Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
|
|
|
o |
|
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) |
|
|
Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer, and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o Yes þ No
At the close of business on November 4, 2009 the following shares of the registrants
stock were outstanding:
|
|
|
Common Shares, without par value
|
|
99,825,840 shares |
PART I. FINANCIAL INFORMATION
|
|
|
ITEM 1. |
|
FINANCIAL STATEMENTS |
TERRA INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,000,810 |
|
|
$ |
966,700 |
|
|
$ |
680,666 |
|
Accounts receivable, less allowance for
doubtful accounts of $1,378, $290 and $316 |
|
|
103,862 |
|
|
|
130,390 |
|
|
|
235,587 |
|
Inventories, net |
|
|
110,943 |
|
|
|
197,091 |
|
|
|
175,920 |
|
Margin deposits with derivative counterparties |
|
|
|
|
|
|
36,945 |
|
|
|
132,058 |
|
Other current assets |
|
|
68,901 |
|
|
|
61,338 |
|
|
|
62,193 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
45,607 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,284,516 |
|
|
|
1,392,464 |
|
|
|
1,322,031 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
435,442 |
|
|
|
403,313 |
|
|
|
407,037 |
|
Equity method investments |
|
|
253,386 |
|
|
|
270,915 |
|
|
|
382,606 |
|
Deferred plant turnaround costs, net |
|
|
28,000 |
|
|
|
23,467 |
|
|
|
29,303 |
|
Other assets |
|
|
30,034 |
|
|
|
22,858 |
|
|
|
31,965 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,031,378 |
|
|
$ |
2,113,017 |
|
|
$ |
2,182,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
70,909 |
|
|
$ |
99,893 |
|
|
$ |
124,138 |
|
Customer prepayments |
|
|
40,882 |
|
|
|
111,592 |
|
|
|
195,039 |
|
Derivative hedge liabilities |
|
|
2,382 |
|
|
|
125,925 |
|
|
|
218,652 |
|
Accrued and other current liabilities |
|
|
62,172 |
|
|
|
127,770 |
|
|
|
113,042 |
|
Current liabilities of discontinued operations |
|
|
|
|
|
|
|
|
|
|
2,749 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
176,345 |
|
|
|
465,180 |
|
|
|
653,620 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
330,000 |
|
|
|
330,000 |
|
|
|
330,000 |
|
Deferred taxes |
|
|
82,735 |
|
|
|
61,443 |
|
|
|
53,135 |
|
Pension liabilities |
|
|
7,648 |
|
|
|
9,170 |
|
|
|
10,018 |
|
Other liabilities |
|
|
81,786 |
|
|
|
78,553 |
|
|
|
78,779 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
678,514 |
|
|
|
944,346 |
|
|
|
1,125,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares liquidation
value of $500; $1,600 and $2,100 |
|
|
483 |
|
|
|
1,544 |
|
|
|
2,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares, authorized 133,500 shares;
99,826; 99,330 and 102,081 shares outstanding |
|
|
152,787 |
|
|
|
152,111 |
|
|
|
154,866 |
|
Paid-in capital |
|
|
584,556 |
|
|
|
579,164 |
|
|
|
625,058 |
|
Accumulated other comprehensive loss |
|
|
(114,741 |
) |
|
|
(175,529 |
) |
|
|
(174,183 |
) |
Retained earnings |
|
|
633,999 |
|
|
|
507,299 |
|
|
|
353,590 |
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity |
|
|
1,256,601 |
|
|
|
1,063,045 |
|
|
|
959,331 |
|
Noncontrolling interest |
|
|
95,780 |
|
|
|
104,082 |
|
|
|
96,032 |
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,352,381 |
|
|
|
1,167,127 |
|
|
|
1,055,363 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,031,378 |
|
|
$ |
2,113,017 |
|
|
$ |
2,182,942 |
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
3
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
345,779 |
|
|
$ |
788,272 |
|
|
$ |
1,216,480 |
|
|
$ |
2,198,398 |
|
Other income |
|
|
1,267 |
|
|
|
1,942 |
|
|
|
3,822 |
|
|
|
9,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
347,046 |
|
|
|
790,214 |
|
|
|
1,220,302 |
|
|
|
2,208,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
281,621 |
|
|
|
578,310 |
|
|
|
921,268 |
|
|
|
1,532,369 |
|
Selling, general and administrative expenses |
|
|
17,300 |
|
|
|
18,301 |
|
|
|
49,774 |
|
|
|
58,238 |
|
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
14,260 |
|
|
|
|
|
Equity earnings of North American affiliates |
|
|
(6,106 |
) |
|
|
(15,857 |
) |
|
|
(10,880 |
) |
|
|
(45,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
292,815 |
|
|
|
580,754 |
|
|
|
974,422 |
|
|
|
1,544,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
54,231 |
|
|
|
209,460 |
|
|
|
245,880 |
|
|
|
663,073 |
|
Interest income |
|
|
725 |
|
|
|
5,409 |
|
|
|
3,700 |
|
|
|
19,330 |
|
Interest expense |
|
|
(6,762 |
) |
|
|
(6,773 |
) |
|
|
(20,247 |
) |
|
|
(20,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, noncontrolling interest and
equity earnings of GrowHow UK Limited |
|
|
48,194 |
|
|
|
208,096 |
|
|
|
229,333 |
|
|
|
661,816 |
|
Income tax provision |
|
|
(5,049 |
) |
|
|
(63,169 |
) |
|
|
(55,849 |
) |
|
|
(229,742 |
) |
Equity earnings of GrowHow UK Limited |
|
|
4,945 |
|
|
|
42,091 |
|
|
|
2,457 |
|
|
|
88,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
48,090 |
|
|
|
187,018 |
|
|
|
175,941 |
|
|
|
521,060 |
|
Income from discontinued operations, net of tax |
|
|
810 |
|
|
|
141 |
|
|
|
810 |
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before noncontrolling interest |
|
|
48,900 |
|
|
|
187,159 |
|
|
|
176,751 |
|
|
|
528,672 |
|
Less: Net income attributable to the noncontrolling interest |
|
|
2,972 |
|
|
|
15,748 |
|
|
|
20,354 |
|
|
|
52,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Terra Industries Inc. |
|
$ |
45,928 |
|
|
$ |
171,411 |
|
|
$ |
156,397 |
|
|
$ |
476,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
attributable to Terra Industries Inc. common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
45,118 |
|
|
$ |
171,270 |
|
|
$ |
155,587 |
|
|
$ |
468,691 |
|
Income from discontinued operations, net of tax |
|
|
810 |
|
|
|
141 |
|
|
|
810 |
|
|
|
7,612 |
|
Less: Inducement payment of preferred stock conversion |
|
|
|
|
|
|
5,248 |
|
|
|
|
|
|
|
5,248 |
|
Less: Preferred share dividends |
|
|
17 |
|
|
|
1,275 |
|
|
|
51 |
|
|
|
3,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Terra Industries Inc.
common stockholders |
|
$ |
45,911 |
|
|
$ |
164,888 |
|
|
$ |
156,346 |
|
|
$ |
467,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share attributable to
Terra Industries Inc. common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.46 |
|
|
$ |
1.75 |
|
|
$ |
1.57 |
|
|
$ |
5.01 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share |
|
$ |
0.47 |
|
|
$ |
1.75 |
|
|
$ |
1.58 |
|
|
$ |
5.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share attributable to
Terra Industries Inc. common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.45 |
|
|
$ |
1.64 |
|
|
$ |
1.56 |
|
|
$ |
4.47 |
|
Discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share |
|
$ |
0.46 |
|
|
$ |
1.64 |
|
|
$ |
1.57 |
|
|
$ |
4.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
99,465 |
|
|
|
94,259 |
|
|
|
99,305 |
|
|
|
91,821 |
|
Diluted |
|
|
100,029 |
|
|
|
104,605 |
|
|
|
99,956 |
|
|
|
104,851 |
|
See Accompanying Notes to the Consolidated Financial Statements.
