<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains year-to-date summary financial information extracted
from Mississippi Chemical Corporation fiscal 1999 second quarter Form 10-Q and
is qualified in its entirety by reference to such Form 10-Q filing.
</LEGEND>
<CIK> 0000066895
<NAME> MISSISSIPPI CHEMICAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,817
<SECURITIES> 0
<RECEIVABLES> 57,852
<ALLOWANCES> 2,039
<INVENTORY> 99,017
<CURRENT-ASSETS> 182,215
<PP&E> 816,108
<DEPRECIATION> 351,664
<TOTAL-ASSETS> 911,643
<CURRENT-LIABILITIES> 59,163
<BONDS> 214,500
0
0
<COMMON> 280
<OTHER-SE> 432,520
<TOTAL-LIABILITY-AND-EQUITY> 911,643
<SALES> 199,554
<TOTAL-REVENUES> 199,554
<CGS> 166,670
<TOTAL-COSTS> 185,474
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 8,029
<INCOME-PRETAX> 6,029
<INCOME-TAX> 2,293
<INCOME-CONTINUING> 3,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,736
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
Of The Securities Exchange Act of 1934
For Quarter Ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended December 31, 1998
Commission File Number 001-12217
MISSISSIPPI CHEMICAL CORPORATION
Organized in the State of Mississippi
Tax Identification No. 64-0292638
P. O. Box 388, Yazoo City, Mississippi 39194
Telephone No. 601+746-4131
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No []
The number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1998.
Class Number of Shares
-------- ----------------
Common Stock, $0.01 par value 26,131,917
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Income 3
Three months ended December 31, 1998
and 1997, and Six months ended
December 31, 1998 and 1997
Consolidated Balance Sheets
December 31, 1998 and June 30, 1998 4 - 5
Consolidated Statements of Shareholders' Equity 6
Fiscal Year Ended June 30, 1998
and Six months ended December 31, 1998
Consolidated Statements of Cash Flows 7
Six months ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements 8 - 10
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10 - 23
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 23 - 24
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 25
PART>I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Three months ended Six months ended
December 31, December 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Net sales $94,839 $113,634 $199,554 $220,448
Trading loss on brokered
product - (56) - (353)
------- -------- -------- --------
94,839 113,578 199,554 220,095
Operating expenses:
Cost of products sold 82,642 101,064 166,670 189,798
Selling, general and
administrative 9,107 8,789 18,804 17,660
------- -------- -------- --------
91,749 109,853 185,474 207,458
------- -------- -------- --------
Operating income 3,090 3,725 14,080 12,637
Other (expense) income:
Interest, net (4,519) (2,561) (8,029) (4,644)
Other 732 249 (22) 772
------- -------- -------- --------
(Loss) income before
income taxes (697) 1,413 6,029 8,765
Income tax (credit) expense (212) 978 2,293 4,033
------- -------- -------- --------
Net (loss) income $ (485) $ 435 $ 3,736 $ 4,732
======= ======== ======== ========
Earnings (loss) per share -
basic and diluted
(see Note 2) $ (0.02) $ 0.02 $ 0.14 $ 0.17
======= ======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
December 31, June 30,
1998 1998
------------ ---------
(In thousands, except per share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,817 $ 3,857
Accounts receivable, net 55,813 51,532
Note receivable due within one year - 9,500
Inventories:
Finished products 57,863 24,959
Raw materials and supplies 5,138 5,894
Replacement parts 36,016 34,576
-------- --------
Total inventories 99,017 65,429
Prepaid expenses and other current assets 20,843 6,636
Deferred income taxes 3,725 3,767
-------- --------
Total current assets 182,215 140,721
Investments in affiliates 77,077 73,073
Note receivable - 45,125
Other assets 13,853 16,227
Property, plant and equipment, at cost 816,108 795,332
less accumulated depreciation, depletion
and amortization (351,664) (334,491)
-------- --------
Net property, plant and equipment 464,444 460,841
Goodwill, net of accumulated amortization 174,054 176,345
-------- --------
$911,643 $912,332
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
LIABILITIES AND SHAREHOLDERS'EQUITY
<PAGE>
December 31, June 30,
1998 1998
----------- --------
(In thousands, except per share data)
<S> <C> <C>
Current liabilities:
Long-term debt due within one year $ 45 $ 114
Accounts payable 48,085 58,089
Accrued liabilities 11,033 15,156
Income taxes payable - 3,276
-------- --------
Total current liabilities 59,163 76,635
Long-term debt 335,931 304,705
Other long-term liabilities and
