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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-20411
MISSISSIPPI CHEMICAL CORPORATION
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(Exact name of registrant as specified in its charter)
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MISSISSIPPI 64-0292638
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
Highway 49 East, P.O. Box 388, Yazoo City, MS 39194
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 746-4131
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At September 14, 1999, Mississippi Chemical Corporation had 26,140,275 shares of
common stock, par value $0.01, outstanding. The Company estimates that the
aggregate market value of the common stock on September 14, 1999 (based upon the
closing price of the common stock on the New York Stock Exchange), held by
nonaffiliates was approximately $206,672,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for fiscal year ended June 30, 1999 (Item 1 in
Part I; Items 5, 6, 7, 7A and 8 in Part II; and Item 14 in Part IV).
Proxy Statement for Annual Meeting of Shareholders to be held on November 9,
1999 (Items 10, 11, 12 and 13 in Part III).
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PART I
ITEM 1. BUSINESS
Mississippi Chemical Corporation (the "Company") was incorporated in
Mississippi on May 23, 1994, and is the successor by merger, effective July 1,
1994, to a business which was incorporated in Mississippi in September 1948 as
the first fertilizer cooperative in the United States (the "Cooperative"). The
address of the Company's principal executive office is Owen Cooper
Administration Building, 3622 Highway 49 East, Yazoo City, Mississippi 39194,
and its telephone number is (662) 746-4131. The Company maintains a site on the
World Wide Web at www.misschem.com. The term "Company" includes Mississippi
Chemical Corporation, its subsidiaries and affiliates, Mississippi Phosphates
Corporation; Mississippi Potash, Inc.; Eddy Potash, Inc.; Mississippi Nitrogen,
Inc.; MissChem Nitrogen, L.L.C.; Triad Nitrogen, L.L.C.; TNI Barge, Inc.; MCC
Investments, Inc.; NSI Land Corporation; Mississippi Chemical Management
Company; Mississippi Chemical Company, L.P.; Mississippi Chemical Holdings,
Inc.; MissChem (Barbados) SRL; and MissChem Trinidad Limited. References to the
Company's operations prior to July 1, 1994, refer to the Cooperative's
operations.
The principal business of the Cooperative was to provide fertilizer
products to its shareholders pursuant to preferred patronage rights that gave
the shareholders the right to purchase fertilizer products and receive a
patronage refund on those purchases. On June 28, 1994, the shareholders of the
Cooperative approved a plan of reorganization (the "Reorganization"), pursuant
to which the Cooperative was merged into the Company. As a result of the
Reorganization, the capital stock of the Cooperative was converted into common
stock and/or cash, and the Company began to operate as a regular business
corporation. Since the Reorganization, the Company has sold the fertilizer
products produced at its facilities to agricultural and industrial customers
around the world. Any reference to an industrial customer or user herein
includes producers who convert products purchased from the Company to another
fertilizer product.
In December 1994, the Company entered into a 50-50 joint venture with
Farmland Industries, Inc., known as Farmland MissChem Limited ("Farmland
MissChem"), to construct and operate a 2,040-ton-per-day ammonia plant to be
located near Point Lisas, The Republic of Trinidad and Tobago. Construction of
the facility is complete, and the ammonia plant began producing commercial
quantities in July 1998. The Company is obligated by contract to purchase
one-half of the ammonia (approximately 350,000 tons per year) produced by the
plant at a discount to market, subject to a minimum price.
In August 1996, the Company entered into an agreement to acquire the
fertilizer businesses of First Mississippi Corporation ("First Mississippi") in
an all-stock merger transaction. The transaction was completed on December 24,
1996. The First Mississippi fertilizer operations primarily included a 50%
interest in a facility that included an ammonia plant and a urea plant that at
the time of the acquisition operated under the name Triad Chemical (the Company
already owned the remaining 50% of Triad Chemical) and a stand-alone ammonia
plant. These assets are located on contiguous property in Donaldsonville,
Louisiana.
In August 1996, the Company, through two subsidiaries of its wholly
owned subsidiary Mississippi Potash, Inc., acquired substantially all of the
assets (including the right to use the corporate names) of New Mexico Potash
Corporation and Eddy Potash, Inc., from Trans-Resources, Inc. Since the
acquisition, New Mexico Potash Corporation has been merged into Mississippi
Potash, Inc. Eddy Potash, Inc., which operated as a wholly owned subsidiary of
Mississippi Potash, Inc., suspended its mining and production operations on
December 3, 1997. The Company is currently evaluating
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alternative methods of mining the Eddy Potash reserves. The original mine and
refinery owned by Mississippi Potash, Inc., is now known as the "West Facility,"
and the former New Mexico Potash Corporation mine is known as the "East
Facility."
OPERATING SEGMENTS
We have three reportable operating segments: nitrogen, phosphates and
potash. The amounts of revenue, operating profit or loss and identifiable assets
attributable to each of our segments is set forth in our 1999 Annual Report to
Shareholders under the caption "Note 12-Segment Information" contained in the
"Notes to Consolidated Financial Statements," which information is incorporated
herein by reference. Additional information about each operating segment is set
forth below.
NITROGEN
PRODUCTS
The Company produces nitrogen products at its production facilities in
Yazoo City, Mississippi, and Donaldsonville, Louisiana. The Company's principal
nitrogen products include ammonia; fertilizer-grade ammonium nitrate, which is
sold under the Company's trade name Amtrate(R); UAN solution, which is sold
under the Company's trade name N-Sol(R); urea; and nitric acid. In fiscal 1999,
the Company sold approximately 2.7 million tons of nitrogen products to
fertilizer dealers and distributors and industrial users located primarily in
the southern United States, as compared to approximately 2.5 million tons of
nitrogen products in fiscal 1998. The increase in tons sold in fiscal 1999 is
primarily due to the offtake of ammonia from Farmland MissChem and the ultimate
sale of the ammonia by the Company. Sales of nitrogen products by the Company in
fiscal 1999 were $245.4 million, which represented approximately 52% of net
sales.
Each of the Company's nitrogen products has its own distinct
characteristics that produce agronomic preferences among end-users. Farmers
determine which nitrogen product to apply based on the crop planted, soil and
weather conditions, regional farming practices, and relative prices for nitrogen
products.
AMMONIA. The basic nitrogen product is anhydrous ammonia, which is a
necessary raw material for the production of the Company's other nitrogen
products. Anhydrous ammonia, which is 82% nitrogen, is the most concentrated
nitrogen product available. It is synthesized as a gas under high temperature
and pressure. The raw materials used to produce anhydrous ammonia are natural
gas, atmospheric nitrogen, and steam.
In fiscal 1999, the Company produced approximately 1,558,000 tons of
anhydrous ammonia at its Yazoo City and Donaldsonville facilities and purchased
approximately 275,000 tons pursuant to its contract with Farmland MissChem. In
fiscal 1999, the Company sold approximately 788,000 tons of anhydrous ammonia as
a raw material for industrial users and 31,000 tons as a primary fertilizer for
direct application to crops. The balance of the anhydrous ammonia was consumed
by the Company as a raw material to manufacture its other nitrogen products and
DAP.
AMMONIUM NITRATE. The Company is the largest manufacturer and marketer
of agricultural-grade ammonium nitrate fertilizer in the United States. Ammonium
nitrate, which is 34% nitrogen, is produced by reacting anhydrous ammonia and
nitric acid. Ammonium nitrate is less subject to volatilization
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(evaporation) losses than other nitrogen products. Due to its stable nature,
ammonium nitrate is the product of choice for such uses as pastures and no-till
row crops where fertilizer is spread upon the surface and is subject to
volatilization losses. The use of conservation tillage, which reduces soil
erosion, is increasing in the United States and should have a positive impact on
ammonium nitrate demand.
The Company produced approximately 771,000 tons of solid ammonium
nitrate fertilizer at its Yazoo City facility in fiscal 1999. The Company sold
approximately 765,000 tons of solid ammonium nitrate fertilizer and ammonium
nitrate synthesis to fertilizer dealers and distributors in fiscal 1999. The
solid ammonium nitrate produced by the Company is sold under the registered
trade name Amtrate(R).
UAN SOLUTION. The Company produced approximately 514,000 tons of UAN
solution at its Yazoo City facility in fiscal 1999. The Company sold
approximately 489,000 tons of UAN solution to fertilizer dealers and
distributors in fiscal 1999 under the registered trade name N-Sol(R). N-Sol(R)
is a 32% nitrogen product that is made by mixing urea liquor and ammonium
nitrate liquor. N-Sol(R) is used as a direct application product for cotton,
corn, grains, and pastures, as well as for use in liquid fertilizer blends. Over
the past 20 years, there has been a substantial increase in the use of UAN
solution as a part of the overall growth in the agricultural consumption of
nitrogen products in the United States.
UREA. In fiscal 1999, the Company produced approximately 544,000 tons of
prilled urea and urea melt at its Donaldsonville facility. The Company sold
approximately 378,000 tons of prilled urea and approximately 178,000 tons of
urea melt in fiscal 1999. Urea is synthesized by the reaction of ammonia and
carbon dioxide. At 46% nitrogen by weight, urea is the most concentrated form of
dry nitrogen. Because urea undergoes a complex series of changes within the soil
before the nitrogen it contains is ultimately converted into a form that can be
used by plants, it is considered a long-lasting form of nitrogen. As a
fertilizer product, urea is acceptable as both a direct-application material and
as an ingredient in fertilizer blends. Approximately 62% of the Company's urea
sales in fiscal 1999 were to industrial users and manufacturers of animal feeds.
The remainder of the urea sales were to fertilizer dealers and distributors.
NITRIC ACID. In fiscal 1999, the Company sold 54,000 tons of nitric acid
produced at its Yazoo City facility to industrial users and used the balance of
nitric acid produced in fiscal 1999 as a raw material for the production of
Amtrate(R) and N-Sol(R). The Yazoo City facility produces more nitric acid than
any other U.S. facility. Nitric acid is used to produce end products such as
nylon fibers, polyurethane foams, rubber chemicals and specialty fibers.
PRODUCTION AND PROPERTIES
YAZOO CITY, MISSISSIPPI. The Yazoo City facility is a closely
integrated, multiplant production complex located on approximately 1,180 acres.
The complex includes two anhydrous ammonia plants, five nitric acid plants, an
ammonium nitrate plant, two urea plants, and a UAN solution plant. One of the
nitric acid plants and the second ammonia plant were added through a recently
completed expansion project. The 650-ton-per-day nitric acid plant became
operational in March 1998, while the 500-ton-per-day ammonia plant became
operational in March 1999. The expansion project at the Yazoo City facility
increased the Company's annual ammonia production capacity to approximately
710,000 tons, annual nitric acid production capacity to approximately 1,055,000
tons, and annual ammonium nitrate capacity to approximately 900,000 tons. The
Company had also planned to make certain modifications to the ammonium nitrate
plant which were expected to add an additional 50,000
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tons of capacity. Those modification plans have been cancelled due to the
current depressed prices for ammonium nitrate. The Company's annual UAN solution
production capacity remains at 550,000 tons.
The Yazoo City facility includes a 20.5 megawatt cogeneration facility
that produces significant savings by the sequential generation of electricity
and steam. The Yazoo City plant has direct access to barge, rail, and truck
transportation and is strategically located for the purchase of competitively
priced natural gas.
DONALDSONVILLE, LOUISIANA. The Donaldsonville facility is a closely
integrated, multiplant nitrogen complex located on approximately 740 acres
fronting the Mississippi River at Donaldsonville, Louisiana, which produces
anhydrous ammonia and urea. The facility includes two anhydrous ammonia plants
with a combined annual production capacity of 1,080,000 tons and a urea plant
with an annual production capacity of approximately 560,000 tons.
The Donaldsonville facility has ready access to rail, truck, and ammonia
pipeline transportation. The plant is also equipped with a deep-water port
facility on the Mississippi River, allowing access to economical oceangoing
vessel and barge transportation for its urea and ammonia products. The facility
is well-positioned for the purchase of competitively priced natural gas.
TRINIDAD. In fiscal 1999, the Company purchased approximately 275,000
tons of ammonia from the Farmland MissChem facility. This ammonia was used as a
raw material for upgrading into finished fertilizer products at the Company's
existing facilities and to meet the Company's contractual commitments to certain
industrial customers.
OTHER
The Company also owns 9 ammonia barges, two UAN barges, and a 50%
interest in an ammonia storage terminal in Pasadena, Texas.
MARKETING AND DISTRIBUTION
The Company sells its nitrogen products to fertilizer dealers and
distributors as well as industrial users located primarily in the southern
region of the United States where its facilities are located. Although the
Company has traditionally sold the majority of its nitrogen products through the
agricultural fertilizer distribution chain, an increasing amount of nitrogen
product is being sold to industrial users in order to reduce the Company's
exposure to the seasonal nature of the agricultural fertilizer markets. In
fiscal 1999, approximately 44% of the Company's nitrogen product sales were to
industrial users.
In the fertilizer distribution chain, distributors operate as
wholesalers supplying dealers who, in turn, sell directly to farmers. Larger
customers (distributors and large multilocation dealers) arrange for
distribution, storage, and financing of nitrogen products. The majority of the
Company's agricultural sales are made to distributors and large dealers in the
Company's primary trade area. The ten states that make up the Company's primary
trade area are Mississippi, Texas, Alabama, Louisiana, Tennessee, Georgia,
Kentucky, Arkansas, Missouri and Florida.
The Company transports its nitrogen products by barge, rail, pipeline,
truck and oceangoing vessels. The Company's distribution network includes 9
ammonia barges, two UAN barges, numerous trucks, and a pipeline that pumps UAN
solution from its Yazoo City plant to its Yazoo River port facility,
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along with owned or leased warehouses and terminals that are strategically
placed in high-consumption areas. In fiscal 1998, the Company established with
Farmland Industries, Inc., a 50-50 joint venture, FMCL Limited Liability Company
("FMCL"), to arrange for the transportation of ammonia from the Farmland
MissChem facility in Trinidad to the United States and other world markets. FMCL
has executed two long-term time charter agreements for oceangoing vessels with a
European shipowner. Both agreements establish a fixed charter rate for the
vessels during the entire time that the agreements are in effect. The Company
believes that the time charter agreements provide a hedge against unfavorable
fluctuations in shipping rates and will be a cost-effective method of
transporting its Trinidad product.
RAW MATERIALS
NATURAL GAS. Natural gas is the primary raw material used by the Company
in the manufacture of nitrogen products. Natural gas is used both as a chemical
feedstock and as a fuel to produce anhydrous ammonia that is then upgraded into
other nitrogen products. During fiscal 1999, the cost of natural gas represented
approximately 73% of the Company's cost of producing ammonia. Because there are
no commercially feasible alternatives for natural gas in the production of
ammonia, the economic success of the Company's nitrogen business depends upon
the availability of competitively priced natural gas.
In today's natural gas market, the Company's total delivered natural gas
cost generally consists of two components--the market price of the natural gas
in the producing area at the point of delivery into a pipeline and the fee
charged by the pipeline for transporting the natural gas to the Company's
plants. The cost of the transportation component can vary substantially
depending on whether or not the pipeline has to compete for the business.
Therefore, it is extremely important to the Company's competitiveness that it
have access to multiple natural gas sources and transportation services. In
addition to the impact on transmission costs, access alternatives enable the
Company to benefit from natural gas price differences that may exist from time
to time in the various natural gas producing areas.
The natural gas requirements of the Yazoo City facility are
approximately 72,000 Mcf per day. Since 1996, the Company has received the
majority of its natural gas requirements for the Yazoo City facility from Sonat
Marketing Company ("Sonat"), an affiliate of Southern Natural Gas Company
("Southern"). In order to secure the incremental gas requirements created by the
addition of the new ammonia plant in March 1999, the Company renegotiated its
agreement with Sonat. The new agreement with Sonat, which became effective on
May 15, 1998, allows for the firm delivery of gas, at market-related prices,
through the Yazoo City facility's direct connections to the interstate pipeline
systems operated by Southern and Texas Eastern Transmission Corporation. Pursue
Energy Corporation ("Pursue") continues to be another major natural gas supplier
of the Yazoo City facility from its reserves located in Rankin County,
Mississippi. In addition, the Company's 60-mile, 12-inch-diameter natural gas
pipeline provides the plant with direct access to the Pursue reserves, along
with low-cost transportation of the Pursue gas; direct access to an additional
interstate pipeline; and direct access to a large intrastate gathering and
transmission system in southern Mississippi. As a result of this access to
multiple sources, the Company benefits from competition for the transportation
and supply of natural gas.
Natural gas requirements for the Donaldsonville facility are
approximately 107,000 Mcf per day. The Donaldsonville facility is located in one
of the primary natural gas producing regions of the United States. The facility
is currently connected to five intrastate pipeline systems and benefits from
intense competition among the many suppliers that have transport capabilities on
the intrastate lines. All of the Donaldsonville facility's current natural gas
requirements are being supplied under fixed-term contracts with Louisiana Gas
Marketing Company, a subsidiary of Enron Corp.; Amoco Energy Trading
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Corporation; Noble Gas Marketing, Inc.; Reliant Energy Services, Inc.; and Coral
Energy Resources, L.P. These contracts provide for market-sensitive pricing and
firm delivery supply commitments.
As a result of favorable access to natural gas supplies at the Yazoo
City and Donaldsonville facilities, the Company believes that the loss of any
particular supplier would not have a material impact on plant operations at
either location. There have been no significant supply interruptions at either
location.
Relative to fiscal 1998 levels, the Company's delivered cost of natural
gas decreased approximately 8%. Gas prices can be influenced significantly by
short-term factors such as weather, storage levels, gas transportation
interruptions, and competing fuel prices. The Company uses natural gas futures
contracts to hedge against the risk of market fluctuations in the cost of
natural gas.
AMMONIA. Ammonia is a necessary raw material for production of the
Company's other nitrogen products. The Company supplied practically all of its
ammonia requirements in fiscal 1999. Third-party ammonia purchases by the
Company from outside suppliers in fiscal 1999 for production of its other
nitrogen products totaled only 2,600 tons. The Company anticipates that it will
be able to supply all of its ammonia requirements in fiscal 2000 as a result of
increased production by the Farmland MissChem facility and the year-round
availability of production from the new ammonia plant at the Yazoo City
facility.
PHOSPHATE
PRODUCTS
The Company produces diammonium phosphate fertilizer ("DAP") at its
facility in Pascagoula, Mississippi. In fiscal 1999, the Company produced
approximately 852,000 tons of DAP and sold approximately 788,000 tons.
Approximately 54,000 tons damaged in Hurricane Georges were purchased by one of
the Company's insurers and are not included in the number of tons sold in fiscal
1999. Sales of DAP by the Company in fiscal 1999 were $136.6 million, which
represented approximately 29% of net sales.
DAP is the most common form of phosphate fertilizer. DAP is produced by
reacting phosphate rock with sulfuric acid to produce phosphoric acid, which is
then combined with ammonia. DAP contains 18% nitrogen and 46% phosphate (P205)
by weight. DAP is an important fertilizer product both for direct application
and for use in blended fertilizers applied to all major types of row crops.
PRODUCTION AND PROPERTIES
The Company's phosphate production complex in Pascagoula, Mississippi,
is located on approximately 1,500 acres. The Pascagoula facility is a closely
integrated, multiplant phosphatic fertilizer complex where the primary
facilities are a phosphoric acid plant, two sulfuric acid plants, and a DAP
granulation plant. The plant has storage facilities for finished product (80,000
tons), as well as for the primary raw materials: phosphate rock (100,000 tons),
sulfur (10,000 tons), and ammonia (25,000 tons). All of the phosphate rock used
by the Company is purchased pursuant to a single supply contract with Office
Cherifien des Phosphates ("OCP"), the national phosphate company of Morocco.
The plant site fronts a deep-water channel that provides direct access
to the Gulf of Mexico. The complex contains docks and off-loading facilities for
receiving shipload quantities of phosphate rock,
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sulfur, and ammonia and for out-loading DAP. The plant's location on deep water
provides the Company with an outbound freight cost advantage over central
Florida DAP producers with respect to international shipments and domestic
shipments along the Mississippi River system.
Construction of a new phosphogypsum disposal facility at Pascagoula was
substantially completed on June 30, 1998, at an estimated cost of $18 million.
In April 1998, an expansion of the Company's diammonium phosphate manufacturing
facilities at Pascagoula was placed in service. This project increased annual
production capacity from approximately 720,000 to approximately 900,000 tons per
year and increased DAP storage capacity from approximately 40,000 to 80,000
tons.
MARKETING AND DISTRIBUTION
Since October 1, 1997, all of the Company's export sales of DAP have
been made through Phosphate Chemicals Export Association, Inc., a Webb-Pomerene
corporation known as PhosChem, and all domestic sales of DAP have been made
through the Company's sales staff. In fiscal 1999, approximately 62% of the DAP
tonnage sold by the Company was sold into international markets through
PhosChem. China and India received approximately 83% and 12%, respectively, of
the DAP tonnage exported by the Company in fiscal 1999. Most domestic sales are
made in barge-lot quantities to major fertilizer distributors and dealers
located on the Mississippi River system. The vast majority of the Company's DAP
is transported by ship and barge, although truck and rail access is also
available.
RAW MATERIALS
PHOSPHATE ROCK. Phosphate rock is one of the primary raw materials used
in the manufacture of DAP. The Pascagoula facility's requirements for phosphate
rock are approximately 1.5 million tons per year. On September 15, 1991, the
Company entered into a ten-year contract with OCP to supply all of the phosphate
rock requirements of the Pascagoula facility. The term of this contract has been
extended to June 30, 2016. OCP, the national phosphate company of Morocco, is
the world's largest producer and exporter of phosphate rock and upgraded
phosphates as a company. The contract price for phosphate rock is based on
phosphate rock costs incurred by certain domestic competitors of the Company and
on the operating performance of the Company's phosphate operations. Under this
formula, the Company realizes favorable phosphate rock prices and is afforded
significant protection during periods when market conditions are depressed.
Conversely, in favorable markets, when the Company's DAP operations are
profitable, the contract price of phosphate rock will escalate based on the
profitability of its DAP operations. Pursuant to this contract, the Company and
OCP are required to negotiate further adjustments as needed to maintain the
viability and economic competitiveness of the Pascagoula plant. The strategic
alliance with OCP has functioned effectively since inception, and the Company
considers its relations with OCP to be excellent.
SULFUR. Sulfur is used in the manufacture of sulfuric acid at the
Pascagoula plant. Sulfur is in adequate supply and is available on the open
market in quantities sufficient to satisfy the Company's current requirements,
which are approximately 330,000 tons per year. The location of the Company's
plant at Pascagoula, Mississippi, near major oil and gas fields that supply
substantial amounts of sulfur, provides the Company with a strategic advantage
in the purchase of sulfur over its Florida competitors.
AMMONIA. Ammonia is a necessary raw material for production of DAP.
Third-party ammonia purchases by the Company from outside suppliers in fiscal
1999 for use as a raw material in the production of DAP were only 32,000 tons.
The Company anticipates that it will be able to supply all of its ammonia
requirements in fiscal 2000 as a result of increased production by the Farmland
MissChem
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facility and the year-round availability of production from the new ammonia
plant at the Yazoo City facility.
POTASH
PRODUCTS
The Company produces potash at two mines and related facilities near
Carlsbad, New Mexico, which are referred to by the Company as the "East
Facility" and the "West Facility." The Company also operates a granular
compaction plant near the East and West Facilities which is referred to as the
"North Facility." In fiscal 1999, the Company produced approximately 944,000
tons of potash and sold approximately 921,000 tons, primarily in granular form.
Sales of potash products by the Company in fiscal 1999 were $85.9 million, which
represented approximately 18% of net sales.
The Company's potash is mined from subterranean salt deposits containing
a mixture of potassium chloride and sodium chloride. The Carlsbad, New Mexico,
potash deposits are located from 800 to 1,200 feet below the surface. Potash is
produced in a refining process by which the potassium chloride is separated from
the sodium chloride.
Potash is an important fertilizer product for both direct application
and for use in blended fertilizers applied to all types of crops. In addition,
certain forms of potash can be used as a raw material in the production of
industrial products such as potassium hydroxide and potassium nitrate.
