<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1145429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Terra Centre
P.O. Box 6000
600 Fourth Street 51102-6000
Sioux City, Iowa (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (712) 277-1340
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2000, the following shares of the registrant's stock were
outstanding:
Common Shares, without par value 75,998,540 shares
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
---------- ------------ ----------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 34,216 $ 9,790 $ 36,267
Accounts receivable, less allowance for
doubtful accounts of $447, $491, $473 121,347 102,776 157,933
Inventories 90,814 133,634 131,321
Other current assets 39,492 47,482 92,333
---------- ------------ ----------
Total current assets 285,869 293,682 417,854
---------- ------------ ----------
Equity and other investments 2,123 1,822 1,894
Property, plant and equipment, net 941,783 997,801 1,006,563
Excess of cost over net assets of acquired businesses 241,295 253,162 261,241
Other assets 52,845 54,978 62,325
---------- ------------ ----------
Total assets $1,523,915 $ 1,601,445 $1,749,877
========== ============ ==========
LIABILITIES
Debt due within one year $ 6,005 $ 17,152 $ 23,499
Accounts payable 81,322 88,413 39,840
Accrued and other liabilities 48,020 35,158 156,150
---------- ------------ ----------
Total current liabilities 135,347 140,723 219,489
---------- ------------ ----------
Long-term debt 470,353 469,309 477,608
Deferred income taxes - noncurrent 143,580 163,733 204,153
Other liabilities 59,228 67,409 59,815
Minority interest 107,644 103,269 110,179
---------- ------------ ----------
Total liabilities 916,152 944,443 1,071,244
---------- ------------ ----------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 75,999, 75,309 and 75,462 shares 127,890 127,890 127,890
Paid-in capital 552,903 552,903 552,903
Accumulated other comprehensive loss (38,644) (9,852) (27,751)
Retained earnings (34,386) (13,939) 25,591
---------- ------------ ----------
Total stockholders' equity 607,763 657,002 678,633
---------- ------------ ----------
Total liabilities and stockholders' equity $1,523,915 $ 1,601,445 $1,749,877
========== ============ ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
2
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Net sales $266,096 $222,459 $486,320 $403,400
Other income, net 2,587 3,798 4,570 8,524
-------- -------- -------- --------
Total Revenues 268,683 226,257 490,890 411,924
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales 242,355 221,842 463,865 413,648
Selling, general and administrative expense 11,823 10,897 29,563 25,293
Equity in earnings of unconsolidated affiliates (131) (2,384) (300) (675)
-------- -------- -------- --------
254,047 230,355 493,128 438,266
-------- -------- -------- --------
Income (loss) from operations 14,636 (4,098) (2,238) (26,342)
Interest income 87 7,180 859 7,208
Interest expense (13,024) (12,959) (25,703) (25,575)
Minority interest (2,978) (5,473) (4,375) (9,628)
-------- -------- -------- --------
Loss from continuing operations
before income taxes (1,279) (15,350) (31,457) (54,337)
Income tax provision 447 6,215 11,010 21,800
-------- -------- -------- --------
Loss from continuing operations (832) (9,135) (20,447) (32,537)
Loss from discontinued operations:
Loss from operations, net of taxes --- --- --- (5,800)
Loss on disposition, net of taxes --- (4,723) --- (4,723)
-------- -------- -------- --------
Loss before extraordinary items (832) (13,858) (20,447) (43,060)
Extraordinary loss on early retirement of debt --- (7,295) --- (7,295)
-------- -------- -------- --------
NET LOSS $ (832) $(21,153) $(20,447) $(50,355)
======== ======== ======== ========
Basic and diluted earnings per share:
Loss from continuing operations $(.01) $ (0.12) $(.27) $ (0.44)
Income (loss) from discontinued operations --- 0.07 --- (0.14)
Extraordinary loss on early retirement of debt --- (0.10) --- (0.10)
-------- -------- -------- --------
Net income (loss) $(.01) $ (0.29) $(.27) $ (0.68)
======== ======== ======== ========
Basic weighted average shares outstanding 74,704 74,168 74,704 74,167
Diluted weighted average shares outstanding 74,704 74,168 74,704 74,167
======== ======== ======== ========
Cash dividends declared per share $ --- $ 0.02 $ --- $ 0.07
======== ======== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from continuing operations $(20,447) $ (32,537)
Adjustments to reconcile net loss from continuing
operations to net cash flows from operating activities:
Depreciation and amortization 56,224 50,020