4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income before noncontrolling interest |
|
$ |
176,751 |
|
|
$ |
528,672 |
|
Income from discontinued operations, net of tax |
|
|
810 |
|
|
|
7,612 |
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
|
175,941 |
|
|
|
521,060 |
|
Adjustments to reconcile income from continuing operations
to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment and
amortization of deferred plant turnaround costs |
|
|
63,127 |
|
|
|
58,406 |
|
Loss on sale of property, plant and equipment |
|
|
800 |
|
|
|
2,235 |
|
Deferred income taxes |
|
|
(6,972 |
) |
|
|
(51,772 |
) |
Distributions in excess of equity earnings of North American affiliates |
|
|
2,513 |
|
|
|
2,524 |
|
Equity earnings of GrowHow UK Limited |
|
|
(2,457 |
) |
|
|
(88,986 |
) |
Non-cash gain on derivatives |
|
|
(1,224 |
) |
|
|
(1,610 |
) |
Share-based compensation |
|
|
13,408 |
|
|
|
10,333 |
|
Amortization of intangible and other assets |
|
|
6,866 |
|
|
|
6,193 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
28,765 |
|
|
|
(65,639 |
) |
Inventories |
|
|
88,573 |
|
|
|
(42,221 |
) |
Accounts payable and customer prepayments |
|
|
(102,062 |
) |
|
|
(90,559 |
) |
Margin deposits with derivative counterparties |
|
|
36,945 |
|
|
|
(131,420 |
) |
Other assets and liabilities, net |
|
|
(138,152 |
) |
|
|
67,471 |
|
|
|
|
|
|
|
|
Net cash flows from operating activities continuing operations |
|
|
166,071 |
|
|
|
196,015 |
|
Net cash flows from operating activities discontinued operations |
|
|
810 |
|
|
|
9,439 |
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
|
166,881 |
|
|
|
205,454 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures |
|
|
(95,679 |
) |
|
|
(70,123 |
) |
Proceeds from sale of property, plant and equipment |
|
|
101 |
|
|
|
1,660 |
|
Distributions received from North American affiliates |
|
|
11,682 |
|
|
|
7,196 |
|
Contribution settlement received from GrowHow UK Limited |
|
|
|
|
|
|
27,427 |
|
Balancing consideration and other payments from GrowHow UK Limited |
|
|
18,700 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
|
(65,196 |
) |
|
|
(33,840 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Preferred share dividends paid |
|
|
(51 |
) |
|
|
(3,825 |
) |
Inducement payment to preferred stockholders |
|
|
|
|
|
|
(5,248 |
) |
Common stock dividends paid |
|
|
(29,912 |
) |
|
|
(18,299 |
) |
Common stock issuances and vestings |
|
|
(7,213 |
) |
|
|
(9,839 |
) |
Excess tax benefits from equity compensation plans |
|
|
6,304 |
|
|
|
12,122 |
|
Payments under share repurchase program |
|
|
|
|
|
|
(107,500 |
) |
Distributions to noncontrolling interests |
|
|
(33,631 |
) |
|
|
(56,642 |
) |
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
(64,503 |
) |
|
|
(189,231 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(3,072 |
) |
|
|
45 |
|
|
|
|
|
|
|
|
Increase (decrease) to cash and cash equivalents |
|
|
34,110 |
|
|
|
(17,572 |
) |
Cash and cash equivalents at beginning of period |
|
|
966,700 |
|
|
|
698,238 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,000,810 |
|
|
$ |
680,666 |
|
|
|
|
|
|
|
|
5
Consolidated Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended |
|
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
23,958 |
|
|
$ |
23,975 |
|
Income tax refunds received |
|
|
791 |
|
|
|
206 |
|
Income taxes paid |
|
|
141,895 |
|
|
|
197,239 |
|
Supplemental schedule of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
Conversion of warrants to common stock |
|
$ |
|
|
|
$ |
2,496 |
|
Supplemental schedule of distributions received from
unconsolidated affiliates: |
|
|
|
|
|
|
|
|
Contribution settlement payments, balancing consideration
and other payments received from GrowHow UK Limited |
|
$ |
18,700 |
|
|
$ |
27,427 |
|
Distributions received from North American affiliates |
|
|
11,682 |
|
|
|
7,196 |
|
Equity in earnings of North American affiliates |
|
|
10,880 |
|
|
|
45,665 |
|
Distributions in excess of equity earnings from North American affiliates |
|
|
2,513 |
|
|
|
2,524 |
|
|
|
|
|
|
|
|
Total cash distributions received from unconsolidated affiliates |
|
$ |
43,775 |
|
|
$ |
82,812 |
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
6
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Retained |
|
|
|
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Interest |
|
|
Earnings |
|
|
Total |
|
|
Income |
|
Balance at January 1, 2009 |
|
$ |
152,111 |
|
|
$ |
579,164 |
|
|
$ |
(175,529 |
) |
|
$ |
104,082 |
|
|
$ |
507,299 |
|
|
$ |
1,167,127 |
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,354 |
|
|
|
156,397 |
|
|
|
176,751 |
|
|
$ |
176,751 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
24,491 |
|
|
|
|
|
|
|
|
|
|
|
24,491 |
|
|
|
24,491 |
|
Change in fair value of
derivatives, net of taxes
of $25,987 |
|
|
|
|
|
|
|
|
|
|
36,297 |
|
|
|
4,975 |
|
|
|
|
|
|
|
41,272 |
|
|
|
41,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
before noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,514 |
|
Comprehensive income
attributable to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
attributable to
Terra Industries Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
217,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,631 |
) |
|
|
|
|
|
|
(33,631 |
) |
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
|
|
(51 |
) |
|
|
|
|
Preferred share conversion |
|
|
110 |
|
|
|
951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061 |
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,912 |
) |
|
|
(29,912 |
) |
|
|
|
|
Excess tax benefit |
|
|
|
|
|
|
6,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,304 |
|
|
|
|
|
Net vested stock |
|
|
566 |
|
|
|
(7,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,213 |
) |
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
5,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,916 |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2009 |
|
$ |
152,787 |
|
|
$ |
584,556 |
|
|
$ |
(114,741 |
) |
|
$ |
95,780 |
|
|
$ |
633,999 |
|
|
$ |
1,352,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
(Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Deficit) |
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Retained |
|
|
|
|
|
|
Comprehensive |
|
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Interest |
|
|
Earnings |
|
|
Total |
|
|
Income |
|
Balance at January 1, 2008 |
|
$ |
142,170 |
|
|
$ |
618,874 |
|
|
$ |
(44,180 |
) |
|
$ |
108,581 |
|
|
$ |
(95,341 |
) |
|
$ |
730,104 |
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,369 |
|
|
|
476,303 |
|
|
|
528,672 |
|
|
$ |
528,672 |
|
Foreign currency
translation adjustment |
|
|
|
|
|
|
|
|
|
|
(30,356 |
) |
|
|
|
|
|
|
|
|
|
|
(30,356 |
) |
|
|
(30,356 |
) |
Change in fair value of
derivatives, net of taxes
of $69,651 |
|
|
|
|
|
|
|
|
|
|
(99,647 |
) |
|
|
(8,276 |
) |
|
|
|
|
|
|
(107,923 |
) |
|
|
(107,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
before noncontrolling
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,393 |
|
Comprehensive income
attributable to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
attributable to
Terra Industries Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
346,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,642 |
) |
|
|
|
|
|
|
(56,642 |
) |
|
|
|
|
Preferred share dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,825 |
) |
|
|
(3,825 |
) |
|
|
|
|
Inducement of preferred stock |
|
|
11,837 |
|
|
|
101,936 |
|
|
|
|
|
|
|
|
|
|
|
(5,248 |
) |
|
|
108,525 |
|
|
|
|
|
Common stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,299 |
) |
|
|
(18,299 |
) |
|
|
|
|
Shares purchased and retired
under the share repurchase
program |
|
|
(2,588 |
) |
|
|
(104,912 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,500 |
) |
|
|
|
|
Exercise of stock options |
|
|
11 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
Net vested stock |
|
|
475 |
|
|
|
(12,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,422 |
) |
|
|
|
|
Net conversion of warrants |
|
|
2,961 |
|
|
|
(413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,548 |
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
7,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,844 |
|
|
|
|
|
Excess tax benefit |
|
|
|
|
|
|
14,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2008 |
|
$ |
154,866 |
|
|
$ |
625,058 |
|
|
$ |
(174,183 |
) |
|
$ |
96,032 |
|
|
$ |
353,590 |
|
|
$ |
1,055,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements.
