EXHIBIT 13.1
MISSISSIPPI CHEMICAL CORPORATION
ANNUAL REPORT 2000
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MISSISSIPPI CHEMICAL CORPORATION
FINANCIAL HIGHLIGHTS
INCOME STATEMENT DATA: Fiscal Years Ended June 30
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(In thousands, except per share data) 2000 1999 1998 1997 1996
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Net sales $485,199 $467,899 $493,712 $496,316 $405,553
Operating (loss) income $(19,624) $ 8,455 $ 37,936 $ 91,209 $ 84,818
Net (loss) income $(23,664) $ (3,608) $ 22,974 $ 55,815 $ 54,178
(Loss) earnings per share - basic $ (0.91) $ (0.14) $ 0.84 $ 2.29 $ 2.47
(Loss) earnings per share - diluted $ (0.91) $ (0.14) $ 0.84 $ 2.29 $ 2.46
Weighted average common shares
outstanding - basic 26,132 26,392 27,355 24,329 21,975
Weighted average common shares
outstanding - diluted 26,132 26,392 27,390 24,404 22,039
BALANCE SHEET DATA: June 30
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(In thousands, except per share data) 2000 1999 1998 1997 1996
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Working capital $ 90,706 $ 84,364 $ 64,086 $ 53,910 $ 81,613
Total assets $870,689 $898,888 $912,332 $858,545 $341,006
Long-term debt, excluding long-term
debt due within one year $330,307 $305,857 $304,705 $244,516 $ -
Shareholders' equity $391,598 $420,228 $448,525 $439,429 $247,825
Cash dividends declared per common share $ 0.19 $ 0.40 $ 0.40 $ 0.40 $ 0.36
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS1
OVERVIEW
Our operations are organized into three strategic business units: nitrogen,
phosphate and potash. Our nitrogen business unit produces nitrogen products
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 our financial condition and results of operations, which should be
read in conjunction with our consolidated financial statements and related
notes.
For the fiscal year ended June 30, 2000, we incurred a net loss of
$23.7 million (or $0.91 per basic and diluted share) compared to a net loss of
$3.6 million (or $0.14 per basic and diluted share) for the prior fiscal year.
Net sales increased to $485.2 million in fiscal 2000 from $467.9 million in
fiscal 1999. We incurred an operating loss of $19.6 million in fiscal 2000
compared to operating income of $8.5 million in fiscal 1999. Earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the current year
were $29.5 million compared to $57.6 million for the prior year. In fiscal
1999, we recorded a $3.6 million after-tax gain (or $0.14 per basic and diluted
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.
NITROGEN
The operating performance of our nitrogen business unit in the current year
was significantly impacted by a 25% increase in the average price of natural
gas at our domestic production facilities compared to the prior year. Natural
gas is the primary raw material in the production of ammonia, which is our base
nitrogen product used in the production of our other nitrogen products (urea,
ammonium nitrate, nitrogen solutions and nitric acid), and currently represents
over 50% of the cost of our nitrogen products. During our fourth fiscal
quarter, the average price of natural gas increased 45% over the prior year
quarter, causing industry-wide nitrogen production curtailments. During the
current year, we experienced an 11% increase in nitrogen sales volumes and a
7% increase in the weighted average nitrogen sales prices. We attribute the
price increase for most nitrogen products to the improving world supply/demand
balance. Production curtailments and plant shutdowns in the industry during
fiscal 2000 have reduced nitrogen inventories of domestic producers. During
the current year, we also had increased earnings at Farmland MissChem Limited
("Farmland MissChem"), our joint venture ammonia plant in Trinidad. This was
a result of increased prices for ammonia and our natural gas contract that
provides for favorable prices for natural gas that are related to the market
price of ammonia. Additionally, we benefited in the current year from a
$4.5 million reduction in cost of sales as a result of an unusually high
recovery and sale of precious metals formerly used as catalysts during prior
periods at our Yazoo City, Mississippi, facility.
[FN]
1 Pronouns used herein (for example we, us, our) include Mississippi
Chemical Corporation, its subsidiaries and affiliates.
</FN>
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Pursuant to the ammonia offtake agreement with Farmland MissChem, we
purchase one-half of the ammonia production from Farmland MissChem at a
discount to market, subject to a minimum price. Payments made in excess of
the discounted market price are accumulated and recouped when market prices
increase above a specified level. During fiscal 1999 and the first eight
months of fiscal 2000, purchases from Farmland MissChem were at the minimum
price. By late March of fiscal 2000, ammonia prices had risen to a level that
allowed us to begin recouping amounts paid in excess of market prices during
fiscal 1999 and the first eight months of fiscal 2000. We recorded
$13.7 million in equity income from Farmland MissChem in fiscal 2000, which
reduced our cost of products sold in our fiscal 2000 consolidated statement of
income. Our Farmland MissChem equity income for fiscal 2000 included
$3.4 million related to a business interruption claim for downtime that
occurred in March and April of 1999. The financing arrangements for Farmland
MissChem prohibit the payment of dividends to the joint venturers during the
first three years of operations, which began in July 1998. For years four
through ten, or until the debt is prepaid, dividends are restricted to a
percentage that ranges from 30% to 50% of excess cash flows as defined in the
credit agreement.
On July 23, 1999, the Committee for Fair Ammonium Nitrate Trade ("COFANT"),
a coalition of U.S. producers of fertilizer-grade ammonium nitrate that
includes us, filed an antidumping petition under U.S. unfair trade laws
contending that imports of Russian ammonium nitrate injured the U.S. ammonium
nitrate industry due to large amounts of Russian product being sold in the
United States at unfairly low prices.
On May 19, 2000, the U.S. Department of Commerce ("Department") entered
into an agreement with the Russian Federation to limit exports of Russian
ammonium nitrate to the United States and to set minimum prices for such
exports. The agreement also includes detailed provisions designed to prevent
circumvention of the export limits and pricing requirements. As a result of
this agreement, known as a "suspension agreement," the antidumping proceeding
was suspended. Despite this suspension, COFANT elected to complete the
antidumping proceeding to safeguard the integrity of the suspension agreement.
Upon continuation of the antidumping proceeding, both the Department and
the International Trade Commission issued final affirmative determinations.
On June 30, 2000, the Department found final dumping margins of 253.98 percent
for all exports of Russian ammonium nitrate to the United States. On
August 2, 2000, the International Trade Commission made a final decision that
Russian imports had injured the United States industry. The final affirmative
decision by the International Trade Commission allows the suspension agreement
to remain in effect unless the Russian Federation withdraws from the agreement
or the agreement is violated. In the event of the agreement's termination, an
antidumping order will be imposed on all Russian imports.
Unfortunately during the first six months of calendar year 2000, traders
brought huge quantities of very cheap Ukrainian ammonium nitrate into the
United States that have depressed domestic ammonium nitrate prices. We are
evaluating a dumping action against Ukraine.
On April 14, 2000, we completed the purchase of a 250,000 ton-per-year
granular urea plant in Faustina, Louisiana, from IMC-Agrico Company, a joint
venture partnership between IMC Global, Inc. and Phosphate Resource Partners
Limited Partnership. The parties agreed not to disclose the terms of the
transaction; however, the purchase price was not material to either company.
PHOSPHATE
Our phosphate business unit was negatively impacted in the current year by
weak product pricing and lower sales volumes. Our average sales price for DAP
decreased 21% during the current year, and our DAP sales volume decreased 3% as
compared to the prior year, which also had reduced volumes because of
production downtime and damaged inventory caused by Hurricane Georges. We
believe pricing decreases are attributable to the industry reaction to
anticipated new supply in India and Australia. As a result, the industry
experienced several shutdowns and curtailments in production during the
current year. We also curtailed our production rates during the current year
from October through mid-May to adjust to weaker export and domestic demand,
resulting in lower sales volumes. The new supply of DAP from India and
Australia has not met anticipated levels due to various production problems.
Currently, we are operating at full capacity, but we will continue to monitor
market conditions to determine whether additional production curtailments are
advisable. Our DAP costs per ton decreased 6% during the current year as
compared to the prior year, primarily due to lower raw material costs for
phosphate rock, sulfur and sulfuric acid.
POTASH
Our potash business unit experienced a 10% increase in sales volumes and a
5% reduction in the average sales price during the current year as compared to
the prior year. The increase in sales volumes was due primarily to a strong
Spring demand in the current year. Potash costs per ton increased 8% during
the current year as compared to the prior year. This increase was primarily
the result of higher production costs due to mining lower ore grades in the
current year.
OUTLOOK
We believe that our nitrogen segment will continue to benefit from the
improved supply/demand outlook resulting from industry-wide production
curtailments and permanent shutdowns. We expect average ammonia prices for
fiscal 2001 to remain strong with decreases during the Fall months and
increases as we get closer to the Spring. We ended fiscal 2000 with one of
our strongest months for ammonium nitrate sales in our history in large part
because the traditional Spring season was delayed by drier than normal weather
patterns. Unless Ukrainian imports continue to adversely affect the market,
we anticipate demand for fiscal 2001 to be strong. The record low inventories
of nitrogen solutions in the industry caused by production curtailments and
greater than anticipated planted acreage of corn and cotton point toward
improved pricing for nitrogen solutions during the Spring season. Currently,
we are experiencing greater demand for nitrogen solutions than at this time
last year and we expect this to continue in the Fall as dealers anticipate
higher Spring prices. We believe demand for granular urea will continue to
increase, particularly if China resumes its importation of urea as a result of
obtaining accession into the World Trade Organization. Our outlook for
prilled urea also remains positive. Although additional nitrogen capacity in
Argentina and Venezuela, scheduled to come on-line in the Summer and Fall of
fiscal 2001, may temporarily disrupt the current supply/demand balance, we
believe that the growth in worldwide nitrogen demand will lessen the impact
that this new supply will have on prices. Despite our favorable outlook of
the nitrogen segment, significant additional increases in natural gas prices
would have a material adverse impact on our margins. Other variables can
affect our results of operations as stated elsewhere in this discussion under
the headings titled "Results of Operations" and "Forward Looking Statements."
