-----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, PMjdryUFqO5o0e6LiNjApaw7ndoE/PtwqznMT0MnwO2xsJEy9N3rapSFj17LKWYl 5F9zqUg2GtxLxHmARZVuFQ== /in/edgar/work/0000950131-00-005943/0000950131-00-005943.txt : 20001031 0000950131-00-005943.hdr.sgml : 20001031 ACCESSION NUMBER: 0000950131-00-005943 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERRA INDUSTRIES INC CENTRAL INDEX KEY: 0000722079 STANDARD INDUSTRIAL CLASSIFICATION: [5190 ] IRS NUMBER: 521145429 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08520 FILM NUMBER: 748529 BUSINESS ADDRESS: STREET 1: TERRA CENTRE 600 4TH ST STREET 2: P.O. BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 BUSINESS PHONE: 7122771340 MAIL ADDRESS: STREET 1: TERRA CENTER STREET 2: 600 4TH ST P O BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 FORMER COMPANY: FORMER CONFORMED NAME: INSPIRATION RESOURCES CORP DATE OF NAME CHANGE: 19920517 10-Q 1 0001.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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: 1-8520 TERRA INDUSTRIES INC. (Exact name of registrant as specified in its charter) Maryland 52-1145429 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Terra Centre 51102-6000 P.O. Box 6000 (Zip Code) 600 Fourth Street Sioux City, Iowa (Address of principal executive offices) Registrant's telephone number, including area code: (712) 277-1340 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of October 30, 2000, the following shares of the registrant's stock were outstanding: Common Shares, without par value 75,988,940 shares =============================================================================== PART I. FINANCIAL INFORMATION TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands) (unaudited)
September 30, December 31, September 30, 2000 1999 1999 ------------ ----------- ------------ ASSETS Cash and short-term investments $ 101,916 $ 9,790 $ 5,555 Accounts receivable, less allowance for doubtful accounts of $443, $491, $837 119,184 102,776 90,118 Inventories 92,865 133,634 131,449 Other current assets 21,633 47,482 118,416 - ----------------------------------------------------------------------------------------------------- Total current assets 335,598 293,682 345,538 - ----------------------------------------------------------------------------------------------------- Equity and other investments 2,370 1,822 2,101 Property, plant and equipment, net 919,258 997,801 1,009,893 Excess of cost over net assets of acquired businesses 235,924 253,162 257,207 Other assets 54,466 54,978 78,317 - ----------------------------------------------------------------------------------------------------- Total assets $1,547,616 $1,601,445 $1,693,056 ===================================================================================================== LIABILITIES Debt due within one year $ 5,968 $ 17,152 $ 32,321 Accounts payable 89,851 88,413 67,743 Accrued and other liabilities 54,707 35,158 54,166 - ----------------------------------------------------------------------------------------------------- Total current liabilities 150,526 140,723 154,230 - ----------------------------------------------------------------------------------------------------- Long-term debt 469,101 469,309 477,550 Deferred income taxes 163,323 163,733 196,876 Other liabilities 50,197 67,409 83,070 Minority interest 108,629 103,269 103,668 - ----------------------------------------------------------------------------------------------------- Total liabilities 941,776 944,443 1,015,394 - ----------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Capital stock Common Shares, authorized 133,500 shares; outstanding 75,989, 75,309 and 75,308 shares 127,890 127,890 127,890 Paid-in capital 552,903 552,903 552,903 Accumulated other comprehensive loss (46,763) (9,852) (11,814) Retained earnings (deficit) (28,190) (13,939) 8,683 - ----------------------------------------------------------------------------------------------------- Total stockholders' equity 605,840 657,002 677,662 - ----------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,547,616 $1,601,445 $1,693,056 =====================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 2 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per-share amounts) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 -------- -------- -------- -------- REVENUES Net sales $248,239 $169,275 $734,559 $572,675 Other income, net 3,401 4,203 7,971 12,727 - --------------------------------------------------------------------------------------------- Total Revenues 251,640 173,478 742,530 585,402 - --------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 215,221 176,636 679,086 590,284 Selling, general and administrative expense 10,289 14,492 39,852 39,785 Equity in earnings of unconsolidated affiliates (248) 210 (548) (465) - --------------------------------------------------------------------------------------------- 225,262 191,338 718,390 629,604 - --------------------------------------------------------------------------------------------- Income (loss) from operations 26,378 (17,860) 24,140 (44,202) Interest