deferred credits 16,349 17,481
Deferred income taxes 67,400 64,986
Shareholders' equity:
Common stock ($.01 par; authorized
100,000 shares; issued 27,976) 280 280
Additional paid-in capital 305,901 305,901
Retained earnings 156,198 157,800
Treasury stock, at cost
(1,844 and 736 shares) (29,579) (15,456)
-------- --------
432,800 448,525
-------- --------
$911,643 $912,332
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
DECEMBER 31, 1998
(Unaudited)
<TABLE>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------- ---------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances, July 1, 1997 $ 280 $305,901 $145,827 $(12,579) $439,429
Net income - - 22,974 - 22,974
Cash dividends paid - - (10,948) - (10,948)
Treasury stock, net - - (53) (2,877) (2,930)
------ -------- -------- -------- --------
Balances, June 30, 1998 280 305,901 157,800 (15,456) 448,525
Net income - - 3,736 - 3,736
Cash dividends paid - - (5,338) - (5,338)
Treasury stock, net - - - (14,123) (14,123)
------ -------- -------- -------- --------
Balances,
December 31, 1998 $ 280 $305,901 $156,198 $(29,579) $432,800
====== ======== ======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six months ended December 31,
1998 1997
---------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,736 $ 4,732
Reconciliation of net income to net
cash used in operating activities:
Net change in operating assets
and liabilities (69,523) (44,156)
Depreciation, depletion and
amortization 20,694 18,108
Deferred income taxes 2,456 1,193
Other (442) (3,696)
-------- --------
Net cash used in operating activities (43,079) (23,819)
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (21,685) (51,331)
Investment in Farmland MissChem Limited (3,358) (2,040)
Net change in restricted funds 787 (8,338)
Collection on note receivable 54,625 -
Other - 1,103
-------- --------
Net cash provided by (used in) investing
activities 30,369 (60,606)
-------- --------
Cash flows from financing activities:
Debt proceeds 285,650 454,974
Debt payments (254,519) (367,569)
Cash dividends paid (5,338) (5,480)
Purchase of treasury stock (14,123) (1,483)
-------- --------
Net cash provided by financing activities 11,670 80,442
-------- --------
Net decrease in cash and cash equivalents (1,040) (3,983)
Cash and cash equivalents - beginning of period 3,857 8,159
-------- --------
Cash and cash equivalents - end of period $ 2,817 $ 4,176
======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Mississippi Chemical
Corporation and its subsidiaries ("the Company") have been prepared by the
Company, without audit. In the opinion of the Company's management, the
financial statements reflect all adjustments necessary to present fairly the
results of operations for the three-month and the six-month periods ended
December 31, 1998 and 1997, the Company's financial position at December 31,
1998 and June 30, 1998, the cash flows for the six months ended December 31,
1998 and 1997, and the consolidated statements of shareholders' equity as of
December 31, 1998. In the opinion of management, these adjustments are of a
normal recurring nature which are necessary for a fair presentation of the
financial position and results of operations for the interim periods. The
Company has reclassified certain prior year information to conform with the
current year's presentation. Effective July 1, 1998, the Company changed its
presentation of delivery costs from a component of selling costs to a component
of net sales on its statements of income. This change was made to conform to
industry practice so that the Company can be more readily compared to its peer
group. The Company has restated its prior year statements of income for this
change.
Certain notes and other information have been condensed or omitted in the
interim financial statements presented in the Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1998 Form 10-K and the consolidated financial statements and notes
thereto included in the Company's June 30, 1998, audited financial statements.
Due to the seasonal nature of the Company's business, the results of
operations for the period ended December 31, 1998, are not necessarily
indicative of the operating results for the full fiscal year.
NOTE 2 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." As a
result, the Company's basic and diluted earnings per share amounts for the
three-month and the six-month periods ended December 31, 1998, have been
calculated in accordance with SFAS No. 128. Similarly, earnings per share
amounts reported for the three-month and the six-month periods ended December
31, 1997, have been restated to comply with this Statement.
