrated form of dry nitrogen and is considered a long-lasting form of nitrogen. In the MCC trade area, prilled urea is the nitrogen product of choice for topdressing rice, and most of the Company's prilled urea is aerially broadcast on rice crops in Arkansas, Louisiana, Mississippi and Texas. DAP -- DAP is the most common form of phosphate fertilizer, containing 18 percent nitrogen and 46 percent phosphate by weight. DAP is produced by reacting phosphate rock with sulfuric acid to produce phosphoric acid, which is then combined with ammonia. DAP is an important fertilizer for both direct application and for use in blended fertilizers applied to all major types of row crops. Sulfuric Acid -- Sulfuric acid is made by burning elemental sulfur in air. It is a primary ingredient in the production of phosphoric acid. Sulfuric acid is also used for a wide range of industrial applications, involving organic and petrochemical processes, oil refining, inorganic chemicals, metal processing, wood pulping and textiles. Potash -- MCC produces both red and white potash from three mines and associated refining facilities in Carlsbad, N.M. Two types of ore refining processes are used: flotation to produce red and hot leech crystallization to produce the higher purity white potash. A portion of both the red and white standard potash is converted to a granular product which is used as a direct application fertilizer and in bulk blending of agricultural products N both of which are applied to all major types of row crops. The balance of the white product is consumed in the specialty and industrial markets. Pascagoula, Miss. MCC produces diammonium phosphate (DAP) at its Pascagoula, Miss. facility. Sales of DAP are primarily into international markets. Carlsbad, N.M. MCC produces potash at its mines and facilities near Carlsbad, N.M. The Company's potash products include red granular, red standard, white granular, white standard, white coarse, industrial standard, soluble and industrial soluble. 1 The company purchases its ammonia for DAP production from third parties. Mississippi Chemical Corporation and Subsidiaries 22 FINANCIAL HIGHLIGHTS
Income Statement Data: Fiscal Years Ended June 30 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 520,569 $ 428,789 $ 388,154 $ 309,360 $ 289,125 Operating income $ 91,209 $ 84,818 $ 80,969 $ 37,905 $ 29,180 Income from continuing operations before cumulative effect of change in accounting principle $ 55,815 $ 54,178 $ 52,230 $ 26,912 $ 22,681 Net income $ 55,815 $ 54,178 $ 52,230 $ 36,523 $ 4,790 Income from continuing operations assuming conversion from a cooperative to a regular business corporation as of July 1, 1992 (1) n/a n/a n/a $ 21,415 $ 17,533 Earnings per share (2) $ 2.29 $ 2.46 $ 2.34 $ 1.10 $ 0.92 Weighted average common shares outstanding (3) 24,375 21,980 22,365 19,454 19,035 BALANCE SHEET DATA: June 30 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Working capital $ 53,910 $ 81,613 $ 70,790 $ 34,931 $ 22,802 Total assets $ 858,545 $ 341,006 $ 302,215 $ 298,430 $ 296,053 Long-term debt, excluding long-term debt due within one year $ 244,516 $ - $ 2,478 $ 57,217 $ 52,357 Shareholders' equity $ 439,429 $ 247,825 $ 227,307 $ 142,956 $ 119,574 Cash dividends declared per common share (4) $ 0.40 $ 0.36 $ 0.16 $ - $ -
(1) For 1994 and 1993, the Company operated as a cooperative and realized deductions for income taxes for amounts paid in cash as patronage refunds to its shareholder-members. If the conversion from a cooperative to a regular business corporation had occurred as of July 1, 1992, income taxes would have been increased by the following approximate amounts: $5.5 million and $5.1 million for fiscal 1994 and 1993, respectively. (2) For 1994 and 1993, earnings per share reflect the reorganization of the Company from a cooperative to a regular business corporation as if it had occurred July 1, 1992, and is based on income from continuing operations. (3) For 1994 and 1993, weighted average common shares outstanding reflect the reorganization of the Company from a cooperative to a regular business corporation as if it had occurred July 1, 1992. (4) For 1994 and 1993, the Company operated as a cooperative and paid cash patronage refunds in lieu of cash dividends. Mississippi Chemical Corporation and Subsidiaries 23 [BLANK PAGE APPEARS HERE] Mississippi Chemical Corporation and Subsidiaries 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's fiscal 1997 results reflect record sales, operating income and net income. Net sales increased 21.4% to $520.6 million from $428.8 million in 1996. Operating income increased 7.5% to $91.2 million from $84.8 million in 1996, and net income increased 3.0% to $55.8 million from $54.2 million in 1996. These results primarily reflect higher sales volumes for the Company's nitrogen and potash products. The volume increases were largely due to the additional tonnage available for sale resulting from the Company's acquisitions during the fiscal year. In August 1996, the Company acquired substantially all of the assets of New Mexico Potash Corporation and Eddy Potash, Inc. (the "Potash Acquisitions"), from Trans-Resources, Inc. In December 1996, the Company acquired the fertilizer operations of First Mississippi Corporation ("First Mississippi") which included anhydrous ammonia and urea facilities. The Company's sales prices for each of its nitrogen products (ammonia, ammonium nitrate, urea and N-Sol) declined during the year; however, due to the sales product mix, the Company's weighted average nitrogen sales price increased 5.8% to $152 in fiscal 1997 from $144 in fiscal 1996. The Company's sales product mix in fiscal 1997 included a higher percentage of anhydrous ammonia and urea tons sold at higher prices when compared to the Company's other nitrogen products. China, traditionally the world's largest buyer of DAP, reduced imports in 1997; however, DAP sales to both the domestic and international markets were up. Competition to capture sales outside of the Chinese market resulted in a decline in DAP prices from the near record levels of the previous year. During fiscal 1997, the Company's DAP prices were down 6.0% to $177 per ton compared to $188 per ton for fiscal 1996. For fiscal 1997, the average sales price of potash was $80 per ton compared to $71 per ton for fiscal 1996. This 13.6% increase in potash prices is attributable to continued strengthening in both the domestic and international markets and the inclusion of value added industrial grades of potash in the Company's product mix. The Company's results for fiscal 1997 were adversely impacted by an 11% increase in the price for natural gas, a signicant raw material for the production of nitrogen fertilizers. The natural gas industry had difculty replenishing inventories during the summer of 1996, resulting in sharply higher prices during the first half of fiscal 1997. Natural gas prices declined somewhat during the second half of fiscal 1997. At June 30, 1997, storage inventory levels had increased slightly and long-term natural gas supplies appeared adequate to meet projected demand. The Company's gas prices can be signicantly influenced by factors such as weather, gas transportation interruptions and competing fuel prices. During the current year, demand for the Company's nitrogen products was negatively impacted by adverse weather conditions at the beginning of the planting season and by an increase in acres planted in soybeans, which require less nitrogen fertilizers than other traditional crops. The increase in soybean acres came at the expense of cotton and corn in the Company's primary trade area. Both cotton and corn require nitrogen fertilizers to produce optimal yields. This year's shift to planting more soybeans in the Company's trade area was driven by historically high soybean prices. Looking forward, U.S. and world grain stocks remain at low levels. Global food demand also remains strong and most industry analysts expect farmers to plant fence-row-to-fence-row in fiscal 1998. The Company expects that, due to the anticipated Mississippi Chemical Corporation and Subsidiaries 25 record soybean crop this year, many farmers will return to planting corn and cotton in the Company's primary trade area in fiscal 1998, thereby increasing the demand for nitrogen fertilizers. With the passage of the Freedom to Farm Act, farmers now have greater flexibility in the crops they choose to plant. It is likely that, in the future, planted acreage will shift between crops as farmers try to maximize their economic return. The Company's results of operations have historically been influenced by a number of factors beyond the Company's control, which have, at times, had a signicant effect on the Company's operating results. Fertilizer demand and prices are highly dependent upon conditions in the agricultural industry and can be affected by a variety of factors, including planted acreage, United States government agricultural policies, projected grain stocks, weather and changes in agricultural production methods. The Company's results can also be affected by such factors as the relative value of the U.S. dollar, foreign agricultural policies (in particular the policies of the governments of India and China regarding subsidies of fertilizer imports), and the hard currency demands of countries such as those of the former Soviet Union. RESULTS OF OPERATIONS Following are summaries of the Company's sales results by product categories: Fiscal Years Ended June 30 - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- NET SALES: Nitrogen $ 308,441 $ 255,195 $ 240,692 DAP 128,076 142,084 117,495 Potash 81,945 29,553 