income 1,231 255 2,090 7,463 Interest expense (12,981) (12,495) (38,684) (38,070) Minority interest (985) 2,043 (5,360) (7,585) - --------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 13,643 (28,057) (17,814) (82,394) Income tax provision (benefit) 7,447 (11,150) (3,563) (32,950) - --------------------------------------------------------------------------------------------- Income (loss) from continuing operations 6,196 (16,907) (14,251) (49,444) Loss from discontinued operations: Loss from operations, net of taxes --- --- --- (5,800) Loss on disposition, net of taxes --- --- --- (4,724) - --------------------------------------------------------------------------------------------- Income (loss) before extraordinary items 6,196 (16,907) (14,251) (59,968) Extraordinary loss on early retirement of debt --- --- --- (7,295) - --------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 6,196 $(16,907) $(14,251) $(67,263) ============================================================================================= Basic and diluted earnings per share: Income (loss) from continuing operations $ 0.08 $ (0.23) $ (0.19) $ (0.67) Loss from discontinued operations --- --- --- (0.14) Extraordinary loss on early retirement of debt --- --- --- (0.10) - --------------------------------------------------------------------------------------------- Net income (loss) $ 0.08 $ (0.23) $ (0.19) $ (0.91) ============================================================================================= Basic weighted average shares outstanding 74,704 74,168 74,761 74,168 Diluted weighted average shares outstanding 75,995 74,168 75,793 74,168 ============================================================================================= Cash dividends declared per share $ --- $ --- $ --- $ 0.07 =============================================================================================
See accompanying Notes to the Consolidated Financial Statements. 3 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Nine Months Ended September 30, ----------------------------- 2000 1999 ---------- ---------- OPERATING ACTIVITIES Net loss from continuing operations $ (14,251) $ (49,444) Adjustments to reconcile net loss from continuing operations to net cash flows from operating activities: Depreciation and amortization 86,147 75,586 Deferred income taxes 13,576 (5,506) Minority interest in earnings 5,359 7,585 Other non-cash items --- 1,079 Changes in current assets and liabilities excluding working capital purchased/sold during the period: Accounts receivable (20,704) (131,897) Inventories 37,461 37,783 Other current assets 9,982 (11,667) Accounts payable 2,439 (24,290) Accrued and other liabilities 7,705 (86,605) Other (548) (502) - ------------------------------------------------------------------------------------------------- Net cash flows from operating activities 127,166 (187,878) - ------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, plant and equipment (11,019) (32,056) Discontinued operations --- 315,627 Other items (5,932) 1,069 - ------------------------------------------------------------------------------------------------- Net cash flows from investing activities (16,951) 284,640 - ------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net changes in short-term borrowings (6,000) 21,000 Principal payments on long-term debt (5,392) (8,159) Redemption of preferred minority interest --- (224,998) Repurchases of TNCLP common units --- (5,994) Distributions to minority interests --- (9,429) Dividends --- (5,283) Deferred financing costs (6,697) --- Other --- 13 - ------------------------------------------------------------------------------------------------- Net cash flows from financing activities (18,089) (232,850) - ------------------------------------------------------------------------------------------------- Increase (decrease) to cash and short-term investments 92,126 (136,088) Cash and short-term investments at beginning of period 9,790 141,643 - ------------------------------------------------------------------------------------------------- Cash and short-term investments at end of period $ 101,916 $ 5,555 =================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 4 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (in thousands) (unaudited)
Accumulated Other Capital Paid-In Comprehensive Retained Stock Capital Loss Earnings (Deficit) Total - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $127,890 $552,903 $ (9,852) $(13,939) $657,002 Comprehensive loss: Net loss --- --- --- (14,251) (14,251) Foreign currency translation adjustment --- - (36,911) --- (36,911) - ---------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 127,890 $552,903 $(46,763) $(28,190) $605,840 ==========================================================================================================