The number of shares used in the Company's basic and diluted earnings per
share computation are as follows:
<TABLE>
Three months ended Six months ended
December 31, December 31,
------------------ ----------------
1998 1997 1998 1997
------ ------- ------- ------
(In thousands)
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding, net of treasury
shares, for basic earnings
per share 26,178 27,373 26,614 27,388
Common stock equivalents for
employee stock options - 36 - 42
------ ------ ------ ------
Weighted average common shares
outstanding for diluted
earnings per share 26,178 27,409 26,614 27,430
====== ====== ====== ======
</TABLE>
In October 1998, the Company's board of directors declared a regular
quarterly cash dividend of $0.10 per common share for the three-month period
ending September 30, 1998. This dividend was paid on November 25, 1998, to
holders of record on November 11, 1998.
NOTE 3 - CAPITAL PROJECTS
In late fiscal 1996, the Company began an expansion project, estimated to
cost $130.0 million, at its nitrogen fertilizer manufacturing facilities at
Yazoo City. The project includes the addition of a 650-ton-per-day nitric acid
plant, a new 500-ton-per-day ammonia plant and modifications to increase its
ammonium nitrate capacity. The nitric acid plant was completed and placed in
service in March 1998. The Company completed modifications to its ammonium
nitrate plant in July 1998, which increased its capacity to 900,000 tons per
year. The Company had anticipated that the anhydrous ammonia plant would be
placed in service during the Company's second fiscal quarter; however, due to
mechanical problems, the plant is not yet in service. Given the problems that
have been experienced in the construction of the plant, it is difficult to
accurately predict when full operations will occur. Nevertheless, the Company
anticipates the plant will be placed in full service no later than March 31,
1999.
The Company began an expansion project to increase its potash production
capacity in late fiscal 1998. This expansion will increase the Company's red
granular capacity from 445,000 to 545,000 tons-per-year, as well as increase
storage capacities by 30,000 tons. Upon completion of the project, the Company
will have approximately 1,100,000 tons of combined potash production capacity
from its two operating mines. The Company estimates total cost of the expansion
to be $8.2 million, and it is scheduled to be fully operational by the end of
the third fiscal quarter.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The following discussion and analysis should be read in conjunction with
the attached consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended June 30, 1998.
Consistent with the historical nature of the Company's business, the usage
of fertilizer in the Company's trade territory is highly seasonal, and the
Company's quarterly results reflect the fact that significantly more fertilizer
is sold during the last four months of the Company's fiscal year (March through
June). Since interim period operating results reflect the seasonal nature of
the Company's business, they may not necessarily be indicative of results
expected for the full fiscal year. In addition, quarterly results can vary
significantly from year to year due to a number of factors, including mechanical
failures in production facilities, world market conditions of supply and demand,
weather-related shifts in planting schedules and purchase patterns. The Company
incurs substantial expenditures for fixed costs throughout the year and
substantial expenditures for inventory in advance of the spring planting
season.
The Company's results for the quarter ended December 31, 1998, reflect
continued weak pricing for the Company's nitrogen products. Recent global
capacity additions, in combination with weak fall demand in the Company's trade
area, growing producer stocks and pricing uncertainties in the marketplace
caused nitrogen prices to decline. The Company's average nitrogen sales price
decreased 19% during the current quarter as compared to the prior year quarter.
Phosphate sales prices increased 1% during the current quarter as compared to
the prior year quarter as a result of relatively strong international demand.
Potash sales prices increased 9% during the current year quarter as a result of
price increases in the current year as well as the second half of fiscal 1998.
During the current year quarter, sales volumes for the Company's nitrogen
products increased 3% over prior year levels. This increase was primarily the
result of the additional ammonia tons available for sale from the Company's 50-
50 joint venture ammonia plant in Trinidad.
Phosphate sales volumes decreased 14% during the current year quarter due
to damage to the Pascagoula, Mississippi, DAP production facility caused by
Hurricane Georges. The Pascagoula facility was shut down on September 27, as a
result of the hurricane and resumed production on October 19. In addition,
approximately 54,000 tons of DAP inventory on hand was damaged. The damaged
property and inventory are insured, subject to a $250,000 deductible, as are
all business interruption losses in excess of ten days. At December 31, 1998,
the Company recorded, as a component of its cost of products sold, net
insurance proceeds for the damaged inventory of approximately $1.4 million.