In August 1999, we restructured our sales department to better meet the demands
of our changing customer base and to foster the development of new and improved
industrial uses for our products. We continue to seek out methods for
improving industrial sales of our products to offset our dependence on the
agricultural sector and its Spring selling season. Although we have recently
seen some improvement in DAP sales prices, we anticipate that DAP sales prices
will continue in the near term to adversely affect our phosphate segment's
financial results. Finally, we believe domestic potash demand will remain
strong in the near-term; however, the performance of our potash segment could
continue to be impacted by areas of low grade ore.
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 planted acreage,
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) mechanical 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 or reductions by competitors,
(vi) pricing policies of domestic and foreign competitors, and (vii) the
unpredictable nature of international and local economies.
Summaries of our sales results by business unit are set forth below:
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Fiscal Years Ended June 30
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(Dollars in thousands) 2000 1999 1998
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Net Sales:
Nitrogen $290,613 $244,581 $277,993
DAP 103,458 135,718 124,123
Potash 89,766 85,917 89,746
Other 1,362 1,683 1,850
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Net Sales $485,199 $467,899 $493,712
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Fiscal Years Ended June 30
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(Tons in thousands) 2000 1999 1998
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Tons Sold:
Nitrogen:
Ammonia 949 819 648
Ammonium nitrate 740 765 765
Urea 582 556 515
Nitrogen solutions 663 489 485
Nitric acid 40 54 57
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Total Nitrogen 2,974 2,683 2,470
DAP 762 788 726
Potash 1,012 921 1,022
Fiscal Years Ended June 30
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2000 1999 1998
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Average Sales Price Per Ton:
Nitrogen $ 98 $ 91 $ 113
DAP $ 136 $ 172 $ 171
Potash $ 89 $ 93 $ 88
Fiscal Years Ended June 30
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(Dollars in thousands) 2000 1999 1998
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Operating (Loss) Income:
Nitrogen $(15,828) $(17,368) $ 32,426
Phosphate $ (5,541) $ 16,660 $ 5,277
Potash $ 4,037 $ 12,416 $ 10,003
Other $ (2,292) $ (3,253) $ (9,770)
-------- -------- --------
Total $(19,624) $ 8,455 $ 37,936
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FISCAL 2000 COMPARED TO FISCAL 1999
NET SALES. Our net sales increased 4% to $485.2 million in fiscal 2000
from $467.9 million in fiscal 1999. This increase was primarily the result of
higher sales prices for most of our nitrogen products, and higher sales
volumes for our nitrogen and potash products. This increase was partially
offset by lower sales prices for DAP.
During the current year, our nitrogen sales increased 19% as compared to
the prior year. This increase was the result of an 11% increase in nitrogen
sales volumes and a 7% increase in the weighted average sales price for
nitrogen products. Our nitrogen sales volumes increased in the current year
primarily as a result of a 16% increase in ammonia sales volumes and a 35%
increase in nitrogen solutions sales volumes. Our ammonia sales volumes
increased due to having additional tons available for sale in the current year.
During the prior year, we produced fewer tons of ammonia as a result of our
Trinidad plant being down for 34 days to correct operational problems. Our
nitrogen solutions sales volumes increased in the current year due to stronger
markets and inventory carryover, combined with increased production levels in
the current year. Our nitrogen sales prices increased in the current year
primarily as a result of a 28% increase in the average sales price of ammonia
that was partially offset by a 10% decrease in the average sales price of
nitrogen solutions. Ammonia sales prices increased in the current year due to
the continued improvement in the global supply/demand balance. Our nitrogen
solutions sales prices decreased during the current year due to a significant
oversupply of product in the Fall. Market conditions tightened later in the
year as supply was affected by production curtailments and reduced industry
inventories. Product was sold throughout the year based on pricing
arrangements made early in the year when prices were nearer their low point in
the cycle. In the current year, ammonium nitrate sales volumes decreased 3%
while average sales prices decreased 1%, primarily because of cheap Ukrainian
imports. Both urea sales volumes and average sales prices increased 5% during
the current year. Urea sales volumes increased primarily as a result of
product available from our Faustina, Louisiana, granular urea plant that we
purchased in April 2000.
During the current year, our DAP sales decreased 24% as compared to the
prior year due to a 21% reduction in the average sales price and a 3%
reduction in sales volumes. The decline in sales prices during the current
year are attributable to the industry reaction to anticipated new supply in
India and Australia. As a result, the industry experienced several shutdowns
and curtailments in DAP production during the current year. We also curtailed
our DAP production rates in October 1999 through mid-May 2000 to adjust to
weaker export and domestic demand, resulting in lower sales volumes during the
current year. We are currently operating at full capacity, but will continue
to monitor market conditions to determine whether additional shutdowns or
curtailments are advisable. In addition, in the prior year, we had 22 days of
production downtime as well as approximately 54,000 tons of DAP inventory that
was damaged as a result of Hurricane Georges.
Our potash sales increased 5% during the current year as compared to the
prior year as a result of a 10% increase in sales volumes which was partially
offset by a 5% reduction in average sales prices. Sales volumes increased in
the current year as a result of a strong Spring demand.
COST OF PRODUCTS SOLD. Our cost of products sold increased to $465.7
million in fiscal 2000 from $420.6 million in fiscal 1999. As a percentage of
net sales, cost of products sold increased to 96% in fiscal 2000 from 90% in
fiscal 1999 due to lower DAP and potash sales prices and higher costs per ton
for our nitrogen and potash products. These increases were partially offset
by higher sales prices for most of our nitrogen products and lower costs per
ton for DAP. Our nitrogen costs per ton increased primarily as a result of
higher natural gas costs at our domestic production facilities in the current
year. The average price of natural gas increased approximately 25% during the
current year as compared to the prior year. These higher gas costs were
partially offset by increased earnings at our joint venture ammonia plant in
Trinidad. Our portion of the earnings from Farmland MissChem was $13.7
million for the current year as compared to $1.5 million in the prior year.
Farmland MissChem's current year earnings included $3.4 million related to a
business interruption claim for downtime that occurred in March and April of
1999. During the current year, we also recorded a gain of $4.5 million related
to the unusually high recovery and sale of precious metals formerly used as
catalysts during prior periods at our Yazoo City facility. DAP costs per ton
decreased 6% during the current year as compared to the prior year primarily as
a result of lower raw material costs for phosphate rock, sulfuric acid and
sulfur. These lower costs were partially offset by higher conversion costs in
the current year. 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 domestic phosphate producers and the financial
performance of our phosphate operations. DAP conversion costs were higher
primarily as a result of reduced operating rates in the current year. Potash
costs per ton increased 8% during the current year as compared to the prior
year. This increase was primarily the result of higher production costs due
to mining ore grades that are lower than projected by ore grade sampling.
Until we mine through these areas, we anticipate these higher production costs
to continue. Additionally, we experienced higher natural gas costs at our
potash production facilities in the current year which resulted in increased
production costs.
SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and
administrative expenses decreased to $34.4 million in fiscal 2000, from $38.3
million in fiscal 1999. This decrease was primarily the result of lower
advertising costs, professional consultant fees and employee incentives during
the current year, partially offset by costs incurred in the current year
related to the reorganization of our sales, marketing and distribution
department. As a percentage of net sales, selling, general and administrative
expenses decreased to 7% for the current year as compared to 8% for the prior
year.
OTHER OPERATING EXPENSES. Our other operating expenses increased to $4.7
million for fiscal 2000, from $576,000 for fiscal 1999. This increase was the
result of idle plant costs incurred in the current year associated with the
curtailment of production at our Donaldsonville, Louisiana, and Yazoo City,
Mississippi, facilities. We curtailed ammonia production in Donaldsonville in
August and September of the current fiscal year. As a result of record high
natural gas prices, and in order to control inventory levels, we curtailed
production of ammonium nitrate, nitrogen solutions and ammonia at our Yazoo
City nitrogen facility during June of the current fiscal year.
OPERATING (LOSS) INCOME. As a result of the above factors, we incurred an
operating loss of $19.6 million for fiscal 2000, as compared to operating
income of $8.5 million for fiscal 1999.
INTEREST, NET. For fiscal 2000, our net interest expense increased to
$27.1 million from $19.0 million in fiscal 1999. This increase was partially
the result of no interest being capitalized in the current year, while interest
costs of $3.9 million were capitalized during the prior year related to the
completion of major construction projects. Higher average debt levels and
higher average interest rates paid during the current year also contributed to
our increased interest costs.