Deferred income taxes (10,815) (4,069)
Minority interest in earnings 4,375 9,628
Other non-cash items --- 534
Changes in current assets and liabilities excluding
working capital purchased/sold during the period:
Accounts receivable (21,785) (97,086)
Inventories 40,243 37,911
Other current assets 7,977 (8,376)
Accounts payable (6,656) (52,193)
Accrued and other liabilities (1,596) 15,380
Other (301) 8,196
-------- ---------
Net cash flows from operating activities 47,219 (72,592)
-------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (6,052) (26,713)
Retirement of property, plant and equipment 1,162 ---
Discontinued operations --- 242,627
Other items --- (11,552)
-------- ---------
Net cash flows from investing activities (4,890) 204,362
-------- ---------
FINANCING ACTIVITIES
Net short-term borrowings (repayments) (6,000) 12,000
Principal payments on long-term debt (4,103) (7,923)
Redemption of preferred minority interest --- (224,998)
Repurchases of TNCLP common units --- (1,526)
Distributions to minority interests --- (9,429)
Dividends --- (5,283)
Deferred financing costs (6,697) ---
Other (1,103) 13
-------- ---------
Net cash flows from financing activities (17,903) (237,146)
-------- ---------
Increase (decrease) to cash and short-term investments 24,426 (105,376)
Cash and short-term investments at beginning of period 9,790 141,643
-------- ---------
Cash and short-term investments at end of period $ 34,216 $ 36,267
======== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Capital Paid-In Comprehensive Retained
Stock Capital Loss Earnings Total
-------- ----------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $127,890 $ 552,903 $ (9,852) $(13,939) $657,002
Comprehensive loss:
Net loss --- --- --- (20,447) (20,447)
Foreign currency
translation adjustment --- --- (28,792) --- (28,792)
-------- ----------- ------------- -------- --------
Balance at June 30, 2000 $127,890 $ 552,903 $ (38,644) $(34,386) $607,763
======== =========== ============= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Capital Paid-In Comprehensive Retained
Stock Capital Loss Earnings Total
-------- ----------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $127,887 $ 552,893 $ (14,157) $ 81,229 $747,852
Comprehensive loss:
Net loss --- --- --- (50,355) (50,355)
Foreign currency
translation adjustment --- --- (13,594) --- (13,594)
Exercise of stock options 3 10 --- --- 13
Dividends --- --- --- (5,283) (5,283)
-------- ----------- ------------- ----------- --------
Balance at June 30, 1999 $127,890 $ 552,903 $ (27,751) $ 25,591 $678,633
======== =========== ============= =========== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
5
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying unaudited consolidated financial statements and notes
thereto contain all adjustments necessary, in the opinion of management, to
summarize fairly the financial position of Terra Industries Inc. and all
majority-owned subsidiaries (the "Corporation") and the results of the
Corporation's operations for the periods presented. Because of the seasonal
nature of the Corporation's operations and effects of weather-related
conditions in several of its marketing areas, results of operations of any
single reporting period should not be considered as indicative of results
for a full year. Certain reclassifications have been made to prior years'
financial statements to conform with current year presentation. These
statements should be read in conjunction with the Corporation's 1999 Annual
Report to Stockholders.
2. On June 30, 1999, the Corporation sold its Distribution business segment to
Cenex/Land O' Lakes Agronomy Company ("Buyer") for $335.1 million, net of
seasonal working capital from December 31, 1998 and closing costs. Included
in the sale were the Corporation's approximately 400 retail farm service
centers in the U.S. and Canada, and it's 50% ownership position in Omnium,
Inc., a chemical formulation joint venture. The Corporation retained
ownership of approximately $25 million in accounts receivable and
approximately 40 storage or retail sites associated with Distribution
operations. Reserves for doubtful accounts of approximately $15 million
have been recorded to value the retained accounts receivable at estimated
net realizable value. The retained sites have a zero net book value as
costs of disposal are estimated to approximate sales proceeds.
The accompanying unaudited consolidated statements of operations, financial
position and cash flows have been restated for prior periods to segregate
results of operations and net assets associated with the discontinued
Distribution business segment.