The Company also recorded, as a component of other income, a net insurance
recovery on the business interruption claim of approximately $.6 million.
Currently, management is quantifying its insurance claim related to the
involuntary conversion of property and believes that a gain will be recognized
by the end of fiscal 1999.
Potash sales volumes decreased 28% during the current year second quarter
as a result of a shifting of product sales to the first quarter in advance of
announced price increases, as well as the suspension of operations at Eddy
Potash, Inc. ("Eddy") in early December 1997, which reduced tons available for
sale in the current year. Sales volumes were also negatively impacted by
reduced demand for industrial potash products used in the oil industry.
During the current year quarter, nitrogen costs per ton declined 11%,
primarily the result of lower natural gas costs as well as lower maintenance and
labor costs during the current year. DAP costs per ton decreased 17% during the
current year quarter, primarily as a result of proceeds received for the
inventory damaged by Hurricane Georges and lower raw material costs for ammonia.
These costs were partially offset by higher phosphate rock costs. Potash costs
per ton decreased 2% during the current year quarter. This decrease was
primarily the result of the Company's suspension of operations at its higher
cost mining and production facilities at Eddy in early December 1997. During
the quarter, the Company did experience improved operations at the East mine;
however, these improvements were offset by lower production rates at the
Company's West mine. These lower rates were the result of declines in ore grade
as well as losses related to downtime associated with the expansion currently
underway.
Farmland MissChem Limited ("Farmland MissChem"), the Company's 50-50 joint
venture anhydrous ammonia plant located in Point Lisas, The Republic of Trinidad
and Tobago, achieved operational status in late July 1998. The Company had
recorded $1.9 million in equity income from Farmland MissChem as of December 31,
1998. This income is recorded by the Company as a reduction to its cost of
products sold in the Company's consolidated statement of income. The Company
purchases one-half of the product produced at Farmland MissChem at market price
subject to a floor. During the three-month and the six-month periods ended
December 31, 1998, these purchases were at the floor price.
Looking forward, the key issue for the Company is still the decline of
nitrogen prices. The most significant factors affecting pricing of nitrogen
products are still Chinese purchasing practices, Russian production and pricing
policies, and the impact of recent global capacity expansions.
In authorizations granted in May 1995, March 1996, and September 1998, the
Board of Directors authorized the purchase of up to 8,000,000 shares of the
Company's common stock in the open market, in privately negotiated transactions
or otherwise at prices and at times determined by the Company to be appropriate.
As of December 31, 1998, the Company had repurchased a total of 3,700,009 shares
pursuant to those authorizations. The unused authorization to repurchase
4,299,991 shares remains available to the Company.
RESULTS OF OPERATIONS
Following are summaries of the Company's sales results by product
categories:
<TABLE>
Three months ended Six months ended
December 31, December 31,
------------------- -------------------
1998 1997 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
NetSales (in thousands):
Nitrogen $49,926 $59,817 $99,782 $114,802
DAP 27,747 31,752 58,530 61,880
Potash 16,845 21,555 40,524 42,864
Other 321 510 718 902
-------- -------- -------- --------
Net Sales $ 94,839 $113,634 $199,554 $220,448
======== ======== ======== ========
Three months ended Six months ended
December 31, December 31,
------------------ ------------------
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Tons Sold (in thousands):
Nitrogen:
Ammonia 220 161 405 311
Ammonium nitrate 107 140 220 256
Urea 115 100 223 218
Nitrogen solutions 78 103 84 113
Nitric acid 11 11 32 22
---- ---- ---- ----
Total Nitrogen 531 515 964 920
DAP 160 185 331 363
Potash 179 250 444 517
Three months ended Six months ended
December 31, December 31,
------------------ ----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Average Sales Price Per Ton:
Nitrogen $ 94 $ 116 $ 104 $ 125
DAP $ 174 $ 172 $ 177 $ 171
Potash $ 94 $ 86 $ 91 $ 83
</TABLE>
NET SALES. Net sales decreased 17% to $94.8 million for the quarter ended
December 31, 1998, from $113.6 million for the quarter ended December 31, 1997.