8
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Background and Basis of Presentation
Terra Industries Inc. together with its subsidiaries (Terra, we, our, or us) is a leading
North American producer and marketer of nitrogen products made from natural gas. We also
operate production assets in Trinidad, and the United Kingdom, through joint venture
agreements. Our six North American and our international production locations, along with a
robust distribution capability, provide us with the ability to effectively serve key
agricultural, industrial and environmental markets. Our principal products are anhydrous
ammonia (ammonia), ammonium nitrate solutions (UAN), ammonium nitrate (AN), and urea. Our
principal customers are national agricultural retail chains, farm cooperatives, independent
dealers and industrial customers. We operate in one principal
industry segmentNitrogen
Products, which is based upon the guidance provided in the Segment Reporting topic of the
Financial Accounting Standards Board (FASB) Accounting Standard
Codification (Codification). As a
wholesale nitrogen producer, we do not report industry segments in a separate disclosure
because our only reportable industry segment is nitrogen.
The accompanying unaudited consolidated financial statements and notes thereto have been
prepared in accordance with the requirements of the U.S. Securities and Exchange Commission
(SEC) for interim reporting. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements.
Therefore, these financial statements should be read in conjunction with our audited
consolidated financial statements and notes thereto for the year ended December 31, 2008,
included in our 2008 Annual Report on Form 10-K (Items 6, 7 and 8 of our 2008 Annual Report
on Form 10-K have been updated by the Current Report on Form 8-K filed with the SEC on
September 30, 2009).
Terras significant accounting policies are described in the notes to consolidated
financial statements in our Annual Report on Form 10-K for the year ended December 31,
2008. Management is responsible for the unaudited consolidated financial statements
included in this document. The consolidated financial statements included in this document
are unaudited; however, they contain all normal recurring adjustments that, in the opinion
of management, are necessary for a fair presentation of Terras financial position, results
of operations and cash flows for the periods presented.
Because of the seasonal nature of our operations and effects of weather-related conditions
in several of its marketing areas, results of any interim reporting period should not be
considered as indicative of results for future quarters or the full year.
2. New Accounting Pronouncements
We adopted the provisions of the FASB Statement on Generally Accepted Accounting Principles
(GAAP) relating to the Codification on July 1,
2009. This Statement establishes the Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the
form of Statements, FASB Staff Positions, or Emerging Issues Task Force (EITF) Abstracts;
instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will
not be authoritative in their own right as they will only serve to
update the Codification. The adoption did not have an impact on our consolidated financial position, results of
operations or cash flows.
9
The FASB Statement on Business Combinations was effective for us for business combinations
with the acquisition date on or after January 1, 2009. This Statement requires the
acquiring entity in a business combination to recognize all (and only) the assets acquired
and liabilities assumed in the transaction and establishes the acquisition-date fair value
as the measurement objective for all assets acquired and liabilities assumed in a business
combination. Certain provisions of this Statement will, among other things, impact the
determination of acquisition-date fair value of consideration paid in a business
combination (including contingent consideration); exclude transaction costs from
acquisition accounting; and change accounting practices for acquired contingencies,
acquisition-related restructuring costs, in-process research and development,
indemnification assets, and tax benefits. The adoption did not have an impact on our
consolidated financial position results of operations or cash flows.
We adopted the provisions of the FASB Statement on Consolidations relating to the
accounting for noncontrolling interests on January 1, 2009. This Statement amends the
accounting for and disclosure of the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This Statement clarifies the definition and classification
of a noncontrolling interest, revises the presentation of noncontrolling interests in the
consolidated income statement, establishes a single method of accounting for changes in a
parents ownership interest in a subsidiary that does not result in deconsolidation, and
requires that a parent recognize a gain or loss in net income (loss) when a subsidiary is
deconsolidated. This Statement also required expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the interests of the
parents owners and the interests of the noncontrolling owners of a subsidiary. The
required changes in presentation have been reflected in the consolidated balance sheets,
statements of operations, and statements of cash flows and in the notes to the consolidated
financial statements, where applicable.
We adopted the provisions of the FASB Statement on disclosures relating to Derivatives and
Hedging on January 1, 2009. This Statement requires entities to provide enhanced
disclosures about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted, and how derivative instruments and
related hedged items affect an entitys financial position, results of operations, and cash
flows. These disclosures are included in Note 6 herein.
We adopted the provisions of the EITF guidance relating to Earnings Per Share on January 1,
2009. The FASB decided that unvested share-based payout awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings per share pursuant to the
two-class method. The adoption did not have an impact on our consolidated financial
position, results of operations or cash flows.
We adopted the provisions of the FASB Staff Position (FSP) relating to Fair Value
Measurements and Disclosures, as of April 1, 2009. This FSP provides additional guidance on
estimating fair value when the volume and level of activity for an asset or liability have
significantly decreased in relation to normal market activity. The FSP also provides
additional guidance on circumstances that may indicate that a transaction is not orderly
and requires additional disclosures. The adoption did not have an impact on our
consolidated financial position, results of operations or cash flows.
We adopted the provisions of a FSP relating to Investments on January 1, 2009. This FSP
amends the other-than-temporary recognition guidance for debt securities and requires
additional interim and annual disclosures of other-than-temporary impairments on debt and
equity securities. Pursuant to the new guidance, an other-than-temporary impairment has
occurred if a company does not expect to recover the entire amortized cost basis of the security. In this situation, if the company
does not intend to sell the impaired security, and it is not more likely than not it will
be required to sell the security before the recovery of its amortized cost basis, the
amount of the other-than-temporary impairment recognized in earnings is limited to the
portion attributed to the credit loss. The remaining portion of the other-than-temporary
impairment is then recorded in other comprehensive income. The adoption did not have an
impact on our consolidated financial position, results of operations or cash flows.
10
We adopted the provisions of a FSP on Financial Instruments, as of April 1, 2009. This FSP
required disclosures about fair value of all financial instruments for interim reporting
periods. This FSP relates to fair value disclosures for any financial instruments that are
not currently reflected in a companys balance sheet at fair value. Prior to the effective
date of this FSP, fair values for these assets and liabilities were only disclosed once a
year. This FSP will now require these disclosures to be made on a quarterly basis,
providing qualitative and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value. We have included the
additional disclosure information in Note 7 herein.