6
<PAGE>
The results of discontinued operations for the three and six month periods
ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
--------------------------- -------------------------
(in thousands) 1999 1999
--------------------------- -------------------------
<S> <C> <C>
Total revenue $ --- $ 228,991
Cost of sales --- (186,647)
Selling, general and
administrative expense --- (64,711)
Equity in earnings of affiliates --- 696
----------- ---------
Operating income (loss) as reported --- (21,671)
Allocated general and
administrative expense --- 3,466
----------- ---------
Operating income (loss) - restated --- (18,205)
Gain on sale of unconsolidated
affiliate --- 9,804
Interest income --- 938
Interest expense --- (2,202)
Income taxes --- 3,865
----------- ---------
Income (loss) from
discontinued operations --- (5,800)
Loss on disposition, net of taxes (4,723) (4,723)
----------- ---------
Net income (loss) from
discontinued operations $ (4,723) $ (10,523)
=========== =========
</TABLE>
The sale of the Distribution business segment was effective April 1, 1999
with respect to segment operating results. Distribution revenues and cost
of sales are net of inter-company sales from the Corporation's Nitrogen
business segment of $8.9 million for the six month periods ended June 30,
1999. Interest income and expense allocated to the Distribution business
represents interest earned or expensed from short-term investments or
borrowings caused by seasonal fluctuations to Distribution working capital
balances. None of the Corporation's long-term interest expense was
allocated to earnings from discontinued operations.
The Buyer and the Corporation have also entered into a three-year nitrogen
fertilizer supply agreement through which the Buyer will purchase
approximately the quantity that the Corporation's Nitrogen Products
segment supplied to both the Distribution business and the Buyer.
3. Basic earnings per share data are based on the weighted-average number of
Common Shares outstanding during the period. Diluted earnings per share
data are based on the weighted-average number of Common Shares outstanding
and the effect of all dilutive potential common shares including stock
options, restricted shares and contingent shares.
7
<PAGE>
4. Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(in thousands) 2000 1999 1999
--------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $44,404 $ 57,772 $ 54,734
Finished goods 46,410 75,862 76,587
--------------------------------------------------------------------
Total $90,814 $133,634 $131,321
====================================================================
</TABLE>
5. The Corporation and certain of its subsidiaries are involved in various
legal actions and claims, including environmental matters, arising during
the normal course of business. Although it is not possible to predict with
any certainty the outcome of such matters, it is the opinion of management
that these matters will not have a material adverse effect on the results
of operations, financial position or cash flows of the Corporation.
6. Natural gas is the principal raw material used in Terra's production of
nitrogen products and methanol. Terra enters into forward pricing
arrangements for natural gas provided that such arrangements would not
result in costs that would be greater than expected selling prices for
nitrogen products and methanol. Under those conditions, Terra's natural gas
procurement policy is to effectively fix or cap the price of between 25%
and 80% of its natural gas requirements for a one-year period and up to 50%
of its natural gas requirements for the subsequent two-year period through
supply contracts, financial derivatives and other forward pricing
techniques. The financial derivatives are traded in months forward and
settlement dates are scheduled to coincide with gas purchases during that
future period. These contracts reference physical natural gas prices or
appropriate NYMEX futures contract prices. Contract physical prices are
frequently based on prices at the most common and financially liquid
location of reference for financial derivatives related to natural gas.
However, natural gas supplies for the Corporation's facilities are
purchased for each plant at locations other than reference points, which
often creates a location basis differential between the contract price and
the physical price of natural gas. Accordingly, the use of financial
derivatives may not exactly offset the change in the price of physical gas.
The Corporation has entered into forward pricing positions for a portion of
its natural gas requirements for the remainder of 2000 and part of 2001,
consistent with its policy. As a result of its policies, the Corporation
has reduced the potential adverse financial impact of natural gas price
increases during the forward pricing period, but conversely, if natural gas
prices were to fall, the Corporation will incur higher costs. Contracts
were in place at June 30, 2000 to cover 33% of natural gas requirements for
the succeeding twelve months. Unrealized gains from forward pricing
positions totaled $36.5 million as of June 30, 2000. The amount recognized
by the Corporation will be dependent on prices in effect at the time of
settlement.
7. Prior to April 7, 2000, Terra had a revolving credit facility with an
available line of credit to $62 million for working capital needs and other
corporate purposes. Interest on borrowings under this line was charged at
current market rates.