For the six months ended December 31, 1998, net sales decreased 9% to $199.6
million, from $220.4 million for the six months ended December 31, 1997. These
decreases were primarily the result of lower nitrogen fertilizer sales prices
and lower DAP and potash sales volumes during the current year periods,
partially offset by higher nitrogen sales volumes in the current year periods.
During the current year quarter, nitrogen sales decreased 17% as compared
to the prior year quarter. For the six months ended December 31, 1998, nitrogen
sales decreased 13% as compared to the prior year period. During the current
year quarter, the Company's sales prices for its anhydrous ammonia, ammonium
nitrate, urea and nitrogen solutions decreased 33%, 9%, 11% and 22%,
respectively, resulting in a 19% reduction in the weighted average price per
ton of nitrogen when compared to the prior year quarter. During the six months
ended December 31, 1998, the Company's sales prices for its anhydrous ammonia,
ammonium nitrate, urea and nitrogen solutions decreased 30%, 6%, 11% and 19%,
respectively, resulting in a 17% reduction in the weighted average price per ton
of nitrogen when compared to the prior year six month period ended December 31,
1997. Nitrogen fertilizer sales volumes increased 3% during the current year
quarter and 5% during the current year six-month period, primarily the result of
increased sales volumes for ammonia. Ammonia sales volumes increased 37% during
the current year quarter and 30% during the current year six-month period due to
the additional tons available for sale from Farmland MissChem. Additionally,
during the second quarter, urea sales volumes increased 15% from the prior year
period because of a scheduled turnaround at the Company's Donaldsonville,
Louisiana, urea facility in the comparable prior year quarter which reduced the
amount of available product.
During the second quarter, ammonium nitrate and nitrogen solutions sales
volumes decreased 24% compared to the prior year. For the six-month period
ended December 31, 1998, ammonium nitrate and nitrogen solutions sales volumes
decreased 14% and 26%, respectively. These decreases were primarily the result
of continued hesitancy of customers to commit to off-season purchases due to
pricing uncertainties. Dry weather conditions in the Company's trade area also
reduced sales volumes for ammonium nitrate during the second quarter of the
current year.
During the current year quarter, DAP sales decreased 13% compared to the
prior year quarter due to a 14% decrease in sales volumes partially offset by a
1% increase in sales prices. For the six months ended December 31, 1998, DAP
sales decreased 5% compared to the prior year due to a 9% decrease in sales
volumes partially offset by a 4% increase in sales prices. DAP sales volumes
decreased as a result of damage to the Pascagoula, Mississippi, DAP production
facility caused by Hurricane Georges in late September. The plant did not
produce for approximately 18 days during the month of October. Approximately
54,000 tons of DAP inventory was also damaged by the hurricane. Higher
production rates in the current year, as a result of the expansion completed in
April 1998, allowed the Company to offset some of the lost production associated
with the hurricane. The modest increase in DAP sales prices occurred as a
result of relatively strong international demand.
Potash sales decreased 22% during the current year quarter as compared to
the prior year quarter as a result of a 28% decrease in sales volumes partially
offset by a 9% increase in sales prices. For the six month period ended
December 31, 1998, potash sales decreased 6% as compared to the prior year
period as a result of a 14% decrease in sales volumes partially offset by a 10%
increase in sales prices. The higher sales prices during the current year are
the result of price increases in the current year as well as the second half of
fiscal 1998. Potash sales volumes decreased during the current year periods as
a result of reduced product availability due to the suspension of operations at
the Company's Eddy potash mine and refinery, as well as reduced demand for
industrial potash products used in the oil industry. During the current year
quarter, the Company also experienced lower sales volumes as a result of a
shifting of product sales to the first quarter in advance of announced price
increases.
TRADING LOSS ON BROKERED PRODUCT. During the prior year quarter, brokered
ammonia sales of $2.6 million and purchases of $2.7 million resulted in a $.1
million net trading loss. During the six-month period ended December 31, 1997,
brokered ammonia sales of $8.9 million and purchases of $9.3 million resulted in
a $.4 million net trading loss. The Company brokered approximately 20,000 short
tons in the prior year quarter and approximately 60,000 short tons during the
prior year six-month period. The Company suspended brokering activities in the
current year due to prevailing market conditions.