Accumulated Other Capital Paid-In Comprehensive Retained Stock Capital Loss Earnings Total - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 $127,887 $552,893 $(14,157) $ 81,229 $747,852 Comprehensive loss: Net loss --- --- --- (67,263) (67,263) Foreign currency translation adjustment --- --- 2,343 --- 2,343 Exercise of stock options 3 10 --- --- 13 Dividends --- --- --- (5,283) (5,283) - ---------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $127,890 $552,903 $(11,814) $ 8,683 $677,662 ==========================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 5 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments necessary, in the opinion of management, to summarize fairly the financial position of Terra Industries Inc. and all majority-owned subsidiaries ("Terra") and the results of Terra's operations for the periods presented. Because of the seasonal nature of Terra's operations and effects of weather-related conditions in several of its marketing areas, results of operations of any single reporting period should not be considered as indicative of results for a full year. Certain reclassifications have been made to prior years' financial statements to conform with current year presentation. These statements should be read in conjunction with Terra's 1999 Annual Report to Stockholders. 2. On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land O Lakes Agronomy Company ("Buyer") for $335.1 million, net of seasonal working capital from December 31, 1998 and closing costs. Included in the sale were Terra's approximately 400 retail farm service centers in the U.S. and Canada, and it's 50% ownership position in Omnium, Inc., a chemical formulation joint venture. Terra retained ownership of approximately $25 million in accounts receivable and approximately 40 storage or retail sites associated with Distribution operations. Reserves for doubtful accounts of approximately $15 million have been recorded to value the retained accounts receivable at estimated net realizable value. The retained sites have a zero net book value as costs of disposal are estimated to approximate sales proceeds. The accompanying unaudited consolidated statements of operations, financial position and cash flows have been restated for prior periods to segregate results of operations and net assets associated with the discontinued Distribution business segment. 6 The results of discontinued operations for the nine month period ended September 30, 1999 were as follows: (in thousands) 1999 -------------------------------------------------------------------------- Total revenue $ 228,991 Cost of sales (186,647) Selling, general and administrative expense (64,711) Equity in earnings of affiliates 696 -------------------------------------------------------------------------- Operating loss as reported (21,671) Allocated general and administrative expense 3,466 -------------------------------------------------------------------------- Operating loss as restated (18,205) Gain on sale of unconsolidated affiliate 9,804 Interest income 938 Interest expense (2,202) Income taxes 3,865 -------------------------------------------------------------------------- Loss from discontinued operations (5,800) Loss on disposition, net of taxes (4,724) -------------------------------------------------------------------------- Net loss from discontinued operations $ (10,524) ========================================================================== The sale of the Distribution business segment was effective April 1, 1999 with respect to segment operating results. Distribution revenues and cost of sales are net of inter-company sales from Terra's Nitrogen business segment of $8.9 million for the nine month period ended September 30, 1999. Interest income and expense allocated to the Distribution business represents interest earned or expensed from short-term investments or borrowings caused by seasonal fluctuations to Distribution working capital balances. None of Terra's long-term interest expense was allocated to earnings from discontinued operations. The Buyer and Terra have also entered into a three-year nitrogen fertilizer supply agreement through which the Buyer will purchase approximately the quantity that Terra's Nitrogen Products segment supplied to both the Distribution business and the Buyer. 3. Basic earnings per share data are based on the weighted-average number of Common Shares outstanding during the period. Diluted earnings per share data are based on the weighted-average number of Common Shares outstanding and the effect of all dilutive potential common shares including stock options, restricted shares and contingent shares. 