27,433 Other 2,107 1,957 2,534 - -------------------------------------------------------------------------------- Net Sales $ 520,569 $ 428,789 $ 388,154 ================================================================================ Fiscal Years Ended June 30 - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- TONS SOLD: Nitrogen 2,023 1,770 1,748 DAP 723 754 713 Potash 1,020 418 357 Mississippi Chemical Corporation and Subsidiaries 26 Fiscal Years Ended June 30 - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Average Sales Price Per Ton: Nitrogen $ 152 $ 144 $ 138 DAP $ 177 $ 188 $ 165 Potash $ 80 $ 71 $ 77 FISCAL 1997 COMPARED TO FISCAL 1996 NET SALES. Net sales increased 21.4% to $520.6 million in fiscal 1997, from $428.8 million in fiscal 1996, primarily as a result of increased sales volumes for nitrogen and potash fertilizers. Nitrogen fertilizer sales increased 20.9% through an increase in tons sold of 14.3% and a 5.8% increase in sales prices. The volume increase is attributable to an increase in anhydrous ammonia and urea sales due to the acquisition of the fertilizer operations of First Mississippi which was partially offset by lower sales volumes for nitrogen solutions and ammonium nitrate. During the current year, the weighted average nitrogen sales price increased by 5.8% over the prior year primarily due to a 340,000-ton increase in anhydrous ammonia sales and an 111,000-ton increase in urea sales over the prior year. Prices for individual nitrogen products during the current year were similar to those in the prior year with the exception of urea, which was down approximately 4.6%. Sales of DAP decreased 9.9% as a result of a 6.0% decrease in the average price per ton and a 4.1% decrease in tons sold. The decrease in average sales prices was the result of aggressive competition for non-Chinese DAP sales during the current year. Potash sales increased 177.3% as a result of a 144.2% increase in tons sold and a 13.6% increase in the average price per ton. This increase in volume is the result of increased tonnage made available through the Potash Acquisitions completed during August 1996. Potash prices increased due to strengthening in both the domestic and international markets and the inclusion of value added industrial grades of potash in the Company's product mix. TRADING LOSS ON BROKERED PRODUCT. Following the acquisition of the fertilizer operations of First Mississippi, the Company routinely trades or brokers ammonia in the open market. During fiscal 1997, the Company brokered approximately 177,000 short tons of ammonia. Brokered ammonia sales of approximately $32.3 million and purchases of approximately $33.2 million resulted in a $57,000 net loss after considering certain purchase price adjustments associated with the acquisition. COST OF PRODUCTS SOLD. For fiscal 1997, the Company's cost of products sold increased to $367.0 million from $291.4 million in fiscal 1996. As a percentage of net sales, cost of products sold increased to 70.5% from 68.0%. This increase in cost of products sold, as a percentage of net sales, is the result of the Company incurring higher costs per ton for nitrogen and potash partially offset by lower costs per ton for DAP. Through the Potash Acquisitions, the Company's current year sales also included a higher proportion of potash sales which have a higher percentage of cost to sales. This increase, as a percentage of net sales, was partially offset by higher weighted average sales prices for nitrogen and potash. For fiscal 1997, nitrogen fertilizer Mississippi Chemical Corporation and Subsidiaries 27 cost per ton increased primarily as a result of higher natural gas costs and higher depreciation associated with the First Mississippi acquisition. These higher costs were partially offset by reduced purchases of ammonia and lower maintenance and labor costs during the current year. During the prior fiscal year, the Company incurred higher maintenance and labor costs and increased purchases of ammonia due to a scheduled biennial maintenance turnaround at the Company's Yazoo City facility. For fiscal 1997, DAP costs per ton decreased as a result of lower costs for phosphate rock and sulfur, partially offset by higher ammonia costs. Phosphate rock costs decreased due to the pricing formula in the Company's phosphate rock supply contract that is based on the phosphate rock costs incurred by certain other domestic phosphate producers, and the financial performance of the Company's phosphate operations. SELLING EXPENSES. For fiscal 1997, selling expenses increased to $30.7 million from $27.9 million in fiscal 1996. As a percentage of net sales, selling expenses decreased to 5.9% for fiscal 1997, from 6.5% in fiscal 1996. This decrease, as a percentage of net sales, was primarily the result of the Company's sales including less tonnage sold on a delivered basis and higher weighted average sales prices for nitrogen and potash. This decrease was partially offset by higher transportation expenses for the Company's nitrogen products. The Company also experienced increased costs for sales administration and storage during the current fiscal year due to its Potash Acquisitions and the acquisition of First Mississippi. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased to $31.7 million in fiscal 1997, from $24.7 million in fiscal 1996. As a percentage of net sales, general and administrative expenses increased to 6.1% from 5.8%. This increase is primarily the result of the amortization of goodwill associated with the acquisition of First Mississippi in December 1996. In addition, the Company experienced increased royalties and other administrative costs associated with the Potash Acquisitions. OPERATING INCOME. As a result of the above factors, operating income increased to $91.2 million for fiscal 1997, from $84.8 million in fiscal 1996, a 7.5% increase. INTEREST, NET. For fiscal 1997, net interest expense was $4.3 million compared to net interest income of $2.2 million in fiscal 1996. This increase in net interest expense was primarily the reflection of higher interest expense resulting from higher levels of borrowings and lower interest income earned due to lower levels of investments during fiscal 1997. This increase was partially offset by interest income received on income tax refunds related to a prior period. Also, during the current year, the Company capitalized $3.9 million of its interest costs. INCOME TAX EXPENSE. For fiscal 1997, income tax expense increased to $34.8 million from $34.3 million in fiscal 1996. This increase is primarily the result of changes in earnings during the current fiscal year. The Company also incurred an increase in the effective tax rate during the current year due to the nondeductible amortization of goodwill associated with the acquisition of First Mississippi in December 1996. This increase was offset by a decrease in the Company's effective state income tax rate during the current year. NET INCOME. As a result of the foregoing, net income increased to $55.8 million in fiscal 1997, from $54.2 million in fiscal 1996. Mississippi Chemical Corporation and Subsidiaries 28 FISCAL 1996 COMPARED TO FISCAL 1995 NET SALES. Net sales increased 10.5% to $428.8 million in fiscal 1996 from $388.2 million in fiscal 1995, primarily as a result of higher sales prices for nitrogen and DAP fertilizers and increased sales volumes for all product groups. Nitrogen fertilizer sales increased 6.0% as a result of a 4.7% increase in prices and a 1.3% increase in tons sold. During fiscal 1996, the Company's ammonium nitrate sales decreased 6.1% primarily due to the absence of tonnage obtained through a contract with Air Products and Chemicals, Inc. in the prior year which is no longer in effect. Sales of DAP increased 20.9% as a result of a 14.4% increase in prices and a 5.7% increase in tons sold. Potash sales increased 7.7% as a result of a 17.1% increase in tons sold partially offset by an 8.0% decrease in prices. COST OF PRODUCTS SOLD. Cost of products sold increased to $291.4 million in fiscal 1996 from $254.6 million in fiscal 1995. As a percentage of net sales, cost of products sold increased to 68.0% in fiscal 1996 from 65.6% in fiscal 1995. This increase, as a percentage of net sales, reflects increases in the production cost per ton for nitrogen fertilizers and DAP partially offset by higher sales prices for nitrogen and DAP. During fiscal 1996, the Company incurred higher costs related to its nitrogen products due to higher natural gas costs, increased purchases of ammonia used as a raw material and upgraded to other nitrogen fertilizer products, and higher maintenance and labor costs. Maintenance and labor costs were higher due to a scheduled biennial maintenance turnaround at the Company's Yazoo City facility in fiscal 1996. Purchases of ammonia also increased as a result of the scheduled turnaround, which reduced supplies of internally produced ammonia. DAP costs per ton increased during fiscal 1996 as a result of higher costs for raw materials, primarily phosphate rock. Phosphate rock costs increased due to the pricing formula in the Company's phosphate rock supply contract which bases the price of this raw material on the phosphate rock costs incurred by certain other domestic phosphate producers, and the financial performance of the Company's phosphate operations. Potash production costs per ton increased 5.5% primarily due to lower volumes produced at the Carlsbad facility during fiscal 1996. Production levels were lower primarily because of a lower ore grade resulting from mining in a salt deposit that was unexpectedly encountered during January and February of fiscal 1996. SELLING EXPENSES. Selling expenses decreased to $27.9 million in fiscal 1996, from $29.2 million in fiscal 1995. As a percentage of net sales, selling expenses decreased to 6.5% in fiscal 1996, from 7.5% in fiscal 1995. This decrease was the result of increased sales prices for DAP and nitrogen fertilizers and lower delivery costs during fiscal 1996 due to a product mix that included a lower percentage of tons sold on a delivered basis. These decreases were partially offset by higher storage costs during fiscal 1996. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased to $24.7 million in fiscal 1996, from $23.3 million in fiscal 1995. This increase was primarily due to increased franchise taxes, higher depreciation expenses and decreased service fees received from a former subsidiary which reduced the Company's general and administrative expenses in fiscal 1995. As a percentage of net sales, general and administrative expenses decreased to 5.8% in fiscal 1996 from 6.0% in fiscal 1995. This decrease was primarily the result of increased sales prices for DAP and nitrogen fertilizers. Mississippi Chemical Corporation and Subsidiaries 29 OPERATING INCOME. As a result of the above factors, operating income increased to $84.8 million in fiscal 1996, from $81.0 million in fiscal 1995, a 4.8% increase. INTEREST, NET. For fiscal 1996, net interest income was $2.2 million compared to net interest expense of $52,000 in fiscal 1995. This change is primarily a reflection of lower interest expense incurred during fiscal 1996 resulting from lower borrowing levels. The Company had no long-term debt at June 30, 1996. The Company also experienced higher interest income during fiscal 1996 due to higher levels of investments. INCOME TAX EXPENSE. Income tax expense increased to $34.3 million in fiscal 1996, from $29.2 million in fiscal 1995. This increase is the result of the change in earnings during the current year and the utilization of alternative minimum tax credits during fiscal 1995. NET INCOME. As a result of the foregoing, net income increased to $54.2 million in fiscal 1996, from $52.2 million in fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company had cash and cash equivalents of $8.2 million, compared to $60.2 million at June 30, 1996, a decrease of $52.0 million. At June 30, 1996, cash and cash equivalents had increased to $60.2 million from $29.6 million at June 30, 1995, an increase of $30.6 million. OPERATING ACTIVITIES. For fiscal 1997, 1996 and 1995, net cash provided by operating activities was $72.6 million, $94.6 million and $78.7 million, respectively. INVESTING ACTIVITIES. Net cash used in investing activities was $195.5 million, $27.1 million and $26.9 million for fiscal 1997, 1996 and 1995, respectively, primarily reflecting capital expenditures in those periods. Fiscal 1997 capital expenditures were $93.8 million, which included $52.9 million related to the Company's nitrogen expansion project at its Yazoo City, Mississippi facility, $3.8 million for the remaining 50% interest in an ammonia barge company it acquired in the First Mississippi acquisition, and $5.3 million for land to be used in the development of a new phosphogypsum disposal facility at the Pascagoula, Mississippi facility. The remaining $31.8 million was utilized in normal improvements and modications to the Company's facilities and other items. Capital expenditures for fiscal 1996 and 1995 were $16.1 million and $22.3 million, respectively. Fiscal 1997, 1996 and 1995, respectively, included $45.2 million, $12.0 million and $1.1 million related to the Company's investment in Farmland MissChem Limited. In August 1996, the Company spent $56.1 million for the Potash Acquisitions. These expenditures were partially offset by the receipt of option payments relating to the Company's Florida phosphate rock properties. Net cash used in investing activities for 1995 also included $8.8 million in payments required to terminate a newsprint purchase contract with its former subsidiary, Newsprint South, Inc. FINANCING ACTIVITIES. Net cash provided by financing activities was $70.9 million for fiscal 1997, and net cash used in financing activities was $36.9 million and $45.4 million for fiscal 1996 and 1995, respectively. During the current year, the Mississippi Chemical Corporation and Subsidiaries 30 amounts provided by financing activities included $490.3 million in debt proceeds partially offset by $390.9 million in debt payments, $18.9 million paid for the purchase of treasury stock and $9.8 million paid in cash dividends. During the prior year, the amounts used in financing activities included $25.9 million for the purchase of treasury stock and $7.9 million paid in cash dividends. During fiscal 1996, the Company also made $3.2 million in debt payments, which included $2.4 million in prepayments. For fiscal 1995, net cash used in financing activities included $47.4 million in proceeds received from a stock offering in August 1994. These proceeds were subsequently used to prepay approximately $29.0 million of the Company's long-term debt and a portion of the Company's revolving credit facility. The Company also paid $5.7 million to its shareholders related to the reorganization of the Company, $3.7 million in cash dividends and $4.8 million to purchase treasury stock. In addition, the Company paid $14.8 million in cash patronage refunds related to fiscal 1994, when the Company operated as a cooperative. At June 30, 1997, the Company and its subsidiaries had unsecured credit facilities with Harris Trust and Savings Bank ("Harris") and a syndicate of commercial banks totaling $300 million. These facilities are five-year facilities and replaced a $125 million credit facility with NationsBank of Tennessee, N.A. ("NationsBank"), as agent. The new facilities bear interest at the Prime Rate or at rates related to the London Interbank Offered Rate. At June 30, 1997, the Company had $244.4 million outstanding under these facilities. The maximum amount outstanding at any month end during the current year was $252.5 million. The Company also has a separate $5 million short-term line of credit with a financial institution which is not part of the facilities mentioned above. There were no outstanding borrowings under this commitment at June 30, 1997. The Company's 50-50 joint venture, Farmland MissChem Limited, has commenced construction of a 2,040-short-ton-per-day anhydrous ammonia plant to be located near Point Lisas, The Republic of Trinidad and Tobago. The project is expected to cost approximately $330 million. The portion of the project cost in excess of required equity contributions of 35% is to be financed by the joint venture on a non-recourse project basis. Startup of the facility is scheduled for late spring 1998. The Company has entered into a contract to purchase one-half of the ammonia, approximately 350,000 short tons per year, produced by the plant at a purchase price that approximates market price but is subject to an agreed-upon floor price. The Company intends to use its portion of the production from the new facility as a raw material for upgrading into finished fertilizer products at its existing facilities and for sales into world markets. In late fiscal 1996, the Company began an expansion at its nitrogen fertilizer manufacturing facilities at Yazoo City. The project includes the addition of a 650 ton-per-day nitric acid plant, a new 500 ton-per-day ammonia plant and modications to its ammonium nitrate plant to increase production from approximately 750,000 to approximately 950,000 tons per year. The Company estimates total cost of the expansion to be $130 million. The expansion is scheduled to be fully operational during the first half of 1998. The Company has commenced construction of a new phosphogypsum disposal facility at its Pascagoula, Mississippi, facility. This facility is expected to be operational by spring 1998 at an estimated cost of $17 million. In July 1997, the Company also Mississippi Chemical Corporation and Subsidiaries 31 initiated construction of an expansion of its diammonium phosphate manufacturing facilities at Pascagoula. This project will increase production from approximately 720,000 to 900,000 tons per year at an estimated cost of $10.5 million. It is expected that this expansion will be fully operational by the end of fiscal 1998. The Company anticipates financing the above-mentioned projects with cash generated from operations and available lines of credit. The Company also believes that these sources and other credit facilities that may be negotiated by the Company will be sufficient to satisfy any financing needs of the Company through fiscal 1998. QUARTERLY RESULTS The usage of fertilizer is highly seasonal, and the Company's quarterly results reect the fact that in the Company's markets signicantly more fertilizer is purchased in the spring. Signicant portions of the Company's net sales and operating income are generated in the last four months of the Company's fiscal year (March through June). Since interim period operating results reflect the seasonal nature of the Company's business, they are not indicative of results expected for the full fiscal year. In addition, quarterly results can vary signicantly from one year to the next primarily as a result of weather-related shifts in planting schedules and purchase patterns. The Company incurs substantial expenditures for fixed costs throughout the year and substantial expenditures for inventory in advance of the spring planting season. The following table presents selected unaudited quarterly results of operations for fiscal 1997, 1996 and 1995.
