<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000066895
<NAME> MISSISSIPPI CHEMICAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,926
<SECURITIES> 0
<RECEIVABLES> 35,439
<ALLOWANCES> 2,014
<INVENTORY> 92,000
<CURRENT-ASSETS> 144,537
<PP&E> 804,154
<DEPRECIATION> 342,744
<TOTAL-ASSETS> 874,220
<CURRENT-LIABILITIES> 61,632
<BONDS> 214,500
0
0
<COMMON> 280
<OTHER-SE> 437,767
<TOTAL-LIABILITY-AND-EQUITY> 874,220
<SALES> 104,715
<TOTAL-REVENUES> 104,715
<CGS> 84,028
<TOTAL-COSTS> 93,725
<OTHER-EXPENSES> 754
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 3,510
<INCOME-PRETAX> 6,726
<INCOME-TAX> 2,505
<INCOME-CONTINUING> 4,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,221
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
Of The Securities Exchange Act of 1934
For Quarter Ended September 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1998
Commission File Number 001-12217
MISSISSIPPI CHEMICAL CORPORATION
Organized in the State of Mississippi
Tax Identification No. 64-0292638
P. O. Box 388, Yazoo City, Mississippi 39194
Telephone No. 601+746-4131
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ x ] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of September 30, 1998.
Class Number of Shares
----- ----------------
Common Stock, $0.01 par value 26,317,217
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Income 3
Three months ended September 30,
1998 and 1997
Consolidated Balance Sheets 4 - 5
September 30, 1998 and June 30, 1998
Consolidated Statements of Shareholders' Equity 6
Fiscal Year Ended June 30, 1998
and Three months ended September 30, 1998
Consolidated Statements of Cash Flows 7
Three months ended September 30,
1998 and 1997
Notes to Consolidated Financial Statements 8 - 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11 - 19
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 20
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Three months ended
September 30,
--------------------
1998 1997
-------- --------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Net sales $104,715 $106,814
Trading loss on brokered product - (297)
-------- --------
104,715 106,517
Operating expenses:
Cost of products sold 84,028 87,855
Selling, general and administrative 9,697 9,750
-------- --------
93,725 97,605
-------- --------
Operating income 10,990 8,912
Other (expense) income:
Interest, net (3,510) (2,083)
Other (754) 523
-------- --------
Income before income taxes 6,726 7,352
Income tax expense 2,505 3,055
-------- --------
Net income $ 4,221 $ 4,297
======== ========
Earnings per share - basic (see Note 2) $ 0.16 $ 0.16
======== ========
Earnings per share - diluted (see Note 2) $ 0.16 $ 0.16
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
September 30, June 30,
1998 1998
------------- --------
(In thousands, except per share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,926 $ 3,857
Accounts receivable, net 33,425 51,532
Note receivable due within one year - 9,500
Inventories:
Finished products 51,084 24,959
Raw materials and supplies 5,280 5,894
Replacement parts 35,636 34,576
-------- --------
Total inventories 92,000 65,429
Prepaid expenses and other current assets 13,419 6,636
Deferred income taxes 3,767 3,767
-------- --------
Total current assets 144,537 140,721
Investments in affiliates 77,544 73,073
Note receivable - 45,125
Other assets 15,529 16,227
Property, plant and equipment, at cost 804,154 795,332
less accumulated depreciation, depletion
and amortization (342,744) (334,491)
-------- --------
Net property, plant and equipment 461,410 460,841
Goodwill, net of accumulated amortization 175,200 176,345
-------- --------
$874,220 $912,332
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
September 30, June 30,
1998 1998
------------ --------
<PAGE>
(In thousands, except per share data)
<S> <C> <C>
Current liabilities:
Long-term debt due within one year $ 78 $ 114
Accounts payable 44,981 58,089
Accrued liabilities 15,792 15,156
Income taxes payable 781 3,276
-------- --------
Total current liabilities 61,632 76,635
Long-term debt 290,718 304,705
Other long-term liabilities and
deferred credits 17,578 17,481
Deferred income taxes 66,245 64,986
Shareholders' equity:
Common stock ($.01 par; authorized
100,000 shares; issued 27,976) 280 280
Additional paid-in capital 305,901 305,901