In June 2009, the FASB issued a Statement on Subsequent Events. This Statement provides
authoritative accounting literature and disclosure requirements for material events
occurring subsequent to the balance sheet date and prior to the issuance of the financial
statements. This Statement is effective for us for the periods ended on and after June 30,
2009. We have evaluated subsequent events through November 6, 2009, which is the date of
our Form 10-Q filing. The adoption did not have an impact on our consolidated financial
position, results of operations or cash flows. We have included a subsequent events
disclosure in Note 19 herein.
In December 2008, the FASB issued an FSP on Compensation, which amends previous guidance to
require more detailed disclosures about employers pension plan assets. New disclosures
will include more information on investment strategies, major categories of plan assets,
concentrations of risk within plan assets and valuation techniques used to measure the fair
value of plan assets. This new standard requires new disclosures only, and will have no
impact on our consolidated financial position, results of operations or cash flows. These
new disclosures will be required for us beginning in our Form 10-K for the 2009 fiscal
year.
In June 2009, the FASB issued a Statement on Transfers and Servicing, an amendment of
previous authoritative guidance. The most significant amendments resulting from this
Statement consist of the removal of the concept of a qualifying special-purpose entity
(SPE) from previous authoritative guidance, and the elimination of the exception for
qualifying SPEs from the Consolidation guidance regarding variable interest entities. This
Statement is effective for us January 1, 2010 and we are currently assessing the impact
this guidance will have on our financial statements.
In June 2009, the FASB issued a Statement which amends the previous Consolidations guidance
regarding variable interest entities and addresses the effects of eliminating the
qualifying special-purpose entity concept from the guidance on Transfers and Servicing.
This Statement responds to concerns about the application of certain key provisions of the
previous guidance on Consolidations regarding variable interest entities, including
concerns over the transparency of enterprises involvement with variable interest entities.
This Statement is effective for us January 1, 2010 and we are currently assessing the
impact this Statement will have on our financial statements.
In September 2009, the EITF issued guidance relating to Revenue Recognition. This guidance
will change the accounting for revenue recognition for arrangements with multiple
deliverables and will enable entities to separately account for individual deliverables for
many more revenue arrangements. This guidance eliminates the requirement that all
undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the overall
arrangement fee that is attributable to items that already have been delivered. As a
result, the new guidance may allow some companies to recognize revenue on transactions that
involve multiple deliverables earlier than under current requirements. This guidance is
effective for us January 1, 2011 and we are currently assessing the impact this Statement
will have on our financial statements.
11
3. Unsolicited Proposals for a Business Combination by CF Industries Holdings, Inc.
On January 15, 2009, CF Industries Holdings, Inc. (CF) presented a letter to our Board of
Directors proposing CFs acquisition of Terra in an all-stock transaction. Terras Board of
Directors rejected the proposal on the grounds that it was not in the best interests of
Terra or its stockholders and substantially undervalued the Company. CF subsequently
announced that it remained committed to the proposal, and on February 3, 2009, announced
that it would nominate three director candidates to Terras Board and commence an exchange
offer for all of Terras outstanding common shares.
On February 23, 2009, CF announced that it had commenced an unsolicited exchange offer to
acquire all of the outstanding common shares of Terra at a fixed exchange ratio of 0.4235
of a CF common share for each Terra common share. In response, Terras Board of Directors
announced on February 23, 2009, that it would review and consider CFs exchange offer and
make a formal recommendation to stockholders within ten business days, and further advised
Terras stockholders to take no action pending the review of the proposed exchange offer by
Terras Board. On March 3, 2009, Terras Board of Directors unanimously concluded that CFs
offer did not present a compelling case to create additional value for the stockholders of
either Terra or CF, substantially undervalues Terra on both an absolute basis and relative to CF
and is not in the best interests of Terra and its stockholders.
On March 9, 2009, CF sent a letter to Terras Board of Directors stating CF would be
prepared to enter into a negotiated merger agreement with Terra on the basis of an exchange
ratio based on $27.50 for each Terra common share, with an exchange ratio of not less than
0.4129 of a CF common share and not more than 0.4539 of a CF common share. On March 11,
2009, Terras Board of Directors unanimously concluded that CFs proposal continues to run
counter to Terras strategic objectives, substantially undervalues Terra both absolutely
and relative to CF, and would deliver less value to Terras stockholders than would owning
Terra on a stand-alone basis.
On March 23, 2009, CF sent a letter to Terras Board of Directors stating CF would be
prepared to enter into a negotiated merger agreement with Terra on the basis of an exchange
ratio based on $30.50 for each Terra common share, with an exchange ratio of not less than
0.4129 of a CF common share and not more than 0.4539 of a CF common share, the same collar
as CFs proposal of March 9, 2009. On March 24, 2009, Terras Board of Directors
unanimously concluded CFs proposal continues to run counter to Terras strategic
objectives, substantially undervalues Terra both absolutely and relative to CF and would
deliver less value to Terras stockholders than would owning Terra on a stand-alone basis.
On August 5, 2009, CF sent a letter to Terras Board of Directors reaffirming CFs intent
to pursue a business combination with Terra and stating that CF would be prepared to enter
into a negotiated merger agreement with Terra on the basis of a fixed exchange ratio of
0.465 of a CF common share for each Terra common share, and the return of at least $1
billion of cash to stockholders of the combined company and the distribution to only CFs
stockholders prior to the merger of certain contingent future shares. On August 25, 2009,
Terras Board of Directors unanimously concluded that CFs proposal continues to run
counter to Terras strategic objectives, substantially undervalues Terra both absolutely
and relative to CF and would deliver less value to Terras stockholders than would owning
Terra on a stand-alone basis.
12
On August 31, 2009, CF announced that its unsolicited exchange offer to acquire all of the
outstanding common shares of Terra had expired and would not be extended. No Terra common
shares were purchased by CF pursuant to the exchange offer.
On September 9, 2009, CF delivered a notice to Terra resubmitting CFs slate of three
nominees for election to Terras Board at Terras 2009 annual meeting of stockholders.
On September 28, 2009, CF announced that it had acquired 6,985,048 common shares, or
approximately 7%, of Terra in the open market at a cost of approximately $247 million. CF
also announced that it had sent a merger agreement to Terra, which included a fixed
exchange ratio of 0.465 of a CF common share for each Terra common share (such exchange
ratio to be adjusted upon the declaration by Terra of its proposed $7.50 per common share
special cash dividend) and the distribution to only CFs stockholders prior to the merger
of certain contingent future shares. On September 30, 2009, Terras Board of Directors
unanimously concluded that CFs proposal continues to run counter to Terras strategic
objectives, substantially undervalues Terra both absolutely and relative to CF and would
deliver less value to Terras stockholders than would owning Terra on a stand-alone basis.
On November 1, 2009, CF sent a letter to Terras Board of Directors reaffirming CFs intent
to pursue a business combination with Terra and stating that CF would be prepared to enter
into a negotiated merger agreement with Terra to acquire Terra for $32.00 in cash (reduced
by the $7.50 per share special dividend declared by Terra) and 0.1034 of a CF common share
for each Terra common share. On November 3, 2009, Terras Board of Directors unanimously
concluded that CFs proposal is inadequate, opportunistic and not in the best interests of
Terra and its stockholders.
For the three month period ended September 30, 2009, Terra did not incur any additional
defense costs related to CFs unsolicited business proposals. For the nine month period
ended September 30, 2009, Terra incurred defense costs of $14.3 million related to CFs
unsolicited business proposals.