COST OF PRODUCTS SOLD. Cost of products sold decreased to $82.6 million
for the quarter ended December 31, 1998, from $101.1 million for the quarter
ended December 31, 1997. As a percentage of net sales, cost of products sold
decreased to 87% from 89%, primarily the result of lower nitrogen and phosphate
costs per ton during the current year quarter that were partially offset by
lower sales prices for the Company's nitrogen products during the current
quarter. The Company's lower nitrogen costs per ton were achieved through lower
natural gas costs as well as lower maintenance and labor costs during the
current year. During the prior year, the Company incurred higher maintenance
and labor costs at the Company's Donaldsonville, Louisiana, nitrogen facility as
a result of a scheduled maintenance turnaround. During the current year
quarter, DAP costs per ton decreased 17%, primarily as a result of insurance
proceeds received for DAP inventory damaged by the hurricane and lower raw
material costs for ammonia. This decrease was partially offset by higher
phosphate rock costs. These costs increased due to the pricing formula in the
Company's phosphate rock supply contract that is based on the phosphate rock
costs incurred by certain other domestic phosphate producers and the financial
performance of the Company's phosphate operations. Potash costs per ton
decreased 2% during the current quarter as compared to the prior year quarter.
This decrease was primarily the result of the Company's suspension of operations
at the higher cost Eddy mining and production facilities in early December 1997.
During the current quarter, the Company did experience improved operations at
the East mine; however, these improvements were offset by lower production rates
at the Company's West mine. These lower rates were the result of declines in
ore grade as well as losses related to downtime associated with the expansion
currently underway.
For the six months ended December 31, 1998, cost of products sold
decreased to $166.7 million from $189.8 million for the six months ended
December 31, 1997. As a percentage of net sales, cost of products sold
decreased to 84% from 86%. This decrease in cost of products sold,as a
percentage of net sales, is primarily the result of lower nitrogen costs per
ton during the current year partially offset by lower sales prices for the
Company's nitrogen products in the current year. The Company experienced lower
costs per ton for its nitrogen products in the current year primarily through
lower natural gas costs as well as lower maintenance and labor costs. During
the prior year, the Company incurred higher maintenance and labor costs at the
Company's Yazoo City, Mississippi, and Donaldsonville, Louisiana, nitrogen
facilities as a result of scheduled maintenance turnarounds. DAP costs per ton
decreased 7% during the current year, primarily the result of insurance proceeds
for damaged inventory and lower raw material costs for ammonia. This decrease
was partially offset by higher phosphate rock costs during the current year.
Potash costs per ton decreased 6% during the current year. This decrease was
primarily the result of the Company's suspension of operations at the higher
cost Eddy mining and production facilities in early December 1997. During the
current year, the Company did experience improved operations at the East mine;
however, these improvements were offset by lower production rates at the
Company's West mine. These lower rates were the result of declines in ore grade
as well as losses related to downtime associated with the expansion currently
underway.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $9.1 million for the quarter ended December
31, 1998, from $8.8 million for the quarter ended December 31, 1997. For the
six months ended December 31, 1998, selling, general and administrative expenses
increased to $18.8 million, from $17.7 million for the six months ended December
31, 1997. These increases were primarily the result of increased advertising
and professional fees partially offset by decreased employee incentives related
to income levels of the Company. As a percentage of net sales, selling, general
and administrative expenses increased to 10% for the quarter ended December 31,
1998, from 8% for the quarter ended December 31, 1997. For the six-month period
ended December 31, 1998, selling, general and administrative expenses, as a
percentage of net sales, increased to 9% from 8% for the six-month period ended
December 31, 1997.
OPERATING INCOME. As a result of the above factors, operating income
decreased to $3.1 million for the quarter ended December 31, 1998, from $3.7
million for the quarter ended December 31, 1997, a 17% decrease. For the six-
month period ending December 31, 1998, operating income increased to $14.1
million from $12.6 million for the six-month period ending December 31, 1997,
an 11% increase.
INTEREST, NET. For the quarter ended December 31, 1998, net interest
expense increased to $4.5 million from $2.6 million for the quarter ended
December 31, 1997. For the six-month period ended December 31, 1998, net
interest expense increased to $8.0 million from $4.6 million for the six-month
period ended December 31, 1997. These increases in net interest expense were
primarily due to increased interest costs resulting from higher borrowing
levels at higher interest rates during the current year periods. Additionally,
the Company capitalized $1.3 million and $2.3 million of its interest costs for
the quarters ended December 31, 1998 and 1997, respectively, and $3.0 million
and $4.3 million for the six-month periods ended December 31, 1998 and 1997,
respectively.