Retained earnings 159,296 157,800
Treasury stock, at cost
(1,659 and 736 shares) (27,430) (15,456)
-------- --------
438,047 448,525
-------- --------
$874,220 $912,332
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ ---------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances, July 1, 1997 $ 280 $305,901 $145,827 $(12,579) $439,429
Net income - - 22,974 - 22,974
Cash dividends paid - - (10,948) - (10,948)
Treasury stock, net - - (53) (2,877) (2,930)
------ -------- -------- -------- --------
Balances, June 30, 1998 280 305,901 157,800 (15,456) 448,525
Net income - - 4,221 - 4,221
Cash dividends paid - - (2,725) - (2,725)
Treasury stock, net - - - (11,974) (11,974)
------ -------- -------- -------- --------
Balances,
September 30, 1998 $ 280 $305,901 $159,296 $(27,430) $438,047
====== ======== ======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three months ended September 30,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,221 $ 4,297
Reconciliation of net income to net cash
used in operating activities:
Net change in operating assets and
liabilities (30,214) (18,006)
Depreciation, depletion and
amortization 10,280 9,070
Deferred income taxes 1,259 342
Other 126 (427)
-------- --------
Net cash used in operating activities (14,328) (4,724)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (9,730) (20,698)
Investment in Farmland MissChem Limited (3,819) (967)
Net change in restricted funds 56 (9,945)
Collections on note receivable 54,625 -
Other - 1,102
-------- --------
Net cash provided by (used in) investing
activities 41,132 (30,508)
-------- --------
Cash flows from financing activities:
Debt proceeds 158,300 112,900
Debt payments (172,336) (81,222)
Cash dividends paid (2,725) (2,742)
Purchase of treasury stock (11,974) (105)
-------- --------
Net cash (used in) provided by financing
activities (28,735) 28,831
-------- --------
Net decrease in cash and cash equivalents (1,931) (6,401)
Cash and cash equivalents - beginning of period 3,857 8,159
-------- --------
Cash and cash equivalents - end of period $ 1,926 $ 1,758
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Mississippi
Chemical Corporation and its subsidiaries ("the Company") have been prepared
by the Company, without audit. In the opinion of the Company's management,
the financial statements reflect all adjustments necessary to present fairly
the results of operations for the three-month periods ended September 30, 1998
and 1997, the Company's financial position at September 30, 1998 and June 30,
1998, the cash flows for the three months ended September 30, 1998 and 1997,
and the consolidated statements of shareholders' equity as of September 30,
1998. In the opinion of management, these adjustments are of a normal
recurring nature which are necessary for a fair presentation of the financial
position and results of operations for the interim periods. The Company has
reclassified certain prior year information to conform with the current year's
presentation. Effective July 1, 1998, the Company changed its presentation of
delivery costs from a component of selling costs to a component of net sales
on its statement of income. This change was made to conform to industry
practice so that the Company can be more readily compared to its peer group.
The Company has restated its prior year statement of income for this change.
Certain notes and other information have been condensed or omitted in the
interim financial statements presented in the Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1998 Form 10-K and the consolidated financial statements and notes
thereto included in the Company's June 30, 1998, audited financial statements.
Due to the seasonal nature of the Company's business, the results of
operations for the period ended September 30, 1998, are not necessarily
indicative of the operating results for the full fiscal year.
NOTE 2 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share." As a result, the Company's basic and diluted earnings per share amounts
for the three-month period ended September 30, 1998, have been calculated in
accordance with SFAS No. 128. Similarly, earnings per share amounts reported
for the three-month period ended September 30, 1997, have been restated to
comply with this Statement.