7 4. Inventories consisted of the following: September 30, December 31, September 30, (in thousands) 2000 1999 1999 ------------------------------------------------------------------ Raw materials $47,915 $ 57,772 $ 54,014 Finished goods 44,950 75,862 77,435 ------------------------------------------------------------------ Total $92,865 $133,634 $131,449 ================================================================== 5. Five lawsuits by U.K. soft drink producers and distributors have been filed against Terra and other defendants seeking in excess of (Pounds)14.1 million in damages, plus costs and interest. The lawsuits seek to recover the costs of a product recall the plaintiffs initiated in reaction to 1998 newspaper accounts concerning trace amounts of benzene found in carbon dioxide used as an ingredient to the recalled products. Terra produced the carbon dioxide at one of its U.K. plants. A sixth lawsuit seeking (Pounds)12.5 million in damages was settled by Terra's insurer in January 2000, with Terra making no contribution toward the settlement. The first trial is scheduled for January 2001. In addition to the filed lawsuits, certain other soft drink producers have indicated their intention to file claims in unspecified amounts. Terra has denied liability for these claims and intends to vigorously defend its position. Terra believes it has insurance coverage for any damages. Its insurer is paying Terra's defense costs and has funded the January 2000 settlement, but has reserved the right to deny coverage in whole or in part for any adverse judgements in the remaining cases. While it is not feasible to predict with certainty the final outcome of these proceedings, management does not believe this matter should have a material adverse effect on Terra's financial condition. Terra and certain of its subsidiaries are involved in various legal actions and claims, including environmental matters, arising during the normal course of business. Although it is not possible to predict with any certainty the Terra and certain of its subsidiaries are involved in various other legal actions and claims, including environmental matters, arising during the normal course of business. Although it is not possible to predict with any certainty the outcome of such matters, it is the opinion of management that these matters will not have a material adverse effect on the results of operations, financial position or cash flow of the Corporation. 6. Natural gas is the principal raw material used in Terra's production of nitrogen products and methanol. Terra enters into forward pricing arrangements for natural gas provided that such arrangements would not result in costs that would be greater than expected selling prices for nitrogen products and methanol. Under those conditions, Terra's normal natural gas procurement policy is to effectively fix or cap the price of between 25% and 80% of its natural gas requirements for a one-year period and up to 50% of its natural gas requirements for the subsequent two-year period through supply contracts, financial derivatives and other forward pricing techniques. The financial derivatives are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical prices are frequently based on prices at the most common and financially liquid location of reference for financial derivatives related to natural gas. However, natural gas supplies for the Corporation's facilities are purchased for each plant at locations other than reference points, which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the change in the price of physical gas. The Corporation has entered into forward pricing positions for a portion of its natural gas requirements for the remainder of 2000 and part of 2001, consistent with its policy. As a result 8 of its policies, the Corporation has reduced the potential adverse financial impact of natural gas price increases during the forward pricing period, but conversely, if natural gas prices were to fall, the Corporation will incur higher costs. Contracts were in place at September 30, 2000 to cover 25% of natural gas requirements for the succeeding twelve months. The September 30, 2000 contracts covered 18% of Terra's expected North American natural gas requirements and 60% of its expected U.K. natural gas requirements. Most of Terra's North American contracts expire during 2000 fourth quarter whereas U.K. contracts generally expire at an equal rate through September 2001. Unrealized gains from forward pricing positions totaled $27.5 million as of September 30, 2000. In addition, Terra had purchase commitments for natural gas at prices $21.9 million lower than September 30, 2000 forward markets. The amount ultimately recognized by the Corporation will be dependent on published prices in effect at the time of settlement. Terra also had $12.0 million of realized gains on closed contracts relating to future periods that have been deferred to the respective period. 7. Prior to April 7, 2000, Terra had a revolving credit facility with an available line of credit to $62 million for working capital needs and other corporate purposes. Interest on borrowings under this line was charged at current market rates. On April 7, 2000, Terra entered into a $225 million asset based financing agreement that replaced its $62 million revolving credit facility and amended and restated its $109 million long-term bank notes. The new financing agreement, which expires January 2003, bears interest at floating rates comparable to the previous facilities and is secured by substantially all of Terra's assets. Debt repayments of $1.25 million are required quarterly commencing June 30, 2000, with remaining outstanding balances due at maturity. The new agreement also requires Terra to adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. In addition, Terra is required to maintain minimum levels of earnings before interest, income taxes, depreciation and amortization (as defined in the financing agreement) computed on a quarterly basis. 