OTHER. For the quarter ended December 31, 1998, other income increased to
$.7 million, compared to $.2 million for the quarter ended December 31, 1997.
For the six-month period ended December 31, 1998, other expense was $22 thousand
compared to other income of $.8 million for the six-month period ended December
31, 1997. These changes were primarily the result of lower earnings at the
Company's unconsolidated affiliates during the current year periods partially
offset by a net insurance recovery recorded during the Company's second fiscal
quarter on the business interruption claim associated with Hurricane Georges at
the Pascagoula, Mississippi, DAP facility.
INCOME TAX (CREDIT) EXPENSE. For the quarter ended December 31, 1998,
income tax credits were $.2 million compared to income tax expense of $1.0
million for the quarter ended December 31, 1997. For the six-month period ended
December 31, 1998, income tax expense decreased to $2.3 million, from $4.0
million for the six-month period ended December 31, 1997. These decreases in
tax expense were the result of lower earnings and a decrease in the Company's
effective tax rate during the current year attributable to permanently
reinvested foreign earnings.
NET (LOSS) INCOME. As a result of the foregoing, the Company incurred a
net loss of $.5 million for the quarter ended December 31, 1998, as compared to
net income of $.4 million for the quarter ended December 31, 1997. For the six-
month period ended December 31, 1998, net income decreased to $3.7 million from
$4.7 million for the six-month period ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of $2.8
million, compared to $3.9 million at June 30, 1998, a decrease of $1.1 million.
OPERATING ACTIVITIES. For the six months ended December 31, 1998, net
cash used in operating activities was $43.1 million compared to $23.8 million
for the six months ended December 31, 1997.
INVESTING ACTIVITIES. Net cash provided by investing activities was $30.4
million for the six months ended December 31, 1998, and net cash used by
investing activities was $60.6 million for the six months ended December 31,
1997. During the current year, the Company collected $54.6 million on a note
receivable obtained during the prior year as a result of a sale of the Company's
undeveloped phosphate rock property. During the current year period, capital
expenditures were $21.7 million compared to $51.3 million during the prior year.
The current year expenditures include approximately $10.1 million related to the
Company's nitrogen expansion project at its Yazoo City facility and
approximately $4.6 million related to the Company's potash production expansion
project at its Carlsbad facilities. The remaining $7.0 million was for normal
improvements and modifications to the Company's facilities. Investing
activities for the current year period also included $3.4 million related to the
Company's investment in Farmland MissChem Limited compared to $2.0 million
during the prior year. For the six months ended December 31, 1997, the Company
placed $8.3 million in restricted funds related to the issuance of industrial
revenue bonds.
FINANCING ACTIVITIES. Net cash provided by financing activities was $11.7
million for the six months ended December 31, 1998, compared to $80.4 million
for the six months ended December 31, 1997. During the current year, the
amounts provided by financing activities included $285.7 million in debt
proceeds. These amounts were partially offset by $254.5 million in debt
payments, $5.3 million in cash dividends, and $14.1 million for the purchase of
treasury stock. During the prior year, the amounts provided by financing
activities included $455.0 million in debt proceeds partially offset by $367.6
million in debt payments, $5.5 million in cash dividends and $1.5 million for
the purchase of treasury stock.
At December 31, 1998, the Company and its subsidiaries had unsecured
revolving credit facilities with Harris Trust and Savings Bank and a syndicate
of other commercial banks totaling $200.0 million. These facilities are five-
year facilities which mature on November 25, 2002, and bear interest at the
Prime Rate or at rates related to the London Interbank Offered Rate or Federal
Funds Rate. At December 31, 1998, the Company had $121.9 million outstanding
under these facilities. The Company also has available a separate $5.0 million
short-term line of credit which is not part of the facilities mentioned above.
There were no outstanding borrowings under this commitment at December 31, 1998.
The Company believes that existing cash, cash generated from operations,
and current lines of credit will be sufficient to satisfy its financing
requirements for its operations and its capital projects through fiscal 1999 and
the foreseeable future. The Company estimates its capital expenditure
requirements for the remainder of fiscal 1999 to be approximately $20.0 million,
which includes completion of the current potash expansion project and normal
improvements and modifications to the Company's facilities.