PRODUCTION AND PROPERTIES
The West Facility, which consists of a potash mine and refinery, has an
annual production capacity of 545,000 tons of red potash as a result of a
100,000-ton expansion that was completed in the third quarter of fiscal 1999.
All of the refined product produced at the West Facility is transported to the
North Facility compaction plant for conversion to granular form and is sold to
agricultural fertilizer dealers and distributors. Located contiguous to the
North Facility are storage and shipping facilities from which the finished
product is transported by rail and truck to agricultural customers in both the
domestic and export markets.
The East Facility, which has an annual production capacity of 550,000
tons of white potash, consists of a potash mine, refinery, and compaction plant.
All of the refined product produced at the East Facility is a higher-purity
potash in standard form. Approximately 40% of that production is converted to a
granular form at the on-site compaction plant and sold as an agricultural
fertilizer. The remaining 60% is sold to agricultural and industrial users in
its original standard form. The East Facility also has storage and shipping
facilities suitable for the distribution of product by rail and truck to the
Company's agricultural and industrial customers.
On December 3, 1997, the Company suspended the plant operations of Eddy
Potash due to the fact that the depletion of the higher-grade ore zone rendered
the continued operation of conventional mining methods at Eddy Potash
uneconomical. The Company continues to evaluate alternative mining methods for
the Eddy Potash reserves.
The Company's potash reserves are controlled under long-term federal and
state potassium leases on approximately 182,000 acres. The estimates of potash
ore reserves are calculated using the latest bore hole data and sophisticated
modeling programs. According to the latest model completed in
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September 1999, the Company's total reserves are estimated to be 522 million
tons with an average grade of 15.2% K2O. The recoverable reserves are estimated
to be 467 million tons at an average grade of 14.5% K2O. This reserve base is
estimated to be equivalent to approximately 90 million tons of muriate of
potash. Eddy Potash's reserves are excluded since these estimates include only
the reserves which can be economically recovered by conventional mining
techniques. At current production rates, the Company's combined reserves at the
East and West Facilities have a remaining life of several decades.
MARKETING AND DISTRIBUTION
The majority of the Company's agricultural potash sales are in domestic
markets in the states west of the Mississippi River where it enjoys freight cost
advantages over Canadian and overseas potash producers. In order to increase
profit margins, domestic sales are targeted for locations along the freight
route of the Burlington Northern Santa Fe Railroad. Domestic potash marketing is
coordinated from a sales office located in Dallas, Texas. Approximately 21% of
the fiscal 1999 potash sales were to industrial customers, with the remainder of
sales to agricultural customers. Approximately 19% of the Company's fiscal 1999
potash sales were to international markets. The Company's export sales are made
through Potash Corporation of Saskatchewan Sales Limited. The fiscal 1999 export
sales were to Mexico, Central and South America, and Japan. Potash for export is
transported by rail to Mexico and to terminal facilities on the Texas Gulf
Coast, where it is loaded onto oceangoing vessels for shipment.
COMPETITION
Since fertilizers are global commodities available from numerous
sources, fertilizer suppliers compete primarily on the basis of delivered price.
Other competitive factors include product quality, customer service, and
availability of product. In each product category, the Company competes with a
broad range of domestic producers, including farmer cooperatives, subsidiaries
of larger companies, integrated energy companies, and independent fertilizer
companies. Many of the Company's domestic competitors have larger financial
resources and sales than the Company. The Company also competes with foreign
producers. Foreign competitors often have access to cheaper raw materials or are
owned or subsidized by their governments and, as a result, may have cost
advantages over domestic companies. Additionally, foreign competitors are
frequently motivated by nonmarket factors such as the need for hard currency.
The Company produces and sells its nitrogen products primarily in the
southern United States where it enjoys a logistical and freight advantage over
foreign competitors and certain domestic competitors. However, dealers and
distributors located in this region re-market a substantial quantity of these
nitrogen products to end users outside of the southern United States. Because
competition is based largely on the delivered price, maintaining low production
costs is critical to competitiveness. Natural gas comprises a significant
portion of the raw materials cost of the Company's nitrogen products.
Competitive natural gas purchasing is essential to maintaining the Company's
low-cost position. This is especially true considering that certain foreign
competitors can purchase natural gas at a lower price than the price typically
paid by the Company. Equally important is efficient use of this gas because of
the energy-intensive nature of the nitrogen business. Therefore,
cost-competitive production facilities that allow flexible upgrading of ammonia
to other finished products are critical to a low-cost competitive position. In
the highly fragmented nitrogen market, product quality and customer service also
can be sources of product differentiation.
The Company customarily sells approximately two-thirds of its DAP in
international markets. The U.S. phosphate industry has become more concentrated
as a result of recent consolidations and joint
10
<PAGE> 11
ventures, and the Company is smaller than most of its competitors in terms of
resources and sales. Most of the Company's principal competitors have captive
sources of some or all of the raw materials, and this may provide them with cost
advantages. The Company's long-term phosphate rock contract with its flexible
pricing mechanism is a key element to the Company's ability to compete.
Most potash consumed in the United States is provided by large Canadian
producers who have economies of scale and lower variable costs than their U.S.
counterparts. Over 80% of U.S. potash production capacity is located in the
Carlsbad, New Mexico, area. While the Carlsbad producers have higher mining
costs than the Canadian producers, this disadvantage may be offset by logistical
and freight advantages in certain markets in the southwestern United States and
the lower United States Corn Belt.
RESEARCH AND DEVELOPMENT
The Company has a research and development staff of 13 full-time
professional employees whose activities relate primarily to the improvement of
the Company's products and development of new applications for the Company's
products. Expenditures on research activities sponsored by the Company were
approximately $1.2 million in fiscal 1999; $1.6 million in fiscal 1998, and $1.3
million in fiscal 1997.
EMPLOYEES
As of June 30, 1999, the Company employed approximately 1,550 persons
throughout all of its locations, none of which are represented by unions. The
Company considers its employee relations to be satisfactory.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company's operations are subject to federal, state, and local laws
and regulations pertaining to the environment, among which are the Clean Air
Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Toxic
Substances Control Act, and various other federal and state statutes. The
Company's facilities require operating permits that are subject to review by
governmental agencies.
Capital expenditures related to environmental obligations for the past
three fiscal years were approximately as follows: 1999 - $1.96 million; 1998 -
$8.8 million; 1997 - $8.4 million. Environmental capital expenditures are
expected to be approximately $2.4 million for fiscal 2000.
The Company has accrued costs for the future closure of the west gypsum
disposal facility located at Pascagoula, Mississippi. The balance of the accrual
as of June 30, 1999, is $8.8 million. The Company is currently working with
regulatory officials to develop an engineering plan for closure of the west
facility. The conclusions reached in this engineering plan will determine
whether the Company has to accrue additional costs relating to the closure of
the west facility.
The Company believes that its policies and procedures now in effect are
in compliance with applicable laws and with the permits relating to the
facilities in all material respects. However, in the normal course of its
business, the Company is exposed to risks relating to possible releases of
hazardous substances into the environment. Such releases could cause substantial
damage or injuries.
11
<PAGE> 12
Environmental expenditures have been and will continue to be material. It is
impossible to predict or quantify the impact of future environmental laws,
regulations and costs.
SEASONALITY
Sales of the Company's fertilizer products to agricultural customers are
typically seasonal in nature and usually result in the Company's generating a
greater amount of net sales and operating income in the spring (the Company's
fourth fiscal quarter). The Company has reduced its seasonal exposure to the
agricultural market over the last several fiscal years by increasing the
percentage of its net sales to industrial customers whose purchases are more
evenly spread over the Company's fiscal year. The Company anticipates that the
percentage of net sales to industrial customers will continue to increase over
the next several fiscal years.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The amount of revenue attributable to the Company's sales to foreign
markets over the last three fiscal years and value of the Company's assets
located outside the United States over the last three fiscal years is set forth
in the Company's 1999 Annual Report to Shareholders under the caption "Note
12-Segment Information" contained in the "Notes to Consolidated Financial
Statements," which information is incorporated herein by reference.
OUTLOOK AND UNCERTAINTIES
Except for the historical statements and discussions, statements set
forth in this report may constitute "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. In
some cases, forward-looking statements can be identified by the use of
terminology such as "may," "will," "expects," "believes," "plans,"
"anticipates," "estimates," "potential," or "continue," the negatives thereof or
other comparable terminology. 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 or predict with certainty,
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:
Factors Affecting Fertilizer Demand and Prices. With virtually all of
its nitrogen net sales and approximately 78% of its total net sales in fiscal
1999 derived from domestic markets, the Company's operating results are highly
dependent upon conditions in the U.S. agricultural industry. A variety of
factors beyond the Company's control can materially affect domestic fertilizer
demand and pricing. These factors include, but are not limited to, futures
prices for crops that require significant fertilizer application, U.S. planted
acreage, government agricultural policies, projected grain stocks, crop failure,
weather, changing or unpredictable crop choices by farmers and changes in
agricultural production methods. Since fertilizers, particularly anhydrous
ammonia and urea, are also used for industrial applications, industrial markets
and the general economy can also affect product demand and prices.
International market conditions also significantly influence the
Company's operating results. The market for fertilizers is influenced by such
factors as the relative value of the U.S. dollar and its impact upon the cost of
importing or exporting fertilizers; foreign agricultural policies; the existence
of, or changes in, import or foreign currency exchange barriers in certain
foreign markets; changes in the hard currency demands of certain countries; and
other regulatory policies of foreign governments, as well as the laws and
policies of the United States affecting foreign trade and investment. The
Company is also
12
<PAGE> 13
subject to general risks of doing business abroad, including risks associated
with economic or political instability.
As is evidenced by current depressed prices for nitrogen fertilizers and
the recent drop in the price of phosphatic fertilizers, fertilizer prices can be
extremely volatile, with significant price changes from one growing season to
the next. Fertilizers are global commodities and can be subject to intense price
competition from domestic and foreign sources. No assurance can be given that
average realized prices paid for the Company's fertilizer products will be at
any given level.
Seasonality. The usage of fertilizer for agricultural application is
seasonal, and the Company's quarterly results reflect the fact that, in its
markets, significantly more fertilizer is customarily purchased in the spring.
In most years, substantial portions of the Company's net sales and operating
income are generated in the last four months of its fiscal years (March through
June). Quarterly results can vary significantly from one year to the next due
primarily to weather-related shifts in planting schedules and purchase patterns.
The Company incurs appreciable expenditures for fixed costs throughout the year
and for inventory in advance of the spring planting season.
Dependence on Natural Gas. Natural gas is the primary raw material used
in the manufacture of nitrogen products. Natural gas is used as both a chemical
feedstock and a fuel to produce anhydrous ammonia, which is then used in the
production of all other nitrogen products. Anhydrous ammonia is also a raw
material in the production of DAP. Accordingly, the Company's profitability is
dependent upon the price and availability of natural gas. A significant increase
in the price of natural gas (such as the recent increase that began in the
summer of 1999) that is not recovered through an increase in the price of the
Company's nitrogen products, or an extended interruption in the supply of
natural gas to its production facilities, will have a material adverse effect on
its results of operations and financial condition.
Environmental Regulations. The Company is subject to various
environmental laws and regulations of federal, state and local governments.
Significant capital expenditures and operating costs have been incurred and will
continue to be incurred as a result of these laws and regulations. The Company
cannot predict or quantify the impact of new or changed laws or regulations. In
the normal course of business, the Company is exposed to risks such as possible
release of hazardous substances into the environment. Such releases could cause
substantial damage or injuries and result in material costs to the Company.
Competition. Fertilizer products are global commodities, and customers
base their purchasing decisions principally on the delivered price of the
product. As a result, markets for the Company's products are highly competitive.
A number of U.S. producers compete with the Company in domestic and export
markets, and producers in other countries, including state-owned and
government-subsidized entities, compete with the Company in the United States
and in foreign markets to which the Company exports. Many of the Company's
competitors are larger and have greater financial resources than the Company.
Year 2000 Issues. The information regarding the Company's efforts
relating to Year 2000 issues is set forth in the Company's 1999 Annual Report to
Shareholders under the caption "Year 2000" in "Management's Discussion and
Analysis of Financial Condition and Results of Operation," which information is
incorporated herein by reference.
13
<PAGE> 14
ITEM 2. PROPERTIES
The Company owns its corporate headquarters in Yazoo City that contains
approximately 65,000 square feet of office space.
The Company owns production plants in Yazoo City and Pascagoula,
Mississippi; Donaldsonville, Louisiana; and Carlsbad, New Mexico, which are
complete with necessary support facilities, such as roads, railroad tracks,
storage, offices, laboratories, warehouses, machine shops, and loading
facilities. Adequate supplies of water and electric power are available at all
locations. In addition to the fertilizer storage facilities at Yazoo City and
Pascagoula, Mississippi; Carlsbad, New Mexico; and Donaldsonville, Louisiana,
the Company also owns or leases 32 major storage and distribution facilities at
other locations in Alabama, Arkansas, California, Georgia, Indiana, Kentucky,
Louisiana, Mississippi, Missouri, Ohio, Tennessee, and Texas, with a total
system-wide storage capacity of approximately 315,000 tons.
ITEM 3. LEGAL PROCEEDINGS
CLEVE REBER CERCLA SITE. The Company has received and responded to
letters issued by the U.S. Environmental Protection Agency ("EPA") under Section
104 of the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") relative to the possible disposition of waste by the Company at the
disposal site identified as the Cleve Reber site in Ascension Parish, Louisiana.
It is the Company's position that, based upon available information and records,
the Company did not utilize the Cleve Reber site for the disposition of
hazardous material, and it does not appear that the Company has any
responsibility for investigation and cleanup on this site. It should be noted
that the EPA is contemplating an action under the Resource Conservation and
Recovery Act, Section 7003, as well as the CERCLA action mentioned above. The
EPA has issued Section 106 orders against the major contributors at the site for
cleanup, not including the Company. They are now engaged in negotiations for
cleanup. In 1994, the Company received a supplemental 104(e) request for
information from the EPA, indicating the EPA's renewed interest in pursuing
Potential Responsible Persons at the site. The Company responded, but has
received no further requests from the EPA.
TERRA INTERNATIONAL, INC. On August 31, 1995, the Company filed suit in
federal court in Mississippi against Terra International, Inc. ("Terra"),
seeking a declaratory judgment and other relief, establishing that certain
technology relating to the design of an ammonium nitrate neutralizer which the
Company licensed to Terra is not defective and was not the cause of an explosion
which occurred in 1994 at Terra's Port Neal, Iowa, fertilizer facility. The
Company is also seeking an unspecified amount of monetary damages for defamation
based on Terra's public statement related to the Company's alleged role in the
explosion. Also, on August 31, 1995, Terra filed suit in federal court in Iowa
against the Company seeking to recover a total of approximately $300 million in
property damage, lost profits and other out-of-pocket expenses allegedly caused
by the explosion. Terra alleges that the ammonium nitrate neutralizer technology
licensed to Terra was defectively designed by the Company and that the design
defect caused the Port Neal explosion. It has been conclusively determined that
the Mississippi federal district court is the proper venue to resolve all issues
between the parties relating to the Port Neal explosion. Discovery is nearly
complete and a trial date of May 15, 2000, has been set by the court. The
Company does not anticipate that the outcome of this matter will have a material
impact on its financial position or future earnings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is set forth in the Company's 1999
Annual Report to Shareholders under the caption "Quarterly Results," contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth in the Company's 1999
Annual Report to Shareholders under the caption "Financial Highlights," which
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is set forth in the Company's 1999
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which information is
incorporated herein by reference.
ITEM 7A. MARKET RISK
The information required by this item is set forth in the Company's 1999
Annual Report to Shareholders under the caption "Market Risk," which information
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon
of Arthur Andersen LLP dated July 28, 1999, appearing in the Company's 1999
Annual Report to Shareholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
15
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this item regarding directors is set forth
in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders
under the captions "Nominees for Election to Serve Until 2002," "Directors
Continuing to Serve Until 2001," and "Directors Continuing to Serve Until 2000,"
which information is incorporated herein by reference.
(b) Executive officers are elected for a one-year term by the Board of
Directors. The Company's executive officers are as follows:
<TABLE>
<CAPTION>
OFFICE AND EMPLOYMENT DURING THE
NAME OF OFFICER AGE LAST FIVE FISCAL YEARS
- ------------------------------ -----------------------------------------------------------------------
<S> <C> <C>
Charles O. Dunn 51 President and Chief Executive Officer since April 1, 1993; Executive
Vice President (1988-1993)
C. E. McCraw 51 Senior Vice President-Operations since July 12, 1994; Senior Vice
President-Fertilizer Group (1991-1994)
Robert E. Jones 51 Senior Vice President-Corporate Development effective October 1, 1997;
Senior Vice President and General Counsel (1996-1997); Vice President
and General Counsel (1989-1996)
David W. Arnold 62 Senior Vice President-Technical Group since July 1, 1991
Timothy A. Dawson 45 Senior Vice President and Chief Financial Officer since April 22,
1999; Vice President-Finance (1996-1999); Director of Finance
(1993-1996)
Ethel Truly 49 Vice President-Administration since January 18, 1996; Director of
Administrative Services (1995-1996); Assistant General Counsel
(1985-1995)
William L. Smith 49 Vice President and General Counsel since November 11, 1998; General
Counsel (1997-1998); partner in the law firm of Brunini, Grantham,
Grower & Hewes, PLLC (1982-1997)
Jerry W. Irwin 58 Vice President-Nitrogen Production since October 15, 1998; General
Manager of Yazoo City facility (1986-1998)
Joe A. Ewing 48 Vice President-Marketing and Distribution since September 1, 1999;
Director of Marketing and Distribution (1998-1999); Director of
Converted Nitrogen Sales (1997-1998); Director of Procurement and
Distribution (1993-1997)
</TABLE>
(c) The information called for with respect to the identification of
certain significant employees is not applicable to the Company.
(d) There are no family relationships among the directors and executive
officers listed above. There are no arrangements or understandings between any
named officer and any other person pursuant to which such person was selected as
an officer.
16
<PAGE> 17
The information required by this item regarding compliance with Section
16(a) of the Exchange Act is set forth in the Company's Proxy Statement for the
1999 Annual Meeting of Shareholders under the caption "Compliance with Section
16(a) of the Exchange Act," which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the captions
"Compensation Committee Report on Executive Compensation" and "Executive
Compensation," which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Management Ownership of the Company's Stock," which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Board of Directors and Committees," which information is incorporated herein by
reference.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements, together with the report thereon
of Arthur Andersen LLP dated July 28, 1999, appearing in the 1999 Annual Report
to Shareholders, are incorporated by reference in this Form 10-K. With the
exception of the aforementioned information and information incorporated by
reference in Items 1, 5, 6, 7, 7A and 8, the 1999 Annual Report to Shareholders
is not to be deemed filed as part of this Form 10-K. Financial statement
schedules not included in this Form 10-K have been omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto. Separate financial statements of 50% or less owned persons
accounted for by the equity method that are not shown herein have been omitted
because, if considered in the aggregate, they would not constitute a significant
subsidiary.
Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets, June 30, 1999 and 1998
Consolidated Statements of Income, Years Ended June 30, 1999,
1998 and 1997
Consolidated Statements of Shareholders' Equity, Years Ended
June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows, Years Ended June 30, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
18
<PAGE> 19
(b) EXHIBITS:
Exhibits filed as part of this report are listed below. Certain exhibits
have been filed previously with the Commission and are incorporated herein by
reference.
SEC EXHIBIT
REFERENCE NO. DESCRIPTION
------------- -----------
2.1 Asset Purchase Agreement, dated as of May
21, 1996, by and among the Company,
Mississippi Acquisition I, Inc., Mississippi
Acquisition II, Inc., Eddy Potash, Inc., and
New Mexico Potash Corporation; filed as
Exhibit 2.1 to the Company's Current Report
on Form 8-K filed September 3, 1996, SEC
File No. 0-20411, and incorporated herein by
reference.
2.2 Agreement and Plan of Merger and
Reorganization, dated as of August 27, 1996,
by and among the Company, MISS SUB, INC.,
and First Mississippi Corporation; filed as
Exhibit 2.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1996, SEC File No. 0-20411, and
incorporated herein by reference.
3.1 Articles of Incorporation of the Company;
filed as Exhibit 3.1 to the Company's
Amendment No. 1 to Form S-1 Registration
Statement filed August 2, 1994, SEC File No.
33-53119, and incorporated herein by
reference.
3.2 Bylaws of the Company; filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997, SEC
File No. 0-20411, and incorporated herein by
reference.
4.1 Shareholder Rights Plan; filed as Exhibit 1
to the Company's Form 8-A Registration
Statement dated August 15, 1994, SEC File
No. 2-7803, and incorporated herein by
reference.
4.2 Indenture dated as of November 25, 1997,
between the Company and Harris Trust and
Savings Bank, as Trustee, for the issuance
of up to $300 million of debt securities;
filed as Exhibit 4(a) to the Company's
Current Report on Form 8-K filed November
25, 1997, SEC File No. 001-12217, and
incorporated herein by reference.
4.3 Indenture of Trust dated as of March 1,
1998, between Mississippi Business Finance
Corporation and Deposit Guaranty National
Bank, for the issuance of bonds in the
aggregate principal amount of $14.5 million
to assist the Company in financing and
refinancing the cost of construction and
equipping of solid waste disposal facilities
at its Pascagoula, Mississippi, facility;
filed as Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998, SEC File No. 0-20411,
and incorporated herein by reference.
19
<PAGE> 20
<TABLE>
<S> <C>
10.1 Agreement made and entered into as of
September 15, 1991, between Office Cherifien
des Phosphates and the Company for the sale
and purchase of phosphate rock; filed as
Exhibit 10.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1991, File No. 2-7803, and incorporated
herein by reference.
10.2 Amendment No. 1, effective as of July 1,
1992, to the Agreement effective as of
September 15, 1991, between Office Cherifien
des Phosphates and the Company for the sale
and purchase of phosphate rock; filed as
Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1995, SEC File No. 2-7803, and
incorporated herein by reference.(1)
10.3 Amendment No. 2, effective as of July 1,
1993, to the Agreement effective as of
September 15, 1991, between Office Cherifien
des Phosphates and the Company for the sale
and purchase of phosphate rock; filed as
Exhibit 10.11 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1995, SEC File No. 2-7803, and
incorporated herein by reference.(2)
10.4 Amendment No. 3, effective as of January 1,
1995, to the Agreement effective as of
September 15, 1991, between Office Cherifien
des Phosphates and the Company for the sale
and purchase of phosphate rock; filed as
Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1995, SEC File No. 2-7803, and
incorporated herein by reference.(3)
10.5 Amendment No. 4, effective as of January 1,
1997, to the Agreement effective as of
September 15, 1991, between Office Cherifien
des Phosphates and the Company for the sale
and purchase of phosphate rock; filed as
Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1997, SEC File No. 0-20411, and
incorporated herein by reference.
</TABLE>
- --------
(1) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2,
confidential business information has been deleted from the first and second
paragraphs of paragraph numbered 1 of Amendment No. 1, and an application for
confidential treatment has been filed separately with the Commission.
(2) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2,
confidential business information has been deleted from paragraphs numbered 5
and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1,
paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from
Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit
D; and an application for confidential treatment has been filed separately with
the Commission.
(3) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2,
confidential business information has been deleted from Schedule 1 to Amendment
No. 3, Exhibit B, and an application for confidential treatment has been filed
separately with the Commission.
20
<PAGE> 21
10.6 Credit Agreement dated as of November 25,
1997, among the Company; the Lenders Party
Thereto; Harris Trust and Savings Bank, as
Administrative Agent; Bank of Montreal,
Chicago Branch, as Syndication Agent; and
Credit Agricole Indosuez, as Co-Agent,
establishing the Company's $200 million
revolving line of credit; filed as Exhibit
10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30,
1998, SEC File No. 0-20411, and incorporated
herein by reference.
10.7 First Amendment, effective as of June 10,
1999, to Credit Agreement dated as of
November 25, 1997, among the Company; the
Lenders Party Thereto; Harris Trust and
Savings Bank, as Administrative Agent; Bank
of Montreal, Chicago Branch, as Syndication
Agent; and Credit Agricole Indosuez, as
Co-Agent, establishing the Company's $200
million revolving line of credit.