On April 7, 2000, Terra entered into a $225 million asset based financing
agreement that replaced its $62 million revolving credit facility and
amended and restated its $109 million long-term bank notes. The new
financing agreement, which expires January 2003, bears interest at floating
rates comparable to the previous facilities and is secured by substantially
all
8
<PAGE>
of Terra's assets. Debt repayments of $1.25 million are required quarterly
commencing June 30, 2000, with remaining outstanding balances due at
maturity. The new agreement also requires Terra to adhere to certain
limitations on additional debt, capital expenditures, acquisitions, liens,
asset sales, investments, prepayments of subordinated indebtedness, changes
in lines of business and transactions with affiliates. In addition, Terra
is required to maintain minimum levels of earnings before interest, income
taxes, depreciation and amortization (as defined in the financing
agreement) computed on a quarterly basis.
8. On June 1, 2000, Terra announced it would not restart its Blytheville,
Arkansas ammonia and urea production facility as the result of high natural
gas costs. The plant is expected to resume operations on or about August
15, 2000.
9. The Corporation classifies its continuing operations into two business
segments: Nitrogen Products and Methanol. The Nitrogen Products business
produces and distributes ammonia, urea, nitrogen solutions and ammonium
nitrate to farm distributors and industrial users. The Methanol business
manufactures and distributes methanol which is used in the production of a
variety of chemical derivatives and in the production of methyl tertiary
butyl ether (MTBE), an oxygenate and an octane enhancer for gasoline. The
Corporation does not allocate interest, income taxes or infrequent items to
continuing business segments. Included in Other are general corporate
activities not attributable to a specific industry segment. The following
summarizes operating results by business segment:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
---------------------------- --------------------------
(in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues - Nitrogen Products $234,334 $195,568 $432,579 $375,298
- Methanol 33,183 22,773 54,285 33,564
- Other 1,166 7,916 4,026 3,062
-------------------------------------------------------------------------------------------------
Total revenues $268,683 $226,257 $490,890 $411,924
=================================================================================================
Operating income (loss)
- Nitrogen Products $ 12,098 $ (686) $ 1,812 $ (9,353)
- Methanol 5,406 (3,746) (413) (12,984)
- Other (2,868) 334 (3,637) (4,005)
-------------------------------------------------------------------------------------------------
Total operating income (loss) 14,636 (4,098) (2,238) (26,342)
-------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED JUNE 30, 2000 COMPARED WITH
QUARTER ENDED JUNE 30, 1999
Consolidated Results
The Corporation reported a net loss of $0.8 million for the 2000 second quarter
compared with a net loss of $21.2 million in 1999. The 1999 loss includes a $4.7
million net loss from the disposition of Terra's Distribution operations which
were sold during the 1999 second quarter and has since been reported as
discontinued operations. In connection with sale of the Distribution business
segment, the Corporation repaid outstanding bank obligations and realized a $7.3
million extraordinary loss on early retirement of debt during the 1999 second
quarter.
Loss from continuing operations for the 2000 second quarter was $0.8 million
compared to the 1999 loss of $9.1 million. The decreased 2000 loss from
continuing operations was primarily related to increased operating income as the
result of higher product prices offset partly by higher natural gas costs.
The Corporation classifies its remaining operations into two business segments:
Nitrogen Products and Methanol. The Nitrogen Products segment represents
operations directly related to the wholesale sales of nitrogen products from the
Corporation's ammonia production and upgrading facilities. The Methanol segment
represents wholesale sales of methanol produced at the Corporation's two
methanol manufacturing facilities.
Total revenues and operating income (loss) by segment for the three-month
periods ended June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
----------------------------------------------------------------
<S> <C> <C>
REVENUES:
Nitrogen Products $234,334 $195,568
Methanol 33,183 22,773
Other 1,166 7,916
---------------------------------------------------------------
$268,683 $226,257
===============================================================
OPERATING INCOME (LOSS):
Nitrogen Products $ 12,098 $ (686)
Methanol 5,406 (3,746)
Other expense - net (2,868) 334
---------------------------------------------------------------
$ 14,636 $ (4,098)
===============================================================
</TABLE>
10
<PAGE>
Nitrogen Products
Volumes and prices for the three-month periods ended June 30, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
VOLUMES AND PRICES
2000 1999
--------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ammonia 452 $ 156 458 $127
Nitrogen solutions 1,298 76 1,102 65
Urea 105 130 136 103
Ammonium nitrate 182 112 156 112
--------------------------------------------------------------------------------
</TABLE>
Nitrogen revenues increased $38.7 million to $234.3 million in the 2000 second
quarter compared with $195.6 million in the 1999 quarter. Higher 2000 revenues
were due to higher second quarter prices and volumes for nitrogen solutions
revenues, which were $27 million higher than the prior year second quarter.