The number of shares used in the Company's basic and diluted earnings per
share computation are as follows:
<TABLE>
Three months ended
September 30,
-------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Weighted average common shares
outstanding, net of treasury shares,
for basic earnings per share 26,976 27,410
Common stock equivalents for employee
stock options - 47
------ ------
Weighted average common shares
outstanding for diluted earnings
per share 26,976 27,457
====== ======
</TABLE>
In July 1998, the Company's board of directors declared a regular
quarterly cash dividend of $0.10 per common share for the three-month period
ending June 30, 1998. This dividend was paid on August 18, 1998, to holders
of record on August 4, 1998.
NOTE 3 - CAPITAL PROJECTS
In late fiscal 1996, the Company began an expansion project, estimated to
cost $130.0 million, 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 increase its
ammonium nitrate capacity. The nitric acid plant was completed and placed in
service in March 1998. The Company completed modifications to its ammonium
nitrate plant in July 1998, which increased its capacity to 900,000 tons per
year. The Company anticipates that the anhydrous ammonia plant will be placed
in service in the Company's second fiscal quarter.
The Company began an expansion project to increase its potash production
capacity in late fiscal 1998. This expansion will increase the Company's red
granular capacity from 445,000 to 545,000 tons-per-year, as well as increase
storage capacities by 30,000 tons. Upon completion of the project, the Company
will have approximately 1,100,000 tons of combined potash production capacity
from its two operating mines. The Company estimates total cost of the
expansion to be $8.2 million and it is scheduled to be fully operational by the
end of fiscal 1999.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion and analysis should be read in conjunction with
the attached consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended June 30, 1998.
Consistent with the historical nature of the Company's business, the usage
of fertilizer in the Company's trade territory is highly seasonal, and the
Company's quarterly results reflect the fact that significantly more fertilizer
is sold during 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 may not necessarily be indicative of results
expected for the full fiscal year. In addition, quarterly results can vary
significantly from year to year due to a number of factors, including world
market conditions of supply and demand, 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 Company's results for the quarter ended September 30, 1998, reflect
continued weak pricing for the Company's nitrogen products. Due to a
persistent world supply/demand imbalance, the Company's average nitrogen sales
price decreased 15% during the current quarter as compared to the prior year
quarter. During the current quarter, phosphate sales prices increased 6% as
compared to the prior year, while potash sales prices increased 12%. These
increases in phosphate and potash prices are primarily the result of strong
international demand.
During the current year quarter, sales volumes for the Company's nitrogen
products increased 7% over prior year levels. This increase was the result of
the additional anhydrous ammonia tons available for sale from the Company's
50-50 joint venture ammonia plant in Trinidad from which the Company purchases
50% of the ammonia produced. Phosphate sales volumes decreased 4% during the
current year quarter due to damage to the Pascagoula, Mississippi, DAP
production facility caused by Hurricane Georges. The Pascagoula facility was
shut down on September 27, as a result of the hurricane and resumed production
on October 19. Approximately 48,000 tons of DAP inventory was also damaged
during the storm. The damaged property and inventory are insured subject to a
$250,000 deductible as are all business interruption losses in excess of ten
days. Currently, management is quantifying its insurance claim related to
these losses and believes that a gain will be recognized in the second quarter
of fiscal 1999 related to the involuntary conversion of property. Potash sales
volumes did not change significantly during the current year quarter.
During the current year quarter, nitrogen costs per ton declined 11%
due to lower maintenance and labor costs as well as lower natural gas costs.
Lower maintenance and labor costs were the result of higher costs incurred in
the prior year due to a scheduled biennial maintenance turnaround at the
Company's Yazoo City nitrogen facility. During the current quarter, DAP costs
per ton increased 3%, primarily the result of lost production associated with
the plant shutdown related to Hurricane Georges in late September. Potash
costs per ton decreased 8% during the current quarter as compared to the prior
year quarter as a result of the suspension of operations of the higher cost
mining and production facilities at Eddy in early December 1997, in addition
to improved operations at the Company's East mine acquired in 1996.