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 facility 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 INCOME. For fiscal 2000, our other income increased to $2.0 million,
compared to $1.0 million in fiscal 1999. This increase was primarily the
result of recognizing a gain on the sale of our remaining minority interest in
our former subsidiary, Newsprint South, Inc., which was carried at zero value
on our balance sheet, and the related sale of land and technology utilized by
Newsprint South, Inc. During the current year, we also had higher earnings at
our unconsolidated affiliates.
INCOME TAX BENEFIT. For fiscal 2000, our income tax benefit was $21.0
million, as compared to a $162,000 benefit for fiscal 1999. These income tax
benefits are the result of our losses. During the current year, we also
recorded a one-time benefit in the amount of $2.0 million related to settlement
agreements made with the Internal Revenue Service related to an audit of fiscal
years 1994, 1995 and 1996.
NET LOSS. As a result of the foregoing, during the current year, we
incurred a net loss of $23.7 million, as compared to a net loss of $3.6 million
for the prior year.
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 fiscal 1999 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 fiscal 1999, 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 fiscal 1998. Nitrogen fertilizer sales volumes increased 9% during fiscal
1999, primarily as a result of increased sales volumes for ammonia. Ammonia
sales volumes increased 26% during fiscal 1999 due to the availability of
additional tons for sale from Farmland MissChem. We purchase one-half of the
total production from the Farmland MissChem plant. The increase was partially
offset by lost production in fiscal 1999 associated with downtime at one of our
ammonia plants located in Donaldsonville, Louisiana. During fiscal 1999, DAP
sales increased 9% as 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
fiscal 1999 associated with an expansion completed in fiscal 1998. This
increase was partially offset by lost production in fiscal 1999 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 fiscal 1999, 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
fiscal 1999, (ii) reduced product availability due to suspension of operations
at our Eddy Potash, Inc. ("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.
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
fiscal 1999. Our lower nitrogen costs per ton were achieved through lower
costs for natural gas, maintenance and labor during fiscal 1999. During fiscal
1998, we incurred higher maintenance and labor costs as a result of scheduled
maintenance shutdowns. These lower costs during fiscal 1999 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 fiscal 1999, 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 fiscal 1999. Potash costs per
ton increased 2% during fiscal 1999 as compared to fiscal 1998. 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 $38.3 million in fiscal 1999 from
$36.4 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 increased to 8% in
fiscal 1999 from 7% in fiscal 1998.
OTHER OPERATING EXPENSES. Our other operating expenses were $576,000 in
fiscal 1999, and $1.1 million in fiscal 1998. These amounts represented idle
plant costs associated with the suspension of production operations at our Eddy
mine in December 1997.
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 fiscal 1999. We capitalized $3.9 million of
interest 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 fiscal 1999.
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 INCOME. 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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had cash and cash equivalents of $2.2 million compared
to $1.6 million at June 30, 1999, an increase of approximately $600,000. At
June 30, 1999, our cash and cash equivalents had decreased to $1.6 million from
$3.9 million at June 30, 1998, a decrease of $2.3 million.
OPERATING ACTIVITIES. Our net cash used in operating activities was
$6.3 million in fiscal 2000. Our net cash provided by operating activities
was $20.7 million in fiscal 1999 and $53.0 million in fiscal 1998.
INVESTING ACTIVITIES. Our net cash used in investing activities was $12.5
million in fiscal 2000 and $98.3 million in fiscal 1998. Net cash provided by
investing activities was $841,000 in fiscal 1999. Our fiscal 2000 capital
expenditures were $21.0 million, which included approximately $4.2 million
related to the completion of our nitrogen expansion project at our Yazoo City,
Mississippi, facility. The remaining $16.8 million was used for normal
improvements and modifications to our facilities, and for the purchase of our
granular urea plant in Faustina, Louisiana. Our capital expenditures were
$40.0 million in fiscal 1999 and $96.5 million in fiscal 1998. During fiscal
1999, we collected $54.6 million on a note receivable obtained during fiscal
1998 from the sale of our undeveloped phosphate rock property in Florida.
Fiscal 1999 also included $5.0 million in disbursements, not reimbursed as of
June 30, 1999, by insurance, from property damage caused by Hurricane Georges.
Cash invested in Farmland MissChem was $3.4 million in fiscal 1999 and $4.5
million in fiscal 1998.
FINANCING ACTIVITIES. Our net cash provided by financing activities was
$19.4 million in fiscal 2000 and $41.0 million in fiscal 1998. Our net cash
used in financing activities was $23.7 million in fiscal 1999. During the
current year, amounts provided by financing activities included $24.4 million
in net proceeds from borrowings, partially offset by $5.0 million paid in cash
dividends. During fiscal 1999, amounts used in our financing activities
included $14.1 million for the purchase of treasury stock and $10.6 million
paid in cash dividends. These amounts were partially offset by $1.0 million
in net proceeds from borrowings. During fiscal 1998, amounts provided by
financing activities included $60.2 million in net proceeds from borrowings.
These amounts were partially offset by $3.0 million for the purchase of
treasury stock, $10.9 million paid in cash dividends, and $5.2 million in bond
issuance costs.
In August 1997, we issued $14.5 million in industrial revenue bonds, a
portion of which were tax-exempt, to finance the development of our new
phosphogypsum disposal facility at our Pascagoula, Mississippi, DAP
manufacturing plant. On April 1, 1998, we issued $14.5 million in 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 our 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.
On November 25, 1997, we issued $200.0 million of 7.25% Senior Notes (the
"Senior Notes") due November 15, 2017. The holders may elect to have the
Senior Notes repaid on November 15, 2007. The Senior Notes were issued under
a $300.0 million shelf registration statement filed with the Securities and
Exchange Commission in November 1997.
We have a secured revolving credit facility (the "Facility") with Harris
Trust and Savings Bank and a syndicate of other commercial banks totaling
$200.0 million. This facility matures on November 25, 2002, and bears interest
at rates related to the Prime Rate, the London Interbank Offered Rate or the
Federal Funds Rate. At June 30, 2000, we had a letter of credit outstanding in
the amount of $9.7 million that lowers the Company's availability under the
facility and borrowings outstanding in the amount of $116.2 million. We had
$74.1 million available under the facility at June 30, 2000.
During fiscal 2000, we modified the Facility in a manner that we believe,
when combined with our operating cash flow, will satisfy our anticipated
operating and capital requirements for at least the next twelve months and
reduce the likelihood of noncompliance with the Facility's financial covenants.
The modification included a change to the financial covenants that shifts the
focus from our cash flow generation (which has been impaired by the current
industry down-cycle) to our balance sheet by replacing the leverage covenant
(which required us to maintain a threshold ratio of cash flow to total debt)
with a debt to capital covenant (which prohibits us from exceeding a threshold
ratio of debt to total capital). In addition, the interest coverage covenant
and the tangible net worth requirement are less restrictive. Amounts
outstanding under the Facility are subject to a requirement that the total
amount outstanding under the Facility not exceed a certain asset value
calculation. The modification permits quarterly cash dividends at our current
level of $0.03 per common share if we maintain a certain ratio of earnings
before interest, taxes, depreciation, and amortization to interest, prohibits
us from repurchasing our shares outstanding, and has a limitation on capital
expenditures by year. As part of the modification, the Facility lenders were
granted security interests in substantially all of our assets, as allowed by
the Indenture governing the Senior Notes. The modification increased our
near-term borrowing spreads under the Facility by approximately 150 basis
points during the current year as compared to the spreads in effect prior to
modification.
SUMMARY. Based on our current natural gas prices, we believe that our
existing cash, cash generated from operations, and available credit facilities
will be sufficient to satisfy our financing requirements for operations and
capital projects through fiscal 2001. There has been unprecedented volatility
in natural gas prices in recent months with our costs increasing 45% in the
fourth quarter of the current year over the prior year fourth quarter.
Significant additional increases in natural gas prices could have a material
adverse impact on our liquidity. We estimate our capital expenditure
requirements for fiscal 2001 to be approximately $28.0 million, which includes
normal improvements and modifications to our facilities and will be funded
with cash generated from operations and borrowings under our credit facilities.
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 2000, 1999 and 1998.
<TABLE>
Year Ending June 30, 2000
----------------------------------------------
(In thousands,
except per share data) 1st Q 2nd Q 3rd Q 4th Q
----------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 96,998 $107,312 $129,660 $151,229
Operating (loss) income $ (7,599) $(10,599) $ (4,187) $ 2,761
Net loss $ (5,552) $(10,009) $ (5,211) $ (2,892)
Loss per share - basic (1) $ (0.21) $ (0.38) $ (0.20) $ (0.11)
Loss per share - diluted (1) $ (0.21) $ (0.38) $ (0.20) $ (0.11)
Weighted average common
shares outstanding - basic 26,132 26,132 26,132 26,132
Weighted average common
shares outstanding - diluted 26,132 26,132 26,132 26,132
Dividends paid per share $ 0.10 $ 0.03 $ 0.03 $ 0.03
Common stock price range
- high $ 10.81 $ 7.06 $ 10.75 $ 7.75
- low $ 6.19 $ 4.56 $ 6.50 $ 2.94
</TABLE>
<TABLE>
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>
<TABLE>
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>
[FN]
(1) Quarterly amounts do not add to the annual earnings per share because of
changes in the number of outstanding shares during the year.
</FN>
Our common stock is traded on the New York Stock Exchange under the symbol
"GRO." As of August 7, 2000, shareholders of record numbered approximately
14,110.