4. Income Per Share
Basic income per share data is based on the weighted-average number of common shares
outstanding during the period. Diluted income per share data is based on the
weighted-average number of common shares outstanding and the effect of all dilutive
potential common shares including stock options, nonvested shares, convertible preferred
shares and common stock warrants. Nonvested stock carries dividend and voting rights, but
is not included in the weighted average number of common shares outstanding used to compute
basic income per share since they are contingently returnable.
13
The following table provides a reconciliation between basic and diluted income per share
attributable to Terra Industries Inc. for the three and nine month periods ended September
30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Basic income per common share
attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
45,118 |
|
|
$ |
171,270 |
|
|
$ |
155,587 |
|
|
$ |
468,691 |
|
Less: Preferred share dividends |
|
|
(17 |
) |
|
|
(1,275 |
) |
|
|
(51 |
) |
|
|
(3,825 |
) |
Inducement of preferred shares |
|
|
|
|
|
|
(5,248 |
) |
|
|
|
|
|
|
(5,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common stockholders |
|
|
45,101 |
|
|
|
164,747 |
|
|
|
155,536 |
|
|
|
459,618 |
|
Income from discontinued operations
available to common stockholders |
|
|
810 |
|
|
|
141 |
|
|
|
810 |
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common stockholders |
|
$ |
45,911 |
|
|
$ |
164,888 |
|
|
$ |
156,346 |
|
|
$ |
467,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
99,465 |
|
|
|
94,259 |
|
|
|
99,305 |
|
|
|
91,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share continuing operations |
|
$ |
0.46 |
|
|
$ |
1.75 |
|
|
$ |
1.57 |
|
|
$ |
5.01 |
|
Income per share discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.47 |
|
|
$ |
1.75 |
|
|
$ |
1.58 |
|
|
$ |
5.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share
attributable to Terra Industries Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
available to common stockholders |
|
$ |
45,101 |
|
|
$ |
164,747 |
|
|
$ |
155,536 |
|
|
$ |
459,618 |
|
Add: Preferred share dividends |
|
|
17 |
|
|
|
1,275 |
|
|
|
51 |
|
|
|
3,825 |
|
Inducement of preferred shares |
|
|
|
|
|
|
5,248 |
|
|
|
|
|
|
|
5,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders and assumed conversions |
|
$ |
45,118 |
|
|
$ |
171,270 |
|
|
$ |
155,587 |
|
|
$ |
468,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
99,465 |
|
|
|
94,259 |
|
|
|
99,305 |
|
|
|
91,821 |
|
Add incremental shares from
assumed conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares |
|
|
143 |
|
|
|
8,188 |
|
|
|
155 |
|
|
|
10,752 |
|
Non vested stock |
|
|
421 |
|
|
|
566 |
|
|
|
496 |
|
|
|
581 |
|
Common stock warrants |
|
|
|
|
|
|
1,592 |
|
|
|
|
|
|
|
1,696 |
|
Common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
100,029 |
|
|
|
104,605 |
|
|
|
99,956 |
|
|
|
104,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share continuing operations |
|
$ |
0.45 |
|
|
$ |
1.64 |
|
|
$ |
1.56 |
|
|
$ |
4.47 |
|
Income per share discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share |
|
$ |
0.46 |
|
|
$ |
1.64 |
|
|
$ |
1.57 |
|
|
$ |
4.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
5. Inventories, net
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Raw materials |
|
$ |
54,215 |
|
|
$ |
17,805 |
|
|
$ |
18,269 |
|
Supplies |
|
|
36,736 |
|
|
|
33,825 |
|
|
|
33,570 |
|
Finished goods |
|
|
19,992 |
|
|
|
145,461 |
|
|
|
124,081 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
110,943 |
|
|
$ |
197,091 |
|
|
$ |
175,920 |
|
|
|
|
|
|
|
|
|
|
|
Production costs include the cost of direct labor and materials, depreciation and
amortization, and overhead costs related to manufacturing activities. We allocate fixed
production overhead costs based on the normal capacity of our production facilities and
unallocated overhead costs are recognized as expense in the period incurred. We determine
the cost of inventories using the first-in, first-out method.
Inventories are stated at the lower of cost or market. Market is defined as current
replacement cost, except that market should not exceed the net realizable value and should
not be less than net realizable value reduced by an allowance for an approximately normal
profit margin. We perform a monthly analysis of our inventory balances to determine if the
carrying amount of inventories exceeds our net realizable value. Our determination of
estimated net realizable value is based on customer orders, market trends and historical
pricing. If the carrying amount exceeds the estimated net realizable value, the carrying
amount is reduced to the estimated net realizable value.
We estimate a reserve for obsolescence and excess of our materials and supplies inventory.
Inventory is stated net of the reserve.
6. Derivative Financial Instruments
We enter into derivative financial instruments, including swaps, basis swaps, purchased put
and call options and sold call options, to manage the effect of changes in natural gas
costs and the price of our nitrogen products. We report the fair value of the derivatives
on our balance sheet. If the derivative is not designated as a hedging instrument, changes
in fair value are recognized in earnings in the period of change. If the derivative is
designated as a cash flow hedge, and to the extent such hedge is determined to be
effective, changes in fair value are reported as a component of accumulated other
comprehensive income (loss) in the period of change, and subsequently recognized in our
statement of operations in the period the offsetting hedged transaction occurs. If an
instrument or the hedged item is settled early, we evaluate whether the hedged forecasted
transaction is still probable of occurring when determining whether to reclassify any gains
or losses immediately in cost of sales or wait until the forecasted transaction occurs.
Until our derivatives settle, we test derivatives for ineffectiveness. This includes
assessing the correlation of New York Mercantile Exchange (NYMEX) pricing, which is
commonly used as an index in natural gas derivatives, to the natural gas pipelines pricing
at our manufacturing facilities. This assessment requires management judgment to determine
the statistically and industry appropriate analysis of prior operating relationships
between the NYMEX prices and the natural gas pipelines prices at our facilities.
To the extent possible, we base our market value calculations on third party data. Due to
multiple types of settlement methods available, not all settlement methods for future
period trades are available from third party sources. In the event that a derivative is measured for fair value based on a
settlement method that is not readily available, we estimate the fair value based on
forward pricing information for similar types of settlement methods.
15
We manage risk using derivative financial instruments for changes in natural gas supply
prices and changes in nitrogen prices. Derivative financial instruments have credit risk
and market risk.
To manage credit risk, we enter into derivative transactions only with counter-parties who
are currently rated as BBB or better or equivalent as recognized by a national rating
agency. We will not enter into transactions with a counter-party if the additional
transaction will result in credit exposure exceeding $20 million. The credit rating of
counter-parties may be modified through guarantees, letters of credit or other credit
enhancement vehicles. As of September 30, 2009, we did not have any credit risk related
contingent features that would require us to settle the derivative instruments or to post
collateral upon the occurrence of a credit event.
We classify a derivative financial instrument as a hedge if all of the following conditions
are met:
|
1. |
|
The item to be hedged must expose us to currency, interest or price risk; |
|
2. |
|
It must be probable that the results of the hedge position substantially
offset the effects of currency, interest or price changes on the hedged item (e.g.,
there is a high correlation between the hedge position and changes in market value
of the hedge item); and |
|
3. |
|
The derivative financial instrument must be designated as a hedge of the item
at the inception of the hedge. |
Natural gas supplies to meet production requirements at our North American production
facilities are purchased at market prices. Natural gas market prices are volatile and we
effectively fix prices for a portion of our natural gas production requirements and
inventory through the use of swaps and options. The North American contracts reference
physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical
prices for North America are frequently based on prices at the Henry Hub in Louisiana, the
most common and financially liquid location of reference for financial derivatives related
to natural gas. However, natural gas supplies for our North American production facilities
are purchased at locations other than Henry Hub, 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. Natural gas derivatives are designated as cash flow hedges, provided
that the derivatives meet the conditions discussed above. The contracts are traded in
months forward and settlement dates are scheduled to coincide with gas purchases during
that future period.