Farmland MissChem Limited ("Farmland MissChem"), the Company's 50-50 joint
venture anhydrous ammonia plant located in Point Lisas, The Republic of
Trinidad and Tobago, achieved operational status in late July 1998. The
Company's portion of the income generated by Farmland MissChem as of September
30, 1998, approximated $1.0 million. This income is recorded by the Company
as a reduction to its cost of products sold in the Company's consolidated
statement of income. The Company purchases one-half of the product produced
at Farmland MissChem at market price subject to a floor. During the quarter
ended September 30, 1998, these purchases were at the floor price.
Looking forward, the key issue for the Company is still the direction of
nitrogen pricing, which will be driven by supply and demand. Three of the most
significant factors affecting pricing of nitrogen products are still Chinese
purchasing practices, Russian production and pricing policies, and the impact
of recent global capacity expansions.
In authorizations granted in May 1995, March 1996, and September 1998, the
Board of Directors authorized the purchase of up to 8,000,000 shares of the
Company's common stock in the open market, in privately negotiated transactions
or otherwise at prices and at times determined by the Company to be
appropriate. As of September 30, 1998, the Company had repurchased a total of
3,514,709 shares pursuant to those authorizations. The unused authorization
to repurchase 4,485,291 shares remains available to the Company.
RESULTS OF OPERATIONS
- ---------------------
Following are summaries of the Company's sales results by product
categories:
<TABLE>
Three months ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Net Sales (in thousands):
Nitrogen $ 49,856 $ 54,985
DAP 30,783 30,127
Potash 23,679 21,309
Other 397 393
-------- --------
Net Sales $104,715 $106,814
======== ========
Three months ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Tons Sold (in thousands):
Nitrogen:
Ammonia 184 150
Ammonium nitrate 113 115
Urea 108 118
Nitrogen solutions 7 11
Nitric acid 21 10
----- -----
Total Nitrogen 433 404
DAP 172 178
Potash 265 267
Three months ended
September 30,
------------------
1998 1997
-------- -------
<S> <C> <C>
Average Sales Price Per Ton:
Nitrogen $ 115 $ 136
DAP $ 179 $ 169
Potash $ 89 $ 80
</TABLE>
NET SALES. Net sales decreased 2% to $104.7 million for the quarter
ended September 30, 1998, from $106.8 million for the quarter ended September
30, 1997. This decrease was primarily the result of lower nitrogen fertilizer
sales prices partially offset by higher nitrogen fertilizer sales volumes.
During the current year, the Company's sales prices for its anhydrous ammonia,
ammonium nitrate and urea decreased 26%, 5% and 10%, respectively. These
changes resulted in a 15% reduction in the weighted average price per ton of
nitrogen. Nitrogen fertilizer sales volumes increased 7% during the current
quarter due to increased sales volumes for ammonia. Ammonia sales volumes
increased 23% due to the additional tons available for sale from Farmland
MissChem.
During the current year quarter, sales of DAP increased 2% as compared to
the prior year quarter due to a 6% increase in sales prices partially offset by
a 4% decrease in sales volumes. DAP sales prices increased as a result of
strong international demand. DAP sales volumes decreased as a result of damage
to the Pascagoula, Mississippi, DAP production facility and to approximately
48,000 tons of DAP inventory caused by Hurricane Georges in late September. It
is anticipated that insurance proceeds for the damaged inventory will be
recorded by the Company during the quarter ended December 31, 1998. Potash
sales increased 11% during the current year quarter as compared to the prior
year quarter as a result of a 12% increase in sales price partially offset by a
1% decrease in sales volumes. The higher sales prices during the current year
quarter are the result of strong domestic and international demand during the
current year.
TRADING LOSS ON BROKERED PRODUCT. During the prior year quarter, brokered
ammonia sales of $6.3 million and purchases of $6.6 million resulted in a $.3
million net trading loss. The Company brokered approximately 41,000 short tons
in the prior year quarter. During the quarter ended September 30, 1998, the
Company suspended brokering activities due to prevailing market conditions.