10.8 Form of Severance Agreement dated July 29,
1996, by and between the Company and each of
its Executive Officers; filed as Exhibit
10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30,
1996, SEC File No. 2-7803, and incorporated
herein by reference.
10.9 Mississippi Chemical Corporation Officer and
Key Employee Incentive Plan; filed as
Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1998, SEC File No. 0-20411, and
incorporated herein by reference.
10.10 Mississippi Chemical Corporation Executive
Deferred Compensation Plan; filed as Exhibit
10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30,
1998, SEC File No. 0-20411, and incorporated
herein by reference.
10.11 Mississippi Chemical Corporation Nonemployee
Directors' Deferred Compensation Plan; filed
as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998, SEC File No. 0-20411,
and incorporated herein by reference.
10.12 Mississippi Chemical Corporation
Supplemental Benefit Plan, as amended and
restated as of July 1, 1996; filed as
Exhibit 10.11 to the Company's Annual Report
on Form 10-K for the fiscal year ended June
30, 1998, SEC File No. 0-20411, and
incorporated herein by reference.
10.13 Mississippi Chemical Corporation 1994 Stock
Incentive Plan; filed as Exhibit 4.2 to the
Company's Form S-8 Registration Statement
filed December 21, 1995, SEC File No.
33-65209, and incorporated herein by
reference.
21
<PAGE> 22
10.14 Mississippi Chemical Corporation 1995 Stock
Option Plan for Nonemployee Directors; filed
as Exhibit 4.3 to the Company's Form S-8
Registration Statement filed December 21,
1995, SEC File No. 33-65209, and
incorporated herein by reference.
10.15 Mississippi Chemical Corporation 1995
Restricted Stock Purchase Plan for
Nonemployee Directors; filed as Exhibit 4.4
to the Company's Form S-8 Registration
Statement filed December 21, 1995, SEC File
No. 33-65209, and incorporated herein by
reference.
13.1 Portions of the Company's 1999 Annual Report
to Shareholders as referenced in this Form
10-K for the fiscal year ending June 30,
1999.
21 List of subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
(c) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the three months ended June
30, 1999.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MISSISSIPPI CHEMICAL CORPORATION
By: /s/ Charles O. Dunn
---------------------------
Charles O. Dunn
Principal Executive Officer
By: /s/ Timothy A. Dawson
---------------------------
Timothy A. Dawson
Principal Financial Officer and
Chief Accounting Officer
Date: September 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Charles O. Dunn Director, September 28, 1999
- ---------------------------- President and Chief Executive Officer
Charles O. Dunn (principal executive officer)
/s/ Coley L. Bailey Director, Chairman of the Board September 28, 1999
- ----------------------------
Coley L. Bailey
/s/ John Sharp Howie Director, Vice Chairman of the Board September 28, 1999
- ----------------------------
John Sharp Howie
/s/ John W. Anderson Director September 28, 1999
- ----------------------------
John W. Anderson
/s/ Haley Barbour Director September 28, 1999
- ---------------------------
Haley Barbour
/s/ Frank R. Burnside, Jr. Director September 28, 1999
- ----------------------------
Frank R. Burnside, Jr.
/s/ W. R. Dyess Director September 28, 1999
- ---------------------------
W. R. Dyess
/s/ Woods E. Eastland Director September 28, 1999
- ----------------------------
Woods E. Eastland
/s/ George D. Penick, Jr. Director September 28, 1999
- ----------------------------
George D. Penick, Jr.
/s/ W. A. Percy II Director September 28, 1999
- ----------------------------
W. A. Percy II
/s/ David M. Ratcliffe Director September 28, 1999
- ----------------------------
David M. Ratcliffe
/s/ Wayne Thames Director September 28, 1999
- ----------------------------
Wayne Thames
</TABLE>
23
<PAGE> 24
MISSISSIPPI CHEMICAL CORPORATION
EXHIBIT INDEX
TO
FORM 10-K
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- -------------------------------------------------------- ------
<S> <C>
2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and
among the Company, Mississippi Acquisition I, Inc.,
Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New
Mexico Potash Corporation; filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed September 3, 1996,
SEC File No. 0-20411, and incorporated herein by reference.
2.2 Agreement and Plan of Merger and Reorganization, dated as of
August 27, 1996, by and among the Company, MISS SUB, INC., and
First Mississippi Corporation; filed as Exhibit 2.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996, SEC File No. 0-20411, and incorporated herein
by reference.
3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1
to the Company's Amendment No. 1 to Form S-1 Registration
Statement filed August 2, 1994, SEC File
No. 33-53119, and incorporated herein by reference.
3.2 Bylaws of the Company; filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1997, SEC File No. 0-20411, and incorporated herein by
reference.
4.1 Shareholder Rights Plan; filed as Exhibit 1 to the Company's
Form 8-A Registration Statement dated August 15, 1994, SEC
File No. 2-7803, and incorporated herein by reference.
4.2 Indenture dated as of November 25, 1997, between the Company
and Harris Trust and Savings Bank, as Trustee, for the
issuance of up to $300 million of debt securities; filed as
Exhibit 4(a) to the Company's Current Report on Form 8-K filed
November 25, 1997, SEC File No. 001-12217, and incorporated
herein by reference.
4.3 Indenture of Trust dated as of March 1, 1998, between
Mississippi Business Finance Corporation and Deposit Guaranty
National Bank, for the issuance of bonds in the aggregate
principal amount of $14.5 million to assist the Company in
financing and refinancing the cost of construction and
equipping of solid waste disposal facilities at its
Pascagoula, Mississippi, facility; filed as Exhibit 4.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, SEC File No. 0-20411, and incorporated herein
by reference.
</TABLE>
24
<PAGE> 25
10.1 Agreement made and entered into as of September 15, 1991,
between Office Cherifien des Phosphates and the Company for
the sale and purchase of phosphate rock; filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991, File No. 2-7803, and incorporated
herein by reference.
10.2 Amendment No. 1, effective as of July 1, 1992, to the
Agreement effective as of September 15, 1991, between Office
Cherifien des Phosphates and the Company for the sale and
purchase of phosphate rock; filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, SEC File No. 2-7803, and incorporated herein by
reference.(4)
10.3 Amendment No. 2, effective as of July 1, 1993, to the
Agreement effective as of September 15, 1991, between Office
Cherifien des Phosphates and the Company for the sale and
purchase of phosphate rock; filed as Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, SEC File No. 2-7803, and incorporated herein by
reference.(5)
10.4 Amendment No. 3, effective as of January 1, 1995, to the
Agreement effective as of September 15, 1991, between Office
Cherifien des Phosphates and the Company for the sale and
purchase of phosphate rock; filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, SEC File No. 2-7803, and incorporated herein by
reference.(6)
10.5 Amendment No. 4, effective as of January 1, 1997, to the
Agreement effective as of September 15, 1991, between Office
Cherifien des Phosphates and the Company for the sale and
purchase of phosphate rock; filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, SEC File No. 0-20411, and incorporated herein
by reference.
- --------
(4) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2,
confidential business information has been deleted from the first and second
paragraphs of paragraph numbered 1 of Amendment No. 1, and an application for
confidential treatment has been filed separately with the Commission.
(5) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2,
confidential business information has been deleted from paragraphs numbered 5
and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1,
paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from
Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit
D; and an application for confidential treatment has been filed separately with
the Commission.
(6) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2,
confidential business information has been deleted from Schedule 1 to Amendment
No. 3, Exhibit B, and an application for confidential treatment has been filed
separately with the Commission.
25
<PAGE> 26
<TABLE>
<S> <C> <C>
10.6 Credit Agreement dated as of November 25, 1997, among the
Company; the Lenders Party Thereto; Harris Trust and Savings
Bank, as Administrative Agent; Bank of Montreal, Chicago
Branch, as Syndication Agent; and Credit Agricole Indosuez, as
Co-Agent, establishing the Company's $200 million revolving
line of credit; filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998,
SEC File No. 0-20411, and incorporated herein by reference..
10.7 First Amendment, effective as of June 10, 1999, to Credit [ ]
Agreement dated as of November 25, 1997, among the
Company; the Lenders Party Thereto; Harris Trust and Savings
Bank, as Administrative Agent; Bank of Montreal, Chicago
Branch, as Syndication Agent; and Credit Agricole Indosuez, as
Co-Agent, establishing the Company's $200 million revolving
line of credit.
10.8 Form of Severance Agreement dated July 29, 1996, by and
between the Company and each of its Executive Officers; filed
as Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996, SEC File No. 2-7803,
and incorporated herein by reference.
10.9 Mississippi Chemical Corporation Officer and Key Employee
Incentive Plan; filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998,
SEC File No. 0-20411, and incorporated herein by reference.
10.10 Mississippi Chemical Corporation Executive Deferred
Compensation Plan; filed as Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1998, SEC File No. 0-20411, and incorporated herein by
reference.
10.11 Mississippi Chemical Corporation Nonemployee Directors'
Deferred Compensation Plan; filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, SEC File No. 0-20411, and incorporated herein
by reference.
10.12 Mississippi Chemical Corporation Supplemental Benefit Plan, as
amended and restated as of July 1, 1996; filed as Exhibit
10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998, SEC File No. 0-20411, and
incorporated herein by reference.
10.13 Mississippi Chemical Corporation 1994 Stock Incentive Plan;
filed as Exhibit 4.2 to the Company's Form S-8 Registration
Statement filed December 21, 1995, SEC File No. 33-65209, and
incorporated herein by reference.
</TABLE>
26
<PAGE> 27
10.14 Mississippi Chemical Corporation 1995 Stock Option Plan for
Nonemployee Directors; filed as Exhibit 4.3 to the Company's
Form S-8 Registration Statement filed December 21, 1995, SEC
File No. 33-65209, and incorporated herein by reference.
10.15 Mississippi Chemical Corporation 1995 Restricted Stock
Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4
to the Company's Form S-8 Registration Statement filed
December 21, 1995, SEC File No. 33-65209, and incorporated
herein by reference.
13.1 Portions of the Company's 1999 Annual Report to Shareholders [ ]
as referenced in this Form 10-K for the fiscal year ending
June 30, 1999.
21 List of subsidiaries of the Company. [ ]
23 Consent of Arthur Andersen LLP. [ ]
27 Financial Data Schedule. [ ]
27
<PAGE> 1
EXHIBIT 10.7
MISSISSIPPI CHEMICAL CORPORATION
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank,
individually and as Administrative Agent
Chicago, Illinois
The From Time to Time Lenders Party
to the Credit Agreement described below
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
November 25, 1997 (the "Credit Agreement") by and among the undersigned,
Mississippi Chemical Corporation, a Mississippi corporation (the "Borrower"),
and Harris Trust and Savings Bank, individually and in its capacity as
administrative agent thereunder, Bank of Montreal, Chicago Branch, in its
capacity as syndication agent thereunder, and Credit Agricole Indosuez (formerly
known as Caisse Nationale de Credit Agricole) in its capacity as co-agent
thereunder, and you (all of said banks except Bank of Montreal, including Harris
Trust and Savings Bank in its individual capacity, being referred to
collectively as the "Banks" and individually as a "Bank", and said Harris Trust
and Savings Bank as administrative agent for the Banks under the Credit
Agreement being hereinafter referred to in such capacity as the "Administrative
Agent"). All defined terms used herein shall have the same meaning as in the
Credit Agreement unless otherwise defined herein.
The Borrower, the Administrative Agent and the Banks wish to amend the
Credit Agreement to permit the Borrower to complete a corporate restructuring,
to add Triad Nitrogen, Inc., a Delaware corporation, and MissChem Nitrogen,
L.L.C., a Delaware limited liability company, as guarantors of the Borrower's
indebtedness, obligations and liabilities under the Loan Documents, to permit
the Borrower and its Subsidiaries to establish a receivables securitization
program and to amend certain other provisions of the Credit Agreement, all on
the terms and conditions of this Amendment.
SECTION 1. AMENDMENTS.
1.1. Effective as of the date (the "Amendment Effective Date") on which
all of the conditions precedent set forth in Section 2.1 of this Amendment are
satisfied, Section 3.5 of the Credit Agreement shall be amended to read as
follows:
"Section 3.5. Revolving Credit Termination. (a) The Borrower
shall have the right at any time upon 5 days' prior notice to the Banks
to terminate the Revolving Credit in whole or in part (but if in part
in a minimum principal amount of $10,000,000 or such greater amount
which is an integral multiple of $5,000,000); provided, however, that
the Borrower may not terminate any portion of the Revolving Credit
which represents
<PAGE> 2
outstanding Revolving Credit Obligations unless the Borrower
contemporaneously prepays the same or, with respect to any outstanding
L/Cs, pledges cash collateral to the Administrative Agent to secure the
same.
(b) Upon the effectiveness of the Receivables Securitization
Program the Revolving Credit Commitments shall automatically and
permanently reduce by an amount equal to the maximum amount of the
Receivables Securitization Program, and each Bank's Revolving Credit
Commitment shall automatically and permanently be reduced by its
Commitment Percentage of such reduction."
1.2. Effective on the Amendment Effective Date, the table appearing in
the definition of the term "Applicable Margin" contained in Section 4.1 of the
Credit Agreement shall be amended to read as follows:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
<S> <C> <C> <C> <C> <C>
>=2.25x >=3.0x >=3.75x
and and and
Pricing Ratio <2.25x <3.0x <3.75x <4.25x >=4.25x
Fed Funds Rate Loans .575% .725% 1.00% 1.20% 1.60%
Base Rate Loans 0% 0% .25% .35% .45%
Eurodollar Loans .575% .725% 1.00% 1.20% 1.60%
Facility Fee .15% .20% .25% .30% .40%
</TABLE>
1.3. Effective on the Amendment Effective Date, the definitions of the
terms "Debt", "Interest Coverage Ratio" and "Interest Expense" contained in
Section 4.1 of the Credit Agreement shall be amended to read as follows:
" "Debt" of any Person shall mean as of any time the same is
to be determined, the aggregate (without duplication) of:
(a) all indebtedness, obligations and liabilities
with respect to borrowed money;
(b) all guaranties, endorsements (other than any
liability arising out of the endorsement of items for deposit
or collection in the ordinary course of business) and other
contingent obligations in respect of, or any obligations to
purchase or otherwise acquire, indebtedness or securities of
others or to purchase Property of others at the request or
demand of any creditor of such Person;
(c) all reimbursement and other obligations with
respect to letters of credit (whether drawn or undrawn),
banker's acceptances, customer advances and
-2-
<PAGE> 3
other extensions of credit whether or not representing
obligations for borrowed money;
(d) the aggregate amount of Capitalized Lease
Obligations;
(e) all indebtedness and liabilities secured by any
lien or any security interest on any Property or assets of
such Person, whether or not the same would be classified as a
liability on a balance sheet; and
(f) all indebtedness, obligations and liabilities
representing the deferred purchase price of Property,
excluding trade payables incurred in the ordinary course of
business not more than 90 days past due;
all computed and determined on a consolidated basis for such Person and
its Subsidiaries after the elimination of intercompany items in
accordance with generally accepted accounting principles consistent
with those used in the preparation of the audit report referred to in
Section 5.2 hereof; provided, that for purposes of the definitions of
the terms "Leverage Ratio" and "Pricing Ratio" Debt shall include all
Debt of the Receivables Securitization Funding Vehicle relating to the
Receivables Securitization Program.
"Interest Coverage Ratio" shall mean, with reference to each
fiscal quarter of the Borrower and its Subsidiaries, the ratio of (x)
Annualized Average EBITDA minus the aggregate amount of all purchases,
property, plant and equipment as reflected on the Borrower's
consolidated statement of cash flows (determined on a consolidated
basis in accordance with generally accepted accounting principles,
consistently applied) for the preceding four fiscal quarters to (y)
Interest Expense, for the preceding four fiscal quarters.
"Interest Expense" shall mean, for any Person and with
reference to any period, the sum of all interest charges (including
imputed interest charges with respect to Capitalized Lease Obligations,
all amortization of debt discount and expense and all fees relating to
letters of credit accrued and all net obligations pursuant to interest
rate hedging agreements) of such Person and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally
accepted accounting principles, consistently applied; provided, that if
the Borrower or any of its Subsidiaries shall have acquired any
business, Property or Person during such period (whether before, on or
after the date hereof), Interest Expense shall, to the extent the
Borrower shall have delivered audited financial statements (or, if
audited financial statements are not available to the Borrower,
unaudited financial statements in form reasonably satisfactory to the
Administrative Agent) for the acquired business, Property or Person for
such period, be adjusted to reflect on a pro forma basis Interest
Expense for such business, Property or Person as if such business,
Property or Person had been acquired at the beginning of such period;
and provided further, that for purposes of the definitions of the terms
"Annualized Average EBIT", "Annualized Average EBITDA", "EBIT",
"EBITDA", "Interest Coverage Ratio", "Leverage Ratio" and "Pricing
Ratio", Interest Expense shall include
-3-
<PAGE> 4
all Interest Expense of the Receivables Securitization Funding
Vehicle relating to the Receivables Securitization Program."
1.4. Effective on the Amendment Effective Date, Section 4.1 of the
Credit Agreement shall be amended by adding the following definitions thereto:
" "Annualized Average EBITDA" shall mean, with reference to
any fiscal quarter, an amount equal to the EBITDA of the Borrower and
its Subsidiaries, each calculated on a consolidated basis in accordance
with generally accepted accounting principles, for the eight
consecutive fiscal quarters ending with such fiscal quarter divided by
two; provided, that if the Borrower or any of its Subsidiaries shall
have acquired any business, Property or Person during such eight fiscal
quarters (whether before, on or after the date hereof), EBITDA shall,
to the extent the Borrower shall have delivered audited financial
statements (or, if audited financial statements are not available to
the Borrower, unaudited financial statements in form reasonably
satisfactory to the Administrative Agent) for the acquired business,
Property or Person for such period, be adjusted to reflect on a pro
forma basis EBITDA for such business, Property or Person as if such
business, Property or Person had been acquired at the beginning of such
period.
"Receivables" shall mean the Borrower's and its Subsidiaries'
accounts receivable arising from the sale of goods or the provision of
services in the ordinary course of business.
"Receivables Securitization Funding Vehicle" shall mean a
wholly-owned Subsidiary of the Borrower or any of its Subsidiaries
created for the sole purpose of purchasing Receivables from the
Borrower or any of its Subsidiaries as part of the Receivables
Securitization Program.
"Receivables Securitization Program" shall mean any accounts
receivables securitization program to which the Borrower or any of its
Subsidiaries is a party which provides for the sale by the Borrower or
any of its Subsidiaries, without recourse, of its Receivables for a
cash consideration of not less than 70% of the unpaid value of such
Receivables."
1.5. Effective as of the date (the "Guaranty Effective Date") on which
all of the conditions precedent set forth in Section 2.2 of this Amendment are
satisfied, Section 4.1 of the Credit Agreement shall be amended by adding the
following definitions thereto:
" "Corporate Restructuring" shall mean collectively (a) the
transfer of the Borrower's Yazoo City, Mississippi plant and all
related operating assets (including without limitation storage
facilities, the port facility, rolling stock and gas pipelines) to
MissChem Nitrogen, (b) the transfer of all the Borrower's membership
interest in MissChem Nitrogen, its limited partnership interest in
MCCLP, and its real estate and related leases in Ascension Parish,
Louisiana, to TNI, (c) the transfer of all of TNI's assets (other than
its equity interests in Subsidiaries) to Triad Nitrogen, (d) the
transfer of all the Borrower's storage and distribution facilities
located in the State of Mississippi
-4-
<PAGE> 5
(other than Yazoo City, Mississippi) having an aggregate book value of
less than $1,000,000 to MCCLP, and (e) the reorganization of the
current Triad corporate structure as described in writing to the
Banks.
"Guarantors" shall mean TNI and MissChem Nitrogen in their
capacity as guarantors under the Guaranty.
"Guaranty" shall mean the Guaranty Agreement substantially in
the form of Exhibit M hereto from the Guarantors to the Administrative
Agent and the Banks.
"MCCLP" shall mean Mississippi Chemical Company, L.P., a
Delaware limited partnership.
"MissChem Nitrogen" shall mean MissChem Nitrogen, L.L.C., a
Delaware limited liability company.
"TNI" shall mean Triad Nitrogen, Inc., a Delaware corporation.
"Triad Nitrogen" shall mean Triad Nitrogen, L.L.C., a Delaware
limited liability company."
1.6. Effective on the Guaranty Effective Date, the Credit Agreement
shall be amended by adding the following provision thereto as Section 5.16:
"Section 5.16. Organization and Qualification of the Guarantors.
Each Guarantor is a corporation or limited liability company duly
organized and existing and in good standing under the laws of the State
of Delaware, has full and adequate corporate or company power to carry
on its business as now conducted, is duly licensed or qualified in all
jurisdictions wherein the nature of its activities requires such
licensing or qualification except where the failure to be so licensed
or qualified would not have a material adverse effect on the condition,
financial or otherwise, of such Guarantor, has full right and authority
to enter into the Guaranty, to guaranty the payment when due of the
Borrower's indebtedness, obligations and liabilities to the Banks under
the Loan Documents pursuant to the Guaranty and to perform each and all
of the matters and things therein provided for; and the Guaranty does
not, nor does the performance or observance by any Guarantor of any of
the matters or things provided for in the Guaranty, contravene any
provision of law or any provision of any Guarantor's articles of
incorporation, articles of organization, by-laws or operating agreement
or any covenant, indenture or agreement of or affecting any Guarantor
or its Properties."
1.7. Effective on the Amendment Effective Date, Section 7.7 of the
Credit Agreement shall be amended by adding the following phrase immediately
before the period appearing at the end thereof:
", and provided further that the foregoing shall not prohibit
the sale of all or substantially all of the Borrower's or any
of its
-5-
<PAGE> 6
Subsidiaries' Receivables, or any undivided interest
therein, pursuant to the Receivables Securitization Program."
1.8. Effective on the Amendment Effective Date, Section 7.9 of the
Credit Agreement shall be amended by deleting the word "and" appearing after the
semi-colon at the end of subsection (i) thereof, by replacing the period at the
end of subsection (j) thereof with the phrase "; and" and by adding the
following provision thereto as subsection (k):
"(k) the interest of any purchaser of the Borrower's or any of
its Subsidiaries' Receivables purchased by it pursuant to the
Receivables Securitization Program in such Receivables."
1.9. Effective on the Amendment Effective Date, Section 7.10 of the
Credit Agreement shall be amended by deleting the word "and" appearing after the
semi-colon at the end of subsection (h) thereof, by replacing the period at the
end of subsection (i) thereof with the phrase "; and" and by adding the
following provision thereto as subsection (j):
"(j) indebtedness of the Borrower and its Subsidiaries
pursuant to the Receivables Securitization Program."
1.10. Effective on the Amendment Effective Date, Section 7.11 of the
Credit Agreement shall be amended by deleting the word "and" appearing after the
semi-colon at the end of subsection (l) thereof, by replacing the period at the
end of subsection (m) thereof with the phrase "; and" and by adding the
following provision thereto as subsection (n):
"(n) an initial capital contribution to the Receivables
Securitization Funding Vehicle in an amount not to exceed an amount
equal to 20% of the amount of the Receivables Securitization Program,
and investments, if any, arising from the sale of Receivables at a
discount pursuant to the Receivables Securitization Program."
1.11. Effective on the Amendment Effective Date, Section 7.12 of the
Credit Agreement shall be amended by deleting the word "and" appearing after the
semi-colon at the end of subsection (c) thereof, by replacing the period at the
end of subsection (d) thereof with the phrase "; and" and by adding the
following provision thereto as subsection (e):
"(e) the sale by the Borrower or any of its Subsidiaries of
all or substantially all of its Receivables pursuant to the Receivables
Securitization Program, provided that the maximum amount of the
Receivables Securitization Program shall not exceed $75,000,000 at any
time."
1.12. Effective on the Guaranty Effective Date, Section 7.12 of the
Credit Agreement shall be amended by deleting the word "and" appearing after the
semi-colon at the end of subsection (d) thereof, by replacing the period at the
end of subsection (e) thereof with the phrase "; and" and by adding the
following provision thereto as subsection (f):
"(f) the transfers of Property in connection with the
Corporate Restructuring."