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 2000, 1999 or 1998.
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. It was amended again in June 2000, by SFAS No. 138, to address certain
issues causing implementation difficulties. On July 1, 2000, we adopted the
provisions of SFAS No. 133, as amended. As of that date, our natural gas
futures contracts, which are our primary derivative instruments, qualified as
cash flow hedges and, accordingly, on July 1, 2000, we recognized an asset of
$6.6 million, with a corresponding unrealized gain of $4.1 million, net of tax,
as a component of equity and comprehensive income.
MARKET RISK
We are exposed to market risk, including changes in natural gas prices and
interest rates. To manage our natural gas price risks, 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. Our derivative
transactions are intended to hedge our future natural gas costs. The volume
of natural gas hedged varies from time to time based on management's judgment
of market conditions, particularly natural gas prices and product prices. For
more information about how we manage specific risk exposures, see Note 12 -
Hedging Activities, and Note 5 - Credit Agreements and Long-Term Debt, in our
Notes to Consolidated Financial Statements.
We use natural gas futures contracts to reduce the impact of changes in
natural gas prices. We prepared a sensitivity analysis to estimate our market
risk exposure arising from these instruments. The fair value of open
contracts was calculated by valuing each position using fiscal year end 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 such an adverse
change in prices would have reduced the fair value of open contracts by $1.4
million at June 30, 2000, and $2.7 million at June 30, 1999.
The table below provides information about our financial instruments that
are sensitive to changes in interest rates.
<TABLE>
(Dollars in thousands, except interest rates)
Maturity Date Fair Value
----------------------------------------------- ------------------
2001 2002 2003 2004 2005 Thereafter Total 2000 1999
-------------------------------------------------------------------
Long-term debt
--------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate
Principal
amount (1) - - - - - $214,500 $214,500 $114,508 $195,786
Weighted
average
interest rate - - - - - 7.15% 7.15%
Variable rate
Principal
amount (1) - - $116,197 - - - $116,197 $116,197 $ 91,800
Average
interest
rate (2) - - 9.66% - - - 9.66%
</TABLE>
[FN]
(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, 2000, variable rates.
Actual rates could differ.
</FN>
The estimated fair value for our Senior Notes at June 30, 2000, was
computed using current market quotes for securities similar to our Senior
Notes. At June 30, 1999, the estimated fair value for our Senior Notes was
computed using an interest rate equal to 2% above the effective yield on U. S.
Treasury Notes with similar maturities. The estimated fair value for our
industrial revenue bonds at June 30, 2000 and 1999 was computed using the
effective yield on state and local bonds. At June 30, 2000, we believe that
the fair value of our fixed rate, long-term debt has decreased from June 30,
1999, due to overall increases in interest rates for similar securities and the
lower credit ratings on the Senior Notes.
At June 30, 1999, we had outstanding interest rate swap agreements (the
"Agreements") with commercial banks having total notional principal amounts of
$40.7 million. We entered into these swap agreements to reduce the impact of
changes in interest rates on our floating rate long-term debt. The Agreements
effectively changed our interest rate exposure on a portion of our revolving
credit facility from a variable rate to a fixed rate. The fair value, which
represented the estimated cost to terminate the Agreements, was $427,000 at
June 30, 1999. The Agreements matured in fiscal 2000.
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, (vii) possible unscheduled plant
outages and other operating difficulties, (viii) the relative value of the U.S.
dollar and (ix) other 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.
<PAGE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 2000, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
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, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for the
three years ended June 30, 2000. 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 9.3 percent and 7.5 percent of total assets as of June 30, 2000 and
1999, 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 auditing standards generally
accepted in the United States. 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 and the report of
other auditors 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, 2000 and 1999, and the results of their operations
and their cash flows for the three years ended June 30, 2000, in conformity
with accounting principles generally accepted in the United States.
Jackson, Mississippi,
July 26, 2000
<PAGE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Dollars in thousands) June 30
----------------------
ASSETS 2000 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,190 $ 1,648
Accounts receivable (less allowances
of $2,068 and $2,043) 62,080 43,780
Inventories 72,517 76,924
Income tax receivable 10,080 18,189
Insurance receivable 3,094 11,310
Prepaid expenses and other current assets 2,895 3,622
Deferred income taxes 3,404 3,286
-------- --------
Total current assets 156,260 158,759
INVESTMENTS IN AFFILIATES 89,508 77,020
OTHER ASSETS 11,888 19,263
PROPERTY, PLANT AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION,
DEPLETION AND AMORTIZATION 445,854 472,084
GOODWILL, NET OF ACCUMULATED AMORTIZATION 167,179 171,762
-------- --------
$870,689 $898,888
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 54,661 $ 60,935
Accrued liabilities 10,893 13,460
-------- --------
Total current liabilities 65,554 74,395
LONG-TERM DEBT 330,307 305,857
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 9,995 9,853
DEFERRED INCOME TAXES 73,235 88,555
COMMITMENTS AND CONTINGENCIES
(SEE NOTES 3, 8, 12, 18, 19 AND 20)
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 114,996 143,626
Treasury stock, at cost (1,844,019 shares) (29,579) (29,579)
-------- --------
Total shareholders' equity 391,598 420,228
-------- --------
$870,689 $898,888
</TABLE>
[FN]
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
</FN>
<TABLE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) Years Ended June 30
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Net sales $485,199 $467,899 $493,712
Trading loss on brokered product - - (820)
-------- -------- --------
485,199 467,899 492,892
OPERATING EXPENSES:
Cost of products sold 465,692 420,604 417,506
Selling, general and administrative 34,386 38,264 36,368
Other 4,745 576 1,082
-------- -------- --------
504,823 459,444 454,956
-------- -------- --------
OPERATING (LOSS) INCOME (19,624) 8,455 37,936
OTHER (EXPENSE) INCOME:
Interest, net (27,053) (19,005) (10,948)
Gain on involuntary conversion of property - 5,737 -
Other 1,997 1,043 12,315
-------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES (44,680) (3,770) 39,303
INCOME TAX (BENEFIT) EXPENSE (21,016) (162) 16,329
-------- -------- --------
NET (LOSS) INCOME $(23,664) $ (3,608) $ 22,974
(LOSS) EARNINGS PER SHARE - BASIC AND DILUTED $ (0.91) $ (0.14) $ 0.84
</TABLE>
[FN]
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
</FN>
<TABLE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands) Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1997 $ 280 $305,901 $145,827 $(12,579) $439,429
Net income - - 22,974 - 22,974
Cash dividends paid
($0.40 per share) - - (10,948) - (10,948)
Treasury stock, net - - (53) (2,877) (2,930)
------ -------- -------- -------- --------
BALANCES, JUNE 30, 1999 280 305,901 157,800 (15,456) 448,525
Net loss - - (3,608) - (3,608)
Cash dividends paid
($0.40 per share) - - (10,566) - (10,566)
Treasury stock, net - - - (14,123) (14,123)
------ -------- -------- -------- --------
BALANCES, JUNE 30, 1999 280 305,901 143,626 (29,579) 420,228
Net loss - - (23,664) - (23,664)
Cash dividends paid
($0.19 per share) - - (4,966) - (4,966)
------ -------- -------- -------- --------
BALANCES, JUNE 30, 2000 $ 280 $305,901 $114,996 $(29,579) $391,598
</TABLE>
[FN]
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
</FN>
<TABLE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Years Ended June 30
-------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(23,664) $ (3,608) $ 22,974
Reconciliation of net (loss) income
to net cash (used in) provided by
operating activities:
Net change in operating assets and liabilities (2,302) (30,781) (4,781)
Depreciation, depletion and amortization 47,113 42,400 37,228
Equity earnings in unconsolidated affiliates (12,848) (920) 393
Deferred income taxes (15,437) 16,984 5,958
Gain on involuntary conversion of property - (5,737) -
Gain on sale of phosphate rock property - - (10,867)
Other 792 2,315 2,113
-------- -------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (6,346) 20,653 53,018
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (20,965) (39,970) (96,496)
Investment in Farmland MissChem Limited - (3,358) (4,508)
Collection on note receivable - 54,625 -
Disbursements for property damaged by
hurricane, net of insurance proceeds - (4,954) -
Other 8,422 (5,502) 2,727
-------- -------- --------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (12,543) 841 (98,277)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt payments (356,720) (513,364) (564,742)
Debt proceeds 381,117 514,350 624,905
Cash dividends paid (4,966) (10,566) (10,948)
Purchase of treasury stock - (14,123) (3,027)
Bond issuance costs - - (5,231)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 19,431 (23,703) 40,957
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 542 (2,209) (4,302)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 1,648 3,857 8,159
-------- -------- --------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 2,190 $ 1,648 $ 3,857
</TABLE>
[FN]
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
</FN>
<PAGE>
MISSISSIPPI CHEMICAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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, Donaldsonville, Louisiana, and Faustina,
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
facility 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 the southern and western regions of
the United States. 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 3). The Company has a
separate 50-50 joint venture with Farmland Industries, Inc. that is responsible
for the transportation of the ammonia produced at Farmland MissChem. In
addition, the Company also has a 50% interest in an ammonia storage terminal in
Pasadena, Texas.