A swap is a contract between us and a third party to exchange cash based on a designated
price. Option contracts give the holder the right to either own or sell a futures or swap
contract. The option contracts require initial premium payments ranging from 2% to 5% of
contract value. Basis swap contracts require payments to or from us for the amount, if any,
that monthly published gas prices from the source specified in the contract differ from the
prices of NYMEX natural gas futures during a specified period. There are no initial cash
requirements related to the swap and basis swap agreements; however, the counterparties
require maintenance of cash margin balances generally 10% to 20% of the contract value.
As of September 30, 2009 and 2008, we had open derivative contracts of 14.7 million MMBtus
and 42.4 million MMBtus, respectively, of natural gas.
16
The following summarizes the gross fair market value of all derivative instruments and their
location in our Consolidated Balance Sheet are shown by those in an asset or liability
position and are categorized as commodity derivatives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives(a) |
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
Derivative Instrument |
|
Location |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Commodity Derivatives |
|
Other current assets |
|
$ |
8,869 |
|
|
$ |
25,773 |
|
|
$ |
30,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives(a) |
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
Derivative Instrument |
|
Location |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Commodity Derivatives |
|
Derivative hedge liabilities |
|
$ |
(2,382 |
) |
|
$ |
(125,925 |
) |
|
$ |
( 218,652 |
) |
|
|
|
(a) |
|
Amounts are disclosed at gross fair value as required by the Derivative and
Hedging topic of the FASB Accounting Standards Codification. All of our commodity
derivatives are designated as cash flow hedging instruments. See Notes 1 and 5 to
our audited consolidated financial statements included on our 2008 Annual Report on
Form 10-K for additional information on our overall risk management strategies. The
deferred taxes related to these commodity derivatives for the periods ended
September 30, 2009, December 31, 2008 and September 30, 2008 were $(0.8) million,
$25.2 million and $72.7 million, respectively. |
Certain derivatives outstanding at September 30, 2009 and 2008, which settled during
October 2009 and October 2008, respectively, are included in the position of open natural
gas derivatives in the table above. The October 2009 derivatives settled for an approximate
$0.5 million gain compared to the October 2008 derivatives which settled for an approximate
$42.2 million loss. Substantially all material open derivatives at September 30, 2009 will
settle during the next twelve months.
We are required to maintain certain margin deposits on account with derivative
counterparties. At September 30, 2009, we had no margin deposits with derivative
counterparties, which are reported as Margin deposits with derivative counterparties on
the Consolidated Statements of Financial Position. At December 31, 2008 and September 30,
2008, we had margin deposits with derivative counterparties of $36.9 million and $132.1
million, respectively.
At September 30, 2009 and 2008, we determined that a portion of certain derivative
contracts were ineffective for accounting purposes and, as a result, recorded a $1.5
million charge and $3.6 million charge to cost of sales, respectively. At September 30,
2009 and 2008, we excluded a portion of the loss on certain derivative contracts from the
effectiveness assessment and, as a result, recorded a $2.7 million credit and a $5.2
million credit, respectively, to cost of sales.
The effective portion of gains and losses on derivative contracts that qualify for hedge
treatment are carried as accumulated other comprehensive income (loss) (AOCI) and credited
or charged to cost of sales in the month in which the hedged transaction settles. Gains and
losses on the contracts that do not qualify for hedge treatment are credited or charged to
cost of sales based on the positions fair value. The risk and reward of outstanding
natural gas positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices. All of our commodity
derivatives are designated as cash flow hedging instruments. See Notes 1 and 5 to our
audited consolidated financial statements included in our 2008 Annual Report on Form 10-K
for additional information on our overall risk management strategies.
17
The following table presents the effect of our commodity derivative instruments on the
Consolidated Statement of Operations for the three and nine months ended September 30, 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Location of Gain |
|
Reclassified from AOCI |
|
|
|
|
|
|
Amount of Gain (Loss) |
|
Recognized in OCI |
|
|
(Loss) Reclassified |
|
into Income |
|
|
|
|
|
|
Recognized in Income (b) |
|
Sept 30, |
|
|
Sept 30, |
|
|
from AOCI into |
|
Sept 30, |
|
|
Sept 30, |
|
|
Location of Gain (Loss) |
|
|
Sept 30, |
|
|
Sept 30, |
|
2009 |
|
|
2008 |
|
|
Income (a) |
|
2009 |
|
|
2008 |
|
|
Recognized in Income (b) |
|
|
2009 |
|
|
2008 |
|
$ |
(2,959 |
) |
|
$ |
(226,284 |
) |
|
Cost of Sales |
|
$ |
(9,501 |
) |
|
$ |
(27,055 |
) |
|
Cost of Sales |
|
$ |
1,224 |
|
|
$ |
1,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
(Loss) Location of Gain |
|
Reclassified from AOCI |
|
|
|
|
|
|
Amount of Gain (Loss) |
|
Recognized in OCI |
|
|
(Loss) Reclassified |
|
into Income |
|
|
|
|
|
|
Recognized in Income (b) |
|
Sept 30, |
|
|
Sept 30, |
|
|
from AOCI into |
|
Sept 30, |
|
|
Sept 30, |
|
|
Location of Gain (Loss) |
|
|
Sept 30, |
|
|
Sept 30, |
|
2009 |
|
|
2008 |
|
|
Income (a) |
|
2009 |
|
|
2008 |
|
|
Recognized in Income (b) |
|
|
2009 |
|
|
2008 |
|
$ |
(40,268 |
) |
|
$ |
(194,585 |
) |
|
Cost of Sales |
|
$ |
(107,527 |
) |
|
$ |
17,011 |
|
|
Cost of Sales |
|
$ |
1,224 |
|
|
$ |
1,608 |
|
|
|
|
(a) |
|
Effective portion of gain (loss) |
|
(b) |
|
The amount of gain or (loss) recognized in income represents $(1.5) million
and $(3.6) million related to the ineffective portion of the hedging relationships
and $2.7 million and $5.2 million related to the amount excluded from the
assessment of hedge effectiveness. |
Approximately $2.0 million of the net accumulated gain at September 30, 2009 will be
reclassified into earnings during the next twelve months as compared to $186.2 million of
the net accumulated loss at September 30, 2008.
At times, we also use forward derivative instruments, such as nitrogen solution contracts,
to fix or set floor prices for a portion of our nitrogen sales volumes. At September 30,
2009, we had open nitrogen solution contracts. When outstanding, the nitrogen solution
contracts do not qualify for hedge treatment due to inadequate trading history to
demonstrate effectiveness. Consequently, these contracts are marked-to-market and
unrealized gains or losses are reflected in revenue in the statement of operations. For
both the three and nine month periods ending September 30, 2009, we recognized an
unrealized loss of less than $0.1 million on nitrogen forward derivative instruments. For
the three and nine month periods ending September 30, 2008, there were no gains or losses
on nitrogen forward derivative instruments.
