-----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, SLsIApgm8oohVMAAH0robW9clkjj/RdS19/nwy7HSGtjB2UEuxia51KluqTaorlR P+zXoq+QRY2TIk6UYKOoFw== 0000950131-01-504181.txt : 20020410 0000950131-01-504181.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950131-01-504181 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERRA NITROGEN CO L P /DE CENTRAL INDEX KEY: 0000879575 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 731389684 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-43007 FILM NUMBER: 1790838 BUSINESS ADDRESS: STREET 1: TERRA CENTRE 600 FOURTH STREET STREET 2: PO BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 BUSINESS PHONE: 7122771340 MAIL ADDRESS: STREET 1: TERRA CENTER 600 FOURTH STREET STREET 2: PO BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 10-Q 1 d10q.txt FORM 10-Q ================================================================================ FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2001 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 1-10877 TERRA NITROGEN COMPANY, L.P. (Exact name of registrant as specified in its charter) Delaware 73-1389684 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Terra Centre PO Box 6000, 600 Fourth Street Sioux City, Iowa 51102-6000 (Address of principal executive office) (Zip Code) Registrant's telephone number: (712) 277-1340 At the close of business on October 31, 2001, there were 18,501,576 Common Units outstanding. 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. X Yes ___ No ================================================================================ PART I. FINANCIAL INFORMATION TERRA NITROGEN COMPANY, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
September 30, December 31, September 30, 2001 2000 2000 -------------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 10 $ 17,941 $ 19,627 Accounts receivable 25,170 24,739 33,964 Inventory - finished products 27,632 9,431 14,330 Inventory - materials and supplies 9,636 9,950 9,287 Prepaid expenses and other current assets 7,902 3,117 1,483 - ---------------------------------------------------------------------------------------------------------- Total current assets 70,350 65,178 78,691 Net property, plant and equipment 139,336 147,597 148,701 Other assets 6,846 11,259 13,978 - ---------------------------------------------------------------------------------------------------------- Total assets $ 216,532 $ 224,034 $ 241,370 ========================================================================================================== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Short-term note payable to affiliates $ 20,709 $ --- $ --- Accounts payable and accrued liabilities 17,906 19,680 31,880 Customer prepayments --- 3,076 3,804 Current portion of long-term debt and capital lease obligations 1,000 1,000 1,420 - ---------------------------------------------------------------------------------------------------------- Total current liabilities 39,615 23,756 37,104 Long-term debt 6,985 8,250 8,500 Long-term payable to affiliates 5,316 5,316 5,316 Partners' capital 164,616 186,712 190,450 - ---------------------------------------------------------------------------------------------------------- Total liabilities and partners' capital $ 216,532 $ 224,034 $ 241,370 ==========================================================================================================
See Accompanying Notes to the Consolidated Financial Statements. 2 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit amounts) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------- ------------- -------------- ------------- Revenues $ 47,543 $ 58,997 $ 201,294 $ 214,092 Other income 264 248 547 548 - ------------------------------------------------------------------------------------------------ Total revenues 47,807 59,245 201,841 214,640 Cost of goods sold 56,665 54,281 205,072 186,735 - ------------------------------------------------------------------------------------------------ Gross profit (8,858) 4,964 (3,231) 27,905 Operating expenses 2,135 1,053 6,876 6,923 - ------------------------------------------------------------------------------------------------ Operating income (loss) (10,993) 3,911 (10,107) 20,982 Interest expense (405) (275) (817) (1,262) Interest income --- 1 203 73 - ------------------------------------------------------------------------------------------------ Net income (loss) $ (11,398) $ 3,637 $ (10,721) $ 19,793 ================================================================================================ Net income (loss) allocable to limited partners' interest $ (11,170) $ 3,564 $ (10,507) $ 19,396 ================================================================================================ Net income (loss) per limited partnership unit $ (0.60) $ 0.19 $ (0.57) $ 1.05 ================================================================================================
See Accompanying notes to the Consolidated Financial Statements. 3 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Nine Months Ended September 30, 2001 2000 ------------- ------------- Operating activities: Net income from operations $ (10,721) $ 19,793 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 9,609 9,539 Changes in operating assets and liabilities: Receivables (431) (4,118) Inventories (17,887) 15,494 Prepaid expenses (4,785) 100 Accounts payable, accrued liabilities and customer prepayments (4,850) 9,679 Change in other assets 4,413 616 - ------------------------------------------------------------------------------------------------- Net cash flows from operating activities (24,652) 51,103 Net cash flows from investing activities: Capital expenditures (1,348) (964) Financing activities: Net changes in short-term borrowings 20,709 (39,601) Issuance (repayment) of long-term debt and capital lease obligations (1,265) 9,076 Partnership distributions paid (8,306) -- Other (3,069) -- - ------------------------------------------------------------------------------------------------- Net cash flows from financing activities 8,069 (30,525) - ------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (17,931) 19,614 Cash and cash equivalents at beginning of period 17,941 13 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 10 $ 19,627 =================================================================================================