COST OF PRODUCTS SOLD. Cost of products sold decreased to $84.0 million
for the quarter ended September 30, 1998, from $87.9 million for the quarter
ended September 30, 1997. As a percentage of net sales, cost of products sold
decreased to 80% from 82%, primarily due to incurring lower costs per ton for
its nitrogen and potash products in the current year quarter partially offset
by lower sales prices during the current year quarter. The Company's lower
nitrogen costs per ton were achieved through lower natural gas costs as well as
lower maintenance and labor costs during the current year. During the prior
year, the Company incurred higher maintenance and labor costs at the Company's
Yazoo City nitrogen facility as a result of a scheduled biennial maintenance
turnaround. During the current year quarter, DAP costs per ton increased 3%,
primarily as a result of lost production associated with the plant shutdown
related to Hurricane Georges in late September. The Company also incurred
higher phosphate rock costs 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. These higher costs were
partially offset by lower costs for ammonia during the current year. Potash
costs per ton decreased 8% during the current quarter as compared to the prior
year quarter. This decrease was primarily the result of the Company's
suspension of operations at its higher cost mining and production facilities at
Eddy in early December 1997, in addition to improved operations at the
Company's East mine acquired in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses did not change significantly during the current year
quarter as compared to the prior year quarter. As a percentage of net sales,
selling, general and administrative expenses were 9% for the three months ended
September 30, 1998 and 1997.
OPERATING INCOME. As a result of the above factors, operating income
increased to $11.0 million for the quarter ended September 30, 1998, from $8.9
million for the quarter ended September 30, 1997, a 23% increase.
INTEREST, NET. For the quarter ended September 30, 1998, net interest
expense increased to $3.5 million from $2.1 million for the quarter ended
September 30, 1997. This increase in net interest expense was primarily due to
increased interest costs resulting from higher borrowing levels at higher
interest rates during the current year. Additionally, the Company capitalized
$1.8 million and $2.0 million of its interest costs for the quarters ended
September 30, 1998 and 1997, respectively.
OTHER (EXPENSE) INCOME. For the quarter ended September 30, 1998, other
expense was $.8 million, compared to other income of $.5 million for the
quarter ended September 30, 1997. This change was primarily the result of
lower earnings at the Company's unconsolidated affiliates during the current
year.
INCOME TAX EXPENSE. For the quarter ended September 30, 1998, income tax
expense decreased to $2.5 million from $3.1 million for the quarter ended
September 30, 1997. This decrease was the result of lower earnings and a
decrease in the Company's effective tax rate during the current year
attributable to permanently reinvested foreign earnings.
NET INCOME. As a result of the foregoing, net income decreased to $4.2
million for the quarter ended September 30, 1998, from $4.3 million at
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1998, the Company had cash and cash equivalents of $1.9
million, compared to $3.9 million at June 30, 1998, a decrease of $2.0 million.
OPERATING ACTIVITIES. For the three months ended September 30, 1998, net
cash used in operating activities was $14.3 million compared to $4.7 million
for the three months ended September 30, 1997.
INVESTING ACTIVITIES. Net cash provided by investing activities was
$41.1 million for the three months ended September 30, 1998, and net cash used
by investing activities was $30.5 million for the three months ended September
30, 1997. During the current year, the Company collected $54.6 million on a
note receivable obtained during the prior year as a result of selling the
Company's undeveloped phosphate rock property. During the current year
period, capital expenditures were $9.7 million compared to $20.7 million
during the prior year. The current year expenditures include approximately
$6.5 million related to the Company's nitrogen expansion project at its Yazoo
City facility and approximately $2.1 million related to the Company's potash
production expansion project at its Carlsbad facilities. Investing activities
for the current year period also included $3.8 million related to the
Company's investment in Farmland MissChem Limited compared to $1.0 million
during the prior year. For the quarter ended September 30, 1997, the Company
placed $9.9 million in restricted funds related to the issuance of industrial
revenue bonds.