Year Ending June 30, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 91,290 $ 113,196 $ 142,583 $ 173,500 Operating income $ 14,740 $ 18,600 $ 20,093 $ 37,776 Net income $ 9,295 $ 12,093 $ 10,599 $ 23,828 Earnings per share (1) $ 0.44 $ 0.56 $ 0.38 $ 0.86 Weighted average common shares outstanding 21,250 21,620 28,000 27,613 Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10 Common stock price range - high $ 23.38 $ 26.00 $ 27.25 $ 24.38 - low $ 17.75 $ 23.00 $ 23.13 $ 19.50
Mississippi Chemical Corporation and Subsidiaries 32
Year Ending June 30, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 96,570 $ 99,857 $ 107,740 $ 124,622 Operating income $ 16,885 $ 18,400 $ 23,528 $ 26,005 Net income $ 9,704 $ 11,874 $ 15,648 $ 16,952 Earnings per share (1) $ 0.43 $ 0.53 $ 0.72 $ 0.79 Weighted average common shares outstanding 22,349 22,210 21,880 21,484 Dividends paid per share $ 0.08 $ 0.08 $ 0.10 $ 0.10 Common stock price range - high $ 23.88 $ 25.13 $ 24.75 $ 22.50 - low $ 19.88 $ 21.00 $ 19.75 $ 19.25 Year Ending June 30, 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q - ------------------------------------------------------------------------------------------------------------------------------------ Net sales $ 72,751 $ 83,713 $ 114,677 $ 117,013 Operating income $ 10,876 $ 16,129 $ 27,457 $ 26,507 Net income $ 5,776 $ 10,439 $ 17,198 $ 18,817 Earnings per share (1) $ 0.27 $ 0.46 $ 0.75 $ 0.82 Weighted average common shares outstanding 21,125 22,920 22,934 22,855 Dividends paid per share $ - $ - $ 0.08 $ 0.08 Common stock price range - high $ 19.25 $ 19.00 $ 19.88 $ 20.13 - low $ 15.00 $ 14.75 $ 16.50 $ 15.38
(1) Quarterly amounts do not add to the annual earnings per share because of changes in the number of outstanding shares during the year. Effective October 10, 1996, the Company's common stock began trading on the New York Stock Exchange under the symbol "GRO." The Company's shares had previously traded on the NASDAQ Stock Market's National Market (the "NASDAQ Market") under the symbol "MISS." As of August 20, 1997, shareholders of record numbered approximately 13,100. Mississippi Chemical Corporation and Subsidiaries 33
CONSOLIDATED BALANCE SHEETS ASSETS June 30 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Current assets: Cash and cash equivalents $ 8,159 $ 60,214 Accounts receivable (less allowances of $1,767 and $1,200) 63,095 34,630 Inventories 69,310 40,633 Prepaid expenses and other current assets 4,873 3,956 Deferred income taxes 3,596 2,216 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 149,033 141,649 Investments and other assets: Investments in affiliates 69,230 13,121 Other 14,039 14,546 - ------------------------------------------------------------------------------------------------------------------------------------ Total investments and other assets 83,269 27,667 Properties held for sale 52,919 52,919 Property, plant and equipment, at cost, less accumulated depreciation, depletion and amortization 392,395 118,771 Goodwill, net of accumulated amortization 180,929 - - ------------------------------------------------------------------------------------------------------------------------------------ $ 858,545 $ 341,006 ==================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Current liabilities: Long-term debt due within one year $ 140 $ 78 Accounts payable 74,534 46,013 Accrued liabilities 14,476 8,707 Income taxes payable 5,973 5,238 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 95,123 60,036 Long-term debt 244,516 - Other long-term liabilities and deferred credits 20,620 18,218 Deferred income taxes 58,857 14,927 Commitments and contingencies (see Notes 12, 16, 17 and 18) Shareholders' equity: Common stock ($.01 par; authorized 100,000,000 shares; issued 27,975,936 in 1997 and 22,903,450 in 1996) 280 229 Additional paid-in capital 305,901 178,364 Retained earnings 145,827 99,814 Treasury stock, at cost (565,809 shares in 1997 and 1,550,000 shares in 1996) (12,579) (30,582) - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 439,429 247,825 - ------------------------------------------------------------------------------------------------------------------------------------ $ 858,545 $ 341,006 ====================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these financial statements. Mississippi Chemical Corporation and Subsidiaries 34 CONSOLIDATED STATEMENTS OF INCOME Years Ended June 30 - -------------------------------------------------------------------------------- (In thousands, except per share data) 1997 1996 1995 - ------------------------------------------------------------------------------- Revenues: Net sales $ 520,569 $ 428,789 $ 388,154 Trading loss on brokered product (57) - - - -------------------------------------------------------------------------------- 520,512 428,789 388,154 Operating expenses: Cost of products sold 366,961 291,403 254,629 Selling 30,670 27,856 29,212 General and administrative 31,672 24,712 23,344 - -------------------------------------------------------------------------------- 429,303 343,971 307,185 - -------------------------------------------------------------------------------- Operating income 91,209 84,818 80,969 Other income (expense): Interest, net (4,331) 2,229 (52) Other 3,709 1,446 491 - -------------------------------------------------------------------------------- Income before income taxes 90,587 88,493 81,408 Income tax expense 34,772 34,315 29,178 - -------------------------------------------------------------------------------- Net income $ 55,815 $ 54,178 $ 52,230 ================================================================================ Earnings per share (see Note 1) $ 2.29 $ 2.46 $ 2.34 ================================================================================ Weighted average common shares outstanding 24,375 21,980 22,365 ================================================================================ The accompanying notes to consolidated financial statements are an integral part of these financial statements. Mississippi Chemical Corporation and Subsidiaries 35 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cooperative Additional Capital Retained Common Common Paid-in Equity Earnings Treasury Stock Stock Capital Credits (Decit) Stock Total - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, June 30, 1994 $ 28,392 $ - $ 66,848 $ 62,352 $ (14,636) $ - $ 142,956 Conversion of cooperative stock (26,375) 155 26,220 - - - - Conversion of capital equity credits and allocated surplus accounts - 41 42,723 (62,352) 19,588 - - Redemptions (2,017) (1) (4,095) - - - (6,113) - ------------------------------------------------------------------------------------------------------------------------------------ Subtotal - 195 131,696 - 4,952 - 136,843 Net income - - - - 52,230 - 52,230 Stock issued - 34 46,636 - - - 46,670 Cash dividends paid - - - - (3,662) - (3,662) Treasury stock purchased - - - - - (4,774) (4,774) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, June 30, 1995 - 229 178,332 - 53,520 (4,774) 227,307 Net income - - - - 54,178 - 54,178 Cash dividends paid - - - - (7,884) - (7,884) Treasury stock, net - - 32 - - (25,808) (25,776) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, June 30, 1996 - 229 178,364 - 99,814 (30,582) 247,825 Net income - - - - 55,815 - 55,815 Cash dividends paid - - - - (9,802) - (9,802) Treasury stock, net - - 56 - - (18,753) (18,697) Stock options exercised - - 203 - - - 203 Stock issued for business acquired - 51 127,278 - - 36,756 164,085 - ------------------------------------------------------------------------------------------------------------------------------------ Balances, June 30, 1997 $ - $ 280 $ 305,901 $ - $ 145,827 $ (12,579) $ 439,429 ====================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these financial statements. Mississippi Chemical Corporation and Subsidiaries 36 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 55,815 $ 54,178 $ 52,230 Reconciliation of net income to net cash provided by operating activities: Net change in operating assets and liabilities (9,423) 21,401 (3,241) Depreciation, depletion and amortization 27,980 17,798 17,058 Deferred income taxes 562 1,885 11,556 Other (2,322) (643) 1,117 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 72,612 94,619 78,720 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchases of property, plant and equipment (93,816) (16,143) (22,305) Investment in Farmland MissChem Limited (45,165) (11,993) (1,128) Proceeds received from option holder 1,000 2,000 3,000 Acquisition of potash businesses (56,098) - - Payments for newsprint contract obligations - - (8,751) Other (1,449) (937) 2,260 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (195,528) (27,073) (26,924) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Debt payments (390,945) (3,175) (118,567) Debt proceeds 490,290 - 54,625 Purchase of treasury stock (18,885) (25,890) (4,774) Cash dividends paid (9,802) (7,884) (3,662) Proceeds from issuance of common stock 203 - 47,401 Conversion of common stock - - (5,665) Cash patronage paid - - (14,756) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 70,861 (36,949) (45,398) - ------------------------------------------------------------------------------------------------------------------------------------ Net (decrease) increase in cash and cash equivalents (52,055) 30,597 6,398 Cash and cash equivalents - beginning of period 60,214 29,617 23,219 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents - end of period $ 8,159 $ 60,214 $ 29,617 ====================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these financial statements. Mississippi Chemical Corporation and Subsidiaries 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF FINANCIAL STATEMENTS The accompanying consolidated financial statements include the accounts of Mississippi Chemical Corporation and its subsidiaries (collectively, the "Company"). All material intercompany transactions and balances have been eliminated. Prior to July 1, 1994, the Company was organized and operated as a cooperative to manufacture and distribute chemical fertilizer primarily to its shareholder-members. On July 1, 1994, the Company converted from a cooperative to a regular business corporation (see Note 2). The Company is a major producer and supplier of nitrogen fertilizers in the southern United States. The Company also manufactures phosphate and potash fertilizers, making it a full product line fertilizer supplier. The Company sells its nitrogen and potash fertilizer products to farmers, fertilizer dealers and distributors primarily for use in the southern farming regions of the United States and areas served by the Mississippi River system. The Company's phosphate fertilizers are sold primarily in international markets. The Company's potash products are also sold into industrial markets where they are used for a broad range of industrial applications. In August 1996, the Company, through two subsidiaries of its wholly owned subsidiary, Mississippi Potash, Inc., acquired substantially all of the assets of New Mexico Potash Corporation and Eddy Potash, Inc. from Trans-Resources, Inc. (see Note 3). Since the acquisition, New Mexico Potash Corporation has been merged into Mississippi Potash, Inc. Eddy Potash, Inc. operates as a wholly owned subsidiary of Mississippi Potash, Inc. In December 1996, the Company acquired the fertilizer operations of First Mississippi Corporation ("First Mississippi") in an all-stock merger transaction (see Note 3). The fertilizer operations primarily included AMPRO Fertilizer, Inc. ("AMPRO") and a 50% interest in Triad Chemical; the Company already held the remaining 50% interest. Prior to this acquisition, the Company had the right to withdraw, at cost, approximately one-half of the production of Triad Chemical and was obligated to withdraw certain minimum quantities. Triad Chemical's assets constituted approximately 2.3% and 2.6% of total assets at June 30, 1996 and 1995, respectively. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost has been determined under a moving average cost method. Mississippi Chemical Corporation and Subsidiaries 38 INVESTMENTS IN AFFILIATES The Company's investments in affiliates consist of an investment in a 50-50 joint venture ("Farmland MissChem Limited") with Farmland Industries, Inc. (see Note 17) and a 50% interest in an ammonia storage terminal in Pasadena, Texas (see Note 3). The Company acquired its interest in this storage terminal as part of its acquisition of the fertilizer assets of First Mississippi in December 1996. PROPERTIES HELD FOR SALE Assets are classified as properties held for sale if the Company is actively engaged in trying to dispose of the assets. These assets are valued at the lower of cost or net realizable value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, less accumulated depreciation, depletion and amortization. Expenditures for major improvements are capitalized; expenditures for normal maintenance and repairs are charged to expense as incurred. Upon the sale or retirement of properties, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to income. The Company uses primarily the declining-balance method for assets purchased through June 30, 1995. Effective July 1, 1995, the Company changed its method of depreciating newly acquired long-lived assets from the declining-balance method to the straight-line method. Depletion of mineral properties is provided using the units-of-production method over the estimated life of the reserves. Depreciation of property, plant and equipment is provided over the estimated useful lives of the related assets as follows: Buildings 5-45 years Machinery and equipment 2-25 years Interest costs attributable to major construction and other projects under development are capitalized in the appropriate property account and amortized over the life of the related asset. The Company maintains spare parts at all facilities in order to minimize downtime in the event of a part failure. All parts that exceed a minimum value and are repairable are capitalized as property, plant and equipment and are depreciated over their estimated useful lives. Parts that do not exceed the minimum value or are not repairable are maintained as replacement parts and are included as inventory in the Company's current assets. These replacement parts are charged to cost of products sold as they are installed in the facility. GOODWILL Goodwill represents the excess of cost over the fair value of the net assets acquired by the Company in its December 1996 acquisition of the fertilizer operations of First Mississippi. Goodwill is amortized on a straight- line basis over 40 years. Amortization expense approximated $2,389,000 for the fiscal year ended June 30, 1997. Mississippi Chemical Corporation and Subsidiaries 39 REVENUE RECOGNITION Revenues are recognized as product is sold and title transfers to the customer. HEDGING ACTIVITIES The Company enters into futures contracts to protect against price fluctuations of natural gas. At the time the futures contracts are closed and the related natural gas is purchased, the Company records a gain or loss from the change in market value of such contracts as a component of cost of products sold. INCOME TAXES Deferred tax assets and liabilities are recorded based on the difference between the financial statement and income tax basis of assets and liabilities using existing tax rates. EARNINGS PER SHARE Earnings per share is computed on the basis of the weighted average number of common shares outstanding during the period plus dilutive common share equivalents arising from stock options using the treasury stock method. Fully diluted earnings per share are not signicantly different from primary earnings per share. USE OF ESTIMATES The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities" (the "SOP"). The SOP provides guidance concerning the recognition, measurement and disclosure of environmental remediation liabilities and is effective for fiscal years beginning after December 15, 1996. The Company does not expect the adoption of SOP 96-1 to have a material effect on its financial statements. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 specifies new standards for computing and disclosing earnings per share and is effective for periods ending after December 15, 1997. The Company does not expect the adoption of SFAS No. 128 to have a material effect on the results of its earnings per share calculations. Mississippi Chemical Corporation and Subsidiaries 40 In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No. 129 establishes standards for disclosing information about an entity's capital structure and is effective for periods ending after December 15, 1997. The Company does not expect the adoption of SFAS No. 129 to have a material effect on its financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new standards for reporting comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. The Company does not expect the adoption of SFAS No. 130 to have a material effect on its financial statements. RECLASSIFICATIONS The Company has reclassified certain prior year information to conform with the current year's presentation. NOTE 2 - EFFECTS OF REORGANIZATION: Prior to July 1, 1994, the Company operated as a cooperative. On June 28, 1994, the shareholder-members of the Company voted to adopt a plan of reorganization (the "Reorganization") which became effective July 1, 1994. Pursuant to the Reorganization, the Company was merged into a newly created, wholly owned subsidiary ("New Company") which is a non-cooperative Mississippi business corporation. In the merger, the common stock of the Company was converted into New Company common stock and/or cash. In addition, holders of Capital Equity Credits and Allocated Surplus Accounts of the Company were offered the right to exchange those interests for New Company common stock. Pursuant to the Reorganization, New Company changed its name to Mississippi Chemical Corporation. NOTE 3 - ACQUISITIONS: NITROGEN: In August 1996, the Company entered into an agreement to acquire the fertilizer businesses of First Mississippi in an all-stock merger transaction. This transaction was completed on December 24, 1996, and was accounted for by the purchase method of accounting. According to the terms of the merger, the Company issued approximately 6,902,000 shares of its common stock to former First Mississippi shareholders. Additionally, at closing, First Mississippi's fertilizer businesses had $150,500,000 in outstanding debt which was assumed by the Company. The fertilizer operations of First Mississippi included AMPRO and a 50% interest in Triad Chemical. Prior to the transaction, the Company held the remaining 50% interest in Triad Chemical, which owned and operated an anhydrous ammonia plant with an annual production of approximately 465,000 tons, and a urea plant with an annual production of approximately 560,000 tons. AMPRO owned and operated an anhydrous ammonia plant with annual production of approximately 615,000 Mississippi Chemical Corporation and Subsidiaries 41 tons. AMPRO and Triad are located on adjacent sites in Donaldsonville, Louisiana. In the transaction, the Company also acquired a 50% interest in an ammonia storage terminal in Pasadena, Texas, and a 50% interest in a company which owns and operates 11 ammonia barges. In March 1997, the Company purchased the other 50% interest in the barge company for $3,824,000. Since closing, the Company has merged AMPRO into and has contributed its 50% interest in Triad Chemical to First Mississippi and has changed the name of First Mississippi to Triad Nitrogen, Inc. ("Triad Nitrogen"). A preliminary allocation of the purchase price is as follows: ----------------------------------------------------------- (Dollars in thousands) ----------------------------------------------------------- Property, plant and equipment $ 151,407 Goodwill 180,655 Other assets/liabilities acquired, net 19,189 Deferred taxes (41,931) ----------------------------------------------------------- $ 309,320 =========================================================== Additionally, the Company incurred approximately $2,663,000 in transaction costs and other related fees associated with the acquisition. The Company recorded these amounts as goodwill. POTASH: In August 1996, the Company, through two subsidiaries of its wholly owned subsidiary, Mississippi Potash, Inc., acquired substantially all of the assets of New Mexico Potash Corporation and Eddy Potash, Inc. (the "Potash Acquisitions") from Trans-Resources, Inc. for $45,000,000, plus an adjustment for working capital of approximately $11,000,000. The two potash mines, located near Carlsbad, New Mexico, have a combined annual production capacity of approximately 850,000 tons of potash. Since the acquisition, New Mexico Potash Corporation has been merged into Mississippi Potash, Inc. Eddy Potash, Inc. operates as a wholly owned subsidiary of Mississippi Potash, Inc. This acquisition was accounted for by the purchase method of accounting, and the purchase price was principally allocated to property, plant and equipment. Prior to this acquisition, Mississippi Potash, Inc. produced approximately 420,000 tons of potash per year. The Company's current year consolidated statement of income includes Triad Nitrogen's results of operations for the period December 24, 1996 through June 30, 1997, and the Potash Acquisitions' results of operations for the period August 16, 1996 through June 30, 1997. The unaudited pro forma summary financial information presented below includes Triad Nitrogen's and the Potash Acquisitions' results of operations, assuming the acquisitions had occurred on July 1, 1996, and also on July 1, 1995. These pro forma results of operations are not necessarily indicative of what would have occurred had the acquisitions actually been consummated at the beginning of the periods presented, or of future results of the combined companies. Mississippi Chemical Corporation and Subsidiaries 42 The following table summarizes the Company's pro forma results of operations: ----------------------------------------------------------- (Dollars in thousands, except per share data) 1997 1996 ----------------------------------------------------------- Net sales $ 643,159 $ 698,404 =========================================================== Net income $ 68,151 $ 80,712 =========================================================== Earnings per share $ 2.44 $ 2.79 =========================================================== NOTE 4 - INVENTORIES: Inventories consisted of the following: June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 ----------------------------------------------------------- Finished products $ 28,308 $ 10,278 Raw materials and supplies 4,636 5,096 Replacement