8. On June 1, 2000, Terra announced it would not restart its Blytheville, Arkansas ammonia and urea production facility as the result of high natural gas costs. The plant resumed production on August 19, 2000, when market conditions improved as the result of higher ammonia and urea prices. 9 9. Terra classifies its continuing operations into two business segments: Nitrogen Products and Methanol. The Nitrogen Products business produces and distributes ammonia, urea, nitrogen solutions and ammonium nitrate to farm distributors and industrial users. The Methanol business manufactures and distributes methanol which is used in the production of a variety of chemical derivatives and in the production of methyl tertiary butyl ether (MTBE), an oxygenate and an octane enhancer for gasoline. Terra does not allocate interest, income taxes or infrequent items to continuing business segments. Included in Other are general corporate activities not attributable to a specific industry segment. The following summarizes operating results by business segment:
Three Months Ended Nine Months Ended September 30 September 30 -------------------- -------------------- (in thousands) 2000 1999 2000 1999 -------------------------------------------------------------------------------- Revenues - Nitrogen Products $206,996 $144,606 $639,575 $519,904 - Methanol 42,710 28,569 96,995 62,133 - Other 1,934 303 5,960 3,365 -------------------------------------------------------------------------------- Total revenues $251,640 $173,478 $742,530 $585,402 ================================================================================ Income (loss) from operations - Nitrogen Products $ 17,506 $(16,884) $ 19,318 $(26,237) - Methanol 9,974 (801) 9,561 (13,785) - Other (1,102) (175) (4,739) (4,180) -------------------------------------------------------------------------------- Total income (loss) from operations $ 26,378 $(17,860) $ 24,140 $(44,202) ================================================================================
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - --------------------- QUARTER ENDED SEPTEMBER 30, 2000 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1999 Consolidated Results Terra reported net income from continuing operations of $6.2 million for the 2000 third quarter compared with a net loss of $16.9 million in 1999. The increase in 2000 profits from continuing operations was primarily related to increased operating income as the result of higher product prices offset partly by higher natural gas costs. Terra classifies its operations into two business segments: Nitrogen Products and Methanol. The Nitrogen Products segment represents operations directly related to the wholesale sales of nitrogen products from Terra's ammonia production and upgrading facilities. The Methanol segment represents wholesale sales of methanol produced at Terra's two methanol manufacturing facilities. Total revenues and operating income (loss) by segment for the three-month periods ended September 30, 2000 and 1999 were as follows:
(in thousands) 2000 1999 - -------------------------------------------------------------------------------- REVENUES: Nitrogen Products $206,996 $144,606 Methanol 42,710 28,569 Other 1,934 303 - -------------------------------------------------------------------------------- $251,640 $173,478 ================================================================================ OPERATING INCOME (LOSS): Nitrogen Products $ 17,506 $(16,884) Methanol 9,974 (801) Other expense - net (1,102) (175) - -------------------------------------------------------------------------------- $ 26,378 $(17,860) ================================================================================
Nitrogen Products Volumes and prices for the three-month periods ended September 30, 2000 and 1999 were as follows: VOLUMES AND PRICES
2000 1999 - -------------------------------------------------------------------------------------- Sales Average Sales Average (quantities in thousands of tons) Volumes Unit Price Volumes Unit Price - -------------------------------------------------------------------------------------- Ammonia 311 $ 175 303 $ 115 Nitrogen solutions 887 87 794 58 Urea 69 149 114 95 Ammonium nitrate 283 128 189 114 - --------------------------------------------------------------------------------------