Increases in selling prices for ammonia and urea of 23% and 26%, respectively,
offset by volume decreases, increased revenues in the 2000 quarter compared with
1999 by an additional $12 million. The higher prices reflected lower North
American nitrogen supplies as a result of permanent plant closures by other
producers and production curtailments during the last half of 1999. Prices for
ammonium nitrate, which Terra sells entirely in the United Kingdom, were
unchanged from the same period in 1999. Ammonium nitrate demand in the 2000
second quarter was stronger than in 1999, which for the most part represented
demand shifted from late 1999 into 2000 as customers deferred purchases where
possible in response to expected price declines.
The Nitrogen segment had operating income of $12.1 million for the second
quarter of 2000 compared with operating loss of $.7 million for the 1999 second
quarter. The increase in operating income was primarily related to selling
prices that were $29 million higher than the prior year quarter. Natural gas
costs increased almost $16 million as unit costs, net of forward pricing gains
and losses, increased to $2.75/MMBtu, during the 2000 second quarter compared to
$2.20/MMBtu during the same 1999 period.
Methanol
For the three months ended June 30, 2000 and 1999, respectively, the Methanol
segment had revenues of $33.2 million and $22.8 million. Sales volumes decreased
5% from prior year levels, but selling prices increased from $0.32/gallon in
1999 to $0.50/gallon in 2000 as the result of more balanced industry inventories
to demand than was the case in the 1999 second quarter.
The Methanol segment generated a $5.4 million operating profit in the 2000
second quarter compared to a $3.7 million operating loss in 1999. Higher prices
contributed $12.6 million to the earnings improvement over last year's second
quarter, but was partly offset by a $5.8 million (38%) increase to natural gas
costs. In addition, cost reductions of $2.0 million were realized due to
improved plant operations as compared to 1999.
Other Expense - Net
Other operating expense of $2.9 million in the 2000 second quarter was $3.2
million unfavorable to 1999 due primarily to 2000 legal expenses associated with
a lawsuit in which Terra is a plaintiff.
11
<PAGE>
Interest Expense - Net
Interest expense, net of interest income, totaled $12.9 million during the 2000
second quarter compared with $5.8 million for the prior year period. The
increase is primarily related to interest income of $6.3 million realized during
the 1999 quarter in connection with the sale of the Distribution business
segment.
Minority Interest
Minority interest represents third-party interests in the earnings of the
publicly held common units of Terra Nitrogen Company, L.P. (TNCLP). Minority
interest charges of $3.0 million were recorded for the 2000 second quarter as
the result of TNCLP earnings that were included in their entirety in
consolidated operating results. The 1999 second quarter minority interest
charge of $5.5 million included approximately $4.7 million for a third-party's
limited partnership interest in Beaumont Methanol, Limited Partnership (BMLP)
and $0.8 million for the third-party share of TNCLP income. On June 30, 1999,
the Corporation redeemed the third-party's BMLP interest and thereby eliminated
future charges to earnings relating to the minority BMLP partnership interest.
Income Taxes
Income taxes for the second quarter 2000 were recorded at an effective tax rate
of 35%, representing the Corporation's estimated annual effective tax rate.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1999
Consolidated Results
The Corporation reported a net loss of $20.5 million for the six months ended
June 30, 2000 compared with net loss of $50.4 million in 1999. During the 1999
second quarter, the Corporation sold its Distribution business segment, which
generated a $10.5 million net loss during the 1999 first half. In connection
with sale of the Distribution business segment, the Corporation repaid
outstanding bank obligations and realized a $7.3 million extraordinary loss on
early retirement of debt.
The Corporation had a $20.5 million net loss from continuing operations during
the six months ending June 30, 2000 compared to a $32.5 million loss in 1999.