-6-
<PAGE> 7
1.13. Effective on the Amendment Effective Date, Sections 7.19, 7.20
and 7.21 of the Credit Agreement shall be amended to read as follows:
"Section 7.19. New Subsidiaries. Neither the Borrower nor any
Subsidiary shall, directly or indirectly, organize or acquire any Subsidiary not
listed on Exhibit G attached hereto, except (a) as permitted by Section 7.11(j)
hereof, and (b) the formation of the Receivables Securitization Funding Vehicle.
Section 7.20. Maximum Leverage Ratio. The Borrower will, as of the last
day of each fiscal quarter of the Borrower maintain a Leverage Ratio less than
or equal to the ratio specified for such date below:
<TABLE>
<CAPTION>
LEVERAGE RATIO SHALL NOT BE
FISCAL QUARTER ENDING GREATER THAN
<S> <C>
June 30, 1999 5.00 to 1
September 30, 1999 5.00 to 1
December 31, 1999 5.00 to 1
March 31, 2000 5.00 to 1
June 30, 2000 4.50 to 1
September 30, 2000 4.50 to 1
December 31, 2000 5.00 to 1
March 31, 2001 4.50 to 1
June 30, 2001 4.00 to 1
September 30, 2001 4.00 to 1
December 31, 2001 4.50 to 1
March 31, 2002 and thereafter 4.00 to 1
</TABLE>
Section 7.21. Minimum Interest Coverage Ratio. The Borrower will, as of
the last day of each fiscal quarter of the Borrower, maintain an Interest
Coverage Ratio of not less than the ratio specified for such date below:
-7-
<PAGE> 8
<TABLE>
<CAPTION>
INTEREST COVERAGE RATIO SHALL NOT BE LESS
FISCAL QUARTER ENDING THAN
<S> <C>
June 30, 1999 1.5 to 1
September 30, 1999 1.5 to 1
December 31, 1999 1.5 to 1
March 31, 2000 1.5 to 1
June 30, 2000 and thereafter 1.75 to 1"
</TABLE>
1.14. Effective on the Amendment Effective Date, Section 7.24 of the
Credit Agreement shall be amended by adding the following provision thereto
immediately before the period and the end thereof:
", and (v) the foregoing shall not apply to restrictions on
the transfer or encumbrance by the Receivables Securitization Funding
Vehicle of Receivables owned by it contained in the documentation for
the Receivables Securitization Program."
1.15. Effective on the Guaranty Effective Date, Section 8.1 of the Credit
Agreement shall be amended by deleting the word "or" appearing after the
semi-colon at the end of subsection (i) thereof, by replacing the period at the
end of subsection (j) thereof with the phrase "; and" and by adding the
following provision thereto as subsection (k):
"(k) Any Guarantor shall disavow, repudiate, breach or purport
to terminate any of its obligations under the Guaranty or any part
thereof, or the Guaranty or any part thereof shall not be valid and
binding for any reason upon any Guarantor, or any of the events
described in subsections (h) and (i) of this Section 8.1 shall occur
with respect to any Guarantor or its Property."
1.16. Effective on the Amendment Effective Date, Exhibit G to the Credit
Agreement shall be amended by adding thereto the following information:
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF COMPANY ORGANIZATION
<S> <C>
MCC Klondike, Inc. Delaware
MissChem Nitrogen, L.L.C. Delaware
MissChem (Barbados) SRL Barbados
MissChem Trinidad Limited Republic of Trinidad and Tobago
Mississippi Chemical Holdings, Inc. British Virgin Islands
Triad Nitrogen, L.L.C. Delaware
</TABLE>
1.17. Effective on the Guaranty Effective Date the Credit Agreement shall
be amended by adding Exhibit M hereto as Exhibit M to the Credit Agreement.
1.18. Schedule 5.3 to the Credit Agreement shall be replaced by
Schedule 5.3 attached to this Amendment.
-8-
<PAGE> 9
SECTION 2. CONDITIONS PRECEDENT.
2.1. The Amendment Effective Date shall occur upon the satisfaction of
all of the following conditions precedent:
(a) The Borrower, the Administrative Agent and the Required
Banks shall have executed this Amendment (such execution may be in
several counterparts and the several parties hereto may execute on
separate counterparts);
(b) The Administrative Agent shall have received for the
benefit of the Banks in sufficient counterparts for distribution to the
Banks:
(i) copies, certified as true, correct and complete
by the Secretary or Assistant Secretary of the Borrower, of
resolutions regarding the transactions contemplated by this
Amendment (including without limitation the Corporate
Reorganization), duly adopted by the Board of Directors of the
Borrower and satisfactory in form and substance to the
Required Banks;
(ii) an incumbency and signature certificate for the
Borrower satisfactory in form and substance to the
Administrative Agent; and
(iii) the legal opinion of counsel to the Borrower in
the form of Exhibit A attached hereto;
(c) The Administrative Agent shall have received all fees
payable to it and to the Banks in connection with the execution and
delivery of this Amendment;
(d) Each of the representations and warranties set forth in
Section 5 of the Credit Agreement shall be true and correct, except
that the representations and warranties made under Section 5.2 shall be
deemed to refer to the most recent financial statements furnished to
the Banks pursuant to Section 7.4 of the Credit Agreement; and
(e) The Borrower shall be in full compliance with all of the
terms and conditions of the Loan Documents and no Event of Default or
Potential Default shall have occurred and be continuing thereunder or
shall result after giving effect to this Amendment.
2.2. The Guaranty Effective Date shall occur upon the satisfaction of
all of the following conditions precedent:
(a) The Amendment Effective Date shall have occurred;
(b) The Administrative Agent shall have received for the
benefit of the Banks in sufficient counterparts for distribution to the
Banks:
(i) the Guaranty Agreement executed by the
Guarantors;
-9-
<PAGE> 10
(ii) good standing certificates for each Guarantor
issued by the states of Delaware and Louisiana, as applicable,
issued not more than 35 days before the Guaranty Effective
Date;
(iii) copies of the articles of incorporation or
articles of formation, and all amendments thereto, of each
Guarantor, certified by the Secretary of State of its state of
incorporation or formation not more than 35 days before the
date of this Amendment;
(iv) copies of the By-Laws or operating agreement,
and all amendments thereto, of each Guarantor, certified as
true, correct and complete on the date hereof by the Secretary
or Assistant Secretary of each Guarantor;
(v) copies, certified as true, correct and complete
by the Secretary or Assistant Secretary of each Guarantor, of
resolutions, or the consent of sole member in the case of
MissChem Nitrogen, regarding the transactions contemplated by
this Amendment (including without limitation the Corporate
Restructuring), duly adopted by the Board of Directors or sole
member, as the case may be, of each Guarantor and satisfactory
in form and substance to the Required Banks;
(vi) an incumbency and signature certificate for each
Guarantor satisfactory in form and substance to the
Administrative Agent; and
(vii) the legal opinion of counsel to each Guarantor
in the form of Exhibit B attached hereto;
(c) Each of the representations and warranties set forth in
Section 5 of the Credit Agreement shall be true and correct, except
that the representations and warranties made under Section 5.2 shall be
deemed to refer to the most recent financial statements furnished to
the Banks pursuant to Section 7.4 of the Credit Agreement.
(d) The Borrower shall be in full compliance with all of the
terms and conditions of the Loan Documents and no Event of Default or
Potential Default shall have occurred and be continuing thereunder or
shall result after giving effect to this Amendment.
SECTION 3. MISCELLANEOUS.
3.1. Reference to this specific Amendment need not be made in any note,
document, letter, certificate, the Credit Agreement itself, the Notes, or any
communication issued or made pursuant to or with respect to the Credit
Agreement, any reference to the Credit Agreement being sufficient to refer to
the Credit Agreement as amended hereby.
3.2. This Amendment may be executed in any number of counterparts, and
by the different parties on different counterparts, all of which taken together
shall constitute one and the
-10-
<PAGE> 11
same agreement. Any of the parties hereby may execute this agreement by signing
any such counterpart and each of such counterparts shall for all purposes be
deemed to be an original. This agreement shall be governed by the internal laws
of the State of Illinois.
-11-
<PAGE> 12
Upon acceptance hereof by the Administrative Agent and the Banks in the
manner hereinafter set forth, this Amendment shall be a contract between us for
the purposes hereinabove set forth.
Dated as of June 10, 1999.
MISSISSIPPI CHEMICAL CORPORATION
By /s/ TIMOTHY A. DAWSON
----------------------------
Timothy A. Dawson
----------------------------
Its Senior Vice President &
Chief Financial Officer
-12-
<PAGE> 13
Accepted and Agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK,
individually and as Administrative
Agent
By /s/ JULIE K. HOSSACK
---------------------------------------------
Its Vice President
CREDIT AGRICOLE INDOSUEZ
By /s/ KATHERINE L. ABBOTT
---------------------------------------------
Its First Vice President
Managing Director
By /s/ BRADLEY C. PETERSON
---------------------------------------------
Its Vice President, Manager
BANQUE NATIONALE DE PARIS, HOUSTON AGENCY
By /s/ WARREN G. PARKHAM
---------------------------------------------
Its Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By /s/ CASEY COSGROVE
---------------------------------------------
Its Vice President
THE BANK OF NOVA SCOTIA, ATLANTA AGENCY
By /s/ F. C. H. ASHBY
---------------------------------------------
Its Senior Manager Loan Operations
-13-
<PAGE> 14
SUNTRUST BANK, ATLANTA
By /s/ GREGORY L. CANNON
---------------------------------------------
Its Vice President
By /s/ MICHEL A. ODERMATT
---------------------------------------------
Its Vice President
FIRST UNION NATIONAL BANK
By /s/ MARK B. FELKER
---------------------------------------------
Its Senior Vice President
ABN AMRO BANK N.V.
By /s/ KEVIN P. COSTELLO
---------------------------------------------
Its Vice President
By /s/ GORDON D. CHANG
---------------------------------------------
Its Vice President
THE FUJI BANK, LIMITED
By /s/ RAYMOND VENTURA
---------------------------------------------
Its Vice President & Manager
THE DAI-ICHI KANGYO BANK, LTD.
By /s/ MATTHEW G. MURPHY
---------------------------------------------
Its Vice President
TRUSTMARK NATIONAL BANK
By /s/ W. H. EDWARDS
---------------------------------------------
Its Vice President
-14-
<PAGE> 15
FIRST AMERICAN NATIONAL BANK
By /s/ STANLEY A. HERREN
---------------------------------------------
Its Senior Vice President
-15-
<PAGE> 16
EXHIBIT A
TO BE RETYPED ON LETTERHEAD OF COUNSEL
AND DATED AS OF DATE OF CLOSING)
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
The From Time to Time Lenders Party
to the Credit Agreement described in the
First Amendment to Credit Agreement
Ladies and Gentlemen:
I have served as counsel to Mississippi Chemical Corporation (the
"Borrower"), a Mississippi corporation, in connection with a revolving credit
facility made available by you to the Borrower pursuant to the Credit Agreement,
dated as of November 25, 1997 (the "Credit Agreement"). As such counsel, I have
reviewed the corporate proceedings taken to authorize the execution and delivery
of, and have examined executed originals of, the First Amendment to Credit
Agreement, dated as of June 10, 1999 (the "Amendment"), among the Borrower and
the Banks (as defined in the Amendment). As counsel to the Borrower, I am
familiar with the articles of incorporation and bylaws of the Borrower (the
"Organizational Documents"). I have also examined such other factual matters and
matters of law as I deem necessary or pertinent to the formulation of the
opinions hereinafter expressed.
In my examination, I have assumed the genuineness of all signatures
(other than those of the Borrower), the authenticity of all documents submitted
to me as originals, and the conformity with authentic original documents of all
documents submitted to me as copies. Also, I have relied upon statements and
certifications of government officials and upon representations made in or
pursuant to the Amendment and by representatives of the Borrower with respect to
the Amendment.
In rendering the opinions expressed below, I have assumed with respect
to all documents referred to herein that (except with respect to the Borrower):
such documents have been duly authorized by, have been duly executed and
delivered by, and constitute legal, valid, binding, and enforceable obligations
of, all of the parties to such documents; all signatories to such documents have
been duly authorized; and all of the parties to such documents are duly
organized and validly existing and have the power and authority to execute,
deliver, and perform such documents.
Based upon the foregoing and subject to the qualifications and
exceptions set forth below, I am of the opinion that:
1. The Borrower is a corporation duly organized and validly existing
and in good standing under the laws of the State of Mississippi with full and
adequate corporate power and authority to carry on its business as now
conducted, and the Borrower is duly qualified to
<PAGE> 17
Page 2
transact the business in which it is engaged and in good standing as a foreign
corporation in each jurisdiction wherein the conduct of business or the assets
and properties owned or leased by it require such qualification, except to the
extent the failure to be so qualified would not have a material adverse effect
on the business or financial condition of the Borrower and its subsidiaries
taken as a whole.
2. The Borrower has full right, power and corporate authority to borrow
from you, to execute and deliver the Amendment executed by it, and to observe
and perform all the matters and things therein provided for. The execution and
delivery of the Amendment executed by the Borrower does not, nor will the
observance or performance of any of the matters or things therein provided for,
contravene any provision of applicable law, except where such contravention
would not have a material adverse effect on the properties, business,
operations, or financial condition of the Borrower and its subsidiaries taken as
a whole, or of the Organizational Documents of the Borrower (there being no
other agreements under which the Borrower is organized), or, to my knowledge, of
any material covenant, indenture or agreement binding upon or affecting the
Borrower or any of its properties or assets.
3. The Amendment executed by the Borrower has been duly authorized by
all necessary corporate action of the Borrower, has been executed and delivered
by the proper officers of the Borrower, and constitutes a valid and binding
agreement of the Borrower enforceable against the Borrower in accordance with
its terms, subject to bankruptcy, insolvency, and other laws affecting
creditors' rights generally and to principles of equity.
4. Based solely upon my review of those statutes, rules, and
regulations that are generally applicable to transactions in the nature of those
contemplated by the Amendment, no order known by me, authorization, consent,
license or exemption of, or filing or registration with, any court or
governmental department, agency, instrumentality or regulatory body, whether
state or federal, is or will be required in connection with the lawful execution
and delivery of the Amendment or the observance and performance by the Borrower
of any of the terms thereof, except such as have already been obtained or if not
obtained would not have a material adverse effect on the properties, business,
operations, or financial condition of the Borrower and its subsidiaries taken as
a whole.
5. Except as set forth on Schedule 5.3 to the Credit Agreement, to my
knowledge, there is no action, suit, proceeding or investigation, at law or in
equity, of which we have been directly notified in writing or which has been
served upon us, before or by any court or public body, pending or threatened
against or affecting the Borrower or any of its assets and properties which, if
adversely determined, could result in any material adverse change in the
properties, business, operations or financial condition of the Borrower and its
subsidiaries taken as a whole.
I express no opinion herein as to the legality, validity, binding
nature or enforceability of provisions of the Amendment (i) relating to
indemnification, exculpation, or contribution, to the extent such provisions may
be held unenforceable as contrary to public policy or federal or state
securities laws, (ii) relating to the release of a party from, or the
indemnification of a party against, liability for its own wrongful or negligent
acts under certain circumstances, (iii) insofar as it provides for the payment
or reimbursement of costs and expenses or for claims, losses, or liabilities in
excess of a reasonable amount determined by any court or other tribunal, (iv)
requiring written amendments or waivers of such documents insofar as it suggests
that oral or other modifications, amendments, or waivers could not be
effectively agreed upon by the parties or that the doctrine of promissory
estoppel might not apply, (v) waiving the right to object to venue in any court,
or (vi) relating to any consent or agreement to submit to the jurisdiction of
<PAGE> 18
Page 3
any court. I also express no opinion as to laws regarding fraudulent transfers,
conveyances, or obligations, or usury.
I render no opinion herein as to matters involving the laws of any
jurisdiction other than the State of Mississippi and the United States of
America. This opinion is limited to the effect of the present state of the laws
of the State of Mississippi and the United States of America and the facts as
they presently exist, and I assume no obligation to revise or supplement this
opinion in the event of future changes in such laws or the interpretation
thereof or such facts.
This opinion is rendered solely to you in connection with the Amendment
and may not be relied upon by any person for any purpose other than in
connection with the transactions contemplated by the Amendment without, in each
instance, my prior written consent.
Very truly yours,
MISSISSIPPI CHEMICAL CORPORATION
William L. Smith
Vice President & General Counsel
<PAGE> 19
EXHIBIT B
(TO BE RETYPED ON LETTERHEAD OF COUNSEL
AND DATED AS OF DATE OF CORPORATE RESTRUCTURING)
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
The From Time to Time Lenders Party
to the Credit Agreement described in the
First Amendment to Credit Agreement
Ladies and Gentlemen:
I have served as counsel to Mississippi Nitrogen, Inc., formerly known
as Triad Nitrogen, Inc. ("MNI"), a Delaware corporation, and MissChem Nitrogen,
L.L.C. ("MNLLC," and collectively with MNI, the "Guarantors"), a Delaware
limited liability company, with respect to that certain Guaranty Agreement,
dated as of July 1, 1999 (the "Guaranty"), executed in connection with a
revolving credit facility made available by you to Mississippi Chemical
Corporation (the "Borrower") pursuant to the Credit Agreement, dated as of
November 25, 1997, as amended by the First Amendment to Credit Agreement, dated
as of June 10, 1999 (collectively, the "Credit Agreement"). As such counsel, I
have reviewed the corporate proceedings taken to authorize the execution and
delivery of, and have examined executed originals of, the Guaranty, from the
Guarantors to the Banks (as defined in the Credit Agreement). As counsel to the
Guarantors, I am familiar with the Articles of Incorporation and Bylaws of MNI
and the certificate of formation and Limited Liability Company Agreement of
MNLLC (respectively, the "Organizational Documents"). I have also examined such
other factual matters and matters of law as I deem necessary or pertinent to the
formulation of the opinions hereinafter expressed.
In my examination, I have assumed the genuineness of all signatures
(other than those of the Guarantors), the authenticity of all documents
submitted to me as originals, and the conformity with authentic original
documents of all documents submitted to me as copies. Also, I have relied upon
statements and certifications of government officials and upon representations
made in or pursuant to the Guaranty and by representatives of the Guarantors
with respect to the Guaranty.
In rendering the opinions expressed below, I have assumed with respect
to all documents referred to herein that (except with respect to the
Guarantors): (i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding, and enforceable
obligations of, all of the parties to such documents; (ii) all signatories to
such documents have been duly authorized; and (iii) all of the parties to such
documents are duly organized and validly existing and have the power and
authority to execute, deliver, and perform such documents.
Based upon the foregoing and subject to the qualifications and
exceptions set forth below, I am of the opinion that:
<PAGE> 20
Page 2
1. Each Guarantor is a corporation or limited liability company duly
organized and validly existing and in good standing under the laws of the State
of Delaware with full and adequate corporate or limited liability company power
and authority to carry on its respective business as now conducted.
2. Each Guarantor is duly qualified to transact the business in which
it is engaged and in good standing as a foreign corporation in each jurisdiction
wherein the conduct of its respective business or the assets and properties
owned or leased by it require such qualification, except to the extent the
failure to be so qualified would not have a material adverse effect on the
business or financial condition of the Guarantors taken as a whole.
3. Each Guarantor has full right, power and corporate or limited
liability company authority to guarantee the obligations of the Borrower under
the Credit Agreement and to observe and perform all of the matters and things
provided for in the Guaranty.
4. The execution and delivery of the Guaranty executed by the
Guarantors does not, nor will the observance or performance of any of the
matters or things therein provided for, contravene any provision of applicable
law, except where such contravention would not have a material adverse effect on
the properties, business, operations, or financial condition of the Guarantors
taken as a whole, or of the respective Organizational Documents of the
Guarantors (there being no other agreements under which each Guarantor is
organized), or, to my knowledge, of any material agreement binding upon or
affecting each Guarantor or any of its properties or assets.
5. The Guaranty executed by the Guarantors has been duly authorized by
all necessary corporate or limited liability company action of each Guarantor
and has been executed and delivered by the proper officer or member of each
Guarantor.
6. The Guaranty executed by the Guarantors constitutes a valid and
binding agreement of each Guarantor enforceable against each Guarantor in
accordance with its terms, subject to bankruptcy, insolvency, and other laws
affecting creditors' rights generally and to principles of equity.
7. Based solely upon my review of those statutes, rules, and
regulations that are generally applicable to transactions in the nature of those
contemplated by the Guaranty, no order known by me, authorization, consent,
license or exemption of, or filing or registration with, any court or
governmental department, agency, instrumentality or regulatory body, whether
state or federal, is or will be required in connection with the lawful execution
and delivery of the Guaranty or the observance and performance by the Guarantors
of any of the terms thereof, except such as have already been obtained or, if
not obtained, would not have a material adverse effect on the properties,
business, operations, or financial condition of the Guarantors taken as a whole.
8. Except as set forth on Schedule 5.3 to the Credit Agreement, to my
knowledge, there is no action, suit, proceeding or investigation, at law or in
equity, of which we have been directly notified in writing or which has been
served upon us, before or by any court or public body, pending or threatened
against or affecting any Guarantor or any of its assets and properties which, if
adversely determined, could result in any material adverse change in the
properties, business, operations or financial condition of the Guarantors taken
as a whole.
<PAGE> 21
Page 3
I express no opinion herein as to the legality, validity, binding
nature or enforceability of provisions of the Guaranty (i) relating to
indemnification, exculpation, or contribution, to the extent such provisions may
be held unenforceable as contrary to public policy or federal or state
securities laws, (ii) relating to the release of a party from, or the
indemnification of a party against, liability for its own wrongful or negligent
acts under certain circumstances, (iii) insofar as it provides for the payment
or reimbursement of costs and expenses or for claims, losses, or liabilities in
excess of a reasonable amount determined by any court or other tribunal, (iv)
requiring written amendments or waivers of such documents insofar as it suggests
that oral or other modifications, amendments, or waivers could not be
effectively agreed upon by the parties or that the doctrine of promissory
estoppel might not apply, (v) waiving the right to object to venue in any court,
or (vi) relating to any consent or agreement to submit to the jurisdiction of
any court. I also express no opinion as to laws regarding fraudulent transfers,
conveyances, or obligations, or usury.
I render no opinion herein as to matters involving the laws of any
jurisdiction other than the State of Mississippi, the United States of America,
and for purposes of opinion paragraphs 1, 3, and 5 above, the State of Delaware.
I am not admitted to practice law in the State of Delaware; however, I am
generally familiar with the Delaware General Corporation Law and the Delaware
Limited Liability Company Act as presently in effect, and I have made such
inquiries as I consider necessary to render the opinions contained in opinion
paragraphs 1, 3, and 5 above. This opinion is limited to the effect of the
present state of the laws of the State of Mississippi, the United States of
America, and to the limited extent set forth above in this paragraph, the State
of Delaware and the facts as they presently exist, and I assume no obligation to
revise or supplement this opinion in the event of future changes in such laws or
the interpretation thereof or such facts.
This opinion is rendered solely to you in connection with the Guaranty
and may not be relied upon by any person for any purpose other than in
connection with the transactions contemplated by the Guaranty without, in each
instance, my prior written consent.