11 Nitrogen revenues increased $62.4 million to $207.0 million in the 2000 third quarter compared with $144.6 million in the 1999 quarter. Higher 2000 revenues reflect price increases of $50.0 million from the 1999 third quarter in response to substantially lower industry-wide nitrogen inventories. Ammonium nitrate sales volumes in the 2000 third quarter were higher than in 1999, which for the most part represented demand shifted from late 1999 into 2000 as customers deferred purchases where possible in response to expected price declines. The Nitrogen segment had operating income of $17.5 million for the third quarter of 2000 compared with operating loss of $16.9 million for the 1999 third quarter. The increase in operating income was primarily related to higher selling prices offset partly by higher natural gas costs. Natural gas costs increased almost $26 million over the 1999 third quarter as unit costs, net of forward pricing gains and losses, increased to $3.14/MMBtu, during the 2000 third quarter compared to $2.24/MMBtu during the same 1999 period. Third quarter 2000 natural gas costs were reduced $23.3 million from spot prices as the result of forward price contracts. Methanol For the three months ended September 30, 2000 and 1999, respectively, the Methanol segment had revenues of $42.7 million and $28.6 million. Sales volumes decreased 7.5% from prior year levels, but selling prices increased from $0.39/gallon in 1999 to $0.62/gallon in 2000 as the result of more balanced industry inventories in relation to demand than was the case in the 1999 third quarter. The Methanol segment generated a $10.0 million operating profit in the 2000 third quarter compared to a $0.8 million operating loss in 1999. The increase in operating income was primarily related to higher selling prices offset partly by higher natural gas costs. Natural gas costs increased almost $8 million over the 1999 third quarter as unit costs, net of forward pricing gains and losses, increased to $3.50/MMbtu, during the 2000 third quarter compared to $2.25/MMBtu during the 1999 period. In addition, cost reductions of $1.0 million were realized due to improved plant operations as compared to 1999. Third quarter 2000 natural gas costs were reduced $5.3 million by forward pricing contracts. Other Expense - Net Other operating expense of $1.1 million in the 2000 third quarter was $0.9 million unfavorable to 1999 due primarily to 2000 legal expenses associated with a lawsuit in which Terra was a plaintiff. Interest Expense - Net Interest expense, net of interest income, totaled $11.8 million during the 2000 third quarter compared with $12.2 million for the prior year period. Minority Interest Minority interest represents third-party interests in the earnings of the publicly held common units of Terra Nitrogen Company, L.P. (TNCLP). Minority interest charges of $1.0 million were recorded for the 2000 third quarter as the result of TNCLP earnings that were included in their entirety in consolidated operating results. The increased charge as compared to the 1999 third quarter reflected higher nitrogen earnings for TNCLP. 12 Income Taxes Income taxes for the third quarter 2000 were recorded at an effective tax rate of 55%, to adjust year-to-date provisions to Terra's estimated annual effective tax rate. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1999 Consolidated Results Terra reported a net loss of $14.3 million for the nine months ended September 30, 2000 compared with net loss of $67.3 million in 1999. During the 1999 second quarter, Terra sold its Distribution business segment, which generated a $10.5 million net loss during the 1999 period. In connection with sale of the Distribution business segment, Terra repaid outstanding bank obligations and realized a $7.3 million extraordinary loss on early retirement of debt. Terra had a $14.3 million net loss from continuing operations during the nine months ending September 30, 2000 compared to a $49.4 million loss in 1999. The smaller 2000 loss was related primarily to higher prices for the nitrogen and methanol products manufactured and sold by the Corporation. Total revenues and operating income (loss) by segment for the nine-month periods ended September 30, 2000 and 1999 were as follows: (in thousands) 2000 1999 - -------------------------------------------------------------------------------- REVENUES: Nitrogen Products $639,575 $519,904 Methanol 96,995 62,133 Other 5,960 3,365 - -------------------------------------------------------------------------------- $742,530 $585,402 ================================================================================ OPERATING INCOME (LOSS): Nitrogen Products $ 19,318 $(26,237) Methanol 9,561 (13,785) Other expense - net (4,739) (4,180) - -------------------------------------------------------------------------------- $ 24,140 $(44,202) ================================================================================ Nitrogen Products Volumes and prices for the nine-month periods ended September 30, 2000 and 1999 were as follows: VOLUMES AND PRICES 2000 1999 - ------------------------------------------------------------------------------- Sales Average Sales Average (quantities in thousands of tons) Volumes Unit Price Volumes Unit Price - ------------------------------------------------------------------------------- Ammonia 1,130 $ 153 1,120 $120 Nitrogen solutions 3,066 75 2,698 62 Urea 353 131 428 98 Ammonium nitrate 819 114 624 115 - ------------------------------------------------------------------------------- 13 Nitrogen revenues increased $119.7 million to $639.6 million in the 2000 first nine months compared with $519.9 million in the 