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. Depreciation of the
Company's land improvements is based on the units-of-production method. 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:
<TABLE>
<S> <C>
Land improvements 20 years
Buildings 5-45 years
Machinery and equipment 2-30 years
</TABLE>
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 replacement 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 facility.
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. Goodwill is amortized on a
straight-line basis over 40 years. Accumulated amortization was approximately
$16,139,000 and $11,556,000 at June 30, 2000 and 1999, respectively. The
Company continually evaluates the carrying value of its goodwill. Any
impairment would be recognized when the expected future operating cash flows
derived from its goodwill becomes less than its carrying value.
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 the primary 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.
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 2000, 1999 or 1998.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States 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 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. It was amended again in June 2000, by SFAS No. 138, to address certain
issues causing implementation difficulties. On July 1, 2000, the Company
adopted the provisions of SFAS No. 133, as amended. As of that date, the
Company's natural gas futures contracts, which are its primary derivative
instruments, qualified as cash flow hedges and, accordingly, the Company
recognized an asset of $6,631,000, with a corresponding unrealized gain of
$4,149,000, net of tax, as a component of equity and comprehensive income.
RECLASSIFICATIONS
The Company has reclassified certain prior year information to conform to the
current year's presentation.
NOTE 2 - INVENTORIES:
Inventories consisted of the following:
<TABLE>
(Dollars in thousands) June 30
-----------------
2000 1999
------- -------
<S> <C> <C>
Finished products $28,015 $33,061
Raw materials and supplies 7,180 7,993
Replacement parts 37,322 35,870
------- -------
$72,517 $76,924
</TABLE>
NOTE 3 - 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, 2000, the Company's investment in Farmland MissChem was $80,619,000
and included $6,523,000 of capitalized interest. At June 30, 1999, the
Company's investment in Farmland MissChem was $67,318,000 and included
$6,884,000 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, 2000 and 1999, and its results of
operations for the fiscal years ended June 30, 2000 and 1999, are summarized
below:
<TABLE>
Summarized Balance Sheet Information:
June 30
--------------------
2000 1999
-------- --------
(Dollars in thousands)
<S> <C> <C>
Current assets $ 51,929 $ 31,414
Non-current assets 294,316 306,779
Current liabilities 33,870 31,250
Non-current liabilities 164,184 186,075
Stockholders' equity 148,191 120,868
Summarized Statement of Income Information:
Years Ended June 30
--------------------
2000 1999
-------- --------
(Dollars in thousands)
<S> <C> <C>
Revenues $ 79,687 $ 57,818
Gross profit 29,470 17,213
Income from continuing operations
before cumulative effect of change
in accounting principle 27,323 7,315
Net income 27,323 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.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
(Dollars in thousands) June 30
--------------------
2000 1999
-------- --------
<S> <C> <C>
Mineral properties $ 42,266 $ 42,266
Land and land improvements 24,715 26,261
Buildings 51,113 50,162
Machinery and equipment 724,410 707,836
Construction in progress 4,364 8,781
-------- --------
846,868 835,306
Less accumulated depreciation,
depletion and amortization (401,014) (363,222)
-------- --------
$445,854 $472,084
</TABLE>
NOTE 5 - CREDIT AGREEMENTS AND LONG-TERM DEBT:
The Company and its subsidiaries have a revolving credit facility with Harris
Trust and Savings Bank ("Harris") and a syndicate of other commercial banks
totaling $200,000,000. The facility was unsecured at June 30, 1999. During
fiscal 2000, the Company modified the facility to amend the financial covenants
and to make other modifications. As part of the modifications, the banks were
granted security interests in substantially all of the Company's assets, as
allowed by the Indenture governing the Company's Senior Notes (as defined
below). The modification increased the Company's borrowing spreads under the
facility by approximately 150 basis points. The modification permits quarterly
cash dividends at the current level of $0.03 per common share, but the Company
must maintain a certain ratio of cash flow to interest. The modification also
prohibits the Company from repurchasing any outstanding shares and has a
limitation on capital expenditures by year. The facility has financial
covenants that require that the Company maintain specified levels of tangible
net worth, debt to capitalization, and cash flow to interest expense, as
defined in the credit agreement, and as of June 30, 2000, the Company was in
compliance with these covenants. Amounts outstanding under the facility are
subject to a requirement that the total amount outstanding not exceed a certain
asset value calculation. The facility has a five-year term and matures on
November 25, 2002, and bears interest at rates related to the prime rate, the
London Interbank Offered Rate or Federal Funds Rate. At June 30, 2000, the
Company had a letter of credit outstanding in the amount of $9,673,000 that
lowers the Company's availability under the facility, and borrowings
outstanding in the amount of $116,197,000. The Company had $74,130,000
available under the facility at June 30, 2000.
On November 25, 1997, the Company issued $200,000,000 of 7.25% Senior Notes due
November 15, 2017. The holders may elect to have the Senior Notes repaid on
November 15, 2007. The Senior 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 revolving credit facility.
In August 1997, the Company issued $14,500,000 in industrial revenue bonds, a
portion of which was 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 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 5.80% fixed rate of
interest. 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>
(Dollars in thousands) June 30
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revolving credit facility
(2000 - 9.66%; 1999 - 6.07%) $116,197 $ 91,800
Senior Notes, net of unamortized
discount of $390 and $443 (7.25%) 199,610 199,557
Industrial revenue bonds(5.80%) 14,500 14,500
-------- --------
$330,307 $305,857
</TABLE>
The Company had no long-term debt due within one year at June 30, 2000 or
June 30, 1999.
The estimated fair value of the Company's long-term debt at June 30, 2000 and
1999 was $230,705,000 and $287,586,000, respectively. The estimated fair value
for the Company's Senior Notes at June 30, 2000 was computed using current
market quotes for securities similar to the Company's Senior Notes, and the
effective yield on state and local bonds for the Company's industrial revenue
bonds. At June 30, 1999, the estimated fair value for the Company's Senior
Notes was computed using an interest rate equal to 2% above the effective
yield on U. S. Treasury Notes with similar maturities. The Company's revolving
credit facilities carry variable interest rates and, therefore, the balances at
June 30, 2000 and 1999 are representative of fair value.
At June 30, 1999, the Company had outstanding interest rate swap agreements
(the "Agreements") with commercial banks having total notional principal
amounts of $40,700,000. The Company entered into these swap agreements to
reduce the impact of changes in interest rates on its floating rate long-term
debt. The Agreements effectively changed the Company's interest rate exposure
on a portion of its revolving credit facility from a variable rate to a fixed
rate. The fair value, which represented the estimated cost to terminate the
Agreements, was $427,000 at June 30, 1999. The Agreements matured in fiscal
2000.
NOTE 6 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Other long-term liabilities and deferred credits consisted of the following:
<TABLE>
(Dollars in thousands) June 30
-------------------
2000 1999
------- -------
<S> <C> <C>
Accrual for closure of gypsum
disposal area $ 8,798 $ 8,803
Other 1,197 1,050
------- -------
$ 9,995 $ 9,853
</TABLE>
The Company anticipates beginning the closure of its existing phosphogypsum
disposal facility located at Pascagoula, Mississippi, during calendar year
2001. Closure costs have been 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 the second half of calendar year 2001, 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 7 - SHAREHOLDERS' EQUITY:
At June 30, 2000, 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>
(Shares in thousands) Common
Stock
------
<S> <C>
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
Purchase of treasury stock -
------
Shares outstanding, June 30, 2000 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. As of October 31, 1998, the Company had repurchased a total
of 3,700,009 shares pursuant to those authorizations. No shares have been
repurchased since that date. The Company's current credit facility, as
amended, prohibits any further repurchasing of shares.
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, 2000, none of these shares
were outstanding.
NOTE 8 - STOCK OPTIONS:
The Company maintains a stock incentive plan for certain officers and key
employees and a stock option plan for nonemployee directors of the Company.
Both plans have been approved by the Company's shareholders. 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, 2000, 1999 and 1998,
exercisable options were 1,101,614; 890,326 and 676,180, respectively. There
were 2,289,695 shares available for option plan grants at June 30, 2000. The
summary of stock option activity is shown below:
<TABLE>
Options Weighted Average
Outstanding Exercise Price
----------- ----------------
<S> <C> <C>
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
Stock options granted 423,000 $ 9.87
Stock options exercised - -
Stock options canceled - -
---------
June 30, 2000 1,398,214 $16.50
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
Weighted Average
Exercise Price Options Remaining Weighted Average
Range Outstanding Contractual Life Exercise Price
--------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$ 9.87 423,000 9.0 Years $ 9.87
$15.00 - $16.44 393,014 6.3 $15.71
$18.22 - $21.00 361,796 6.7 $20.55
$23.96 220,404 5.4 $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.
The pro forma effects of the total compensation expense that would have been
recognized under SFAS No. 123 are as follows:
<TABLE>
(Dollars in thousands, except per share data)
June 30
---------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net (loss) income
As reported $(23,664) $ (3,608) $ 22,974
Pro forma $(24,725) $ (4,420) $ 22,141
(Loss) earnings per share - basic
As reported $ (0.91) $ (0.14) $ 0.84
Pro forma $ (0.95) $ (0.17) $ 0.81
(Loss) earnings per share - diluted
As reported $ (0.91) $ (0.14) $ 0.84
Pro forma $ (0.95) $ (0.17) $ 0.81
</TABLE>
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>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Expected option lives 6 years 6 years 6 years
Risk-free interest rates 6.25% 5.80% 5.47%
Expected dividend yield 1.19% 2.33% 1.99%
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>
Weighted Average
Number Grant Date
Years Issued Fair Value per Option
----- ------ ---------------------
<S> <C> <C>
2000 423,000 $4.01
1999 216,000 $6.00
1998 200,625 $6.64
</TABLE>
NOTE 9 - EARNINGS PER SHARE:
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.