Very truly yours,
William L. Smith
Vice President and General Counsel
<PAGE> 22
EXHIBIT M
MISSISSIPPI CHEMICAL CORPORATION
GUARANTY AGREEMENT
Harris Trust and Savings Bank,
individually and as Administrative Agent
Chicago, Illinois
The From Time to Time Lenders Party
To the Credit Agreement described below
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of November
25, 1997 (such Credit Agreement, as the same may be modified or amended from
time to time, being hereinafter referred to as the "Credit Agreement") by and
among Mississippi Chemical Corporation, a Mississippi corporation (the
"Borrower"), and Harris Trust and Savings Bank, individually and in its capacity
as administrative agent thereunder, Bank of Montreal, Chicago Branch, in its
capacity as syndication agent thereunder, Credit Agricole Indosuez (formerly
known as Caisse Nationale de Credit Agricole), in its capacity as co-agent
thereunder, and you (all of said banks except Bank of Montreal, including Harris
Trust and Savings Bank in its individual capacity ("Harris"), being referred to
collectively as the "Banks" and individually as a "Bank", and said Harris Trust
and Savings Bank as administrative agent for the Banks under the Credit
Agreement being hereinafter referred to in such capacity as the "Administrative
Agent"), pursuant to which said Banks agree to make available to the Borrower a
Revolving Credit (the "Revolving Credit"), a competitive bid facility (the "Bid
Facility") and a swingline facility (the "Swingline"), with all loans thereunder
to be evidenced by the Revolving Credit Notes of the Borrower (all such
Revolving Credit Notes being hereinafter referred to collectively as the "Notes"
and individually as a "Note") and Harris may issue letters of credit for the
account of the Borrower. All of the Borrower's indebtedness, obligations and
liabilities to the Banks under the Credit Agreement and the other Loan
Documents, including, without limitation, all such indebtedness, obligations and
liabilities evidenced by the Notes, all indebtedness, obligations and
liabilities with respect to letters of credit and all extensions or renewals of
any of the foregoing, are hereinafter collectively referred to as the
"Indebtedness". All defined terms used herein shall have the meanings set forth
in the Credit Agreement unless expressly defined herein.
The Borrower and the Banks have amended the Credit Agreement pursuant
to a First Amendment to Credit Agreement dated as of June 10, 1999 (the
"Amendment") to permit the Borrower and the undersigned, Triad Nitrogen, Inc.
("Triad") to transfer a "material part" (as defined in the Credit Agreement) of
their operating assets to two new wholly-owned subsidiaries of Triad (the
"Corporate Restructuring"). As an inducement to each of you to accept and enter
into said Amendment and permit the Corporate Restructuring of the Borrower, and
in consideration of credit extended and to be extended by the Banks to the
Borrower under said Credit Agreement as amended by the Amendment, the
undersigned (hereinafter collectively referred to as the "Guarantors"),
acknowledging that the Banks have informed the Borrower
<PAGE> 23
that said credit would not be extended pursuant to the Amendment but for this
guarantee, hereby jointly and severally guarantee the full and prompt payment to
the Administrative Agent and each of the Banks at maturity (whether by
acceleration, lapse of time or otherwise) and at all times thereafter of
principal of and interest on all Indebtedness of the Borrower under the Credit
Agreement, and all extensions or renewals of all or any part thereof and all
other indebtedness, liabilities and obligations of the Borrower to the Banks and
the Administrative Agent under the Credit Agreement.
SECTION 1. TERMS AND CONDITIONS.
Section 1.1. This guaranty of payment by the Guarantors shall be a
continuing, absolute and unconditional guaranty and shall remain in full force
and effect until all Indebtedness of the Borrower to the Banks and the
Administrative Agent shall be fully paid and satisfied and all commitments of
the Banks under the Credit Agreement to extend credit to or for the account of
the Borrower shall have terminated. The dissolution, liquidation or insolvency
(howsoever evidenced) of, or the institution of bankruptcy or receivership
proceedings against any one or more of the Guarantors or the Borrower shall not
terminate this Agreement.
Section 1.2. The obligations and liabilities of the Guarantors, or any
of them, hereunder shall not be affected or impaired by any irregularity,
invalidity or unenforceability of or in any of the Notes or of any agreement,
instrument or other document evidencing or creating or providing for the same.
Section 1.3. The obligations and liabilities of the Guarantors, or any
of them, hereunder shall not be affected or impaired by (and the Banks are
hereby expressly authorized to make from time to time without notice to the
Guarantors) any sale, pledge, surrender, compromise, settlement, release,
renewal, extension, indulgence, amendment, alteration, substitution, exchange,
change in, modification or other disposition of any of the Credit Agreement, the
Notes, any other Loan Documents, any other guaranty thereof, or of any security
or collateral therefor.
Section 1.4. The obligations and liabilities of the Guarantors or any
of them hereunder shall not be affected or impaired by any acceptance by the
Administrative Agent or the Banks, or any of them, of any security or collateral
for, or other guarantors upon any of the Indebtedness or by any failure,
neglect, omission, delay or partial action on the part of the Administrative
Agent or the Banks, or any of them, in the administration of the Indebtedness or
to realize upon or protect any of the Indebtedness or any security or collateral
therefor, or to exercise any lien upon or right of appropriation of any moneys,
credits or property of the Borrower possessed by any of the Banks toward the
liquidation of the Indebtedness or by any application of payments or credits
thereon or by any other circumstances whatsoever (with or without notice to or
the knowledge of the Guarantors, or any of them) which may in any manner or to
any extent vary the risk of the Guarantors, or any of them, hereunder or may
otherwise constitute a legal or equitable discharge of a surety or guarantor; it
being the purpose and intent that this guaranty of payment and the obligations
and liability of the Guarantors hereunder shall be absolute and unconditional
under any and all circumstances and shall not be discharged except by payment
and performance as herein provided.
-2-
<PAGE> 24
Section 1.5. In order to hold the Guarantors, or any of them, liable
hereunder, there shall be no obligation on the part of any Bank, at any time, to
resort for payment to any person directly liable in respect of the Indebtedness
or to any other guaranty, or to any other person, their properties or estates,
or to resort to any collateral, security, property, liens or other rights or
remedies whatsoever, and the Banks shall have the right to enforce this guaranty
of payment irrespective of whether or not other proceedings or steps are pending
seeking resort to or realization upon or from any of the foregoing. The
Guarantors jointly and severally agree to pay all reasonable out-of-pocket
expenses, including court costs and reasonable attorneys' fees, paid or incurred
by the Administrative Agent and the Banks or any of them in endeavoring to
collect on the Indebtedness or any part thereof and in enforcing this Agreement.
Section 1.6. The granting of credit to the Borrower by any Bank from
time to time in addition to the Indebtedness under the Credit Agreement without
notice to the Guarantors, or any of them, is hereby authorized and shall in no
way affect or impair the obligations and liability of the Guarantors, or any of
them, hereunder.
Section 1.7. The payment by any Guarantor of any amount or amounts
under this guaranty of payment shall not entitle it, either at law, in equity or
otherwise, to any right, title or interest (whether by way of subrogation or
otherwise) in and to any of the Indebtedness, or in and to any security or
collateral therefor, or in or to any amounts at any time paid or payable under
or pursuant to any guaranty by any other person of all or part of Indebtedness,
or in and to any amounts theretofore, then or thereafter paid or applicable to
the payment of the Indebtedness, howsoever such payment or payments may arise,
until all of the Indebtedness has been fully paid and all obligations of the
Banks to extend credit to or for the benefit of the Borrower shall have
terminated or expired.
Section 1.8. This Agreement may be enforced by the Banks acting
jointly, or it may be enforced by any Bank acting alone or separately with
respect to the Indebtedness which it holds. Any Bank may, without any notice to
the Guarantors, sell, assign or transfer, to the extent permitted in the Credit
Agreement, the Indebtedness held by it, or any part thereof, or grant
participations therein; and in that event, each and every immediate and
successive assignee, transferee or holder of or participant in all or any part
of the Indebtedness shall, to the extent permitted in the Credit Agreement, have
the right to enforce this Agreement, by suit or otherwise, for the benefit of
such assignee, transferee, holder or participant as fully as if such assignee,
transferee, holder or participant were herein by name specifically given such
rights, powers and benefits; but each Bank shall have an unimpaired right to
enforce this Agreement for its own benefit or for the benefit of any such
participant as to so much of the Indebtedness that it has not sold, assigned or
transferred.
Section 1.9. If any payment applied by any Bank to any of the
Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of any of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purposes of this
Agreement be deemed to have continued in existence, notwithstanding such
application, and this Agreement shall be enforceable as to such of the
Indebtedness as fully as if such application had never been made.
-3-
<PAGE> 25
SECTION 2. MISCELLANEOUS.
Section 2.1. Notices. Unless otherwise expressly provided herein, all
communications provided for herein shall be in writing or by telecopy and shall
be deemed to have been given or made when served personally, when an answer back
is received in the case of notice by telecopy or 2 days after the date when
deposited in the United States mail addressed if to any Guarantor to P.O. Box
388, Yazoo City, Mississippi 39194, Attention: Corporate Secretary; if to the
Administrative Agent or Harris at 111 West Monroe Street, Chicago, Illinois
60690, Attention: Agribusiness Group; and if to any of the Banks, at the address
for each Bank set forth under its signature on the Credit Agreement; or at such
other address as shall be designated by any party hereto in a written notice to
each other party pursuant to this Section 2.1.
Section 2.2. Jurisdiction; Venue. EACH GUARANTOR HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS AND OF ANY ILLINOIS COURT SITTING IN CHICAGO FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH GUARANTOR IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
Section 2.3. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE
INTERNAL LAWS OF THE STATE OF ILLINOIS, IN WHICH STATE IT SHALL BE PERFORMED BY
THE GUARANTORS. This Agreement and every part hereof shall be binding upon the
Guarantors jointly and severally and upon their respective legal
representatives, successors and assigns of each and all of the undersigned, and
shall inure to the benefit of the Banks and their respective successors, legal
representatives and assigns.
Section 2.4. This writing is intended by the parties to be a complete
and final expression of this Agreement and is also intended as a complete and
exclusive statement of the terms of that agreement. No course of dealing, course
of performance or trade usage, and no parole evidence of any nature, shall be
used to supplement or modify any terms hereof, nor are there any conditions to
the full effectiveness of this Agreement.
Section 2.5. No Guarantor shall be released from any of its obligations
under this Agreement, and this Section 2.5 may not be amended, modified or
waived, without the prior written consent of all of the Banks.
-4-
<PAGE> 26
Dated as of , 1999.
----------------
MISSISSIPPI NITROGEN, INC.
By
--------------------------
Its
-------------------
MISSCHEM NITROGEN, L.L.C.
By
--------------------------
Its
-------------------
-5-
<PAGE> 27
SCHEDULE 5.3
LITIGATION
a. Cleve Reber CERCLA Site.
Triad has received and responded to letters issued by the
United States Environmental Protection Agency ("EPA") under
Section 104 of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") relative to the
possible disposition of Triad waste at the disposal site
identified as the Cleve Reber site in Ascension Parish,
Louisiana.
It is Triad's position that, based upon available information
and records, Triad did not utilize the Cleve Reber site for
the disposition of hazardous material, and it does not appear
that Triad has any responsibility for investigation and
cleanup on this site. It should be noted that the EPA is
contemplating an action under the Resource Conservation and
Recovery Act, Section 7003, as well as the CERCLA action
mentioned above. The EPA has issued Section 106 orders against
the major contributors at the site for cleanup. They are now
engaged in negotiations for cleanup. Two years ago, Triad
received a supplemental 104(e) request for information from
the EPA, indicating the EPA's renewed interest in pursuing
Potential Responsible Persons ("PRPs") at the site. Triad
filed a Freedom of Information Act request to investigate
allegations that some plant trash from Triad may have been
disposed of at the Cleve Reber site. In the opinion of
management, the likelihood of loss and material amount is
remote.
b. Terra International, Inc. Litigation
On August 31, 1995, Mississippi Chemical Corporation (the
"Company") filed suit against Terra International, Inc.
("Terra") in the U.S. District Court for the Southern District
of Mississippi seeking a declaratory judgment that the
Company's design of certain technology relating to a nitric
acid sparger licensed to Terra did not contribute to an
explosion at Terra's Port Neal, Iowa, fertilizer facility and
unspecified damages for defamation based on Terra's false
public statements relating to the Company's alleged role in
the explosion. On the same day, Terra filed suit against the
Company in the U.S. District Court for the Northern District
of Iowa seeking an unspecified sum of money for property
damage and business interruption losses arising out of the
explosion. Terra's lawsuit, which is based on theories of
negligence and product liability, alleges that the nitric acid
sparger was defectively designed and contributed to the
explosion. The Company believes that the explosion was caused
by a series of operating errors at the Terra plant.
<PAGE> 28
On January 23, 1998, the issue of where this matter would be
litigated to conclusion was resolved when the U.S. Supreme
Court denied Terra's writ of certiorari seeking review of the
U.S. Eighth Circuit Court of Appeals decision affirming Judge
Bennett's ruling that the U.S. District Court for the Southern
District of Mississippi was the proper venue for this matter.
Discovery in this matter is underway and expected to continue
through July 1999. Trial is set for September 6, 1999. The
Company intends to continue prosecution of the defamation
claim and its vigorous defense against Terra's allegations.
c. Newsprint South, Inc., Tax Dispute.
A dispute exists regarding the tax treatment of an $8.75
million payment (the "Payment") that was made by the Company
to its former subsidiary, Newsprint South, Inc. ("NSI"), on
July 6, 1994, to terminate the newsprint contract executed by
the Company and NSI. The Company's deduction of the Payment on
its 1995 fiscal year tax return (July 1, 1994, through June
30, 1995) has been challenged by both NSI and the Internal
Revenue Service ("IRS"). NSI has taken the position that the
Payment was a contribution to NSI's capital and not income to
NSI. The IRS has contested both the Company's and NSI's tax
treatment of the Payment.
The Payment was part of the agreement between the Company and
NSI's creditors regarding the Company's June 1994 divestiture
of NSI and was addressed in the contract documents detailing
the divestiture agreement. It is the Company's position that
these documents, along with other evidence, establish the
Company's right to deduct the Payment.
NSI filed a petition for declaratory judgment in the Circuit
Court for Grenada County, Mississippi, on November 24, 1997,
seeking a judgment that the contract documents supported its
tax treatment of the Payment. The Company responded by
requesting that the Court deny NSI's petition and grant the
same declaratory relief to the Company. In July 1998, the
Court entered an order holding that the Payment was not a
capital contribution and that any tax treatment of the Payment
by NSI that is inconsistent with the Company's 1994 fiscal
year consolidated tax return was a breach of the Tax
Coordination Agreement executed by the Company and NSI.
On April 2, 1999, a settlement agreement was reached with NSI
that allows the Company to favorably resolve all significant
issues arising from the Internal Revenue Service's ("IRS")
1995 and 1996 fiscal year tax audits. The NSI settlement is
contingent upon both NSI and the Company reaching separate,
binding agreements with the IRS regarding all material,
outstanding issues arising from the audits. We expect the
settlement agreements with the IRS and NSI to be consummated
by June 30, 1999.
<PAGE> 1
EXHIBIT 13.1
MISSISSIPPI CHEMICAL CORPORATION
1999
ANNUAL REPORT
<PAGE> 2
MISSISSIPPI CHEMICAL CORPORATION
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME STATEMENT DATA: Fiscal Years Ended June 30
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 467,899 $ 493,712 $ 496,316 $ 05,553 $ 364,390
Operating income $ 8,455 $ 37,936 $ 91,209 $ 84,818 $ 80,969
Net (loss) income $ (3,608) $ 22,974 $ 55,815 $ 54,178 $ 52,230
(Loss) earnings per share - basic $ (0.14) $ 0.84 $ 2.29 $ 2.47 $ 2.34
(Loss) earnings per share - diluted $ (0.14) $ 0.84 $ 2.29 $ 2.46 $ 2.34
Weighted average common shares outstanding - basic 26,392 27,355 24,329 21,975 22,337
Weighted average common shares outstanding - diluted 26,392 27,390 24,404 22,039 22,364
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: June 30
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 84,364 $ 64,086 $ 53,910 $ 81,613 $ 70,790
Total assets $ 898,888 $ 912,332 $ 858,545 $ 341,006 $ 302,215
Long-term debt, excluding long-term debt due
within one year $ 305,857 $ 304,705 $ 244,516 $ -- $ 2,478
Shareholders' equity $ 420,228 $ 448,525 $ 439,429 $ 247,825 $ 227,307
Cash dividends declared per common share $ 0.40 $ 0.40 $ 0.40 $ 0.36 $ 0.16
</TABLE>
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1)
OVERVIEW
Our operations are organized into three strategic business units:
nitrogen, phosphate and potash. Our nitrogen business unit produces nitrogen
fertilizers for distribution to fertilizer dealers and distributors and
industrial users located primarily in the southern region of the United States.
Our phosphate business unit produces diammonium phosphate fertilizer (commonly
referred to as "DAP") and exports the majority of this production through the
Phosphate Chemicals Export Association, Inc., a Webb-Pomerene corporation known
as "PhosChem." Our potash business unit mines and produces agricultural and
industrial potash products for sale to farmers, fertilizer dealers and
distributors, and industries for use primarily in the southern and western
regions of the United States. The following is management's discussion and
analysis of the financial condition and results of operations, which should be
read in conjunction with the Consolidated Financial Statements and related
notes.
For the current fiscal year, we incurred a net loss of $3.6 million (or
$0.14 per basic and diluted share) compared to net income of $23.0 million (or
$0.84 per basic and diluted share) for the prior fiscal year. Net sales
decreased to $467.9 million in fiscal 1999 from $493.7 million in fiscal 1998,
and operating income decreased to $8.5 million in fiscal 1999 from $37.9 million
in fiscal 1998. Earnings before interest, taxes, depreciation and amortization
("EBITDA") for the current year were $57.6 million compared to $87.5 million for
the prior year. We recognized one-time gains for both fiscal 1999 and 1998. In
fiscal 1999, we recorded a $3.6 million after-tax gain (or $0.14 per share) for
an involuntary conversion of property after a hurricane damaged our facilities
in Pascagoula, Mississippi. The gain consisted of the difference between the
carrying value of the damaged assets and the insurance proceeds expected to be
received. The prior year included a $6.8 million after-tax gain (or $0.24 per
share) related to the sale of our undeveloped phosphate rock property in Hardee
County, Florida.
- ---------------
(1) Pronouns used herein (for example we, us, our) include Mississippi
Chemical Corporation, its subsidiaries and affiliates.
3
<PAGE> 4
NITROGEN
The operating performance of our nitrogen business unit in the current
year was significantly impacted by continued weak product pricing caused by (i)
additional worldwide supply resulting from increased nitrogen capacity, (ii)
decreased U.S. fertilizer demand, (iii) China's urea embargo and (iv) cheap
Russian imported product. As a result, our weighted average nitrogen sales price
decreased 19% during the current year.
A 9% increase in nitrogen sales volumes partially offset the decline in
nitrogen sales prices during the current year. This increase in sales volumes
was attributable to additional tons available for sale from Farmland MissChem
Limited, our 50%-owned joint venture ammonia production facility which began
commercial operations in late July 1998. Lost production associated with
downtime at one of our ammonia plants located in Donaldsonville, Louisiana,
reduced the increase in nitrogen sales volume during the current year.
Our nitrogen costs per ton declined 4% during the current year,
primarily as a result of lower costs for natural gas, maintenance and labor.
During the prior year, we incurred higher maintenance and labor costs as a
result of scheduled maintenance shutdowns. These cost reductions were partially
offset by higher depreciation costs in the current year as our Yazoo City
nitrogen expansion projects were placed in service.
Pursuant to the Farmland MissChem offtake agreement, we purchase
one-half of the ammonia production from Farmland MissChem at a discount to
market, subject to a minimum price. During fiscal 1999, all purchases from
Farmland MissChem were at the minimum price. We recorded $1.5 million in equity
income from Farmland MissChem in fiscal 1999, which reduced our cost of products
sold in our fiscal 1999 consolidated statement of income. The joint venture
equity income was reduced by start-up costs that were written off during the
current year in accordance with the early adoption of a change in an accounting
principle.
PHOSPHATE
In April 1998, we completed a plant expansion at our phosphate business
unit in Pascagoula, Mississippi, which increased DAP production rates and
reduced per-ton production costs. This expansion
4
<PAGE> 5
resulted in a 9% sales volume increase during the current year. This increase
was partially offset in the current year because our production facilities in
Pascagoula, Mississippi, were damaged by Hurricane Georges in late September
1998, and we lost production. Our DAP sales price increased 1% during the
current year. DAP costs per ton declined 8% during the current year, primarily
as a result of increased production from the expansion and lower raw material
costs for ammonia and sulfur. The lower costs were partially offset by the
higher cost of phosphate rock during the current year due to the pricing formula
in our phosphate rock supply contract that is based on the phosphate rock costs
incurred by certain other domestic phosphate producers and the financial
performance of our phosphate operations.
Our DAP production facilities in Pascagoula were shut down for 22 days
as a result of the damage caused by Hurricane Georges. Approximately 54,000 tons
of DAP inventory were damaged. The damaged inventory and property were insured,
as were all business interruption losses in excess of ten days. We treated the
disposal of the damaged property, other than inventory, as an involuntary
conversion and recorded, as a component of other income, a gain of $5.7 million
based on the difference in the carrying value of those assets and the insurance
proceeds expected to be received.
POTASH
Our potash business unit experienced a 6% increase in sales prices and
a 10% decrease in sales volumes during the current year. Sales volumes decreased
in fiscal 1999, primarily as a result of (i) reduced spring demand in the
current year, (ii) reduced product availability due to suspension of operations
at our Eddy mine in December 1997, and (iii) lost production caused by downtime
required to complete an expansion in the third quarter of fiscal 1999.
Our potash costs per ton increased 2% during the current year as
compared to the prior year, primarily as a result of lower production at our
west mine. This lower production resulted from downtime associated with the
expansion and from declines in ore grades. The higher costs incurred at our west
mine were partially offset by improved operations at our east mine and
suspension of operations at our higher-cost Eddy mine.
5
<PAGE> 6
OUTLOOK
Long-term fundamentals driving the fertilizer industry, such as
population growth and the improvement of diets worldwide, remain sound; however,
the key issue in the short term is the direction of nitrogen pricing, which we
believe, for the foreseeable future, will be significantly affected by (i) the
purchasing practices of China, (ii) the production and pricing policies of
Russian producers, (iii) increases in the supply of nitrogen products available
for sale in world markets as a result of recent global capacity expansions, and
(iv) the effect of grain prices on U.S. fertilizer demand. Based on the current
market outlook, we expect low nitrogen prices to continue to negatively impact
our financial results; however, recent announcements of curtailments and
shutdowns by various nitrogen producers may positively influence the supply and
demand balances for the near term. In July 1999, we announced an indefinite
curtailment of production at one of our ammonia plants in Donaldsonville,
Louisiana. We are monitoring market conditions to determine an appropriate
schedule for resuming ammonia production at this plant. In addition, we are
concerned about the future direction of DAP sales prices due to announced
capacity expansions expected to come on-line in countries that have historically
been significant importers of DAP.
RESULTS OF OPERATIONS
Our results of operations have historically been influenced by a number
of factors beyond our control, which have at times had a significant impact on
our operating results. Fertilizer demand and prices are highly dependent upon a
variety of conditions in the agricultural industry such as grain prices, planted
acreage, projected grain stocks, U.S. Government policies, weather, and changes
in agricultural production methods. Our results of operations can also be
affected by (i) the volatility of natural gas prices, (ii) operating
difficulties, (iii) the relative value of the U.S. dollar, (iv) foreign
agricultural policies (in particular, policies of the Governments of India and
China regarding fertilizer imports), (v) capacity expansions by competitors,
(vi) pricing policies of domestic and foreign competitors (especially Russia),
and (vii) the unpredictable nature of international and local economies.