YEAR 2000
The Company has formed a Year 2000 Committee (the "Committee") which has
substantially completed the assessment of its computer systems, including the
systems involved in the operation of its manufacturing facilities, to identify
to what extent the Company could be affected by the "Year 2000" issue. The
Company expects to complete the system replacement and testing at its facilities
by October 31, 1999. As of December 31, 1998, the Company has spent
approximately $.1 million and estimates that it will spend an additional $.5
million to address both its information technology ("IT") and non-IT systems.
The Company is also assessing Year 2000 issues in relation to its customers,
suppliers and creditors to determine whether Year 2000 problems of any such
third parties may materially affect the Company. This assessment should be
completed by March 31, 1999. Since the ability of third parties with which the
Company transacts business to adequately address their Year 2000 issues is
outside the Company's control, there can be no assurance that the failure of
such third parties to adequately address their respective Year 2000 issues will
not have a material adverse effect on the Company's business operations and
financial condition.
Although no one can accurately predict how many Year 2000 related failures
will occur or the severity, duration or financial consequences of such failures,
it is possible that the Company could sustain what is expected to be nonmaterial
operational inconveniences and inefficiencies and be involved in nonmaterial
business disputes related to the Company or one of its vendor's or customer's
inability to carry out certain contractual obligations. The Committee is
working with an outside consultant to oversee its efforts on Year 2000 issues
and assist in developing a contingency plan by April 30, 1999, to be implemented
if its efforts to identify and correct Year 2000 problems are not successful.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussion contained herein,
statements set forth in this report constitute "forward-looking statements."
Since these forward-looking statements rely on a number of assumptions
concerning future events, risks and other uncertainties that are beyond the
Company's ability to control, readers are cautioned that actual results may
differ materially from such forward-looking statements. Future events, risks
and uncertainties that could cause a material difference in such results,
include, but are not limited to, the relative unpredictability of international
and local economic conditions, changes in matters which affect the supply and
demand of fertilizer products, weather, the volatility of the natural gas
market, environmental regulation, price competition from both domestic and
international competitors, possible delays incompleting and obtaining
production from new or expanded facilities, and other important factors
affecting the fertilizer industry and the Company as detailed under "Outlook
and Uncertainties" and elsewhere in the Company's most recent annual report
on Form10-K for the year ended June 30, 1998, which is on file with the
Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company is exposed to market risk, including changes in interest rates
and commodity prices. To manage the volatility relating to these exposures, the
Company enters into derivative transactions. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company maintains
formal policies and a systematic approach with respect to entering into and
monitoring derivative transactions, and Company policy precludes management
from entering into derivative transactions that would be deemed speculative
positions. The Company's derivative transactions are intended to hedge the
future production and interest costs of the Company.
At June 30, 1998, the Company had a note receivable in the amount of $54.6
million related to the sale of the Company's phosphate rock properties. In
August 1998, this note was paid in full and canceled. At December 31, 1998, the
Company believes that the fair value of its fixed rate long-term debt and
interest rate swap agreements had increased during the current fiscal year as a
result of volatility in interest rates during the year.
The Company uses natural gas futures contracts to reduce the impact of
changes in gas prices. A sensitivity analysis has been prepared to estimate the
Company's market risk exposure arising from these instruments. The fair value
of open contracts is calculated by valuing each position using quoted market
prices. Market risk is the potential loss in fair value as a result of a 10%
adverse change in such prices. The Company estimates this change in prices
would reduce the fair value of open contracts by $3.6 million at December 31,
1998.
For more information about how the Company manages specific risk exposures,
see Note 14 - Hedging Activities, and Note 7 - Credit Agreements and Long-Term
Debt, in the Company's Notes to Consolidated Financial Statements contained in
the Annual Report for the fiscal year ended June 30, 1998.
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits filed as part of this report are listed below.
SEC Exhibit
Reference No. Description
Exhibit Index to Form 10-Q
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MISSISSIPPI CHEMICAL CORPORATION
Date: January 26, 1999 /s/ Timothy A. Dawson
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Timothy A. Dawson
Vice President - Finance
Date: January 26, 1999 /s/ Rosalyn B. Glascoe
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Rosalyn B. Glascoe
Corporate Secretary