parts 36,366 25,259 ----------------------------------------------------------- $ 69,310 $ 40,633 =========================================================== NOTE 5 - PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consisted of the following: June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 ----------------------------------------------------------- Mineral properties $ 40,668 $ 18,574 Land 8,609 8,152 Buildings 46,904 32,531 Machinery and equipment 519,940 335,584 Construction in progress 80,980 5,041 ----------------------------------------------------------- 697,101 399,882 Less accumulated depreciation, depletion and amortization (304,706) (281,111) ----------------------------------------------------------- $ 392,395 $ 118,771 =========================================================== Mississippi Chemical Corporation and Subsidiaries 43 NOTE 6 - CREDIT AGREEMENTS AND LONG-TERM DEBT: At June 30, 1997, the Company and its subsidiaries had unsecured credit facilities with Harris Trust and Savings Bank ("Harris") and a syndicate of other commercial banks totaling $300,000,000. These facilities are five-year facilities and replace all previous credit facilities with NationsBank of Tennessee, N.A. ("NationsBank"). The new facilities bear interest at the prime rate or at rates related to the London Interbank Offered Rate. At June 30, 1997, there were outstanding borrowings of $244,400,000 under these facilities. Prior to the completion of the Harris facilities, the Company had a $125,000,000 credit facility with NationsBank and a syndicate of other commercial banks. Under this facility, the Company had a $40,000,000 short-term line of credit and an $85,000,000 revolving line of credit with a term of three years. These lines of credit bear interest at the prime rate or at rates related to the London Interbank Offered Rate. At June 30, 1996, there were no outstanding borrowings under these commitments. The Company also has a $5,000,000 short-term line of credit with a financial institution which is not part of the facilities mentioned above. There were no outstanding borrowings under this commitment at June 30, 1997 or 1996. Long-term debt consisted of the following: June 30 ----------------------------------------------------------- (Dollars in thousands, 1997 1996 ----------------------------------------------------------- Notes payable to financial institution (6.26%) $ 244,400 $ - Other 256 78 ----------------------------------------------------------- 244,656 78 Long-term debt due within one year (140) (78) ----------------------------------------------------------- $ 244,516 $ - =========================================================== The Company's credit facilities with Harris have covenants that require, among other things, that the Company maintain specified levels of tangible net worth, debt to cash flow, and cash flow to interest expense. The Company is in compliance with all covenants under its facilities. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. At June 30, 1997, the Company had two outstanding interest rate swap agreements (the "Agreements") with commercial banks having a total notional principal amount of $40,000,000. The Agreements effectively change the Company's interest rate exposure on a portion of its $300,000,000 credit facilities from a variable rate to a fixed rate. The Agreements mature in fiscal year 2001, and have total notional amounts ranging from $33,650,000 to $50,000,000. Mississippi Chemical Corporation and Subsidiaries 44 Note 7 - Other Long-Term Liabilities and Deferred Credits: Other long-term liabilities and deferred credits are comprised of the following: June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 ----------------------------------------------------------- Option proceeds (see Note 17) $ 5,967 $ 4,967 Accrual for closure of gypsum disposal area 8,051 7,181 Other 6,602 6,070 ----------------------------------------------------------- $ 20,620 $ 18,218 =========================================================== The Company is currently accruing costs for the future closure of the phosphogypsum disposal facility located at Pascagoula, Mississippi. These costs are reflected in cost of products sold during the appropriate periods. The balance at June 30, 1997, relates to the portion of the disposal facility utilized to date. In future years, the Company expects to record additional charges of approximately $1,874,000 related to the future closure of the facility. These charges will be accrued over the estimated two-year remaining life of the facility. The Company has commenced construction of a new phosphogypsum disposal facility. The land to be utilized for the facility has been purchased, preliminary engineering work has been completed, and the environmental permits have been received. The facility is expected to be operational by spring 1998 at an estimated cost of $17,000,000. To provide for operational flexibility, the new disposal facility will be completed before the current facility is completely utilized. Thereby, if one of the facilities became inaccessible, the other facility would be available and an interruption in plant operations could be avoided. Mississippi Chemical Corporation and Subsidiaries 45 NOTE 8 - SHAREHOLDERS' EQUITY: At June 30, 1997, the Company had 100,000,000 authorized shares of common stock at a par value of $.01. Common stock issued and outstanding consisted of the following: Cooperative Common Common (Shares in thousands) Stock Stock ----------------------------------------------------------- Shares outstanding, June 30, 1994 4,120 - Redemptions (135) - Conversion of cooperative stock (3,985) 15,525 Conversion of capital equity credits and allocated surplus accounts - 4,133 Redemptions - (158) Stock issued - 3,398 Purchase of treasury stock - (300) ----------------------------------------------------------- Shares outstanding, June 30, 1995 - 22,598 Stock reissued - 5 Purchase of treasury stock - (1,250) ----------------------------------------------------------- Shares outstanding, June 30, 1996 - 21,353 Treasury stock issued for business acquired - 1,545 Stock issued for business acquired - 5,357 Stock options exercised - 12 Stock reissued - 8 Purchase of treasury stock - (865) ----------------------------------------------------------- Shares outstanding, June 30, 1997 - 27,410 =========================================================== As a cooperative, the Company periodically reserved a certain percentage of earnings from business with its shareholders. These reserves were reflected in "Allocated Surplus Accounts" as a component of retained earnings. As a cooperative, the Company also, from time to time, paid a portion of patronage refunds in the form of capital equity credits. As part of the Reorganization of the Company (see Note 2), these holders of Allocated Surplus Accounts and capital equity credits, which totaled $38,920,000 and $62,352,000, respectively, at June 30, 1994, were offered the right to exchange those interests for common shares. In May 1995, the Board of Directors authorized the repurchase of up to 1,500,000 shares of the Company's common stock in the open market or in privately negotiated transactions. In March 1996, the Board of Directors authorized the Company to Mississippi Chemical Corporation and Subsidiaries 46 repurchase up to 1,500,000 additional shares. During fiscal 1997, 1996 and 1995, the Company repurchased 865,809, 1,250,000 and 300,000 shares, respectively, pursuant to these authorizations. These treasury stock repurchases were funded from cash provided by operations and from borrowings under the Company's revolving credit facilities. The Company's Articles of Incorporation authorize the Board of Directors, at its discretion, to issue up to 500,000 shares of Preferred Stock, par value $.01 per share. The stock is issuable in classes or series which may vary as to certain rights and preferences. As of June 30, 1997, none of these shares were outstanding. NOTE 9 - STOCK OPTIONS: On August 2, 1994, the Board of Directors adopted a stock incentive plan for certain officers and key employees of the Company. On July 20, 1995, the Board of Directors adopted a stock option plan for nonemployee directors of the Company. Both the stock incentive plan and the stock option plan for nonemployee directors were approved by the Company's shareholders at its annual meeting held on November 14, 1995. Options may be granted under the provisions of the Company's plans to purchase common stock of the Company at a price not less than the fair market value on the date of grant. Stock options for officers and key employees are exercisable six months from the date of grant. Stock options for nonemployee directors become exercisable in installments beginning one year after the date of grant and become fully exercisable six years after the date of grant. All options expire 10 years from the date of grant. As of June 30, 1997, 1996 and 1995, exercisable options were 490,489, 334,104 and 201,941, respectively. There were approximately 1,129,000 shares available for option plan grants at June 30, 1997. The summary of stock option activity is shown below: Options Weighted Average Outstanding Exercise Price ----------------------------------------------------------- July 1, 1994 - - Options granted 201,941 $ 15.00 Stock options exercised - - Stock options canceled - - ----------------------------------------------------------- June 30, 1995 201,941 $ 15.00 Options granted 220,404 $ 23.96 Stock options exercised - - Stock options canceled (26,241) $ 15.00 ----------------------------------------------------------- June 30, 1996 396,104 $ 19.99 Options granted 174,576 $ 20.00 Stock options exercised (12,091) $ 16.68 Stock options canceled - - ----------------------------------------------------------- June 30, 1997 558,589 $ 20.06 ============================================================ Mississippi Chemical Corporation and Subsidiaries 47 The following table summarizes information about stock options outstanding at June 30, 1997: Exercise Options Weighted Average Weighted Average Price Range Outstanding Remaining Contractual Life Exercise Price - -------------------------------------------------------------------------------- $ 15.00 - $16.44 177,014 7.3 $ 15.07 $ 18.90 - $20.28 161,171 9.2 $ 20.22 $ 23.96 220,404 8.3 $ 23.96 During fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which requires companies to estimate the fair value for stock options on date of grant. Under SFAS No. 123, the Company is required to record the estimated fair value of stock options issued as compensation expense in its income statements over the related service periods or, alternatively, continue to apply accounting methodologies as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and disclose the pro forma effects of the estimated fair value of stock options issued in the accompanying footnotes to its financial statements. The determination of fair value is only required for stock options issued beginning in fiscal 1996. In adopting SFAS No. 123, the Company decided to continue to follow the accounting methodologies as prescribed by APB Opinion No. 25. The pro forma effects of the total compensation expense that would have been recognized under SFAS No. 123 are as follows: June 30 ----------------------------------------------------------- (Dollars in thousands, except per share data) 