1999 period due to higher selling prices for most products and increased sales volumes of nitrogen solutions and ammonium nitrate. The stronger demand for nitrogen solutions was due to more attractive prices compared to ammonia and lower industry inventories. Higher prices for ammonia, nitrogen solution and urea were due to lower North American and U.K. nitrogen supplies as a result of reduced industry- wide production levels since mid-1999. Ammonium nitrate demand increased for the first nine months due primarily to the shift from late 1999 into 2000 as customers deferred purchases where possible in response to expected price declines. The Nitrogen segment had an operating profit of $19.3 million during the nine months ended September 30, 2000 compared with operating loss of $26.2 million for the same 1999 period. The increase in operating income was primarily related to selling prices that were $85.5 million higher than in 1999. In addition, higher sales volumes, reduced freight costs and lower maintenance spending contributed to 2000 operating income. These factors were partially offset by higher natural gas costs. Natural gas costs, net of forward pricing gains or losses, increased to $2.76/MMBtu during the 2000 first nine months from $2.27/MMBtu during the same 1999 period, which increased total 2000 costs by $45.9 million. Natural gas cost increases were mitigated by forward pricing contracts that reduced 2000 costs by $45.2 million. Methanol For the nine months ended September 30, 2000 and 1999, respectively, the Methanol segment had revenues of $97.0 million and $62.1 million. The Beaumont plant was shut down for two months during the 1999 first quarter, because raw material costs exceeded selling prices, which caused a significant decline in 1999 revenues. Methanol selling prices averaged $0.48/gallon during the 2000 first nine months, compared to $0.34/gallon during the same 1999 period. The methanol segment had an operating profit of $9.6 million for the first nine months of 2000 compared with operating loss of $13.8 million for the 1999 period. The reduced operating loss was a result of the higher selling prices partly offset by higher natural gas costs. Natural gas costs, net of forward pricing gains or losses, increased to $2.92/MMBtu during the 2000 first nine months from $2.29/MMBtu during the same 1999 period, which increased total 2000 costs by $13.7 million. Natural gas costs for the methanol segment were $10.4 million lower than spot purchase prices as the result of forward pricing contracts. Other Expense - Net Terra had $4.7 million of other operating expenses during the 2000 first nine months, compared to $4.2 million during the 1999 period. Other expense in 2000 related primarily to legal expenses associated with a lawsuit in which Terra was a plaintiff. Most of the 1999 expenses represent allocations of shared service expenses to discontinued Distribution operations, which amounted to $3.5 million for the first nine months of 1999. Interest Expense - Net Interest expense, net of interest income, totaled $36.6 million during the 2000 first nine months compared with $30.6 million for the prior year period. The increase is primarily related to interest income of $6.3 million realized during the 1999 second quarter in connection with the sale of the Distribution business segment. 14 Minority Interest Minority interest represents third-party interests in the earnings of the publicly held common units of Terra Nitrogen Company, L.P. (TNCLP). Minority interest charges of $5.4 million were recorded for the 2000 first nine months as the result of TNCLP earnings that were included in their entirety in consolidated operating results. The 1999 first nine months minority interest charge of $7.6 million included approximately $9.4 million for a third-party's limited partnership interest in Beaumont Methanol, Limited Partnership (BMLP) net of $1.8 million for the third-party share of TNCLP losses. On June 30, 1999, the Corporation redeemed the third-party's BMLP interest and thereby eliminated future charges to earnings relating to the minority BMLP partnership interest. Income Taxes Income taxes for the first nine months of 2000 were recorded at an effective tax rate of 20%, representing the Corporation's estimated annual effective tax rate. LIQUIDITY AND CAPITAL RESOURCES The Corporation's primary uses of funds will be to fund its working capital requirements, make payments on its indebtedness and other obligations, make capital expenditures and acquisitions and fund repurchases of TNCLP common units. The principal sources of funds will be cash flow from operations and borrowings under available bank facilities. Net cash flows from operations in the first nine months of 2000 were $127.2 million comprised of $36.4 million generated from changes to net working capital balances, plus $90.8 million of operating profits after non-cash charges. Working capital reductions during the 2000 first nine months are primarily related to seasonal changes in inventory balances and inventory reductions related to third quarter 2000 production curtailments