See Accompanying Notes to the Consolidated Financial Statements. 4 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF PARTNER'S CAPITAL (unaudited)
Limited General Accumulated Total Partners' Partner Other Partners' Interests Interests Comprehensive Capital (in thousands, except for Units) Income - --------------------------------------------------------------------------------------------------------------- Partners' capital at January 1, 2001 $ 196,571 $ (9,859) $ -- $ 186,712 Net Income (10,507) (214) (10,721) Cumulative effect of change in accounting for derivative financial investments 14,200 14,200 Change in fair value of derivatives (17,269) (17,269) -------- Comprehensive income (loss) (13,790) Distributions (8,140) (166) (8,306) - --------------------------------------------------------------------------------------------------------------- Partners' capital at September 30, 2001 $ 177,924 $ (10,239) $ (3,069) $ 164,616 =============================================================================================================== Limited partner units issued and outstanding at September 30, 2001 18,501,576 ==========
Limited General Accumulated Total Partners' Partners' Other Partners' Interests Interest Comprehensive Capital (in thousands, except for Units) Income - --------------------------------------------------------------------------------------------------------------- Partners' capital at January 1, 2000 $ 180,837 $ (10,180) $ -- $ 170,657 Net Income 19,396 397 -- 19,793 - --------------------------------------------------------------------------------------------------------------- Partners' capital at September 30, 2000 $ 200,233 $ (9,783) $ -- $ 190,450 =============================================================================================================== Limited partner units issued and outstanding at September 30, 2000 18,501,576 ==========
See Accompanying Notes to the Consolidated Financial Statements. 5 TERRA NITROGEN COMPANY, L.P. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Terra Nitrogen Company, L.P. ("TNCLP") Annual Report on Form 10-K for the year ended December 31, 2000. TNCLP and its operating partnership subsidiary, Terra Nitrogen, Limited Partnership (the "Operating Partnership"), are referred to herein, collectively, as the "Partnership". The accompanying unaudited consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. All of these adjustments are of a normal and recurring nature. Results for the quarter are not necessarily indicative of future financial results of the Partnership. Net income per limited partnership unit is computed by dividing net income, less a 2% share allocable to the General Partner for the nine months ended September 30, 2001 and 2000, respectively, by 18,501,576 limited partner units. According to the Agreement of Limited Partnership of TNCLP, net income is allocated to the General Partner and the Limited Partners in each taxable year in the same proportion as Available Cash for such taxable year was distributed to the General Partner and the Limited Partners. If there is no cash distribution, net income is allocated to the Limited Partners and the General Partner generally based on their respective ownership percentages. Distributions of Available Cash are made 98% to the Limited Partners and 2% to the General Partner, except that the General Partner is entitled, as an incentive, to larger percentage interests (up to 50%) to the extent that distributions of Available Cash exceed specified amounts. 2. Distributions to Unitholders The Partnership makes quarterly cash distributions to Unitholders and the General Partner in an amount equal to 100% of its Available Cash. No distributions were made during the first nine months of 2000. The Partnership paid cash distributions totaling $8.3 million ($0.44 per common unit) in the first nine months of 2001. 3. Financing Arrangements The Partnership has an arrangement for demand deposits and notes with an affiliate to allow for excess Partnership cash to be deposited with or funds to be borrowed from Terra Capital, Inc., the parent of the General Partner. At September 30, 2001 and 2000, no amounts were deposited with Terra Capital, Inc. The amount of the demand note was $20.7 million at September 30, 2001 and bore interest at the rate paid by Terra Capital on its short-term borrowings. There were no outstanding demand notes at September 30, 2000. 6 4. Natural gas costs Natural gas is the principal raw material used in the Partnership's production of nitrogen products. The Partnership enters into forward pricing arrangements for natural gas provided that such arrangements would not result in costs greater than expected selling prices for nitrogen products. The Partnership'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 contacts, financial derivatives and other forward pricing techniques. In response to extremely volatile natural gas costs during the last six months of 2000 and uncertainties regarding the ability of finished goods to recover the increases to gas costs, the Partnership amended its policy and eliminated the minimum hedge requirement through the end of 2001. 