The smaller loss in 2000 was related primarily to higher prices for the
commodity nitrogen and methanol products manufactured and sold by the
Corporation.
12
<PAGE>
Total revenues and operating income (loss) by segment for the six-month periods
ended June 30, 2000 and 1999 were as follows:
(in thousands) 2000 1999
-------- --------
REVENUES:
Nitrogen Products $432,579 $375,298
Methanol 54,285 33,564
Other 4,026 3,062
-------- --------
$490,890 $411,924
======== ========
OPERATING INCOME (LOSS):
Nitrogen Products $ 1,812 $ (9,353)
Methanol (413) (12,984)
Other expense - net (3,637) (4,005)
-------- --------
$ (2,238) $(26,342)
======== ========
Nitrogen Products
Volumes and prices for the six-month periods ended June 30, 2000 and 1999 were
as follows:
VOLUMES AND PRICES
2000 1999
--------------------- -------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
-------- ---------- ------- ----------
Ammonia 819 $ 145 817 $ 122
Nitrogen solutions 2,179 70 1,904 64
Urea 283 127 314 99
Ammonium nitrate 536 107 435 115
-------- ---------- ------- ----------
Nitrogen revenues increased $57.2 million to $432.6 million in the 2000 first
half compared with $375.3 million in the 1999 period due to higher selling
prices for most products and increased sales volumes of nitrogen solutions and
ammonium nitrate. The stronger demand for nitrogen solutions was due to more
attractive prices compared to ammonia and lower industry inventories. Higher
prices for ammonia, nitrogen solution and urea were due to lower North American
nitrogen supplies as a result of reduced industry-wide production levels since
mid-1999. Ammonium nitrate demand increased for the first six months due
primarily to the shift from late 1999 into 2000 as customers deferred purchases
where possible in response to expected price declines.
The Nitrogen segment had an operating profit of $1.8 million during the six
months ended June 30, 2000 compared with operating loss of $9.4 million for the
same 1999 period. The increase in operating income was primarily related to
selling prices that were $35 million higher than in 1999. Natural gas costs,
net of forward pricing gains or losses, increased to $2.64 MMBtu during the 2000
first half from $2.28/MMBtu during the same 1999 period, which increased total
2000 costs by almost $22 million.
Methanol
For the six months ended June 30, 2000 and 1999, respectively, the Methanol
segment had revenues of $54.3 million and $33.6 million. The Beaumont plant was
shut down for two months during the 1999 first quarter, because raw material
costs exceeded selling prices, which caused a significant decline in 1999
revenues. Methanol selling prices averaged $0.41/gallon during the 2000 first
half, compared to $0.30/gallon during the same 1999 period.
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The methanol segment had an operating loss of $0.4 million for the first six
months of 2000 compared with operating loss of $13.0 million for the 1999
period. The reduced operating loss was a result of the higher selling prices
and volumes coupled with higher costs in 1999 due to the plant shutdown.
Other Expense - Net
The Corporation had $3.6 million of other operating expenses during the 2000
first half, compared to $4.0 million during the 1999 period. Other expense in
2000 related primarily to legal expenses associated with a lawsuit in which
Terra is a plaintiff. Most of the 1999 expenses represent allocations of shared
services expenses to discontinued Distribution operations which amounted to $3.5
million for the first six months of 1999.
Interest Expense - Net
Interest expense, net of interest income, totaled $24.8 million during the 2000
first half compared with $18.4 million for the prior year period. The increase
is primarily related to interest income of $6.3 million realized during the 1999
second quarter in connection with the sale of the Distribution business segment.
Minority Interest
Minority interest represents third-party interests in the earnings of the
publicly held common units of Terra Nitrogen Company, L.P. (TNCLP). Minority
interest charges of $4.4 million were recorded for the 2000 first six months as
the result of TNCLP earnings that were included in their entirety in
consolidated operating results. The 1999 first six months minority interest
charge of $9.6 million included approximately $9.4 million for a third-party's
limited partnership interest in Beaumont Methanol, Limited Partnership (BMLP)
and $0.2 million for the third-party share of TNCLP losses. On June 30, 1999,
the Corporation redeemed the third-party's BMLP interest and thereby eliminated
future charges to earnings relating to the minority BMLP partnership interest.