1997 1996 ----------------------------------------------------------- Net income, as reported $ 55,815 $ 54,178 Pro forma net income $ 55,015 $ 52,925 Earnings per share, as reported $ 2.29 $ 2.46 Pro forma earnings per share $ 2.26 $ 2.41 Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. In adopting SFAS No. 123, the Company utilized the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted using the following assumptions: 1997 1996 ----------------------------------------------------------- Expected dividend yield 1.94% 1.49% Expected option lives 6 years 6 years Expected volatility 33% 33% Risk-free interest rates 6.06% 6.13% Mississippi Chemical Corporation and Subsidiaries 48 Based on the results of the model, the fair value of the stock options issued on the date of grant are as follows: Weighted Average Number Grant Date Years Issued Fair Value per Option ----------------------------------------------------------- 1997 174,576 $ 7.35 1996 220,404 $ 9.14 NOTE 10 - MAJOR CUSTOMERS: Sales to the Company's three largest customers were approximately $119,412,000, $26,590,000 and $23,526,000 for 1997; $136,560,000, $36,499,000 and $20,135,000 for 1996; and $117,495,000, $32,270,000 and $16,745,000 for 1995. A significant portion of the Company's trade receivables is due from entities which operate in the chemical fertilizer and farm supply industry. A severe downturn in the agricultural economy could have an adverse impact on the collectibility of those receivables. Substantially all of phosphate sales are made to a third party which was appointed the exclusive distributor of diammonium phosphate fertilizer produced by the Company's Pascagoula, Mississippi, facility. Sales to the distributor were recorded net of the distributor's discount. The distributor sells primarily in international markets. Subsequent to June 30, 1997, the Company announced that it is ending this exclusive marketing agreement and will market its product for export through a third party export association. The Company's domestic sales will be assumed by the Company's internal sales staff. NOTE 11 - TRADING LOSS ON BROKERED PRODUCT: Through the acquisition of the fertilizer operations of First Mississippi, the Company routinely trades or brokers anhydrous ammonia in the open market. During fiscal 1997, the Company brokered approximately 177,000 short tons of ammonia. Brokered ammonia sales of approximately $32,287,000 and purchases of approximately $33,210,000 resulted in a $57,000 net loss after considering certain purchase price adjustments associated with the First Mississippi acquisition. The trading loss on brokered product has been reflected in the accompanying consolidated statements of income. NOTE 12 - HEDGING ACTIVITIES: During fiscal 1997 and 1996, natural gas hedging activities resulted in average cost decreases of approximately $.30 and $.40 per MMBTU on volumes hedged of 15,880,000 and 5,560,000 MMBTU's, respectively. During fiscal 1995, natural gas hedging activities resulted in an average cost increase of approximately $.52 per MMBTU on volumes hedged of 4,850,000 MMBTU's. Mississippi Chemical Corporation and Subsidiaries 49 As of June 30, 1997, the Company had open futures contracts covering a total volume of 13,480,000 MMBTU's with some contracts extending through June 1998. The unrealized gain on these contracts at June 30, 1997, was approximately $1,605,000. The risk associated with outstanding futures positions is directly related to increases or decreases in the prices of natural gas in relation to the contract prices. NOTE 13 - INTEREST, NET: Interest, net, consisted of the following: Years Ended June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 ----------------------------------------------------------- Interest expense $ (8,942) $ (715) $ (2,021) Interest capitalized 3,858 10 231 Interest income 753 2,934 1,738 ----------------------------------------------------------- $ (4,331) $ 2,229 $ (52) =========================================================== NOTE 14 - INCOME TAXES: The following is a summary of the components of the provision for income taxes: Years Ended June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 ----------------------------------------------------------- Current: Federal $ 30,379 $ 29,838 $ 16,245 State 3,831 2,592 1,377 ----------------------------------------------------------- 34,210 32,430 17,622 ----------------------------------------------------------- Deferred: Federal 503 1,734 9,504 State 59 151 2,052 ----------------------------------------------------------- 562 1,885 11,556 ----------------------------------------------------------- $ 34,772 $ 34,315 $ 29,178 =========================================================== Mississippi Chemical Corporation and Subsidiaries 50 The tax effect of the significant temporary differences and tax credit carryforwards at June 30 follows:
(Dollars in thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------- Current Non-current Current Non-current - ------------------------------------------------------------------------------------------------------------- Employee benefit obligations $ 2,137 $ 101 $ 1,441 $ 107 Reserve for bad debts 691 - 472 - Employee post retirement 78 1,041 79 1,011 Deferred income on affiliate sales 1,658 - - - Accrual for closure of gypsum disposal area - 2,397 - 2,379 Investment in CoBank - 120 - 199 Capital loss carryforwards - 211 - 212 Other 240 - 224 - - ------------------------------------------------------------------------------------------------------------- Deferred tax assets 4,804 3,870 2,216 3,908 Depreciation and amortization (1,208) (59,688) - (15,560) Pension - (3,039) - (3,275) - ------------------------------------------------------------------------------------------------------------- Deferred tax liabilities (1,208) (62,727) - (18,835) - ------------------------------------------------------------------------------------------------------------- Net deferred tax asset (liability) $ 3,596 $ (58,857) $ 2,216 $ (14,927) =============================================================================================================
A reconciliation, as of June 30, of the statutory rate for income taxes and the effective tax rate follows:
(Dollars in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- % of % of % of Earnings Earnings Earnings Before Before Before Amount Taxes Amount Taxes Amount Taxes - ------------------------------------------------------------------------------------------------------------- Income taxes computed at statutory rate $ 31,705 35.0% $ 30,972 35.0% $ 28,493 35.0 % Increase (decrease) in taxes resulting from: State taxes, net 2,263 2.5% 2,743 3.1% 3,429 4.2 % Alternative minimum tax - - - - (2,822) (3.5)% Other, net 804 0.9% 600 0.7% 78 0.1 % - ------------------------------------------------------------------------------------------------------------- $ 34,772 38.4% $ 34,315 38.8% $ 29,178 35.8 % =============================================================================================================
Mississippi Chemical Corporation and Subsidiaries 51 NOTE 15 - RETIREMENT PLANS: The Company maintains non-contributory defined benefit pension plans which provide benefits to a majority of its full-time employees. Under the plans, retirement benefits are primarily a function of both the average annual compensation and number of years of credited service. The plans are funded annually by the Company, subject to the Internal Revenue Code funding limitation. Net periodic pension expense includes the following components:
Years Ended June 30 - ---------------------------------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- Service cost - benefits earned during the period $ 2,297 $ 1,955 $ 1,860 Interest cost on projected benefit obligations 5,294 4,875 4,515 Actual gain on plan assets (10,094) (13,260) (5,528) Net amortization and deferral of transition assets (240) (153) (459) Unrecognized gain on plan assets 3,734 7,778 392 - ---------------------------------------------------------------------------------------------------- Net periodic pension expense $ 991 $ 1,195 $ 780 ====================================================================================================
The following table sets forth the plans' funded status and the amounts included as a component of other assets in the Company's consolidated balance sheets:
June 30 - ---------------------------------------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 64,016 $ 62,238 Non-vested benefit obligation 464 428 - ---------------------------------------------------------------------------------------------------- Accumulated benefit obligation 64,480 62,666 Increase in benefits due to future compensation increases 17,084 14,712 - ---------------------------------------------------------------------------------------------------- Projected benefit obligation 81,564 77,378 Estimated fair value of plan assets 83,521 75,954 - ---------------------------------------------------------------------------------------------------- Plan assets greater (less) than projected benefit obligation 1,957 (1,424) Contributions after measurement date - 175 Remaining unrecognized transition assets (2,645) (3,174) Unrecognized prior service cost 5,291 829 Unrecognized net loss 3,129 10,766 - ---------------------------------------------------------------------------------------------------- Prepaid pension cost at end of period $ 7,732 $ 7,172 ====================================================================================================
Mississippi Chemical Corporation and Subsidiaries 52 The following assumptions were used to measure net periodic pension cost for the plans for fiscal 1997, 1996 and 1995: 1997 1996 1995 ----------------------------------------------------------- Discount rate 7.5% 7.0% 7.5% Expected long-term rate of return on assets 8.5% 8.5% 8.5% Average increase in compensation levels 5.0% 5.0% 5.0% The plans' assets consist primarily of guaranteed investment contracts and marketable equity securities. The Company also has contributory thrift plans covering substantially all employees who have completed minimum service requirements. Under the plans, the Company matches a certain percentage of each employee's contributions to the plan up to a maximum percentage of the employee's base compensation. Company contributions totaled approximately $1,073,000 in 1997, $866,000 in 1996 and $812,000 in 1995. The Company has no material post-retirement benefit obligations. NOTE 16 - LEASE COMMITMENTS: The Company has commitments under operating leases for plant rolling stock items and storage warehouses. The following is a schedule of the future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year as of June 30, 1997: Year Ending June 30: (Dollars in thousands) ----------------------------------------------------------- 1998 $ 2,435 1999 2,104 2000 1,856 2001 458 2002 138 ----------------------------------------------------------- $ 6,991 =========================================================== Rental expense for all operating leases was $3,417,000 for 1997, $1,476,000 for 1996 and $1,332,000 for 1995. NOTE 17 - COMMITMENTS AND CONTINGENCIES: During 1990, the Company entered into an agreement granting a third party the exclusive option, for a period of four years, to purchase the Company's undeveloped phosphate rock property of approximately 12,000 acres in Hardee