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 prices are frequently based on the Henry Hub Louisiana price, but natural gas supplies for the Partnership's production facilities are physically purchased from various suppliers 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 Partnership has entered into forward pricing positions for a portion of its natural gas requirements for the remainder of 2001 and part of 2002, consistent with its policy. As a result of its policies, the Partnership 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 Partnership will incur higher costs. Contracts were in place at September 30, 2001 to cover approximately 11% of natural gas requirements for the succeeding twelve months. Unrealized losses from forward pricing positions totaled $0.5 million as of September 30, 2001. The ultimate amount recognized by the Partnership will be dependent on prices in effect at the time of settlement for unrealized positions at September 30, 2001. The Partnership also had $1.9 million of realized losses on closed contracts relating to future periods that have been deferred to the respective period. 5. Idled facilities On June 7, 2001 the Partnership reported it would suspend production of ammonia and urea at its Blytheville, Arkansas plant due to its inability to generate cash flow under existing price and cost conditions. The restart of production at that facility began on October 1, 2001. 6. Derivative Financial Instruments Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities" requires that all derivative instruments, whether designated in hedging relationships or not, be recorded in the balance sheet at fair value. The Partnership has designated its natural gas derivative instruments as cash flow hedges with changes in fair value recorded in other comprehensive income (OCI) until the natural gas it relates to is used in production when it is then reclassified from OCI to earnings. On January 1, 2001, the Partnership adopted SFAS 133 which resulted in a cumulative $9.9 million increase to current assets, a $4.3 million reduction to current liabilities and a $14.2 million increase 7 to accumulated OCI which reflected the effective portion of the derivatives designated as cash flow hedges. The increase to current assets was to recognize the value of open natural gas contracts and the reduction to current liabilities was to reclassify deferred gains on closed contracts relating to future periods. The changes in the components of accumulated OCI during the nine months ended September 30, 2001 follow:
Net Unrealized Realized Gain (Loss) Accumulated Gain (loss) Deferred to OCI on Natural Gas Future Periods (in thousands) Hedging Activity ------------------------------------------------------------------------------------------------------ Balance January 1, 2001 $ 9,900 $ 4,300 $ 14,200 Net unrealized gain (loss) arising during period (12,358) 1,018 (11,340) Transfer net (gain) loss realized to production costs 2,206 (4,300) (2,094) ------------------------------------------------------------------------------------------------------ Balance March 31, 2001 $ (252) $ 1,018 $ 766 ------------------------------------------------------------------------------------------------------ Net unrealized gain (loss) arising during period (5,631) (1,405) (7,036) Transfer net (gain) loss realized to production costs 3,178 (1,018) 2,160 ------------------------------------------------------------------------------------------------------ Balance June 30, 2001 $ (2,705) $ (1,405) $ (4,110) ------------------------------------------------------------------------------------------------------ Net unrealized gain (loss) arising during period (1,464) (2,524) (3,988) Transfer net loss realized to production costs 3,624 1,405 5,029 ------------------------------------------------------------------------------------------------------ Balance September 30, 2001 $ (545) $ (2,524) $ (3,069) ======================================================================================================
In addition to the $1.9 million of realized losses on closed gas contracts, the Partnership had $0.6 million of losses related to fertilizer swaps at September 30, 2001. 7. Recently Issued Accounting Standards In June 2001, the Financial Accounting Standards Board ("FSAB") approved the issuance of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These standards, issued in July 2001, establish accounting and reporting for business combinations. SFAS No. 141 requires all business combinations entered into subsequent to June 30, 2001 to be accounted for using the purchase method of accounting. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment on an annual basis. Adoption of these standards will not impact the Partnership. In June 2001, the FASB approved the issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard requires the Partnership to record the fair value of a 8 liability for an asset retirement obligation in the period in which it is incurred and is effective for the Partnership's fiscal year 2003. The Partnership has not yet quantified the impact arising from adoption of this standard. In August 2001, the FASB approved the issuance of SFAS No. 144, "Accounting for the Impairment of Long-lived Assets." This standard requires the Partnership to recognize an impairment loss if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value and is effective for the Partnership's fiscal year 2002. The Partnership has not yet quantified the impact arising from adoption of this standard 9 Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Three months ended September 30, 2001 compared with three months ended September 30, 2000 Volumes and prices for the three-month periods ended September 30, 2001 and 2000 follow: 2001 2000 Volumes Unit Price Volumes Unit Price (000 tons) ($/ton) (000 tons) ($/ton) ------------ ------------ ------------ ------------ Ammonia 36 $ 175 56 $ 181 UAN 510 75 520 86 Urea 28 110 30 145 Revenues for the quarter ended September 30, 2001 