6
<PAGE> 7
Summaries of our sales results by business unit are set forth below:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
--------------------------------
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
Nitrogen $244,581 $277,993 $287,847
DAP 135,718 124,123 125,421
Potash 85,917 89,746 80,963
Other 1,683 1,850 2,085
-------- -------- --------
Net Sales $467,899 $493,712 $496,316
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
--------------------------------
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tons Sold:
Nitrogen:
Ammonia 819 648 379
Ammonium nitrate 765 765 725
Urea 556 515 425
Nitrogen solutions 489 485 458
Nitric acid 54 57 36
-------- -------- --------
Total Nitrogen 2,683 2,470 2,023
DAP 788 726 723
Potash 921 1,022 1,020
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Average Sales Price Per Ton:
Nitrogen $ 91 $ 113 $ 142
DAP $ 172 $ 171 $ 173
Potash $ 93 $ 88 $ 79
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating Income:
Nitrogen $(20,982) $ 22,500 $ 80,727
Phosphate $ 16,660 $ 5,277 $ 9,788
Potash $ 12,416 $ 10,003 $ 694
Eliminations $ 361 $ 156 $ --
-------- -------- --------
Total $ 8,455 $ 37,936 $ 91,209
======== ======== ========
</TABLE>
7
<PAGE> 8
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Our net sales decreased 5% to $467.9 million in fiscal 1999
from $493.7 million in fiscal 1998. This decrease, primarily the result of lower
sales prices in the current year for our nitrogen products and lower sales
volumes for our potash products, was partially offset by higher sales volumes
for our nitrogen and DAP products. During the current year, our average sales
prices for ammonia decreased 29%, ammonium nitrate decreased 14%, urea decreased
17% and nitrogen solutions decreased 14%, resulting in a 19% reduction in the
weighted average sales price per ton of nitrogen when compared to the prior
year. Nitrogen fertilizer sales volumes increased 9% during the current year,
primarily as a result of increased sales volumes for ammonia. Ammonia sales
volumes increased 26% during the current year due to the availability of
additional tons for sale from Farmland MissChem Limited. We purchase one-half of
the total production from the Farmland MissChem plant. The increase was
partially offset by lost production in the current year associated with downtime
at one of our ammonia plants located in Donaldsonville, Louisiana. During the
current year, DAP sales increased 9% compared to the prior year due to a 9%
increase in sales volumes and a 1% increase in sales prices. DAP sales volumes
increased as a result of additional tons available for sale through increased
production in the current year associated with an expansion completed in the
prior year. This increase was partially offset by lost production in the current
year as a result of damage to our DAP production facilities at Pascagoula,
Mississippi, caused by Hurricane Georges in late September 1998. The plant did
not produce for approximately 22 days during the current year, and approximately
54,000 tons of DAP inventory were damaged by the hurricane. Potash sales
decreased 4% during fiscal 1999 as compared to fiscal 1998 as a result of a 10%
decrease in sales volumes, partially offset by a 6% increase in sales prices.
Sales volumes decreased in fiscal 1999, primarily as a result of (i) reduced
spring demand in the current year, (ii) reduced product availability due to
suspension of operations at our Eddy mine in December 1997, and (iii) lost
production caused by downtime during the expansion completed in the third
quarter of fiscal 1999.
TRADING LOSS ON BROKERED PRODUCT. We did not engage in any brokering
activities during fiscal 1999. During fiscal 1998, brokered ammonia sales of
$18.5 million and purchases of $19.3 million resulted in a net trading loss of
$820,000. We brokered approximately 142,000 short tons of ammonia during fiscal
1998.
8
<PAGE> 9
COST OF PRODUCTS SOLD. Our cost of products sold increased to $420.6
million in fiscal 1999 from $417.5 million in fiscal 1998. As a percentage of
net sales, cost of products sold increased to 90% in fiscal 1999 from 85% in
fiscal 1998, primarily as a result of lower sales prices for our nitrogen
products. The increase in cost of products sold as a percentage of net sales was
partially offset by lower nitrogen and DAP costs per ton during the current
year. Our lower nitrogen costs per ton were achieved through lower costs for
natural gas, maintenance and labor during the current year. During the prior
year, we incurred higher maintenance and labor costs as a result of scheduled
maintenance shutdowns. These lower costs during the current year were partially
offset by higher depreciation following the completion of major construction
projects at our Yazoo City, Mississippi, facilities. DAP costs per ton decreased
8% in the current year, primarily as a result of increased production associated
with an expansion completed in April 1998 and lower raw material costs for
ammonia and sulfur. These lower costs were partially offset by higher raw
material costs for phosphate rock in the current year. Potash costs per ton
increased 2% during the current year as compared to the prior year. This
increase was primarily the result of lower production at our west mine. This
lower production was the result of (i) losses from downtime associated with the
expansion completed in our third fiscal quarter and (ii) declines in ore grade.
The increase in costs per ton was partially offset by improved operations at our
east mine and suspension of operations at our higher-cost Eddy mine in early
December 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses increased to $38.8 million in fiscal 1999 from $37.5
million in fiscal 1998. This increase, primarily the result of increased
professional fees and advertising costs, was partially offset by decreased
employee incentives related to our income levels. As a percentage of net sales,
selling, general and administrative expenses were 8% in fiscal 1999 and 1998.
OPERATING INCOME. As a result of the above factors, our operating
income decreased to $8.5 million in fiscal 1999 from $37.9 million in fiscal
1998, a 78% decrease.
INTEREST, NET. For fiscal 1999, our net interest expense increased to
$19.0 million from $10.9 million in fiscal 1998. This increase was primarily due
to less interest being capitalized as a result of the completion of major
construction projects during the current year. We capitalized $3.9 million of
interest
9
<PAGE> 10
costs in fiscal 1999 compared to $9.0 million in fiscal 1998. We also incurred
additional interest costs resulting from slightly higher debt levels and
interest rates during the current year.
GAIN ON INVOLUNTARY CONVERSION OF PROPERTY. During fiscal 1999, we
recorded a $5.7 million gain on the involuntary conversion of property at our
DAP facilities in Pascagoula, Mississippi, damaged by Hurricane Georges. The
gain was based on the difference in the carrying value of the assets damaged and
the total insurance proceeds expected to be received.
OTHER. For fiscal 1999, our other income decreased to $1.0 million
compared to $12.3 million in fiscal 1998. This decrease was primarily the result
of a $10.9 million gain in fiscal 1998 on the sale of our undeveloped phosphate
rock property in Florida.
INCOME TAX (BENEFIT) EXPENSE. For fiscal 1999, our income tax benefit
was $162,000 compared to income tax expense of $16.3 million in fiscal 1998. The
income tax benefit in fiscal 1999 was the result of a loss for the year and
permanently reinvested foreign earnings, which were partially offset by
nondeductible goodwill amortization.
NET (LOSS) INCOME. As a result of the foregoing, we incurred a net loss
of $3.6 million in fiscal 1999 compared to net income of $23.0 million in fiscal
1998.
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. Our net sales decreased to $493.7 million in fiscal 1998
from $496.3 million in fiscal 1997, primarily as a result of lower sales prices
for nitrogen. These lower sales prices were partially offset by increased sales
volumes for nitrogen and higher sales prices for potash. During fiscal 1998, our
average sales prices for ammonia decreased 24%, ammonium nitrate decreased 21%,
urea decreased 27% and nitrogen solutions decreased 20%. These decreases
resulted in a 21% reduction in the weighted average sales price per ton of
nitrogen as compared to the prior year. Nitrogen fertilizer sales volumes
increased 22% during fiscal 1998 due to increased ammonia and urea volumes
attributable to our acquisition of the fertilizer business of First Mississippi
Corporation ("First Mississippi") in December 1996. Potash net sales increased
11% as a result of an 11% increase in sales prices. The higher sales prices were
the result of increased domestic and international demand during fiscal 1998.
Potash sales volumes did not change significantly during fiscal 1998 as compared
to fiscal 1997. Production efficiency gains at our two remaining
10
<PAGE> 11
operating mines and a reduction in inventories offset the lost production
associated with suspension of operations at our Eddy potash mine in December
1997. Sales of DAP did not change significantly during fiscal 1998. Sales prices
decreased 1% while volumes remained relatively unchanged. We experienced some
lost DAP production due to a shutdown associated with a production expansion
during March and April of fiscal 1998. This expansion increased DAP production
rates in the fourth quarter, allowing us to partially make up the lost
production. By the end of fiscal 1998, sales volumes were comparable to fiscal
1997.
TRADING LOSS ON BROKERED PRODUCT. We began brokering ammonia in the
open market following our acquisition of First Mississippi's fertilizer business
in December 1996. During fiscal 1998, brokered ammonia sales of $18.5 million
and purchases of $19.3 million resulted in an $820,000 net trading loss. During
fiscal 1997, brokered ammonia sales of $32.3 million and purchases of $33.2
million resulted in a $57,000 net trading loss after considering certain
purchase price adjustments associated with the acquisition. We brokered
approximately 142,000 short tons of ammonia during fiscal 1998 compared to
177,000 short tons during fiscal 1997.
COST OF PRODUCTS SOLD. For fiscal 1998, our cost of products sold
increased to $417.5 million from $372.3 million for fiscal 1997. As a percentage
of net sales, cost of products sold increased to 85% from 75%. The increase in
cost of products sold, as a percentage of net sales, is primarily the result of
decreases in the average sales price for each of our nitrogen products. Our cost
per ton for nitrogen products increased 3% in fiscal 1998, primarily as a result
of (i) higher maintenance and labor costs associated with scheduled maintenance
shutdowns at our nitrogen facilities in Yazoo City, Mississippi, and
Donaldsonville, Louisiana, and (ii) higher depreciation associated with our
acquisition of First Mississippi's fertilizer business. These costs were
partially offset by slightly lower natural gas costs and lower prices paid for
purchased ammonia. Our DAP costs per ton increased 1% during fiscal 1998
compared to fiscal 1997, primarily as a result of (i) higher conversion costs
incurred due to scheduled maintenance shutdowns of the sulfuric acid plants and
(ii) increased water treatment costs due to significantly higher rainfall levels
experienced during fiscal 1998. These higher costs were partially offset by
lower raw material costs, primarily for ammonia and phosphate rock. Phosphate
rock costs decreased due to the pricing formula in our phosphate rock supply
contract that is based on the phosphate rock costs incurred by certain other
11
<PAGE> 12
domestic phosphate producers and the financial performance of our phosphate
operations. Our potash costs per ton decreased 3% during fiscal 1998 as compared
to fiscal 1997, primarily as a result of the suspension of operations at our
higher-cost Eddy mine in early December 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and
administrative expenses increased to $37.5 million in fiscal 1998 from $32.8
million in fiscal 1997. This increase was primarily the result of (i) increased
goodwill amortization in fiscal 1998 associated with our acquisition of First
Mississippi's fertilizer business in fiscal 1997 and (ii) idle plant costs
associated with suspension of operations at our Eddy mine in December 1997.
During fiscal 1998, we also experienced increased costs for sales administration
as a result of the acquisitions made in fiscal 1997. As a percentage of net
sales, selling, general and administrative expenses increased to 8% in fiscal
1998 from 7% in fiscal 1997.
OPERATING INCOME. As a result of the above factors, our operating
income was $37.9 million in fiscal 1998 compared to $91.2 million in fiscal
1997, a 58% decrease.
INTEREST, NET. For fiscal 1998, our net interest expense was $10.9
million compared to $4.3 million in fiscal 1997. This increase was primarily the
reflection of higher interest expense resulting from higher levels of borrowings
during fiscal 1998. We capitalized interest costs of $9.0 million in fiscal 1998
and $3.9 million in fiscal 1997 related to major construction projects at our
nitrogen and phosphate operations and to our investment in Farmland MissChem
Limited.
OTHER. Our other income increased to $12.3 million in fiscal 1998 from
$3.7 million in fiscal 1997. This increase was primarily the result of the sale
in April 1998 of our undeveloped phosphate rock property in Florida. We sold the
property for $57.0 million and were compensated in the form of an initial cash
payment of $2.4 million and a note for $54.6 million, which was secured by a
mortgage on the property. The note, which carried an interest rate of 6.07% at
June 30, 1998, was subject to prepayment, and in August 1998, was paid in full.
As a result of the sale of this property, we recorded a net pre-tax gain of
$10.9 million as a component of other income in our fiscal 1998 consolidated
statement of income.
INCOME TAX EXPENSE. For fiscal 1998, our income tax expense decreased
to $16.3 million from $34.8 million in fiscal 1997, primarily as a result of a
decrease in earnings during fiscal 1998. We also
12
<PAGE> 13
incurred an increase in the effective tax rate during fiscal 1998 due to the
nondeductible amortization of goodwill associated with our acquisition of First
Mississippi's fertilizer business in December 1996.
NET INCOME. As a result of the foregoing, our net income decreased to
$23.0 million in fiscal 1998 from $55.8 million in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had cash and cash equivalents of $1.6 million
compared to $3.9 million at June 30, 1998, a decrease of $2.3 million. At June
30, 1998, our cash and cash equivalents had decreased to $3.9 million from $8.2
million at June 30, 1997, a decrease of $4.3 million.
OPERATING ACTIVITIES. Our net cash provided by operating activities was
$20.7 million in fiscal 1999; $53.0 million in 1998; and $72.6 million in 1997.
INVESTING ACTIVITIES. Our net cash provided by investing activities was
$841,000 in fiscal 1999. Net cash used in investing activities was $98.3 million
in fiscal 1998 and $195.5 million in fiscal 1997. During fiscal 1999, we
collected $54.6 million on a note receivable obtained during the prior year from
the sale of our undeveloped phosphate rock property in Florida. Our fiscal 1999
capital expenditures were $40.0 million, which included approximately $12.6
million related to the nitrogen expansion project at our Yazoo City,
Mississippi, facilities and approximately $6.4 million related to the potash
production expansion project at our Carlsbad, New Mexico, facilities. The
remaining $21.0 million was used for capital maintenance and normal improvements
and modifications to our facilities. Our capital expenditures were $96.5 million
in fiscal 1998 and $93.8 million in fiscal 1997. Fiscal 1999 included $5.0
million in disbursements, not yet reimbursed by insurance, for property damage
caused by Hurricane Georges. Cash invested in Farmland MissChem Limited was $3.4
million in fiscal 1999; $4.5 million in 1998; and $45.2 million in 1997. Our
fiscal 1997 investing activities included $56.1 million in costs associated with
the acquisition of the potash businesses in August 1996.
FINANCING ACTIVITIES. Our net cash used in financing activities was
$23.7 million in fiscal 1999. Net cash provided by financing activities was
$41.0 million in fiscal 1998 and $70.9 million in fiscal 1997. During the
current year, amounts used in our financing activities include $14.1 million for
the purchase of treasury stock and $10.6 million in cash dividends. These
amounts were partially offset by $1.0 million in
13
<PAGE> 14
net proceeds from borrowings. During fiscal 1998, amounts provided by our
financing activities included $60.2 million in net proceeds from borrowings.
These amounts were partially offset by $3.0 million paid for the purchase of
treasury stock, $10.9 million paid in cash dividends, and $5.2 million paid in
bond issuance costs. During fiscal 1997, amounts provided by our financing
activities included $99.3 million in net proceeds from borrowings, which were
partially offset by $18.9 million paid for the purchase of treasury stock and
$9.8 million paid in cash dividends.
We have unsecured revolving credit facilities totaling $200.0 million
with Harris Trust and Savings Bank and a syndicate of other commercial banks. At
June 30, 1999, $91.8 million was outstanding under these facilities. The
facilities, which have a five-year term, mature on November 25, 2002, and bear
interest at rates related to the Prime Rate, the London Interbank Offered Rate
or Federal Funds Rate.
CAPITAL PROJECTS. In late fiscal 1996, we began an expansion project at
our nitrogen fertilizer manufacturing facilities in Yazoo City, Mississippi,
which was originally estimated to cost $130.0 million. The project included the
addition of a 650-ton-per-day nitric acid plant, a 500-ton-per-day ammonia plant
and other modifications designed to increase our ammonium nitrate capacity. The
nitric acid plant phase was completed and placed in service in March 1998. The
ammonia plant phase was completed and placed in service in March 1999. We
completed certain modifications to our ammonium nitrate plant in July 1998,
increasing its capacity to 900,000 tons per year. Because of current market
conditions, we have decided not to implement additional modifications to the
plant (originally estimated to cost $13.0 million) that would increase ammonium
nitrate capacity by an additional 50,000 tons per year. The total cost paid to
date for this expansion project is $113.1 million.
In late fiscal 1998, we began an expansion project at our potash
facilities in Carlsbad, New Mexico, estimated to cost approximately $8.2
million. This expansion, completed at a total cost of $6.4 million and placed in
service during the third quarter of fiscal 1999, increased our red granular
potash production capacity from 445,000 to 545,000 tons per year and storage
capacities by 30,000 tons. We now have approximately 1,100,000 tons per year of
combined potash production capacity from our two operating mines.
SUMMARY. We believe that existing cash, cash generated from operations,
and available credit facilities will be sufficient to satisfy our financing
requirements for operations and capital projects through
14
<PAGE> 15
fiscal 2000 and the foreseeable future. We estimate our capital expenditure
requirements for fiscal 2000 to be approximately $25.8 million, which includes
normal improvements and modifications to our facilities. Minimum price payments
for our ammonia purchases from Farmland MissChem, made pursuant to the offtake
agreement, are expected to reduce our available cash in fiscal 2000.
QUARTERLY RESULTS
Our quarterly results reflect that significantly more fertilizer is
marketed in the spring. Therefore, in most years, a significant portion of our
net sales are generated in the spring planting season. Since quarterly results
are affected by the seasonal nature of our business, they are not indicative of
results expected for the full fiscal year. Quarterly results can also vary
significantly from one year to the next, primarily due to weather-related shifts
in planting schedules and purchase patterns. Additionally, we incur substantial
expenditures for fixed costs throughout the year and substantial expenditures
for inventory in advance of the spring planting season.
The following tables present our selected unaudited quarterly results
of operations for fiscal 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ending June 30, 1999
---------------------------------------------------------
(In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 104,715 $ 94,839 $ 140,604 $ 127,741
Operating income (loss) $ 10,990 $ 3,090 $ (5,986) $ 362
Net income (loss) $ 4,221 $ (485) $ (6,131) $ (1,212)
Earnings (loss) per share - basic (1) $ 0.16 $ (0.02) $ (0.23) $ (0.05)
Earnings (loss) per share - diluted (1) $ 0.16 $ (0.02) $ (0.23) $ (0.05)
Weighted average common
shares outstanding - basic 26,976 26,178 26,132 26,132
Weighted average common
shares outstanding - diluted 26,976 26,178 26,132 26,132
Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Common stock price range
- high $ 17.31 $ 16.56 $ 15.13 $ 10.75
- low $ 11.50 $ 11.00 $ 9.38 $ 8.13
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Year Ending June 30, 1998
---------------------------------------------------------
(In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 106,814 $ 113,634 $ 118,035 $ 155,232
Operating income $ 8,910 $ 3,725 $ 3,675 $ 21,626
Net income $ 4,297 $ 435 $ 443 $ 17,799
Earnings per share - basic (1) $ 0.16 $ 0.02 $ 0.02 $ 0.65
Earnings per share - diluted (1) $ 0.16 $ 0.02 $ 0.02 $ 0.65
Weighted average common
shares outstanding - basic 27,410 27,373 27,335 27,306
Weighted average common
shares outstanding - diluted 27,457 27,409 27,366 27,328
Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Common stock price range
- high $ 22.19 $ 20.13 $ 20.19 $ 20.06
- low $ 18.75 $ 16.75 $ 16.94 $ 15.06
</TABLE>
<TABLE>
<CAPTION>
Year Ending June 30, 1997
---------------------------------------------------------
(In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 86,218 $ 108,164 $ 136,506 $ 165,428
Operating income $ 14,740 $ 18,600 $ 20,093 $ 37,776
Net income $ 9,295 $ 12,093 $ 10,599 $ 23,828
Earnings per share - basic (1) $ 0.44 $ 0.56 $ 0.38 $ 0.86
Earnings per share - diluted (1) $ 0.44 $ 0.56 $ 0.38 $ 0.86
Weighted average common
shares outstanding - basic 21,242 21,506 27,926 27,613
Weighted average common
shares outstanding - diluted 21,293 21,598 28,022 27,673
Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Common stock price range
- high $ 23.38 $ 26.00 $ 27.25 $ 24.38
- low $ 17.75 $ 23.00 $ 23.13 $ 19.50
</TABLE>
(1) Quarterly amounts do not add to the annual earnings per share because of
changes in the number of outstanding shares during the year.
16
<PAGE> 17
Effective October 10, 1996, our common stock began trading on the New
York Stock Exchange under the symbol "GRO." Our shares had previously traded on
the NASDAQ Stock Market's National Market under the symbol "MISS." As of August
12, 1999, shareholders of record numbered approximately 12,234.
NEW ACCOUNTING PRONOUNCEMENTS
On July 1, 1998, we adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. Comprehensive
income is the total of net income and all other nonowner changes in equity. We
did not have any components of other comprehensive income during fiscal 1999,
1998 or 1997.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on accounting for these costs and requires that certain related
expenses be capitalized. This statement is effective for fiscal years beginning
after December 15, 1998. We do not expect the adoption of SOP 98-1 to have a
material effect on our financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 will require companies to expense, as
incurred, all costs associated with start-up activities. This pronouncement is
effective for fiscal years beginning after December 15, 1998. At June 30, 1999,
we had no unexpensed start-up costs and, therefore, the adoption of this
pronouncement will have no effect on our financial statements. During fiscal
1999, Farmland MissChem Limited adopted SOP 98-5 and expensed $4.3 million in
start-up costs as a cumulative effect of a change in an accounting principle.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards that require
all derivative instruments to be recorded on the balance sheet as either an
asset or liability and measured at fair value. This statement requires that
changes in the
17
<PAGE> 18
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires companies to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. This statement was amended by SFAS No. 137 in June 1999 to change
the effective date of implementation to fiscal years beginning after June 15,
2000. We anticipate that the primary impact of adoption will be the recognition
of unrealized gains or losses on open gas futures contracts as a component of
other comprehensive income.
MARKET RISK
We are exposed to market risk, including changes in interest rates and
natural gas prices. To manage the risks related to these exposures, we enter
into derivative transactions. We do not hold or issue derivative financial
instruments for trading purposes. We maintain formal policies with respect to
entering into and monitoring derivative transactions. The derivative
transactions are intended to hedge our future production and interest costs. For
more information about how we manage specific risk exposures, see Note 14 -
Hedging Activities, and Note 7 - Credit Agreements and Long-Term Debt, in our
Notes to Consolidated Financial Statements.
The table below provides information about our derivative instruments
and other financial instruments that are sensitive to changes in interest rates.
(Dollars in thousands, except interest rates)
<TABLE>
<CAPTION>
Maturity Date Fair Value
---------------------------------------------------------------- -----------------
2000 2001 2002 2003 2004 Thereafter Total 1999 1998
---- ---- ---- ---- ---- ---------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed rate
Principal amount (1) $ -- -- -- -- -- $214,500 $214,500 $195,786 $202,131
Weighted average
interest rate -- -- -- -- -- 7.15% 7.15%
Variable rate
Principal amount (1) -- -- -- $91,800 -- -- $ 91,800 $ 91,800 $ 90,700
Average interest rate (2) -- -- -- 6.07% -- -- 6.07%
Interest rate swaps
Weighted average
notional principal amount
outstanding (3) 36,570 $ (427) $ (704)
Fixed weighted average
pay rate 6.57%
Receive rate -
3 month LIBOR
</TABLE>
18
<PAGE> 19
(1) The fair value of our long-term debt represents the discounted future cash
flows of the instruments using current market rates.
(2) The average interest rate was based on June 30, 1999, variable rates.
Actual rates could differ.
(3) The fair value of our interest rate swaps represents the amount that would
have to be paid by us as of June 30, 1999 and 1998, to terminate the swap
agreements.
At June 30, 1998, we had a note receivable in the amount of $54.6
million related to the sale of our undeveloped phosphate rock property in
Florida. In August 1998, this note was paid in full. At June 30, 1999, we
believe that the fair value of our fixed rate, long-term debt has decreased from
June 30, 1998, as a result of increases in interest rates during the year.
We use natural gas futures contracts to reduce the impact of changes in
natural gas prices. A sensitivity analysis was prepared to estimate our market
risk exposure arising from these instruments. The fair value of open contracts
was 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
market prices. We estimate that this adverse change in prices would have reduced
the fair value of open contracts by $2.7 million at June 30, 1999, and $6.3
million at June 30, 1998.
YEAR 2000
Through our Year 2000 Committee ("Y2K Committee"), made up of
management personnel from various departments, we have made substantial progress
in evaluating and addressing the effect of Year 2000-related issues on our
operations. The Y2K Committee's efforts to date have included (i) identifying,
overseeing and tracking the cost of remediation work to our computer systems
necessary to achieve Year 2000 readiness; (ii) assessing Year 2000-related
exposures in the event that one or more of our computer systems, or any of our
vendors, customers or creditors, experience a Year 2000-related problem; and
(iii) developing a contingency plan in the event that our efforts to identify
and correct Year 2000-related problems are not successful.