FINANCING ACTIVITIES. Net cash used in financing activities was $28.7
million for the three months ended September 30, 1998, and net cash provided by
financing activities was $28.8 million for the three months ended September 30,
1997. During the current year, the amounts used in financing activities
included $172.3 million in debt payments, $2.7 million in cash dividends, and
$12.0 million for the purchase of treasury stock. These amounts were partially
offset by $158.3 million in debt proceeds. During the prior year, the amounts
provided by financing activities included $112.9 million in debt proceeds
partially offset by $81.2 million in debt payments, $.1 million for the
purchase of treasury stock and $2.7 million in cash dividends.
At September 30, 1998, the Company and its subsidiaries had unsecured
revolving credit facilities with Harris Trust and Savings Bank and a syndicate
of other commercial banks totaling $200.0 million. These facilities are five-
year facilities which mature on November 25, 2002, and bear interest at the
Prime Rate or at rates related to the London Interbank Offered Rate or Federal
Funds Rate. At September 30, 1998, the Company had $76.7 million outstanding
under these facilities. The Company also has available a separate $5.0 million
short-term line of credit which is not part of the facilities mentioned above.
There were no outstanding borrowings under this commitment at September 30,
1998.
The Company believes that existing cash, cash generated from operations,
and current lines of credit will be sufficient to satisfy its financing
requirements for its operations and its capital projects through fiscal 1999
and the foreseeable future. The Company estimates its capital expenditure
requirements for the remainder of fiscal 1999 to be approximately $52.0
million, which includes completion of the current nitrogen and potash
expansion projects and normal improvements and modifications to the
Company's facilities.
YEAR 2000
- ---------
The Company has formed a Year 2000 Committee (the "Committee") that is
currently assessing its computer systems, including the systems involved in the
operation of its manufacturing facilities, to identify to what extent the
Company could be affected by the "Year 2000" issue. The Company expects to
complete the assessment prior to the end of the 1998 calendar year and to have
any Year 2000 conversion projects completed on a timely basis. As of September
30, 1998, the Company has spent approximately $100,000 addressing both its
information technology ("IT") and non-IT systems. The Company is also
assessing Year 2000 issues in relation to its customers, suppliers and
creditors to determine whether Year 2000 problems of any such third parties
may materially affect the Company. This assessment should also be completed
by the end of the 1998 calendar year. Since the ability of third parties with
which the Company transacts business to adequately address their Year 2000
issues is outside the Company's control, there can be no assurance that the
failure of such third parties to adequately address their respective Year 2000
issues will not have a material adverse effect on the Company's business
operations and financial condition.
Although no one can accurately predict how many Year 2000 related
failures will occur or the severity, duration or financial consequences of
such failures, it is possible that the Company could sustain what is expected
to be nonmaterial operational inconveniences and inefficiencies and be
involved in nonmaterial business disputes related to the Company or one of
its vendor's or customer's inability to carry out certain contractual
obligations. The Committee is working with an outside consultant to oversee
its efforts on Year 2000 issues and assist in developing a contingency plan by
the end of calendar 1998 to be implemented if its efforts to identify and
correct Year 2000 problems are not successful.
FORWARD-LOOKING STATEMENTS
- --------------------------
Except for the historical statements and discussion contained herein,
statements set forth in this report constitute "forward-looking statements."