7. Fair Value Measurements
The Fair Value Measurements and Disclosures topic of the FASB Accounting Standards
Codification establishes a three level hierarchal disclosure framework that prioritizes and
ranks the level of market price observability used in measuring assets and liabilities at
fair value. Market price observability is impacted by a number of factors, including the
type of asset or liability and its characteristics. Assets and liabilities with readily
available active quoted prices or for which fair value can be measured from actively quoted
prices generally will have a higher degree of market price observability and a lesser
degree of judgment used in measuring fair value.
18
The three levels are defined as follows:
|
|
|
Level 1 inputs to the valuation methodology are unadjusted quoted prices for
identical assets or liabilities in active markets. |
|
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument. |
|
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant
to the fair value measurement. |
We evaluated our assets and liabilities to determine which items should be disclosed
according to the Fair Value Measurements and Disclosures topic of the FASB Accounting
Standards Codification. We currently measure our money market funds and derivative
contracts on a recurring basis at fair value. The fair value of our money market fund
investments was determined based on quoted prices in active markets for identical assets.
The inputs included in the fair value measurement of our derivative contracts use adjusted
quoted prices from an active market, which are classified as level 2 as a significant other
observable input in the disclosure hierarchy framework as defined by the Fair Value
Measurements and Disclosures topic of the FASB Accounting Standards Codification. Our gas
derivative contracts, which are classified as a level 2 input, are comprised of swaps,
basis swaps and options. The valuation techniques for these contracts are observable market
data for inputs, including prices quoted on the NYMEX, prices quoted in spot markets and
commonly referenced industry publications and prices quoted by market makers. There have
been no changes in valuation techniques during the quarter ended September 30, 2009.
The following table summarizes the valuation of Terras assets and liabilities in
accordance with the Fair Value Measurements and Disclosures topic of
the Codification fair value hierarchy levels as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market |
|
|
Significant Other |
|
|
Significant |
|
|
|
Prices in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
785,482 |
|
|
$ |
|
|
|
$ |
|
|
Derivative contracts |
|
|
|
|
|
|
8,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
785,482 |
|
|
$ |
8,869 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
(2,382 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(2,382 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
19
The following table summarizes the valuation of Terras assets and liabilities in
accordance with the Fair Value Measurements and Disclosures topic of
the Codification fair value hierarchy levels of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market |
|
|
Significant Other |
|
|
Significant |
|
|
|
Prices in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
755,501 |
|
|
$ |
|
|
|
$ |
|
|
Derivative contracts |
|
|
|
|
|
|
25,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
755,501 |
|
|
$ |
25,773 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
(125,925 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(125,925 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the valuation of Terras assets and liabilities in
accordance with the Fair Value Measurements and Disclosures topic of
the Codification fair value hierarchy levels of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market |
|
|
Significant Other |
|
|
Significant |
|
|
|
Prices in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
(in thousands) |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
491,534 |
|
|
$ |
|
|
|
$ |
|
|
Derivative contracts |
|
|
|
|
|
|
30,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
491,534 |
|
|
$ |
30,685 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
(218,652 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
(218,652 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents the carrying amounts and estimated fair values of
Terras financial instruments as of September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
(in millions) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,000,810 |
|
|
$ |
1,000,810 |
|
|
$ |
680,666 |
|
|
$ |
680,666 |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
330,000 |
|
|
|
346,088 |
|
|
|
330,000 |
|
|
|
324,225 |
|
Preferred shares |
|
|
483 |
|
|
|
1,680 |
|
|
|
2,027 |
|
|
|
5,983 |
|
20
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
|
|
|
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments. |
|
|
|
|
Long-term debt: The fair value of our long-term debt is estimated by
discounting expected cash flows at the rates currently offered for debt of the
same remaining maturities. |
|
|
|
|
Preferred shares: Preferred shares are valued on the basis of market quotes,
when available, and management estimates based on comparisons with similar
instruments that are publicly traded. |
Concentration of Credit Risk: We are subject to credit risk through trade receivables and
short-term investments. Although a substantial portion of our debtors ability to pay
depends upon the agribusiness economic sector, credit risk with respect to trade
receivables generally is minimized due to its geographic dispersion. Short-term cash
investments are placed in short duration corporate and government debt securities funds
with well-capitalized, high quality financial institutions.
Financial Instruments: At September 30, 2009, we had letters of credit outstanding totaling
$8.0 million, which guarantees various insurance and financing activities.
8. Preferred Shares
The components of preferred shares outstanding at September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Number |
|
|
Carrying |
|
|
Number |
|
|
Carrying |
|
(in thousands) |
|
of shares |
|
|
Value |
|
|
of shares |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Shares
(120,000 shares authorized,
$1,000 per share liquidation value) |
|
|
500 |
|
|
$ |
483 |
|
|
|
2,100 |
|
|
$ |
2,027 |
|
We had 500 shares of cumulative convertible perpetual Series A Preferred Shares with a
liquidation value of $1,000 per share outstanding at September 30, 2009 and 2,100 shares
with a liquidation value of $1,000 per share at September 30, 2008. Cumulative dividends of
$10.625 per share are payable quarterly. The Series A Preferred Shares are not redeemable,
but are convertible into our common stock at the option of the holder for a conversion
price of $9.96 per common share. The Series A shares may automatically be converted to
common shares after December 20, 2009 if the closing price for our common shares exceeds
140% of the conversion price for twenty days within a consecutive thirty day period prior
to such conversion. Upon the occurrence of a fundamental change to our capital structure,
including a change of control, merger, or sale of Terra, holders of the Series A Preferred
Shares may require us to purchase any or all of their shares at a price equal to their
liquidation value plus any accumulated, but unpaid, dividends. We also have the right,
under certain conditions, to require holders of the Series A Preferred Shares to exchange
their shares for convertible subordinated debentures with similar terms.
21
In the second half of 2008, we commenced offers (the inducement offers) to pay a cash
premium to holders of the Series A Preferred Shares who elected to convert their Series A
Preferred Shares into shares of Terra common stock. A total of 118,400 shares or 99% of the
outstanding shares of Series A Preferred Shares were surrendered and converted as part of
the inducement offers. The former holders of the Series A Preferred Shares received, in the
aggregate, the following:
|
|
|
11,887,550 shares of Terra Industries common stock; and |
|
|
|
|
A cash premium of approximately $5.3 million |
The $5.3 million represents the difference between the fair value of all securities and
other consideration transferred in the transaction to the preferred stockholders and the
fair value of securities issuable pursuant to the original conversion terms of the Series A
Preferred Shares less the costs related to the inducement offers.
In the third quarter of 2009, a total of 1,100 shares of the outstanding Series A Preferred
Shares were surrendered and converted into 110,442 shares of Terra Industries common stock
and no cash premium was paid.