decreased $11.4 million, or 19%, compared with the same quarter in 2000 as the result of lower prices and volumes for all Partnership products. Sales prices and volumes declined from the 2000 third quarter due to significantly higher U.S. fertilizer inventories in response to lower consumption during last spring's planting season. Third quarter gross profits decreased $13.8 million from 2000. Lower 2001 sales prices and volumes reduced gross profits $7.5 million from the 2000 second quarter. Cost increases in the form of higher natural gas costs, which increased from $3.47/MMBtu in 2000 to $3.55/MMBtu in 2001 (net of forward pricing gains or losses) decreased gross margins by $0.6 million. The Partnership realized $5.0 million in hedging losses during the 2001 third quarter compared to hedging gains of $9.8 million during the same 2000 period. Operating expenses were $1.1 million higher in 2001 than in 2000 primarily as the result of an increase in the third quarter expense allocation from the General Partner. Net interest expense was $131,000 higher than the 2000 third quarter due to higher borrowing levels. 10 Nine months ended September 30, 2001 compared with nine months ended September 30, 2000 Volumes and prices for the nine-month periods ended September 30, 2001 and 2000 follow: 2001 2000 Volumes Unit Price Volumes Unit Price (000 tons) ($/ton) (000 tons) ($/ton) ------------ ------------ ------------ ------------ Ammonia 145 $ 256 317 $ 149 UAN 1,323 104 1,863 75 Urea 171 152 215 130 Revenues for the nine months ended September 30, 2001 decreased $12.8 million, or 6%, compared with the same period in 2000. Lower sales volumes as the result of fewer planted corn acres, wet field conditions that precluded normal application of fertilizers and increased competition from record import levels, reduced 2001 revenues by $72 million from the first nine months of last year. Significantly higher prices for all products, however, offset $58 million of the revenue decline. The higher prices reflected lower industry supplies through the 2001 first quarter as a result of periodic production curtailments by most nitrogen producers in response to the past winter's very high natural gas costs. Gross profits during the 2001 first nine months decreased $31.1 million from 2000. Higher sales prices increased gross profits by $58 million. These increases were more than offset, however, by higher natural gas costs, which increased from $2.85/MMBtu in 2000 to $5.19/MMBtu in 2001 (net of forward pricing gains or losses) and lower sales volume. The Partnership realized $5.1 million in hedging losses during the 2001 first nine months compared to hedging gains of $18.8 million during the same 2000 period. Operating expenses were essentially the same in 2001 as in 2000. Net interest expense of $614,000 was $575,000 less than the 2000 first nine months due to lower borrowing levels. Capital resources and liquidity Net cash flows used in operations in the first nine months of 2001 totaled $24.7 million with $23.5 million used to increase working capital balances and $1.2 million of operating loss after non-cash charges. Most of the working capital increases are related to carryover inventory balances as the result of lower sales volumes during the 2001 first nine months. The Partnership's principal needs for funds are for support of its working capital and capital expenditures. The Partnership intends to fund its needs primarily through net cash flows from operating activities, and, to the extent required, from funds borrowed from others, including borrowings from Terra Capital, Inc., the parent of the General Partner. The Partnership believes that such sources of funds will be adequate to meet the Partnership's working capital needs and fund the Partnership's capital expenditures for at least the next 12 months. 11 Quarterly distributions to the Partners of TNCLP are based on Available Cash for the quarter as defined in the Agreement of Limited Partnership of TNCLP. Available Cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. In consideration of the Partnership's working capital and operating cash needs, the General Partner determined there was no Available Cash available for distribution at September 30, 2001. Capital expenditures Capital expenditures totaled $1.3 million for the first nine months of 2001. For the remainder of 2001, the Partnership plans to spend less than $3 million for routine equipment replacement. Limited Call Right If at any time less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner's sole discretion, may call or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated persons. The General Partner and its affiliates owned 75.1% of the Common Units at October 31, 2001. If the General Partner elects to acquire all outstanding units, TNCLP is required to give at least 30 but not more that 60 days notice of its decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous twenty trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price by the General Partner or any of its affiliates for any unit within 90 days preceding the date the purchase is announced. 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: Changes in the financial markets, general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of nitrogen 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 Partnership's Securities and Exchange Commission filings, in particular the "Factors that Affect Operating Results" section of its most recent Form 10-K. 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 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 NITROGEN COMPANY, L.P. By: TERRA NITROGEN CORPORATION as General Partner By: /s/ Francis G. Meyer ------------------------------- Francis G. Meyer Vice President (Principal Accounting Officer) Date: November 14, 2001 13 -----END PRIVACY-ENHANCED MESSAGE-----