The number of shares used in the Company's basic and diluted earnings per
share computations are as follows:
<TABLE>
(Shares in thousands) Years Ended June 30
------------------------------
2000 1999 1998
------- -------- -------
<S> <C> <C> <C>
Weighted average common shares
outstanding, net of treasury
shares, for basic earnings
per share 26,132 26,392 27,355
Common stock equivalents for employee
stock options - - 35
------ ------ ------
Weighted average common shares
outstanding for diluted earnings
per share 26,132 26,392 27,390
</TABLE>
Options outstanding at June 30, 2000 and 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 10 - SEGMENT INFORMATION:
The Company's reportable segments are strategic business units that offer
different products. They are managed separately because each business unit
requires different technology and marketing strategies. As of June 30, 2000,
the Company had three reportable segments: Nitrogen, Phosphate 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 Phosphate segment produces DAP
that is marketed to agricultural users primarily in international markets
through a separate export association (as described below in this Note).
Approximately 65% of the Company's DAP sales were made in international
markets during fiscal 2000. The Potash segment mines and produces granular
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 Other caption includes corporate and consolidating
eliminations. The Company evaluates performance based on operating income of
the respective business units.
Segment information consisted of the following:
<TABLE>
(Dollars in thousands)
2000
------------------------------------------------
Nitrogen Phosphate Potash Other Total
-------- --------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net sales - external customers $291,352 $104,081 $ 89,766 $ - $485,199
Net sales - intersegment 20,331 84 - (20,415) -
Operating (loss) income (15,828) (5,541) 4,037 (2,292) (19,624)
Interest expense, net 11,229 3,861 5,614 6,349 27,053
Income tax benefit (12,925) (3,811) (715) (3,565) (21,016)
Depreciation, depletion and
amortization 30,887 6,141 6,204 3,881 47,113
Capital expenditures 13,584 2,590 4,284 507 20,965
Total assets 607,326 89,874 103,545 69,944 870,689
1999
------------------------------------------------
Nitrogen Phosphate Potash Other 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 (17,368) 16,660 12,416 (3,253) 8,455
Interest expense (income), net 15,841 3,257 5,092 (5,185) 19,005
Income tax (benefit) expense (14,783) 7,386 2,654 4,581 (162)
Depreciation, depletion and
amortization 29,003 4,823 5,632 2,942 42,400
Capital expenditures 21,057 3,816 12,883 2,214 39,970
Total assets 615,361 100,037 112,134 71,356 898,888
1998
------------------------------------------------
Nitrogen Phosphate Potash Other 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 32,426 5,277 10,003 (9,770) 37,936
Interest expense (income), net 10,976 1,983 6,203 (8,214) 10,948
Income tax expense 8,341 1,361 1,402 5,225 16,329
Depreciation, depletion and
amortization 24,131 3,844 5,706 3,547 37,228
Capital expenditures 60,870 28,958 5,679 989 96,496
Total assets 606,172 82,272 104,198 119,690 912,332
</TABLE>
The following summarizes geographic information about the Company's net sales:
(Dollars in thousands)
<TABLE>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
United States $466,836 $451,602 $478,112
Other 18,363 16,297 15,600
-------- -------- --------
$485,199 $467,899 $493,712
</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 2000, 1999 and 1998, sales to the Company's
exclusive export distributors were $67,299,000, $86,306,000 and $98,145,000,
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 2000, 1999 or 1998.
At June 30, 2000, 1999 and 1998, 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 $80,619,000, $67,318,000 and $62,794,000, 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
continuation of the severe downturn in the agricultural economy could have an
adverse impact on the collectibility of those receivables.
NOTE 11 - TRADING LOSS ON BROKERED PRODUCT:
During fiscal 1998, the Company brokered approximately 142,000 short tons of
ammonia in the open market. Brokered ammonia sales of $18,494,000 and
purchases of $19,314,000 resulted in an $820,000 net trading loss. This
trading loss has been reflected in the accompanying consolidated statement of
income for fiscal 1998. The Company did not engage in any brokering
activities during fiscal 2000 or fiscal 1999.
NOTE 12 - HEDGING ACTIVITIES:
During fiscal 2000 and 1998, natural gas hedging activities resulted in average
cost decreases of approximately $0.15 and $0.23 per MMBTU on volumes hedged of
35,490,000 and 23,730,000 MMBTUs, respectively. 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. At June 30, 2000, the Company
had open futures contracts covering a total volume of 3,200,000 MMBTUs with
some contracts extending through July 2001. The net unrealized gain on these
contracts at June 30, 2000 was $4,522,000. 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 13 - INTEREST, NET:
Interest, net, consisted of the following:
<TABLE>
(Dollars in thousands) Years Ended June 30
--------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Interest expense $(27,271) $(23,626) $(21,518)
Interest capitalized - 3,861 8,975
Interest income 218 760 1,595
-------- -------- --------
$(27,053) $(19,005) $(10,948)
</TABLE>
NOTE 14 - INVOLUNTARY CONVERSION OF PROPERTY:
On September 27, 1998, the Company's Pascagoula, Mississippi, DAP production
facility was shut down as a result of damage caused by Hurricane Georges. The
facility was shut down for 22 days, and approximately 54,000 tons of DAP
inventory was damaged. The damaged property and inventory were insured, as
were all business interruption losses in excess of ten days. During fiscal
1999, the Company recorded, as a component of its 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, 2000 and 1999, the Company had insurance receivables recorded on
its consolidated balance sheets of $3,094,000 and $11,310,000, respectively,
related to property damaged by Hurricane Georges.
NOTE 15 - OTHER:
In April 1998, the Company sold the remaining portion of its undeveloped
phosphate rock property in Hardee County, Florida. 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 16 - INCOME TAXES:
The following is a summary of the components of the provision for income taxes:
<TABLE>
(Dollars in thousands) Years Ended June 30
-------------------------------
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal $ (7,406) $(14,305) $ 9,350
State 173 (1,583) 1,021
-------- -------- -------
(7,233) (15,888) 10,371
-------- -------- -------
Deferred:
Federal (11,520) 14,159 5,345
State (2,263) 1,567 613
------- -------- -------
(13,783) 15,726 5,958
-------- -------- -------
$(21,016) $ (162) $16,329
</TABLE>
The tax effect of the significant temporary differences and tax credit
carryforwards at June 30 follows:
<TABLE>
(Dollars in thousands) 2000 1999
--------------------- --------------------
Current Non-current Current Non-current
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Employee benefit obligations $ 2,028 $ 77 $ 2,192 $ 81
Reserve for bad debts 774 - 765 -
Employee post retirement 169 1,661 68 1,344
Accrual for closure of gypsum
disposal area - 2,395 - 2,336
Loss carryforwards - 24,482 - -
Other 433 1,539 261 257
------- -------- ------- --------
Deferred tax assets 3,404 30,154 3,286 4,018
------- -------- ------- --------
Property, plant and equipment - (93,453) - (81,113)
Pension - (804) - (1,597)
Capitalized interest on equity
investments - (2,442) - (1,504)
Other - (6,690) - (8,359)
------- -------- ------- --------
Deferred tax liabilities - (103,389) - (92,573)
------- -------- ------- --------
Net deferred tax asset
(liability) $ 3,404 $(73,235) $ 3,286 $(88,555)
</TABLE>
A reconciliation of the statutory rate for income taxes and the effective tax
rate for the years ended June 30 follows:
<TABLE>
(Dollars in thousands) 2000 1999 1998
----------------- ----------------- ---------------
% 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 $(15,638) (35.0%) $(1,320) (35.0%) $13,756 35.0%
Increase (decrease) in
taxes resulting from:
State taxes, net (1,358) (3.0%) (10) (0.3%) 1,149 2.9%
Non-deductible
goodwill 1,604 3.6% 1,604 42.5% 1,604 4.1%
Permanently reinvested
foreign earnings (4,782) (10.7%) (524) (13.9%) - -
Other, net (842) (1.9%) 88 2.4% (180) (0.5%)
-------- ------ ------- ------ ------- -----
$(21,016) (47.0%) $ (162) (4.3%) $16,329 41.5%
</TABLE>
The Company has federal and state loss carryforwards of approximately
$62,663,000 and $83,970,000, respectively. The federal loss carryforwards
expire in 2015. The state loss carryforwards expire between 2003 and 2015.
No valuation allowances have been established.
Undistributed earnings of foreign subsidiaries and joint ventures aggregated
$13,654,000 on June 30, 2000, which, under existing law, will not be subject
to U.S. tax unless distributed as dividends, loaned to the Company or a U.S.
affiliate, or the Company were to sell its interests in the subsidiaries and
joint ventures. Since the earnings have been or are intended to be
indefinitely reinvested in foreign operations, no provision has been made for
any U.S. taxes that may be applicable thereto. Furthermore, any taxes paid to
foreign governments on those earnings may be used in whole or in part as
credits against the U.S. tax on any dividends distributed from such earnings.