The Y2K Committee believes it has identified all remediation work
necessary for our computer systems to be Year 2000 ready. The majority of such
work has been accomplished. We anticipate that the remaining remediation work
will be concluded by October 1999, with the exception of a routine conversion of
one plant control system which will not be finished until November 1999 in order
to allow the work to coincide with a scheduled plant maintenance outage. To
date, we have expended less than
19
<PAGE> 20
$200,000 on Year 2000-related projects. Total Year 2000-related project costs
are not expected to exceed $600,000.
Although the assessment of the Year 2000 readiness of our vendors,
customers and creditors is substantially complete, we continue to monitor the
efforts of certain third parties. At this time, we do not expect to be
materially affected by any Year 2000-related problem experienced by our vendors,
customers or creditors. However, despite our best efforts, and since the Year
2000 readiness of any third party is outside our control, there is no guarantee
or assurance that we will not be materially impacted by a third party's failure
to adequately address Year 2000-related issues.
We could sustain what is expected to be nonmaterial operational
inconveniences and inefficiencies and/or be involved in nonmaterial business
disputes as a result of Year 2000-related failures. A contingency plan developed
with the assistance of an outside consultant was finalized in July 1999 and will
be implemented in the event we experience Year 2000 problems that are related to
either our or a third party's computer system. The Y2K Committee believes that
the contingency plan will minimize any adverse effect to us arising from a Year
2000-related problem.
The above reference to Year 2000 issues, even if incorporated by
reference into other documents or disclosures, is a Year 2000 Readiness
Disclosure as defined under the Year 2000 Information and Readiness Disclosure
Act of 1998.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussion contained herein,
statements set forth in this report constitute "forward-looking statements."
Since these forward-looking statements rely on a number of assumptions
concerning future events, risks and other uncertainties that are beyond our
ability to control, readers are cautioned that actual results may differ
materially from such forward-looking statements. Future events, risks and
uncertainties that could cause a material difference in such results include,
but are not limited to, (i) the relative unpredictability of international and
local economic conditions, (ii) changes in matters which affect the supply and
demand of fertilizer products, (iii) weather, (iv) the volatility of the natural
gas market, (v) environmental regulation, (vi) price competition from both
domestic and international competitors, (vi) possible unscheduled plant outages
and other operating difficulties, and (vii) other
20
<PAGE> 21
important factors affecting the fertilizer industry and us as detailed under
"Outlook and Uncertainties" and elsewhere in our most recent Annual Report on
Form 10-K which is on file with the Securities and Exchange Commission.
21
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
the Shareholders of
Mississippi Chemical Corporation:
We have audited the accompanying consolidated balance sheets of Mississippi
Chemical Corporation (a Mississippi corporation) and subsidiaries (collectively,
the "Company") as of June 30, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for the three years
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Farmland MissChem Limited, an investment which is reflected in the
accompanying consolidated financial statements using the equity method of
accounting. The investment in Farmland MissChem Limited represents 7.5 percent
and 6.9 percent of total assets as of June 30, 1999 and 1998, respectively. The
statements of Farmland MissChem Limited were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Farmland MissChem Limited, is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Mississippi Chemical Corporation and subsidiaries as
of June 30, 1999 and 1998, and the results of their operations and their cash
flows for the three years ended June 30, 1999, in conformity with generally
accepted accounting principles.
Memphis, Tennessee,
July 28, 1999.
23
<PAGE> 23
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) June 30
----------------------
ASSETS 1999 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,648 $ 3,857
Accounts receivable (less allowances of $2,043 and $1,989) 43,780 51,532
Inventories 76,924 65,429
Income tax receivable 18,189 --
Insurance receivable 11,310 --
Prepaid expenses and other current assets 3,622 6,636
Deferred income taxes 3,286 3,767
Note receivable due within one year -- 9,500
--------- ---------
Total current assets 158,759 140,721
INVESTMENTS IN AFFILIATES 77,020 73,073
NOTE RECEIVABLE -- 45,125
OTHER ASSETS 19,263 16,227
PROPERTY, PLANT AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION 472,084 460,841
GOODWILL, NET OF ACCUMULATED AMORTIZATION 171,762 176,345
--------- ---------
$ 898,888 $ 912,332
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt due within one year $ -- $ 114
Accounts payable 60,935 58,089
Accrued liabilities 13,460 15,156
Income taxes payable -- 3,276
--------- ---------
Total current liabilities 74,395 76,635
LONG-TERM DEBT 305,857 304,705
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 17,617 17,481
DEFERRED INCOME TAXES 80,791 64,986
COMMITMENTS AND CONTINGENCIES (SEE NOTES 4, 10, 14, 19, 20 AND 21)
SHAREHOLDERS' EQUITY:
Common stock ($.01 par; authorized 100,000,000 shares;
issued 27,975,936) 280 280
Additional paid-in capital 305,901 305,901
Retained earnings 143,626 157,800
Treasury stock, at cost (1,844,019 and 735,719 shares) (29,579) (15,456)
--------- ---------
Total shareholders' equity 420,228 448,525
--------- ---------
$ 898,888 $ 912,332
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
24
<PAGE> 24
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Years Ended June 30
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Net sales $ 467,899 $ 493,712 $ 496,316
Trading loss on brokered product -- (820) (57)
--------- --------- ---------
467,899 492,892 496,259
OPERATING EXPENSES:
Cost of products sold 420,604 417,506 372,258
Selling, general and administrative 38,840 37,450 32,792
--------- --------- ---------
459,444 454,956 405,050
--------- --------- ---------
OPERATING INCOME 8,455 37,936 91,209
OTHER (EXPENSE) INCOME:
Interest, net (19,005) (10,948) (4,331)
Gain on involuntary conversion of property 5,737 -- --
Other 1,043 12,315 3,709
--------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (3,770) 39,303 90,587
INCOME TAX (BENEFIT) EXPENSE (162) 16,329 34,772
--------- --------- ---------
NET (LOSS) INCOME $ (3,608) $ 22,974 $ 55,815
========= ========= =========
(LOSS) EARNINGS PER SHARE - BASIC $ (0.14) $ 0.84 $ 2.29
========= ========= =========
(LOSS) EARNINGS PER SHARE - DILUTED $ (0.14) $ 0.84 $ 2.29
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
25
<PAGE> 25
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands) Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1996 $ 229 $ 178,364 $ 99,814 $ (30,582) $ 247,825
Net income -- -- 55,815 -- 55,815
Cash dividends paid -- -- (9,802) -- (9,802)
Treasury stock, net -- 56 -- (18,753) (18,697)
Stock options exercised -- 203 -- -- 203
Stock issued for business
acquired 51 127,278 -- 36,756 164,085
--------- --------- --------- --------- ---------
BALANCES, JUNE 30, 1997 280 305,901 145,827 (12,579) 439,429
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 loss -- -- (3,608) -- (3,608)
Cash dividends paid -- -- (10,566) -- (10,566)
Treasury stock, net -- -- -- (14,123) (14,123)
--------- --------- --------- --------- ---------
BALANCES, JUNE 30, 1999 $ 280 $ 305,901 $ 143,626 $ (29,579) $ 420,228
========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
26
<PAGE> 26
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended June 30
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,608) $ 22,974 $ 55,815
Reconciliation of net (loss) income to net cash
provided by operating activities:
Net change in operating assets and liabilities (30,781) (4,781) (9,423)
Depreciation, depletion and amortization 42,400 37,228 27,980
Deferred income taxes 16,286 5,958 562
Gain on involuntary conversion of property (5,737) -- --
Gain on sale of phosphate rock property -- (10,867) --
Other 2,093 2,506 (2,322)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,653 53,018 72,612
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (39,970) (96,496) (93,816)
Investment in Farmland MissChem Limited (3,358) (4,508) (45,165)
Collection on note receivable 54,625 -- --
Disbursements for property damaged by
hurricane, net of insurance proceeds (4,954) -- --
Acquisition of potash businesses -- -- (56,098)
Other (5,502) 2,727 (449)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 841 (98,277) (195,528)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt payments (513,364) (564,742) (390,945)
Debt proceeds 514,350 624,905 490,290
Purchase of treasury stock (14,123) (3,027) (18,885)
Cash dividends paid (10,566) (10,948) (9,802)
Bond issuance costs -- (5,231) --
Proceeds from issuance of common stock -- -- 203
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (23,703) 40,957 70,861
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,209) (4,302) (52,055)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,857 8,159 60,214
--------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,648 $ 3,857 $ 8,159
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
27
<PAGE> 27
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of
Mississippi Chemical Corporation and its subsidiaries (collectively, the
"Company"). All material intercompany transactions and balances have been
eliminated.
The Company produces and supplies a full product line of chemicals, including
nitrogen, phosphate and potash, which are used primarily as fertilizers and for
a broad range of industrial applications. The Company's principal nitrogen
products include ammonia, fertilizer-grade ammonium nitrate, UAN solutions, and
urea. The Company currently produces nitrogen products at its production
facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana, and
produces ammonia at its 50-50 joint venture in The Republic of Trinidad and
Tobago. The Company distributes its nitrogen products to agricultural and
industrial users primarily in the southern region of the United States. The
Company produces diammonium phosphate ("DAP") at its facilities in Pascagoula,
Mississippi, and through the Phosphate Chemicals Export Association, Inc.
("PhosChem"), exports the majority of its production. The Company's mines and
related facilities near Carlsbad, New Mexico, produce the Company's potash
products. The majority of the Company's agricultural potash sales are in
domestic markets in states west of the Mississippi River. In addition, the
Company produces several grades of potash that are purchased as a raw material
by industrial users.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost has been determined
under a moving average cost method.
INVESTMENTS IN AFFILIATES
The Company's investments in affiliates primarily consist of an investment in a
50-50 ammonia production joint venture, Farmland MissChem Limited ("Farmland
MissChem"), with Farmland Industries, Inc. (see Note 4). During fiscal 1998, the
Company and Farmland Industries, Inc., also formed a separate 50-50 joint
venture that is responsible for the transportation of the ammonia produced at
Farmland MissChem. The Company also has a 50% interest in an ammonia storage
terminal in Pasadena, Texas (see Note 2), acquired as part of its acquisition of
the fertilizer assets of First Mississippi in December 1996.
28
<PAGE> 28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation,
depletion and amortization. Expenditures for major improvements are capitalized;
expenditures for normal maintenance and repairs are charged to expense as
incurred. Upon the sale or retirement of properties, the cost and accumulated
depreciation and amortization are removed from the accounts, and any resulting
gain or loss is recognized in income. The Company uses primarily the
declining-balance method of depreciation for assets purchased through June 30,
1995. Effective July 1, 1995, the Company changed its method of depreciating
newly acquired long-lived assets from the declining-balance method to the
straight-line method. Depletion of mineral properties is provided using the
units-of-production method over the estimated life of the reserves. Depreciation
of property, plant and equipment is provided over the estimated useful lives of
the related assets as follows:
Buildings 3-45 years
Machinery and equipment 2-30 years
Interest costs attributable to major construction projects under development are
capitalized in the appropriate property account and amortized over the life of
the related asset.
The Company maintains spare parts at its production facilities in order to
minimize downtime in the event of a part failure. All parts that exceed a
minimum value and are repairable are capitalized as property, plant and
equipment and are depreciated over their estimated useful lives. Parts that do
not exceed the minimum value or are not repairable are maintained as replacement
parts and are included as inventory in the Company's current assets. These
replacement parts are charged to cost of products sold as they are installed in
the facilities.
GOODWILL
Goodwill represents the excess of cost over the fair value of the net assets
acquired by the Company in its December 1996 acquisition of the fertilizer
operations of First Mississippi Corporation ("First Mississippi"). Goodwill is
amortized on a straight-line basis over 40 years. Accumulated amortization was
$11,556,000 and $6,973,000 at June 30, 1999 and 1998, respectively.
REVENUE RECOGNITION
Revenues are recognized as product is sold and title transfers to the customer.
HEDGING ACTIVITIES
The Company enters into futures contracts to protect future production costs
against price fluctuations of natural gas, which is a key raw material in
nitrogen production. At the time the futures contracts are closed and the
related natural gas is purchased, the Company records a gain or loss from the
change in market value of such contracts as a component of cost of products
sold.
The Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate long-term debt. Those agreements
effectively change the Company's interest rate exposure on a portion of its
credit facilities from a variable rate to a fixed rate.
29
<PAGE> 29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INCOME TAXES
Deferred tax assets and liabilities are recorded based on the difference between
the financial statement and income tax basis of assets and liabilities using
existing tax rates.
COMPREHENSIVE INCOME
On July 1, 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. Comprehensive
income is the total of net income and all other non-owner changes in equity. The
Company did not have any components of other comprehensive income during fiscal
1999, 1998 or 1997.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance
on accounting for these costs and requires that certain related expenses be
capitalized. This statement is effective for fiscal years beginning after
December 15, 1998. The Company does not expect the adoption of SOP 98-1 to have
a material effect on its consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 will require companies to expense, as incurred, all costs
associated with start-up activities. This pronouncement is effective for fiscal
years beginning after December 15, 1998. At June 30, 1999, the Company had no
unexpensed start-up costs and, therefore, the adoption of this pronouncement
will have no effect on its consolidated financial statements (see Note 4
regarding adoption of SOP 98-5 by Farmland MissChem).
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards that require all derivative
instruments to be recorded on the balance sheet as either an asset or liability
and measured at fair value. This statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires companies to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. This statement was amended by SFAS No. 137 in June 1999 to change
the effective date of implementation to fiscal years beginning after June 15,
2000. The Company anticipates that the primary impact of adoption will be the
recognition of unrealized gains or losses on open gas futures contracts as a
component of other comprehensive income.
30
<PAGE> 30
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RECLASSIFICATIONS
The Company has reclassified certain prior year information to conform to the
current year's presentation.
NOTE 2 - ACQUISITIONS:
NITROGEN
On December 24, 1996, the Company acquired the fertilizer operations of First
Mississippi in an all-stock merger transaction. This transaction was accounted
for by the purchase method of accounting. According to the terms of the merger,
the Company issued approximately 6,902,000 shares of its common stock to former
First Mississippi shareholders. Additionally, at closing, First Mississippi's
fertilizer businesses had $150,500,000 in outstanding debt that was assumed by
the Company.
The fertilizer operations of First Mississippi included AMPRO Fertilizer, Inc.
("AMPRO") and a 50% interest in Triad Chemical. Prior to the transaction, the
Company held the remaining 50% interest in Triad Chemical, which owned and
operated an anhydrous ammonia plant with an annual production of approximately
465,000 tons, and a urea plant with an annual production of approximately
560,000 tons. AMPRO owned and operated an anhydrous ammonia plant with annual
production of approximately 615,000 tons. AMPRO and Triad are located on
adjacent sites in Donaldsonville, Louisiana. In the transaction, the Company
also acquired a 50% interest in an ammonia storage terminal in Pasadena, Texas,
and a 50% interest in a company that owns and operates eleven ammonia barges. In
March 1997, the Company purchased the other 50% interest in the barge company
for $3,824,000.
Allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Property, plant and equipment $151,407
Goodwill 180,655
Other assets/liabilities acquired, net 19,189
Deferred income taxes (41,931)
--------
$309,320
========
</TABLE>
Additionally, the Company incurred approximately $2,663,000 in transaction costs
and other related fees associated with the acquisition. The Company recorded
these amounts as goodwill.
POTASH
In August 1996, the Company, through two subsidiaries of its wholly owned
subsidiary, Mississippi Potash, Inc., acquired substantially all of the assets
of New Mexico Potash Corporation and Eddy Potash, Inc. ("Eddy") from
Trans-Resources, Inc., for $45,000,000, plus an adjustment for working capital
of approximately $11,000,000. This acquisition was accounted for by the purchase
method of accounting with the purchase price being principally allocated to
property, plant and equipment. In December 1996, New Mexico Potash Corporation
was merged into Mississippi Potash, Inc. Eddy operates as a wholly owned
subsidiary of Mississippi Potash, Inc. In December 1997, the Eddy mine suspended
its production operations. This suspension of operations did not have a material
impact on the financial position or results of operations of the Company.
31
<PAGE> 31
NOTE 3 - INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30
-----------------
1999 1998
------- -------
<S> <C> <C>
Finished products $33,061 $24,959
Raw materials and supplies 7,993 5,894
Replacement parts 35,870 34,576
------- -------
$76,924 $65,429
======= =======
</TABLE>
NOTE 4 - INVESTMENT IN FARMLAND MISSCHEM LIMITED:
The Company's 50-50 joint venture, Farmland MissChem, has constructed a
2,040-short-ton-per-day anhydrous ammonia plant located near Point Lisas, The
Republic of Trinidad and Tobago. The plant was placed in service in late July
1998. The Company has a contractual obligation to purchase one-half of the
ammonia, approximately 350,000 short tons per year, produced by Farmland
MissChem. The Company uses its portion of the production from the new facility
as a raw material for upgrading into finished fertilizer products at its
existing facilities and for sales into world markets. The Company is accounting
for its investment in Farmland MissChem using the equity method. At June 30,
1999, the Company's investment in Farmland MissChem was $67,318,000 and included
$6,884,000 of capitalized interest. At June 30, 1998, the Company's investment
in Farmland MissChem was $62,794,000 and included $6,846,000 of capitalized
interest. Capitalized interest is being amortized over a 20-year period and
represents a basis difference in the Company's investment reflected in its
consolidated financial statements and its 50% equity reflected in Farmland
MissChem's financial statements. Farmland MissChem's financial position as of
June 30, 1999 and 1998, and its results of operations for the fiscal year ended
June 30, 1999, are summarized below:
Summarized Balance Sheet Information:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Current assets $ 31,414 $ 6,295
Non-current assets 306,779 306,939
Current liabilities 31,250 6,226
Non-current liabilities 186,075 195,111
Shareholders' equity 120,868 111,897
</TABLE>
Summarized Statement of Income Information:
<TABLE>
<CAPTION>
Year Ended
June 30
(Dollars in thousands) 1999
----------
<S> <C>
Revenues $57,818
Gross profit 17,213
Income from continuing operations
before cumulative effect of change in
accounting principle 7,315
Net income 2,992
</TABLE>
On July 1, 1998, Farmland MissChem adopted SOP 98-5, which requires companies to
expense, as incurred, all costs associated with start-up activities. Farmland
MissChem expensed $4,323,000 in start-up costs as a cumulative effect of a
change in accounting principle in its fiscal 1999 statement of income related to
the pronouncement.
32
<PAGE> 32
NOTE 5 - NOTE RECEIVABLE:
In April 1998, the Company sold the remaining portion of its undeveloped
phosphate rock property in Hardee County, Florida. This property was sold for
$57,000,000, and was paid in the form of an initial cash payment of $2,375,000
and a note for $54,625,000, which was secured by a mortgage on the property. The
note, which carried an interest rate of 6.07% at June 30, 1998, was subject to
prepayment and, in August 1998, was paid in full. As a result of the sale of the
land, the Company recorded a net pre-tax gain of $10,867,000 as a component of
other income in its fiscal 1998 consolidated statement of income.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Mineral properties $ 42,266 $ 42,013
Land 7,797 8,042
Buildings 50,162 48,091
Machinery and equipment 707,836 599,355
Construction in progress 27,245 97,831
--------- ---------
835,306 795,332
Less accumulated depreciation,
depletion and amortization (363,222) (334,491)
--------- ---------
$ 472,084 $ 460,841
========= =========
</TABLE>
In March 1999, the Company completed the final phase of an expansion project at
its nitrogen fertilizer manufacturing facilities in Yazoo City at a cost of
approximately $113,077,000. The project included the addition of a
650-ton-per-day nitric acid plant, a 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 certain
modifications to its ammonium nitrate plant in July 1998. The ammonia plant was
completed and placed in service in March 1999.
NOTE 7 - CREDIT AGREEMENTS AND LONG-TERM DEBT:
At June 30, 1999 and 1998, the Company and its subsidiaries had unsecured
revolving credit facilities with Harris Trust and Savings Bank ("Harris") and a
syndicate of other commercial banks totaling $200,000,000. These facilities have
a five-year term and mature on November 25, 2002, and bear interest at rates
related to the prime rate, the London Interbank Offered Rate or Federal Funds
Rate. At June 30, 1999 and 1998, there were outstanding borrowings of
$91,800,000 and $90,700,000, respectively, under these facilities.
On November 25, 1997, the Company issued $200,000,000 of 7.25% Senior Notes (the
"Notes"), due November 15, 2017. The holders may elect to have the Notes repaid
on November 15, 2007. The Notes were issued under a $300,000,000 shelf
registration statement filed with the Securities and Exchange Commission in
November 1997. The net proceeds from the issuance totaled $194,800,000 and were
used to repay a portion of the outstanding indebtedness under the Company's
unsecured revolving credit facilities.
33
<PAGE> 33
NOTE 7 - CREDIT AGREEMENTS AND LONG-TERM DEBT (CONTINUED):
In August 1997, the Company issued $14,500,000 in industrial revenue bonds, a
portion of which were tax-exempt, to finance the development of a new
phosphogypsum disposal facility at its Pascagoula, Mississippi, DAP
manufacturing plant. On April 1, 1998, the Company issued $14,500,000 in fully
tax-exempt industrial revenue bonds, the proceeds of which were used to redeem
the initial industrial revenue bonds issued in August 1997. The bonds issued on
April 1, 1998, mature on March 1, 2022, and carry a 5.8% fixed rate. The bonds
may be redeemed at the Company's option at a premium from March 1, 2008, to
February 28, 2010, and may be redeemed at face value at any time after February
28, 2010, through the maturity date.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Unsecured revolving credit facilities
(1999 - 6.07%; 1998 - 6.66%) $ 91,800 $ 90,700
Senior notes, net of unamortized discount
of $443 and $495 (7.25%) 199,557 199,505
Industrial revenue bonds (5.8%) 14,500 14,500
Other -- 114
--------- ---------
305,857 304,819
Long-term debt due within one year -- (114)
--------- ---------
$ 305,857 $ 304,705
========= =========
</TABLE>
The estimated fair value of the Company's long-term debt, including current
maturities at June 30, 1999 and 1998, was $287,586,000 and $292,831,000,
respectively, and was computed using an interest rate equal to 2% above the
effective yield on U.S. Treasury Notes with similar maturities for the Company's
Senior Notes, and the effective yield on state and local bonds for the Company's
industrial revenue bonds. The Company's revolving credit facilities carry
variable interest rates and, therefore, the balances at June 30, 1999 and 1998
are at fair value.
The Company's credit facilities with Harris have covenants that require, among
other things, that the Company maintain specified levels of tangible net worth,
cash flow to interest expense and debt to cash flow as defined in the credit
agreement. As of June 30, 1999, the Company was in compliance with all
covenants, as amended, under its facilities.
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating rate long-term debt. At June 30,
1999 and 1998, the Company had outstanding interest rate swap agreements (the
"Agreements") with commercial banks having total notional principal amounts of
$40,700,000 and $50,000,000, respectively. Those Agreements effectively change
the Company's interest rate exposure on a portion of its unsecured revolving
credit facilities from a variable rate to a fixed rate. The Agreements mature in
fiscal 2000, and provide for notional amounts varying from a minimum of
$33,650,000 to a maximum of $50,000,000. The fair value, which represents the
estimated cost to terminate the agreements, was $427,000 and $704,000,
respectively, at June 30, 1999 and 1998.
34
<PAGE> 34
NOTE 8 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Other long-term liabilities and deferred credits consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30
-----------------
1999 1998
------- -------
<S> <C> <C>
Accrual for closure of gypsum disposal area $ 8,803 $ 9,330
Other 8,814 8,151
------- -------
$17,617 $17,481
======= =======
</TABLE>
The Company anticipates beginning the closure of its existing phosphogypsum
disposal facility located at Pascagoula, Mississippi, during calendar year 2000.
Closure costs are being accrued over the estimated life of the disposal facility
using the units-of-production method. Amounts accrued are recorded as a
component of cost of products sold in the accompanying consolidated statements
of income. The Company will continue to utilize the existing facility through
December 2000, at which time the new phosphogypsum disposal facility will be
fully operational. The new disposal facility was completed in August 1998, at a
cost of approximately $18,000,000.
NOTE 9 - SHAREHOLDERS' EQUITY:
At June 30, 1999, the Company had 100,000,000 authorized shares of common stock
at a par value of $.01.