County, Mississippi Chemical Corporation and Subsidiaries 53 Florida. As of July 12, 1994, the Company and the option holder entered into new agreements with respect to this property whereby the Company conveyed a portion of the property to the third party and granted to the third party the exclusive option to purchase the remaining portion of the property. In addition, the Company was granted a put option whereby the Company has the right and option to sell the remaining portion of the property to the third party if the third party does not exercise its option to purchase the remaining property and was granted an exclusive option to repurchase the previously conveyed portion in the event the third party does not exercise its option and the Company does not exercise its put option. The third party's option will expire on January 16, 1998. The Company's put option will expire six months after the third party's option expires, and its repurchase option will expire one year after the Company's put option expires. These properties are classified as properties held for sale at June 30, 1997 and 1996. The Company has entered into a 50-50 joint venture ("Farmland MissChem Limited") with Farmland Industries, Inc. to construct and operate a 2,040 short- ton-per-day anhydrous ammonia plant to be located near Point Lisas, The Republic of Trinidad and Tobago. The project is expected to cost approximately $330,000,000. The portion of the project cost in excess of required equity contributions of 35% is to be financed by the joint venture on a non-recourse project basis. Startup of the facility is scheduled for late spring 1998. The Company has entered into a contract to purchase one-half of the ammonia, approximately 350,000 short-tons-per-year, produced by the plant at a purchase price which approximates market price but is subject to an agreed-upon floor price. The Company intends to use its portion of the production from the new facility as a raw material for upgrading into finished fertilizer products at its existing facilities and for sales into world markets. The Company is accounting for this investment using the equity method. In late fiscal 1996, the Company began an expansion at its nitrogen fertilizer manufacturing facilities at Yazoo City. The project includes the addition of a 650 ton-per-day nitric acid plant, a new 500 ton-per-day ammonia plant and modifications to its ammonium nitrate plant to increase production from approximately 750,000 to approximately 950,000 tons-per-year. The Company estimates total cost of the expansion to be $130,000,000. The expansion is scheduled to be fully operational during the first half of 1998. The Company has commenced construction of a new phosphogypsum disposal facility at Pascagoula, Mississippi which is expected to be operational by spring 1998, at an estimated cost of $17,000,000. In July 1997, the Company also initiated construction of an expansion of its diammonium phosphate manufacturing facilities at Pascagoula. This project will increase production from approximately 720,000 to 900,000 tons per year at an estimated cost of $10,500,000. It is expected that this expansion will be fully operational by the end of fiscal 1998. Additionally, the Company, in the ordinary course of its business, is the subject of, or a party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a significant impact on the financial position or the future earnings of the Company. Mississippi Chemical Corporation and Subsidiaries 54 NOTE 18 - RAW MATERIAL CONTRACTS: Mississippi Phosphates Corporation ("MPC"), a wholly owned subsidiary of the Company, has entered into a contract to purchase from a third party its full requirement of phosphate rock. The contract has been extended through June 30, 2016. The purchase price for phosphate rock is based on the phosphate rock costs incurred by certain domestic phosphate producers and the operating performance of MPC. NOTE 19 - SUPPLEMENTAL CASH FLOW INFORMATION: The Company considers its holdings of highly liquid money market debt securities to be cash equivalents if the securities mature within 90 days from the date of purchase. These short-term investments were $53,739,000 and $27,587,000 at June 30, 1996 and 1995, respectively. The Company had no short- term investments at June 30, 1997. The increase (decrease) in cash due to the changes in operating assets and liabilities consisted of the following: Years Ended June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 ----------------------------------------------------------- Accounts receivable $ (2,048) $ (3,564) $ 9,095 Inventories (11,378) 9,682 (16,325) Prepaid expenses and other current assets 3,443 (944) 569 Accounts payable (4,504) 14,494 2,505 Accrued liabilities 5,064 1,733 915 ----------------------------------------------------------- $ (9,423) $ 21,401 $ (3,241) =========================================================== During fiscal 1997, 1996 and 1995, the Company paid income taxes of $30,451,000, $31,127,000 and $16,675,000, respectively. Payments of interest were $7,677,000 in 1997, $330,000 in 1996 and $2,646,000 in 1995. Supplemental disclosures regarding non-cash financing and investing activities include the following: Years Ended June 30 ----------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 ----------------------------------------------------------- Land option transferred to land $ 941 $ - $ - Conveyance of phosphate rock property $ - $ - $ 14,000 Conversion of capital equity credits $ - $ - $ 62,352 Conversion of cooperative stock $ - $ - $ 26,375 Other material non-cash activities include the Company's December 1996, acquisition of the fertilizer businesses of First Mississippi in an all-stock merger transaction (see Note 3). Mississippi Chemical Corporation and Subsidiaries 55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and the Shareholders of Mississippi Chemical Corporation: We have audited the accompanying consolidated balance sheets of Mississippi Chemical Corporation (a Mississippi corporation) and subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for the three years ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signicant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mississippi Chemical Corporation and subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for the three years ended June 30, 1997, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Memphis, Tennessee July 25, 1997 Mississippi Chemical Corporation and Subsidiaries 56
DIRECTORS AND OFFICERS DIRECTORS OFFICERS John W. Anderson /1/,/4/ Charles O. Dunn Former President & CEO President & Chief Executive Officer Alabama Farmers Cooperative, Inc. David W. Arnold Coley L. Bailey, Chairman /4/ Senior Vice President -- Technical Group Self-employed Farming Interests Robert E. Jones Senior Vice President -- Corporate Development Haley Barbour /1/ Partner & Attorney C. E. McCraw Barbour, Griffith & Rogers Senior Vice President -- Operations Frank R. Burnside, Jr. /2/ Timothy A. Dawson Self-employed Vice President -- Finance & Chief Financial Officer Agribusiness Interests John J. Duffy Robert P. Dixon /3/,/4/ Vice President -- Marketing & Distribution Former President & CEO SF Services, Inc. Larry W. Holley Vice President -- Nitrogen Production Charles O. Dunn /4/ President & CEO William L. Smith Mississippi Chemical Corporation General Counsel W. R. Dyess /3/ Ethel Truly President Vice President -- Administration ABC Ag Center, Inc. & Dyess Farm Center, Inc. Rosalyn B. Glascoe Woods E. Eastland /1/ Corporate Secretary President & CEO Staplcotn & Stapldiscount John S. Howie, Vice Chairman /2/,/4/ Self-employed Farming Interests George Penick /3/ President Foundation for the Mid-South David M. Ratcliffe /2/ Senior Vice President of External Affairs The Southern Company Wayne Thames /1/ Self-employed Farming Interests DIRECTOR EMERITUS /1/ Audit Committee -- John W. Anderson, Chairman Tom C. Parry /1/ /2/ Compensation Committee --John S. Howie, Chairman Past President /3/ Corporate Governance Committee -- W. R. Dyess, Chairman Mississippi Chemical Corporation /4/ Executive Committee
Mississippi Chemical Corporation and Subsidiaries 57
SHAREHOLDER INFORMATION CORPORATE OFFICES CORPORATE COMMUNICATIONS Mississippi Chemical Corporation Mississippi Chemical Corporation P.O. Box 388 Corporate Communications Yazoo City, MS 39194-0388 P.O. Box 388 (601) 746-4131 Yazoo City, MS 39194-0388 FAX (601) 746-9158 (601) 746-4131 www.misschem.com FAX (601) 751-2232 SEC FORM 10-K SHARE ACCOUNT INFORMATION A copy of the Company's annual report to the Securities Stockholders with inquiries concerning their accounts & Exchange Commission on Form 10-K is available without may call or write: charge upon written request to: Mississippi Chemical Corporation Corporate Secretary Corporate Secretary Mississippi Chemical Corporation P.O. Box 388 P.O. Box 388 Yazoo City, MS 39194-0388 Yazoo City, MS 39194-0388 (601) 746-4131 FAX (601) 751-2232 COMMON STOCK INDEPENDENT ACCOUNTANTS Mississippi Chemical Corporation common stock is traded on the New York Stock Exchange under the symbol GRO. Arthur Andersen LLP 165 Madison Avenue TRANSFER AGENT Suite 1700 Memphis, TN 38103-2777 Harris Trust and Savings Bank P.O. Box A-3504 311 West Monroe, 14th Floor Shareholder Services Chicago, IL 60690-3504 INVESTOR RELATIONS Mississippi Chemical Corporation The information in this annual report is intended solely Investor Relations as a report to shareholders and is not a prospectus, P.O. Box 388 representation, or circular in respect to any stock or Yazoo City, MS 39194-0388 security, and is not transmitted in connection with any (601) 746-4131 sale or offer to sell, or any negotiation for the sale of FAX (601) 751-2978 any stock or security.
Mississippi Chemical Corporation and Subsidiaries 58 [MAP APPEARS HERE] Mississippi Chemical Corporation P.O. Box 388 Yazoo City, MS 39194-0388 www.misschem.com Mississippi Chemical Corporation and Subsidiaries 59 EX-21 5 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Subsidiaries of the Company as of September 29, 1997, are as follows: Percentage State of of Voting NAME OF COMPANY Incorporation Securities Owned - --------------- ------------- ---------------- Mississippi Phosphates Corporation Delaware 100% NSI Land Corporation Delaware 100% Mississippi Chemical Management Company Delaware 100% MCC Investments, Inc. Mississippi 100% Mississippi Potash, Inc. Mississippi 100% Eddy Potash, Inc. Mississippi 100% (a subsidiary of Mississippi Potash, Inc.) Triad Nitrogen, Inc. Delaware 100% Triad Fertilizer, Inc. Mississippi 100% (a subsidiary of Triad Nitrogen, Inc.) TNI, Inc. Mississippi 100% (a subsidiary of Triad Nitrogen, Inc.) Triad Barge, Inc. Mississippi 100% (a subsidiary of Triad Nitrogen, Inc.) TNI Barge, Inc. Delaware 100% (a subsidiary of Triad Barge, Inc.) Farmland MissChem Limited Republic of Trinidad 50% and Tobago EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports incorporated by reference in this Form 10-K, into the Company's previously filed SEC File No. 333-13069. Arthur Andersen LLP Memphis, Tennessee September 29, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH ANNUAL REPORT. YEAR JUN-30-1997 JUN-30-1997 8,159 0 64,862 1,767 69,310 149,033 697,101 304,706 858,545 95,123 14,500 0 0 280 439,149 858,545 520,569 524,221 366,961 429,303 0 567 4,331 90,587 34,772 55,815 0 0 0 55,815 2.29 0
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