It is not practicable to estimate the amount of unrecognized deferred U.S.
taxes on these undistributed earnings.
Income taxes have been settled with the Internal Revenue Service ("IRS") for
all years through June 30, 1996. The IRS is currently conducting its field
examination of the Company's U.S. income tax returns for fiscal years
1997-1999. The Company believes any adjustments that might be required will
not be material to the Company's financial position or results of operations.
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.
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>
(Dollars in thousands)
2000 1999
-------- --------
<S> <C> <C>
Change in benefit obligation
----------------------------
Benefit obligation at beginning of year $108,917 $101,649
Service cost 4,570 4,231
Interest cost 7,731 7,215
Actuarial (gain) loss (3,823) 313
Benefit payments (6,022) (4,491)
-------- --------
Benefit obligation at end of year 111,373 108,917
-------- --------
Change in plan assets
---------------------
Fair value of plan assets at beginning of year 115,888 115,162
Actual return on plan assets 16,369 5,413
Employer contributions 500 500
Benefit payments (6,022) (4,491)
Expenses (721) (696)
-------- --------
Fair value of plan assets at end of year 126,014 115,888
-------- --------
Funded status 14,641 6,971
Unrecognized transition asset (1,660) (2,366)
Unrecognized prior service cost 5,271 5,703
Unrecognized net gain (15,796) (5,887)
-------- --------
Prepaid pension cost $ 2,456 $ 4,421
</TABLE>
The following assumptions were used to measure net periodic pension expense
for the plans for fiscal years ended June 30:
<TABLE>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.25% 7.25%
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>
Net periodic pension expense includes the following components:
<TABLE>
(Dollars in thousands) Years Ended June 30
----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 4,570 $ 4,231 $ 3,708
Interest cost on projected
benefit obligations 7,731 7,215 6,888
Expected return on plan assets (9,562) (9,521) (7,777)
Net amortization (274) (274) (274)
------- ------- -------
Net periodic pension expense $ 2,465 $ 1,651 $ 2,545
</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 $1,582,000 in
fiscal 2000, $1,554,000 in fiscal 1999, and $1,529,000 in fiscal 1998.
The Company has no material post-retirement benefit obligations.
NOTE 18 - 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, 2000:
<TABLE>
(Dollars in thousands)
Years Ending June 30 Amount
-------------------- ------
<S> <C>
2001 $ 2,956
2002 2,199
2003 1,932
2004 1,437
2005 971
Thereafter 872
-------
$10,367
</TABLE>
Rental expense for all operating leases was $6,142,000 for fiscal 2000,
$6,823,000 for fiscal 1999, and $3,876,000 for fiscal 1998.
NOTE 19 - COMMITMENTS AND CONTINGENCIES:
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 sought 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 and its property insurers filed suit in federal court
in Iowa against the Company seeking to recover a total of approximately
$300,000,000 in property damage, lost profits and other out-of-pocket expenses
allegedly caused by the explosion. Terra alleged 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 was
ultimately determined that the Mississippi federal district court was the
proper venue to resolve all issues between the parties related to the Port
Neal explosion. A global settlement was reached which was tied to the
decision of a court appointed expert. In August 2000, the expert rendered a
decision favorable to the Company, resulting in the dismissal of the Terra
claims with prejudice and the Company taking a judgment against Terra for
$18,000,000, the bulk of which is collectible only from Terra's insurers who
have not yet admitted coverage for the claim. At June 30, 2000, the Company
had not reflected any effect of this favorable outcome in its accompanying
financial statements.
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, 2000 was
less than $500,000.
NOTE 20 - 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 21 - 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,
2000 or 1999. 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>
(Dollars in thousands) Years Ended June 30
---------------------------------
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Receivables $ (1,975) $(16,793) $11,563
Inventories 4,407 (11,495) 3,881
Prepaid expenses and other
current assets 727 3,014 (1,763)
Accounts payable (2,894) (535) (16,445)
Accrued liabilities (2,567) (4,972) (2,017)
-------- -------- -------
$ (2,302) $(30,781) $(4,781)
</TABLE>
During fiscal 2000, the Company received net tax refunds of $13,883,000.
During fiscal 1999 and 1998, the Company paid income taxes of $4,589,000 and
$11,242,000, respectively. Payments of interest, net of amounts capitalized,
were $24,964,000 in fiscal 2000, $18,098,000 in fiscal 1999, and $10,021,000
in fiscal 1998.
Supplemental disclosures regarding non-cash financing and investing activities
include the following:
<TABLE>
(Dollars in thousands) Years Ended June 30
-------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Property held for sale
converted to note receivable $ - $ - $54,625
</TABLE>
NOTE 22 - GUARANTOR SUBSIDIARIES:
Payment obligations under the Company's 7.25% Senior Notes, due November 15,
2017, issued pursuant to that certain indenture, dated as of November 25,
1997, are fully and unconditionally guaranteed on a joint and several basis by
Mississippi Nitrogen, Inc., and MissChem Nitrogen, L.L.C. (the "Guarantor
Subsidiaries"), the Company's wholly owned direct subsidiary and wholly owned
indirect subsidiary, respectively. Condensed consolidating financial
information regarding the parent company, Guarantor Subsidiaries and non-
guarantor subsidiaries for June 30, 2000 and 1999 is presented below for
purposes of complying with the reporting requirements of the Guarantor
Subsidiaries. Separate financial statements of the Guarantor Subsidiaries are
not presented because the Company does not believe that separate financial
statements are material to investors.
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 2000
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $ - $136,808 $490,273 $(141,882) $485,199
Operating expenses:
Cost of products
sold - 151,689 455,507 (141,504) 465,692
Selling, general and
administrative 2,247 3,928 28,211 - 34,386
Other - 1,745 3,000 - 4,745
-------- -------- -------- -------- --------
2,247 157,362 486,718 (141,504) 504,823
-------- -------- -------- -------- --------
Operating (loss)
income (2,247) (20,554) 3,555 (378) (19,624)
Other (expense)
income:
Interest, net (25,842) (11,641) 10,430 - (27,053)
Other 3,741 8,640 (564) (9,820) 1,997
------- ------- ------- -------- --------
(Loss) income before
income taxes (24,348) (23,555) 13,421 (10,198) (44,680)
Income tax (benefit)
expense (684) 1,200 (11,074) (10,458) (21,016)
-------- -------- -------- -------- --------
Net (loss) income $(23,664) $(24,755) $ 24,495 $ 260 $(23,664)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 1999
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $ - $127,911 $475,532 $(135,544) $467,899
Operating expenses:
Cost of products sold - 130,925 431,989 (142,310) 420,604
Selling, general and
administrative 3,704 6,584 27,829 147 38,264
Other - - 576 - 576
------- -------- -------- --------- --------
3,704 137,509 460,394 (142,163) 459,444
------- -------- -------- --------- --------
Operating (loss)
income (3,704) (9,598) 15,138 6,619 8,455
Other (expense) income:
Interest, net (12,495) (5,614) (896) - (19,005)
Other 8,130 (12,307) 6,746 4,211 6,780
------- ------- -------- -------- --------
(Loss) income before
income taxes (8,069) (27,519) 20,988 10,830 (3,770)
Income tax (benefit)
expense (4,461) (4,344) 6,299 2,344 (162)
-------- -------- --------- -------- --------
Net (loss) income $ (3,608) $(23,175) $ 14,689 $ 8,486 $ (3,608)
======== ======== ========= ======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 1998
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales $ - $114,793 $541,660 $(162,741) $493,712
Trading loss on
brokered product - - (820) - (820)
-------- -------- -------- --------- --------
- 114,793 540,840 (162,741) 492,892
Operating expenses:
Cost of products
sold - 97,352 477,543 (157,389) 417,506
Selling, general and
administrative 4,154 7,385 24,681 148 36,368
Other - - 1,082 - 1,082
------- -------- -------- --------- --------
4,154 104,737 503,306 (157,241) 454,956
------- -------- -------- --------- --------
Operating (loss)
income (4,154) 10,056 37,534 (5,500) 37,936
Other (expense)
income:
Interest, net (2,501) (1,123) (7,324) - (10,948)
Other 31,425 10,829 2,575 (32,514) 12,315
-------- -------- -------- -------- --------
Income before
income taxes 24,770 19,762 32,785 (38,014) 39,303
Income tax expense 1,796 4,337 10,807 (611) 16,329
-------- -------- -------- -------- --------
Net income $ 22,974 $ 15,425 $ 21,978 $(37,403) $ 22,974
======== ======== ======== ======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2000
-------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 2,085 $ 17 $ 88 $ - $ 2,190