Income Taxes
Income taxes for the first half of 2000 were recorded at an effective tax rate
of 35%.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary uses of funds will be to fund its working capital
requirements, make payments on its indebtedness and other obligations, make
capital expenditures and acquisitions and fund repurchases of TNCLP common
units. The principal sources of funds will be cash flow from operations and
borrowings under available bank facilities.
Net cash flows from operations in the first six months of 2000 were $47.2
million comprised of $18.2 million generated from changes to net working capital
balances, plus $29.3 million of operating profits after non-cash charges.
Working capital reductions during the 2000 first half are primarily related to
seasonal changes in inventory balances.
On June 1, 2000, Terra announced it would not restart its Blytheville, Arkansas
ammonia and urea production facility as the result of high natural gas costs.
The plant is expected to resume operations on or about August 15, 2000.
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On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land O'
Lakes Agronomy Company ("Buyer") for $335.1 million, net of seasonal working
capital from December 31, 1998 and closing costs. Sales proceeds were used to
redeem the outstanding preferred minority interest in BMLP for $225 million,
fund termination of its accounts receivable securitization program and repay
outstanding borrowings under the Corporation's revolving credit facility.
In connection with the sale of the Distribution business segment, Terra
renegotiated outstanding bank agreements and reduced amounts available under its
revolving credit facility from $225 million to $62 million.
On April 7, 2000, Terra entered into a $225 million asset based financing
agreement that replaced its $62 million revolving credit facility and amended
and restated its $109 million long-term bank notes. The new financing
agreement, which expires January 2003, bears interest at floating rates
comparable to the previous facilities and is secured by substantially all of
Terra's assets. Debt repayments of $1.25 million are required quarterly
commencing June 30, 2000, with remaining outstanding balances due at maturity.
The new agreement also requires Terra to adhere to certain limitations on
additional debt, capital expenditures, acquisitions, liens, asset sales,
investments, prepayments of subordinated indebtedness, changes in lines of
business and transactions with affiliates. In addition Terra is required to
maintain minimum levels of earnings before interest, income taxes, depreciation
and amortization (as defined in the financing agreement) computed on a quarterly
basis. Failure to meet these covenants would require Terra to incur additional
costs to amend the bank facilities or could result in termination of the
facilities.
Terra management believes that cash from operations and available financing
sources will be sufficient to meet anticipated cash requirements.
The Corporation funded plant and equipment expenditures of $6.0 million during
the first six months of 2000. The Corporation expects remaining 2000 capital
expenditures to approximate $15 million consisting principally of routine
equipment replacements.
On August 3, 1999, the Board of Directors suspended the Corporation's payment of
a regular quarterly dividend on common stock.
Cash balances at June 30, 2000, were $34.2 million, none of which was used to
collateralize letters of credit.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for fiscal years
beginning after June 15, 2000, as amended by SFAS 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 33". The Corporation has reviewed SFAS 133 and intends to
implement the standard on January 1, 2001. At this time, the Corporation has
not determined the impact SFAS 133 will have on its financial position, results
of operations or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements. SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's fourth quarter of
2000. Terra does not expect the adoption of SAB 101 to have a material effect
on its financial statements.
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POTENTIAL CHANGE OF CONTROL
Anglo American plc, through its wholly-owned subsidiaries, owns 49.5% of the
Corporation's outstanding shares. Anglo American has made public its intention
to dispose of its interest in the Corporation with the timing based on market
and other conditions.
FORWARD LOOKING PRECAUTIONS
Information contained in this report, other than historical information, may be
considered forward looking. Forward looking information reflects Management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the following: general
economic conditions within the agricultural industry, competitive factors and
price changes (principally, sales prices of nitrogen and methanol products and
natural gas costs), changes in product mix, changes in the seasonality of demand
patterns, changes in weather conditions, changes in agricultural regulations,
and other risks detailed in the "Factors that Affect Operating Results" section
of the Corporation's most recent Form 10-K.
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule [EDGAR filing only]
(b) Reports on Form 8-K
Form 8-K dated April 7, 2000, announcing the completion of
the refinancing of Terra's credit line and long-term debt.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERRA INDUSTRIES INC.
Date: July 28, 2000 /s/ Francis G. Meyer
-----------------------------------------
Francis G. Meyer
Senior Vice President and Chief Financial
Officer and a duly authorized signatory
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