of ammonia and urea. As market conditions improve, it is likely that production rates will be increased which would result in higher inventories. On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land O Lakes Agronomy Company ("Buyer") for $335.l million, net of seasonal working capital from December 31, 1998 and closing costs. Sales proceeds were used to redeem the outstanding preferred minority interest in BMLP for $225 million, fund termination of its accounts receivable securitization program and repay outstanding borrowings under the Corporation's revolving credit facility. In connection with the sale of the Distribution business segment, Terra renegotiated outstanding bank agreements and reduced amounts available under its revolving credit facility from $225 million to $62 million. On April 7, 2000, Terra entered into a $225 million asset based financing agreement that replaced its $62 million revolving credit facility and amended and restated its $109 million long-term bank notes. The new financing agreement, which expires January 2003, bears interest at floating rates comparable to the previous facilities and is secured by substantially all of Terra's assets. Debt repayments of $1.25 million are required quarterly commencing June 30, 2000, with remaining outstanding balances due at maturity. The new agreement also requires Terra to adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. In addition Terra is required to maintain minimum levels of earnings before interest, income taxes, depreciation and amortization (as defined in the 15 financing agreement) computed on a quarterly basis. Failure to meet these covenants would require Terra to incur additional costs to amend the bank facilities or could result in termination of the facilities. Terra management believes that cash from operations and available financing sources will be sufficient to meet anticipated cash requirements. The Corporation funded plant and equipment expenditures of $11.0 million during the first nine months of 2000. The Corporation expects remaining 2000 capital expenditures to be less than $10 million consisting principally of routine equipment replacements. On August 3, 1999, the Board of Directors suspended the Corporation's payment of a regular quarterly dividend on common stock. Cash balances at September 30, 2000, were $101.9 million, none of which was used to collateralize letters of credit. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for fiscal years beginning after June 15, 2000, as amended by SFAS 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". The Corporation has reviewed SFAS 133 and intends to implement the standard on January 1, 2001. At this time, the Corporation has not determined the impact SFAS 133 will have on its financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements. SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The application of the guidance in SAB 101 will be required in the Company's fourth quarter of 2000. Terra does not expect the adoption of SAB 101 to have a material effect on its financial statements. POTENTIAL CHANGE OF CONTROL Anglo American plc, through its wholly-owned subsidiaries, owns 49.5% of the Corporation's outstanding shares. Anglo American has made public its intention to dispose of its interest in the Corporation with the timing based on market and other conditions. FORWARD LOOKING PRECAUTIONS Information contained in this report, other than historical information, may be considered forward looking. Forward looking information reflects Management's current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to, the following: general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of nitrogen and methanol products and natural gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in weather conditions, changes in agricultural regulations, and other risks detailed in the "Factors that Affect Operating Results" section of the Corporation's most recent Form 10-K. 16 PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) Exhibits 27 Financial Data Schedule [EDGAR filing only] (B) Reports on Form 8-K Form 8-K dated April 7, 2000, announcing the completion of the refinancing of Terra's credit line and long-term debt. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERRA INDUSTRIES INC. Date: October 30, 2000 /s/ Francis G. Meyer -------------------------------- Francis G. Meyer Senior Vice President and Chief Financial Officer and a duly authorized signatory 17
EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This Schedule contains summary financial information extracted from the consolidated statement of financial position of Terra Industries Inc. as of September 30, 2000 and the related consolidated statement of income for the three months then ended. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 14,970 86,946 119,627 (443) 92,865 335,598 1,294,672 (375,414) 1,547,616 150,526 469,101 0 0 127,890 477,950 1,547,616 734,559 742,530 679,086 679,086 44,664 0 36,594 (17,814) 3,563 (14,251) 0 0 0 (14,251) (0.19) (0.19)
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