Receivables, net 1,556 11,139 93,407 (30,848) 75,254
Inventories - 22,858 50,056 (397) 72,517
Prepaid expenses
and other
current assets 2,473 1,321 6,360 (3,855) 6,299
-------- -------- -------- ----------- ---------
Total current
assets 6,114 35,335 149,911 (35,100) 156,260
Investments in
affiliates 713,724 350,635 72,776 (1,047,627) 89,508
Other assets 134,530 5 252,267 (374,914) 11,888
Property, plant and
equipment, net 12,296 148,828 284,730 - 445,854
Goodwill, net - - 167,179 - 167,179
-------- -------- -------- ----------- --------
Total assets $866,664 $534,803 $926,863 $(1,457,641) $870,689
======== ======== ======== =========== ========
Current liabilities:
Accounts payable $ 36,857 $ 11,404 $ 58,375 $ (51,975) $ 54,661
Accrued
liabilities 7,254 3,028 5,879 (5,268) 10,893
-------- -------- -------- ----------- --------
Total current
liabilities 44,111 14,432 64,254 (57,243) 65,554
Long-term debt 315,806 137,937 127,553 (250,989) 330,307
Other long-term
liabilities and
deferred credits 115,149 31,266 62,079 (125,264) 83,230
Shareholders' equity:
Common stock 280 1 58,941 (58,942) 280
Additional paid-in
capital 305,901 324,715 545,069 (869,784) 305,901
Retained earnings 114,996 26,452 68,967 (95,419) 114,996
Treasury stock,
at cost (29,579) - - - (29,579)
-------- -------- -------- ----------- --------
Total shareholders'
equity 391,598 351,168 672,977 (1,024,145) 391,598
-------- -------- -------- ----------- --------
Total
liabilities
and share-
holders'
equity $866,664 $534,803 $926,863 $(1,457,641) $870,689
======== ======== ======== =========== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1999
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 244 $ 21 $ 1,383 $ - $ 1,648
Receivables, net 19,210 7,792 83,819 (37,542) 73,279
Inventories - 19,629 57,076 219 76,924
Prepaid expenses
and other
current assets 3,994 5 5,901 (2,992) 6,908
-------- -------- -------- ---------- --------
Total current
assets 23,448 27,447 148,179 (40,315) 158,759
Investments in
affiliates 698,210 343,951 59,123 (1,024,264) 77,020
Other assets 110,538 - 223,966 (315,241) 19,263
Property, plant and
equipment, net 13,764 159,274 299,046 - 472,084
Goodwill, net - - 171,762 - 171,762
-------- -------- -------- ----------- --------
Total assets $845,960 $530,672 $902,076 $(1,379,820) $898,888
======== ======== ======== =========== ========
Current liabilities:
Accounts payable $ 20,417 $ 13,402 $ 69,993 $ (42,877) $ 60,935
Accrued liabilities 7,355 - 9,177 (3,072) 13,460
-------- -------- -------- ----------- --------
Total current
liabilities 27,772 13,402 79,170 (45,949) 74,395
Long-term debt 385,604 114,653 111,079 (305,479) 305,857
Other long-term
liabilities and
deferred credits 12,356 26,694 63,267 (3,909) 98,408
Shareholders' equity:
Common stock 280 1 58,941 (58,942) 280
Additional paid-in
capital 305,901 324,715 544,974 (869,689) 305,901
Retained earnings 143,626 51,207 44,645 (95,852) 143,626
Treasury stock,
at cost (29,579) - - - (29,579)
-------- -------- -------- ----------- --------
Total shareholders'
equity 420,228 375,923 648,560 (1,024,483) 420,228
-------- -------- -------- ----------- --------
Total liabilities
and share-
holders'
equity $845,960 $530,672 $902,076 $(1,379,820) $898,888
======== ======== ======== =========== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 2000
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income $ (23,664) $ (24,755) $ 24,495 $ 260 $(23,664)
Reconciliation of
net (loss) income
to net cash (used
in) provided by
operating
activities:
Net change in
operating
assets and
liabilities 32,765 6,499 (16,8780 (24,688) (2,302)
Depreciation,
depletion and
amortization 3,875 12,183 31,055 - 47,113
Equity earnings
in unconsoli-
dated affi-
liates (15,953) (6,683) (13,654) 23,442 (12,848)
Deferred income
taxes and
other (18,260) 3,343 (541) 813 (14,645)
-------- ------- -------- -------- --------
Net cash (used in)
provided by
operating
activities (21,237) (9,413) 24,477 (173) (6,346)
-------- ------- -------- -------- --------
Cash flows from
investing activities:
Purchases of
property, plant
and equipment (505) (5,637) (14,823) - (20,965)
Other 20 4 8,398 - 8,422
------- -------- -------- -------- --------
Net cash used in
investing activities (485) (5,633) (6,425) - (12,543)
------- -------- -------- -------- --------
Cash flows from
financing activities:
Net change in
affiliate notes 4,132 15,042 (19,174) - -
Debt payments (356,720) - - - (356,720)
Debt proceeds 381,117 - - - 381,117
Cash dividends
paid (4,966) - (173) 173 (4,966)
-------- -------- --------- -------- --------
Net cash provided by
(used in) financing
activities 23,563 15,042 (19,347) 173 19,431
-------- -------- --------- -------- --------
Net increase (decrease)
in cash and cash
equivalents 1,841 (4) (1,295) - 542
Cash and cash
equivalents -
beginning of
period 244 21 1,383 - 1,648
------- -------- -------- -------- --------
Cash and cash
equivalents - end
of period $ 2,085 $ 17 $ 88 $ - $ 2,190
======= ======== ======== ======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 1999
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net (loss)
income $ (3,608) $(23,175) $ 14,689 $ 8,486 $ (3,608)
Reconciliation
of net (loss)
income to net
cash (used in)
provided by
operating
activities:
Net change in
operating
assets and
liabilities (17,066) (6,017) (117) (7,581) (30,781)
Depreciation,
depletion and
amortization 2,942 9,680 30,082 (304) 42,400
Equity earnings
in unconsoli-
dated
affiliates (9,575) 13,419 - (4,764) (920)
Gain on
involuntary
conversion of
property - - (5,737) - (5,737)
Deferred income
taxes and
other 6,570 11,518 4,317 (3,106) 19,299
-------- -------- -------- -------- --------
Net cash (used in)
provided by
operating
activities (20,737) 5,425 43,234 (7,269) 20,653
-------- -------- -------- -------- --------
Cash flows from
investing activities:
Purchases of
property, plant
and equipment (2,214) (13,512) (24,244) - (39,970)
Investment in
affiliates (10,627) - - 7,269 (3,358)
Collection on note
receivable 54,625 - - - 54,625
Disbursements for
property damaged
by hurricane, net
of insurance
proceeds - - (4,954) - (4,954)
Other - - (5,502) - (5,502)
-------- -------- -------- -------- --------
Net cash provided by
(used in) investing
activities 41,784 (13,512) (34,700) 7,269 841
-------- -------- -------- -------- --------
Cash flows from
financing activities:
Net change in
affiliate notes 284 8,087 (8,371) - -
Debt payments (513,364) - - - (513,364)
Debt proceeds 514,350 - - - 514,350
Cash dividends
paid (10,566) - - - (10,566)
Purchase of
treasury stock (14,123) - - - (14,123)
-------- -------- --------- -------- --------
Net cash (used in)
provided by
financing
activities (23,419) 8,087 (8,371) - (23,703)
-------- -------- --------- -------- --------
Net (decrease)
increase in cash
and cash
equivalents (2,372) - 163 - (2,209)
Cash and cash
equivalents -
beginning of period 2,616 21 1,220 - 3,857
-------- -------- -------- -------- --------
Cash and cash
equivalents -
end of period $ 244 $ 21 $ 1,383 $ - $ 1,648
======== ======== ======== ======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 1998
--------------------------------------------------------------------------------
Parent Guarantor Non-Guarantor
(In thousands) Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income $ 22,974 $ 15,425 $ 21,978 $(37,403) $ 22,974
Reconciliation
of net income to
net cash provided
by operating
activities:
Net change in
operating
assets and
liabilities 3,467 7,788 20,178 (36,214) (4,781)
Depreciation,
depletion and
amortization 3,547 6,317 26,651 713 37,228
Equity earnings
in unconsoli-
dated
affiliates (20,767) (11,347) (85) 32,592 393
Deferred income
taxes and
other (6,103) 2,932 5,747 (5,372) (2,796)
-------- -------- -------- -------- --------
Net cash provided by
operating
activities 3,118 21,115 74,469 (45,684) 53,018
-------- -------- -------- -------- --------
Cash flows from
investing
activities:
Purchases of
property, plant
and equipment (989) (48,801) (46,706) - (96,496)
Investment in
affiliates (160,554) - 110,362 45,684 (4,508)
Other 3,899 - (1,172) - 2,727
-------- -------- -------- -------- --------
Net cash (used in)
provided by
investing
activities (157,644) (48,801) 62,484 45,684 (98,277)
-------- -------- -------- -------- --------
Cash flows from
financing
activities:
Net change in
affiliate
notes (25,813) 27,686 (1,873) - -
Debt payments (399,600) - (165,142) - (564,742)
Debt proceeds 595,874 - 29,031 - 624,905
Cash dividend
paid (10,948) - - - (10,948)
Purchase of
treasury stock (3,027) - - - (3,027)
Bond issuance
costs (4,819) - (412) - (5,231)
-------- -------- -------- --------- --------
Net cash provided by
(used in)
financing
activities 151,667 27,686 (138,396) - 40,957
-------- -------- -------- --------- --------
Net decrease in
cash and cash
equivalents (2,859) - (1,443) - (4,302)
Cash and cash
equivalents -
beginning of
period 5,475 21 2,663 - 8,159
-------- -------- ------- ---------- --------
Cash and cash
equivalents -
end of period $ 2,616 $ 21 $ 1,220 $ - $ 3,857
======== ======== ======= ========== ========
</TABLE>