Since these forward-looking statements rely on a number of assumptions
concerning future events, risks and other uncertainties that are beyond the
Company's ability to control, readers are cautioned that actual results may
differ materially from such forward-looking statements. Future events, risks
and uncertainties that could cause a material difference in such results,
include, but are not limited to, the relative unpredictability of international
and local economic conditions, changes in matters which affect the supply and
demand of fertilizer products, weather, the volatility of the natural gas
market, environmental regulation, price competition from both domestic and
international competitors, possible delays in completing and obtaining
production from new or expanded facilities, and other important factors
affecting the fertilizer industry and the Company as detailed under "Outlook
and Uncertainties" and elsewhere in the Company's most recent annual report on
Form 10-K for the year ended June 30, 1998, which is on file with the
Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company is exposed to market risk, including changes in interest rates
and commodity prices. To manage the volatility relating to these exposures,
the Company enters into derivative transactions. The Company does not hold or
issue derivative financial instruments for trading purposes. The Company
maintains formal policies and a systematic approach with respect to entering
into and monitoring derivative transactions, and Company policy precludes
management from entering into derivative transactions that would be deemed
speculative positions. The Company's derivative transactions are intended to
hedge the future production and interest costs of the Company.
At June 30, 1998, the Company had a note receivable in the amount of $54.6
million related to the sale of the Company's phosphate rock properties. In
August 1998, this note was paid in full and canceled. At September 30, 1998,
the Company believes that the fair value of its fixed rate long-term debt and
interest rate swap agreements had increased as a result of volatility in
interest rates during the quarter.
The Company uses natural gas futures contracts to reduce the impact of
changes in gas prices. A sensitivity analysis has been prepared to estimate
the Company's market risk exposure arising from these instruments. The fair
value of open contracts is calculated by valuing each position using quoted
market prices. Market risk is the potential loss in fair value as a result of
a 10% adverse change in such prices. The Company estimates this change in
prices would reduce the fair value of open contracts by $4.8 million at
September 30, 1998.
For more information about how the Company manages specific risk
exposures, see Note 14 - Hedging Activities, and Note 7 - Credit Agreements
and Long-Term Debt, in the Company's Notes to Consolidated Financial Statements
contained in the Annual Report for the fiscal year ended June 30, 1998.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits filed as part of this report are listed below.
SEC Exhibit
Reference No. Description
Exhibit Index to Form 10-Q
18 Letter dated October 10, 1998, from Arthur
Andersen LLP regarding change in method of
accounting.
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MISSISSIPPI CHEMICAL CORPORATION
Date: October 28, 1998 /s/ Timothy A. Dawson
---------------- ---------------------
Timothy A. Dawson
Vice President - Finance
Date: October 28, 1998 /s/ Rosalyn B. Glascoe
---------------- ----------------------
Rosalyn B. Glascoe
Corporate Secretary
<PAGE>
Mississippi Chemical Corporation
Re: Form 10-Q Report for the quarter ended September 30,
1998
Ladies and Gentlemen:
This letter is written to meet the requirements of
Regulation S-K calling for a letter from a registrant's
independent accountants whenever there has been a change in
accounting principle or practice.
We have been informed that, beginning July 1, 1998,
Mississippi Chemical Corporation (the "Company") changed its
presentation of delivery costs from a component of selling
costs to a component of net sales on its statement of
income. Management is of the opinion that this change was
necessary to conform to industry practice so that the
Company can be more readily compared to its peer group.
A complete coordinated set of financial and reporting
standards for determining the preferability of accounting
principles among acceptable alternative principles has not
been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change
in accounting described in the preceding paragraph is to a
preferable method. However, we have reviewed the pertinent
factors, including those related to financial reporting, in
this particular case on a subjective basis, and our opinion
stated below is based on our determination made in this
manner.
We are of the opinion that the Company's change in method of
accounting is to an acceptable alternative method of
accounting, which, based upon the reason stated for the
change and our discussions with you, is also preferable
under the circumstances in this particular case. In
arriving at this opinion, we have relied on the business
judgment and business planning of the Company's management.
We have not audited the application of this change to the
financial statements of any period subsequent to June 30,
1998. Furthermore, we have not examined and do not express
any opinion with respect to your financial statements for
the three months ended September 30, 1998.
Very truly yours,
Arthur Andersen LLP
Memphis, Tennessee,
October 10, 1998.