Common stock issued and outstanding consisted of the following:
<TABLE>
<CAPTION>
(Shares in thousands) Common
Stock
------
<S> <C>
Shares outstanding, June 30, 1996 21,353
Treasury stock issued for business acquired 1,545
Stock issued for business acquired 5,357
Stock options exercised 12
Stock reissued 8
Purchase of treasury stock (865)
------
Shares outstanding, June 30, 1997 27,410
Stock reissued 6
Purchase of treasury stock (176)
------
Shares outstanding, June 30, 1998 27,240
Purchase of treasury stock (1,108)
------
Shares outstanding, June 30, 1999 26,132
======
</TABLE>
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.
During fiscal 1999, the Company repurchased 1,108,300 shares bringing the total
shares repurchased pursuant to these authorizations to 3,700,009 at June 30,
1999. The unused authorization to repurchase 4,299,991 shares remains available
to the Company. These treasury stock purchases were funded from cash provided by
operations and from borrowings under the Company's revolving credit facilities.
The Company's Articles of Incorporation authorize the Board of Directors, at its
discretion, to issue up to 500,000 shares of Preferred Stock, par value $.01 per
share. The stock is issuable in classes or series that may vary as to certain
rights and preferences. As of June 30, 1999, none of these shares were
outstanding.
35
<PAGE> 35
NOTE 10 - STOCK OPTIONS:
In August 1994, the Board of Directors adopted a stock incentive plan for
certain officers and key employees of the Company, and in July 1995, adopted a
stock option plan for nonemployee directors of the Company. Both plans were
approved by the Company's shareholders at its annual meeting held in November
1995. Options may be granted under the provisions of the Company's plans to
purchase common stock of the Company at a price not less than the fair market
value on the date of grant. Stock options for officers and key employees are
exercisable six months from the date of grant. Stock options for nonemployee
directors become exercisable in installments beginning one year after the date
of grant and become fully exercisable six years after the date of grant. All
options expire 10 years from the date of grant. At June 30, 1999, 1998 and 1997,
exercisable options were 890,326; 676,180 and 490,489, respectively. There were
approximately 713,000 shares available for option plan grants at June 30, 1999.
The summary of stock option activity is shown below:
<TABLE>
<CAPTION>
Options Weighted Average
Outstanding Exercise Price
----------- ----------------
<S> <C> <C>
June 30, 1996 396,104 $ 19.99
Stock options granted 174,576 $ 20.00
Stock options exercised (12,091) $ 16.68
Stock options canceled -- --
-------
June 30, 1997 558,589 $ 20.06
Stock options granted 200,625 $ 20.82
Stock options exercised -- --
Stock options canceled -- --
-------
June 30, 1998 759,214 $ 20.26
Stock options granted 216,000 $ 16.24
Stock options exercised -- --
Stock options canceled -- --
-------
June 30, 1999 975,214 $ 19.37
=======
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Exercise Price Options Weighted Average Weighted Average Exercise
Range Outstanding Remaining Contractual Life Price
- --------------- ----------- -------------------------- -------------------------
<S> <C> <C> <C>
$15.00 - $16.44 393,014 7.3 $15.71
$18.22 - $21.00 361,796 7.7 $20.55
$23.96 220,404 6.4 $23.96
</TABLE>
During fiscal 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which requires companies to estimate the fair value
of stock options on the date of grant. Under SFAS No. 123, the Company is
required to record the estimated fair value of stock options issued as
compensation expense in its consolidated statements of income over the related
service periods or, alternatively, continue to apply accounting methodologies as
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and disclose the pro forma effects of the
estimated fair value of stock options issued in the accompanying footnotes to
its consolidated financial statements. The determination of fair value is only
required for stock options issued beginning in fiscal 1996. In adopting SFAS No.
123, the Company decided to continue to follow the accounting methodologies as
prescribed by APB Opinion No. 25.
36
<PAGE> 36
NOTE 10 - STOCK OPTIONS (CONTINUED):
The pro forma effects of the total compensation expense that would have been
recognized under SFAS No. 123 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) June 30
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net (loss) income
As reported $(3,608) $22,974 $55,815
Pro forma $(4,420) $22,141 $55,015
(Loss) earnings per share - basic
As reported $ (0.14) $ 0.84 $ 2.29
Pro forma $ (0.17) $ 0.81 $ 2.26
(Loss) earnings per share - diluted
As reported $ (0.14) $ 0.84 $ 2.29
Pro forma $ (0.17) $ 0.81 $ 2.25
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
In adopting SFAS No. 123, the Company utilized the Black-Scholes Option Pricing
Model to estimate the fair value of stock options granted using the following
assumptions:
<TABLE>
<CAPTION>
Years Ended June 30
-----------------------------------
1999 1998 1997
-------- ------ --------
<S> <C> <C> <C>
Expected option lives 6 years 6 years 6 years
Risk-free interest rates 5.80% 5.47% 6.06%
Expected dividend yield 2.33% 1.99% 1.94%
Expected volatility 33% 33% 33%
</TABLE>
Based on the results of the model, the fair value of the stock options issued on
the date of grant are as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Grant Date
Years Issued Fair Value per Option
- ----- ------- ---------------------
<C> <C> <C>
1999 216,000 $6.00
1998 200,625 $6.64
1997 174,576 $7.35
</TABLE>
37
<PAGE> 37
NOTE 11 - EARNINGS PER SHARE:
In December 1997, the Company adopted SFAS No. 128, "Earnings per Share," which
changes the methodology by which companies compute earnings per share. Under
SFAS No. 128, basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period, including the dilutive
common share equivalents arising from stock options using the treasury stock
method. For the Company, diluted earnings per share are not significantly
different from basic earnings per share. In the accompanying consolidated
financial statements, all prior periods have been restated to reflect the impact
of adopting SFAS No. 128.
The number of shares used in the Company's basic and diluted earnings per share
computations are as follows:
<TABLE>
<CAPTION>
(Shares in thousands) Years Ended June 30
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding,
net of treasury shares, for basic earnings per share 26,392 27,355 24,329
Common stock equivalents for employee stock options -- 35 75
------ ------ ------
Weighted average common shares outstanding for
diluted earnings per share 26,392 27,390 24,404
====== ====== ======
</TABLE>
Options outstanding at June 30, 1999, were not included in the computation of
diluted earnings per share as a result of the options' exercise prices being
greater than the average market price for common shares and, therefore, not
dilutive.
NOTE 12 - SEGMENT INFORMATION:
The Company's reportable operating segments are strategic business units that
offer different products and services. They are managed separately because each
business unit requires different technology and marketing strategies. As of June
30, 1999, the Company had three reportable segments: Nitrogen, Phosphates and
Potash. The Nitrogen segment produces ammonia, ammonium nitrate, urea, nitrogen
solutions and nitric acid and distributes these products to fertilizer dealers
and distributors and industrial users. The Phosphates segment produces DAP that
is marketed to agricultural users primarily in international markets through a
separate export association. The Potash segment mines and produces granular,
coarse and standard potash products and distributes them to agricultural and
industrial users.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. All intersegment sales prices are
market-based. The Company evaluates performance based on net income of the
respective business units.
Segment information consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1999
-----------------------------------------------------------
Nitrogen Phosphates Potash Eliminations Total
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales - external customers $ 245,394 $ 136,588 $ 85,917 $ -- $ 467,899
Net sales - intersegment 20,810 76 -- (20,886) --
Operating (loss) income (20,982) 16,660 12,416 361 8,455
Interest expense, net 10,656 3,257 5,092 -- 19,005
Income tax (benefit) expense (10,337) 7,386 2,654 135 (162)
Depreciation, depletion and amortization 31,945 4,823 5,632 -- 42,400
Capital expenditures 23,271 3,816 12,883 -- 39,970
Total assets 814,412 100,037 112,134 (127,695) 898,888
</TABLE>
38
<PAGE> 38
NOTE 12 - SEGMENT INFORMATION (CONTINUED):
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Nitrogen Phosphates Potash Eliminations Total
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales - external customers $ 278,781 $ 125,185 $ 89,746 $ -- $ 493,712
Net sales - intersegment 21,868 49 -- (21,917) --
Operating income 22,500 5,277 10,003 156 37,936
Interest expense, net 2,762 1,983 6,203 -- 10,948
Income tax expense 13,701 1,361 1,402 (135) 16,329
Depreciation, depletion and amortization 27,678 3,844 5,706 -- 37,228
Capital expenditures 61,859 28,958 5,679 -- 96,496
Total assets 849,745 82,272 104,198 (123,883) 912,332
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Nitrogen Phosphates Potash Eliminations Total
--------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales - external customers $ 288,881 $ 126,472 $ 80,963 $ -- $ 496,316
Net sales - intersegment 8,978 33 -- (9,011) --
Operating income 80,727 9,788 694 -- 91,209
Interest (income) expense, net (2,686) 1,092 5,925 -- 4,331
Income tax expense (benefit) 33,598 3,301 (2,127) -- 34,772
Depreciation, depletion and amortization 18,792 3,349 5,839 -- 27,980
Capital expenditures 76,963 9,893 6,960 -- 93,816
Total assets 813,007 56,370 108,972 (119,804) 858,545
</TABLE>
The following summarizes geographic information about the Company's net sales:
<TABLE>
<CAPTION>
(Dollars in thousands)
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States $451,602 $478,112 $474,127
Other 16,297 15,600 22,189
-------- -------- --------
$467,899 $493,712 $496,316
======== ======== ========
</TABLE>
Effective October 1, 1997, the Company became a member of PhosChem, a
Webb-Pomerene corporation. Since becoming a member, all of the Company's
phosphates segment sales into export markets, primarily Asia, are made through
PhosChem. The Company ended its exclusive DAP marketing agreement with Atlantic
Fertilizer & Chemical Corporation, who was the exclusive distributor of DAP
produced by the Company's Pascagoula, Mississippi, facilities prior to October
1, 1997. During fiscal 1999, 1998 and 1997, sales to the Company's exclusive
export distributors were $86,306,000, $98,145,000 and $119,412,000,
respectively, and were recorded as domestic sales by the Company. The Company
had no other customers that represented ten percent or more of its revenues
during fiscal 1999, 1998 or 1997.
At June 30, 1999, 1998 and 1997, the Company had an investment in a 50-50 joint
venture anhydrous ammonia plant located in The Republic of Trinidad and Tobago
which amounted to $67,318,000, $62,794,000 and $58,286,000, respectively. All
other long-lived assets of the Company are located in the United States.
A significant portion of the Company's trade receivables is due from entities
that operate in the chemical fertilizer and farm supply industry. A severe
downturn in the agricultural economy could have an adverse impact on the
collectibility of those receivables.
39
<PAGE> 39
NOTE 13 - TRADING LOSS ON BROKERED PRODUCT:
The Company began brokering ammonia in the open market following the First
Mississippi acquisition. During fiscal 1998 and 1997, the Company brokered
approximately 142,000 and 177,000 short tons of ammonia, respectively. Fiscal
1998 brokered ammonia sales of $18,494,000 and purchases of $19,314,000 resulted
in an $820,000 net trading loss. Fiscal 1997 brokered ammonia sales of
$32,287,000 and purchases of $33,210,000 resulted in a $57,000 net loss after
certain purchase price adjustments associated with the First Mississippi
acquisition. These trading losses have been reflected in the accompanying
consolidated statements of income. The Company did not engage in any brokering
activities during fiscal 1999.
NOTE 14 - HEDGING ACTIVITIES:
During fiscal 1999, natural gas hedging activities resulted in an average cost
increase of approximately $0.22 per MMBTU on volumes hedged of 45,800,000.
During fiscal 1998 and 1997, natural gas hedging activities resulted in average
cost decreases of approximately $0.23 and $0.30 per MMBTU on volumes hedged of
23,730,000 and 15,880,000 MMBTUs, respectively. At June 30, 1999, the Company
had open futures contracts covering a total volume of 10,720,000 MMBTUs with
some contracts extending through August 2000. The net unrealized gain on these
contracts at June 30, 1999, was $2,740,000. The risk associated with outstanding
futures positions is directly related to increases or decreases in the prices of
natural gas in relation to the contract prices.
NOTE 15 - INTEREST, NET:
Interest, net, consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended June 30
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest expense $(23,626) $(21,518) $ (8,942)
Interest capitalized 3,861 8,975 3,858
Interest income 760 1,595 753
-------- -------- --------
$(19,005) $(10,948) $ (4,331)
======== ======== ========
</TABLE>
NOTE 16 - INCOME TAXES:
The following is a summary of the components of the provision for income taxes:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended June 30
-------------------------------
1999 1998 1997
-------- -------- --------
Current:
<S> <C> <C> <C>
Federal $(14,305) $ 9,350 $ 30,379
State (1,583) 1,021 3,831
-------- -------- --------
(15,888) 10,371 34,210
-------- -------- --------
Deferred:
Federal 14,159 5,345 503
State 1,567 613 59
-------- -------- --------
15,726 5,958 562
-------- -------- --------
$ (162) $ 16,329 $ 34,772
======== ======== ========
</TABLE>
40
<PAGE> 40
NOTE 16 - INCOME TAXES (CONTINUED):
The tax effect of the significant temporary differences and tax credit
carryforwards at June 30 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
--------------------- ---------------------
Current Non-current Current Non-current
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Employee benefit obligations $ 2,192 $ 81 $ 2,237 $ 88
Reserve for bad debts 765 -- 726 --
Employee post retirement 68 1,344 69 950
Deferred income on affiliate sales 82 -- 600 --
Accrual for closure of gypsum disposal area -- 2,336 -- 2,294
Other 179 257 135 279
-------- -------- -------- --------
Deferred tax assets 3,286 4,018 3,767 3,611
-------- -------- -------- --------
Property, plant and equipment -- (81,113) -- (65,978)
Pension -- (1,597) -- (2,102)
Capitalized interest on equity investments -- (1,504) -- --
Other -- (595) -- (517)
-------- -------- -------- --------
Deferred tax liabilities -- (84,809) -- (68,597)
-------- -------- -------- --------
Net deferred tax asset (liability) $ 3,286 $(80,791) $ 3,767 $(64,986)
======== ======== ======== ========
</TABLE>
A reconciliation of the statutory rate for income taxes and the effective tax
rate for the years ended June 30 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
--------------------- --------------------- ---------------------
% of % of % of
Earnings Earnings Earnings
Before Before Before
Amount Taxes Amount Taxes Amount Taxes
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income taxes computed
at statutory rate $ (1,320) (35.0)% $ 13,756 35.0% $ 31,705 35.0%
Increase (decrease) in taxes
resulting from:
State taxes, net (10) (0.3)% 1,149 2.9% 2,263 2.5%
Non-deductible
goodwill 1,604 42.5% 1,604 4.1% 836 0.9%
Permanently reinvested
foreign earnings (524) (13.9)% -- -- -- --
Other, net 88 2.4% (180) (0.5)% (32) --
-------- -------- -------- -------- -------- --------
$ (162) (4.3)% $ 16,329 41.5% $ 34,772 38.4%
======== ======== ======== ======== ======== ========
</TABLE>
Income taxes have been settled with the Internal Revenue Service ("IRS") for all
years through June 30, 1993. The IRS has concluded its field examination of the
Company's U.S. income tax returns for fiscal years 1994-1996 and has assessed
certain taxes that the Company is contesting. The Company has, in principle,
reached an agreement with the IRS Appeals Division and anticipates final
settlement during fiscal 2000. The Company believes any adjustments that might
be required will not be material to the Company's financial position or results
of operations.
41
<PAGE> 41
NOTE 17 - RETIREMENT PLANS:
The Company maintains non-contributory defined benefit pension plans that
provide benefits to a majority of its full-time employees. Under the plans,
retirement benefits are primarily a function of both the average annual
compensation and number of years of credited service. The plans are funded
annually by the Company, subject to the Internal Revenue Code funding
limitation. The plan's assets consist primarily of cash, equity investments and
fixed income securities.
On July 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which standardizes disclosure
requirements related to pensions and other post-retirement benefits. It does not
change the measurement or recognition of those plans. All prior periods have
been restated to reflect the requirements of SFAS No. 132.
The following tables, prepared in accordance with SFAS No. 132, set forth
pension benefit obligations and plan assets for the Company's defined benefit
pension plan, based on an April 1 measurement date, as of June 30:
<TABLE>
<CAPTION>
(Dollars in thousands)
1999 1998
--------- ---------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 101,649 $ 93,942
Service cost 4,231 3,708
Interest cost 7,215 6,888
Actuarial loss 313 1,301
Benefit payments (4,491) (4,190)
--------- ---------
Benefit obligation at end of year 108,917 101,649
--------- ---------
Change in plan assets
Fair value of plan assets at beginning of year 115,162 94,308
Actual return on plan assets 5,413 25,540
Employer contributions 500 344
Benefit payments (4,491) (4,190)
Expenses (696) (840)
--------- ---------
Fair value of plan assets at end of year 115,888 115,162
--------- ---------
Funded status 6,971 13,513
Unrecognized transition asset (2,366) (3,072)
Unrecognized prior service cost 5,703 6,135
Unrecognized net gain (5,887) (11,005)
--------- ---------
Prepaid pension cost $ 4,421 $ 5,571
========= =========
</TABLE>
The following assumptions were used to measure net periodic pension expense for
the plans for fiscal years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.25% 7.50%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
Average increase in compensation levels 5.00% 5.00% 5.00%
</TABLE>
42
<PAGE> 42
NOTE 17 - RETIREMENT PLANS (CONTINUED):
Net periodic pension expense includes the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended June 30
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 4,231 $ 3,708 $ 2,297
Interest cost on projected benefit obligations 7,215 6,888 5,294
Actual return on plan assets (5,413) (25,540) (10,094)
Net amortization (274) (274) (240)
Unrecognized (loss) gain on plan assets (4,108) 17,763 3,734
-------- -------- --------
Net periodic pension expense $ 1,651 $ 2,545 $ 991
======== ======== ========
</TABLE>
The Company also has contributory thrift plans covering substantially all
regular full-time employees who have elected to participate in the plans. Under
the plans, the Company matches a certain percentage of each employee's
contributions to the plan up to a maximum percentage of the employee's base
compensation. Company contributions totaled approximately $1,554,000 in fiscal
1999, $1,529,000 in fiscal 1998, and $1,353,000 in fiscal 1997.
The Company has no material post-retirement benefit obligations.
NOTE 18 - INVOLUNTARY CONVERSION OF PROPERTY:
On September 27, 1998, the Company's Pascagoula, Mississippi, production
facilities were shut down as a result of damage caused by Hurricane Georges. The
facilities were shut down for 22 days, and approximately 54,000 tons of DAP
inventory were damaged. The damaged property and inventory were insured, as were
all business interruption losses in excess of ten days. As of June 30, 1999, the
Company had recorded, as a component of cost of products sold, net insurance
proceeds for the damaged inventory of $1,402,000, and, as a component of other
income, a net insurance recovery on the business interruption claim of $514,000.
The Company treated the disposal of the damaged property, other than inventory,
as an involuntary conversion and also recorded, as a component of other income,
a gain of $5,737,000 based on the difference in the carrying value of those
assets and the total insurance proceeds expected to be received. At June 30,
1999, the Company had an insurance receivable recorded on its consolidated
balance sheet of $11,310,000 related to property damaged by Hurricane Georges.
NOTE 19 - LEASE COMMITMENTS:
The Company has commitments under operating leases for equipment and storage
warehouses. The following is a schedule of the future minimum rental payments
required under operating leases that have noncancellable lease terms in excess
of one year as of June 30, 1999:
<TABLE>
<CAPTION>
(Dollars in thousands) Amount
-------
<S> <C>
2000 $ 4,037
2001 2,378
2002 1,928
2003 1,699
2004 1,213
Thereafter 1,506
-------
$12,761
=======
</TABLE>
Rental expense for all operating leases was $6,823,000 for fiscal 1999,
$3,876,000 for fiscal 1998, and $3,417,000 for fiscal 1997.
43
<PAGE> 43
NOTE 20 - COMMITMENTS AND CONTINGENCIES:
The Company, in the ordinary course of its business, is the subject of, or a
party to, various pending or threatened legal actions. The Company believes that
any ultimate liability arising from these actions will not have a significant
impact on the financial position or the future earnings of the Company.
The Company encourages officers to purchase target levels of stock in the
Company. To facilitate that process, the Company has arranged unsecured credit
lines at market rates for each officer with a commercial lending institution.
The Company guarantees payment of these loans in the event of default. The total
amount outstanding on these loans at June 30, 1999, was less than $500,000.
NOTE 21 - RAW MATERIAL CONTRACTS:
Mississippi Phosphates Corporation ("MPC"), a wholly owned subsidiary of the
Company, has contracted with Office Cherifien des Phosphates to import its full
requirement of phosphate rock through June 30, 2016. The purchase price for
phosphate rock is based on the estimated phosphate rock costs incurred by
certain domestic phosphate producers and the operating performance of MPC.
NOTE 22 - SUPPLEMENTAL CASH FLOW INFORMATION:
The Company considers its holdings of highly liquid money market debt securities
to be cash equivalents if the securities mature within 90 days from the date of
purchase. The Company had no short-term investments at June 30, 1999 or 1997.
The Company had short-term investments of $1,600,000 at June 30, 1998.
The (decrease) increase in cash due to the changes in operating assets and
liabilities consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended June 30
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Receivables $(16,793) $ 11,563 $ (2,048)
Inventories (11,495) 3,881 (11,378)
Prepaid expenses and other current assets 3,014 (1,763) 3,443
Accounts payable (535) (16,445) (4,504)
Accrued liabilities (4,972) (2,017) 5,064
-------- -------- --------
$(30,781) $ (4,781) $ (9,423)
======== ======== ========
</TABLE>
During fiscal 1999, 1998 and 1997, the Company paid income taxes of $4,589,000,
$11,242,000, and $30,451,000, respectively. Payments of interest, net of amounts
capitalized, were $18,098,000 in fiscal 1999, $10,021,000 in fiscal 1998, and
$3,819,000 in fiscal 1997.
Supplemental disclosures regarding non-cash financing and investing activities
include the following:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended June 30
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Property held for sale converted to note receivable $ -- $54,625 $ --
Land option transferred to land $ -- $ -- $ 941
</TABLE>
Other material non-cash activities include the Company's December 1996
acquisition of the fertilizer businesses of First Mississippi in an all-stock
merger transaction (see Note 2).
44
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
1. Mississippi Chemical Corporation
2. Mississippi Phosphates Corporation
3. Mississippi Potash, Inc.
4. Eddy Potash, Inc.
5. Mississippi Nitrogen, Inc.
6. MissChem Nitrogen, L.L.C.
7. Triad Nitrogen, L.L.C.
8. TNI Barge, Inc.
9. MCC Investments, Inc.
10. NSI Land Corporation
11. Mississippi Chemical Management Company
12. Mississippi Chemical Company, L.P.
13. Mississippi Chemical Holdings, Inc.
14. MissChem (Barbados) SRL
15. MissChem Trinidad Limited
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports, dated July 28, 1999, incorporated by reference in this
Form 10-K for the fiscal year ended June 30, 1999, into the Company's previously
filed Registration Statement (File No. 333-38619).
/s/ Arthur Andersen LLP
Memphis, Tennessee,
September 27, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS YEAR-TO-DATE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MISSISSIPPI CHEMICAL CORPORATION FISCAL 1999 FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,648
<SECURITIES> 0
<RECEIVABLES> 45,823
<ALLOWANCES> 2,043
<INVENTORY> 76,924
<CURRENT-ASSETS> 158,759
<PP&E> 835,306
<DEPRECIATION> 363,222
<TOTAL-ASSETS> 898,888
<CURRENT-LIABILITIES> 74,395
<BONDS> 214,500
0
0
<COMMON> 280
<OTHER-SE> 419,948
<TOTAL-LIABILITY-AND-EQUITY> 420,228
<SALES> 467,899
<TOTAL-REVENUES> 467,899
<CGS> 420,604
<TOTAL-COSTS> 459,444
<OTHER-EXPENSES> (6,780)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,005
<INCOME-PRETAX> (3,770)
<INCOME-TAX> (162)
<INCOME-CONTINUING> (3,608)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,608)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