9. Turnaround Costs
The following represents a summary of the deferred plant turnaround costs for the nine
months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnaround |
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
Beginning |
|
|
Costs |
|
|
Turnaround |
|
|
Translation |
|
|
Ending |
|
(in thousands) |
|
Balance |
|
|
Capitalized |
|
|
Amortization |
|
|
Adjustments |
|
|
Balance |
|
Period ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
$ |
23,467 |
|
|
$ |
22,710 |
|
|
$ |
(18,496 |
) |
|
$ |
319 |
|
|
$ |
28,000 |
|
September 30, 2008 |
|
|
42,190 |
|
|
|
9,290 |
|
|
|
(21,529 |
) |
|
|
(648 |
) |
|
|
29,303 |
|
|
|
|
10. |
|
Accrued and Other Current Liabilities |
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Payroll and benefit costs |
|
$ |
15,138 |
|
|
$ |
27,104 |
|
|
$ |
21,517 |
|
Accrued CF defense costs |
|
|
12,854 |
|
|
|
|
|
|
|
|
|
Deferred tax liability current |
|
|
5,630 |
|
|
|
|
|
|
|
6,413 |
|
Accrued property taxes |
|
|
4,202 |
|
|
|
3,291 |
|
|
|
3,947 |
|
Accrued interest |
|
|
3,972 |
|
|
|
9,748 |
|
|
|
3,970 |
|
Current accrued phantom shares |
|
|
3,368 |
|
|
|
4,341 |
|
|
|
6,731 |
|
Deferred revenue |
|
|
1,998 |
|
|
|
3,346 |
|
|
|
1,499 |
|
Accrued product on exchange |
|
|
|
|
|
|
|
|
|
|
27,580 |
|
Income taxes payable |
|
|
|
|
|
|
63,999 |
|
|
|
21,202 |
|
Other |
|
|
15,010 |
|
|
|
15,941 |
|
|
|
20,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
62,172 |
|
|
$ |
127,770 |
|
|
$ |
113,042 |
|
|
|
|
|
|
|
|
|
|
|
22
11. Other Liabilities
Other liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Unrecognized tax benefit |
|
$ |
40,711 |
|
|
$ |
35,949 |
|
|
$ |
33,560 |
|
Long-term medical and
closed facility reserve |
|
|
23,849 |
|
|
|
23,887 |
|
|
|
24,529 |
|
Long-term deferred revenue |
|
|
9,364 |
|
|
|
10,488 |
|
|
|
10,863 |
|
Accrued phantom shares |
|
|
1,871 |
|
|
|
2,430 |
|
|
|
3,137 |
|
Other |
|
|
5,991 |
|
|
|
5,799 |
|
|
|
6,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
81,786 |
|
|
$ |
78,553 |
|
|
$ |
78,779 |
|
|
|
|
|
|
|
|
|
|
|
12. Equity Investments
North America
Our investment in North American companies that are accounted for on the equity method of
accounting and included in operations consist of the following: (1) 50% ownership interest
in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production plant in
Trinidad, (2) 50% interest in an ammonia storage joint venture located in Houston, Texas
and (3) 50% interest in a joint venture in Oklahoma CO2 at our Verdigris
nitrogen plant. These investments were $119.0 million and $144.4 million at September 30,
2009 and 2008, respectively. We include the net earnings of these investments as an element
of income from operations because the investees operations provide additional capacity to
our operations.
The combined results of operations and financial position of our North American equity
method investments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Condensed income statement
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
42,041 |
|
|
$ |
128,332 |
|
|
$ |
121,456 |
|
|
$ |
310,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,285 |
|
|
$ |
46,642 |
|
|
$ |
32,343 |
|
|
$ |
109,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates |
|
$ |
6,106 |
|
|
$ |
15,857 |
|
|
$ |
10,880 |
|
|
$ |
45,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
49,307 |
|
|
$ |
50,582 |
|
|
$ |
94,886 |
|
Long-term assets |
|
|
161,542 |
|
|
|
173,631 |
|
|
|
177,882 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
210,849 |
|
|
$ |
224,213 |
|
|
$ |
272,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
20,400 |
|
|
$ |
20,212 |
|
|
$ |
53,457 |
|
Long-term liabilities |
|
|
21,887 |
|
|
|
19,380 |
|
|
|
14,766 |
|
Equity |
|
|
168,562 |
|
|
|
184,621 |
|
|
|
204,545 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
210,849 |
|
|
$ |
224,213 |
|
|
$ |
272,768 |
|
|
|
|
|
|
|
|
|
|
|
23
The carrying value of these investments at September 30, 2009 was $34.7 million more than
our share of the affiliates book value. The excess is attributable primarily to the
step-up in basis for fixed asset values, which is being depreciated over a period of
approximately fifteen years. Our equity in earnings of unconsolidated subsidiaries is
different than our ownership interest in income reported by the unconsolidated subsidiaries
due to deferred profits on intergroup transactions and amortization of basis differences.
We have transactions in the normal course of business with PLNL whereby we are obliged to
purchase 50% of the ammonia produced by PLNL at current market prices. During the nine
month periods ended September 30, 2009 and 2008, we purchased
approximately $57.3 million and $135.7 million, respectively, of ammonia
from PLNL.
We received $25.1 million and $55.4 million in distributions from our North American equity
investments in the nine month periods ended September 30, 2009 and 2008, respectively.
United Kingdom
On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint
venture between Terra and Kemira GrowHow Oyj (Kemira). Pursuant to the joint venture
agreement, we contributed our United Kingdom subsidiary Terra Nitrogen (UK) Limited to the
joint venture for a 50% interest. Subsequent to the formation, we have accounted for our
investment in GrowHow as a non-operating equity method investment. We do not include the
net earnings of this investment as an element of income from operations since the
investees operations do not provide additional capacity to us, nor are its operations
integrated with our supply chain in North America. The GrowHow joint venture includes the
Kemira site at Ince and our former Teeside and Severnside sites.
In January 2008 GrowHow closed the Severnside manufacturing facility. Pursuant to the
agreement with Kemira, we are responsible for any remediation costs required to prepare the
Severnside site for disposal. As of September 30, 2009, we have incurred remediation costs
of $9.0 million. We anticipate total remediation costs to not exceed $12.5 million. We have
an option to purchase the Severnside land for a nominal amount at any time prior to sale.
If we elect not to exercise this option, we are still entitled to receive the sales
proceeds. We anticipate that the proceeds related to the sale of the Severnside land will
exceed the total cost of reclamation of the site.
The Joint Venture Contribution Agreement specifies that we are entitled to receive a
minimum balancing consideration payment of up to £60 million based on GrowHows operating
results for fiscal 2008 to 2010. Pursuant to agreements with Kemira, we received minimum
balancing consideration and other payments totaling £12.0 million ($18.7 million) during
the first nine months of 2009. For the nine months ended September 30, 2008, we did not
receive any balancing consideration payments. We also received $27.4 million from GrowHow
during 2008 for the refund of working capital contributions in excess of amounts specified
in the Joint Venture Contribution Agreement. The carrying value of this equity method
investment was $134.4 million and $238.2 million at September 30, 2009 and 2008,
respectively.
24
The results of operations and financial position of our equity method investment in GrowHow
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Condensed income statement
information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
144,705 |
|
|
$ |
368,458 |
|
|
$ |
361,257 |
|
|
$ |
914,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
16,947 |
|
|
$ |
86,803 |
|
|
$ |
14,203 |
|
|
$ |
184,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terras equity in earnings of
unconsolidated affiliates |
|
$ |
4,945 |
|
|
$ |
42,091 |
|
|
$ |
2,457 |
|
|
$ |
88,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
166,570 |
|
|
$ |
212,992 |
|
|
$ |
379,078 |
|
Long-term assets |
|
|
266,047 |
|
|
|
239,589 |
|
|
|
248,690 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
432,617 |
|
|
$ |
452,581 |
|
|
$ |
627,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
55,323 |
|
|
$ |
86,471 |
|
|
$ |
126,311 |
|
Long-term liabilities |
|
|
138,862 |
|
|
|
132,754 |
|
|
|
157,081 |
|
Equity |
|
|
238,432 |
|
|
|
233,356 |
|
|
|
344,376 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
432,617 |
|
|
$ |
452,581 |
|
|
$ |
627,768 |
|
|
|
|
|
|
|
|
|
|
|
The carrying value of this investment at September 30, 2009 was $15.2 million more than our
share of GrowHows book value. The excess is attributable primarily to the step-up in basis
for fixed asset values, which is being depreciated over a period of approximately twelve
years. Our equity earnings of GrowHow are different than our ownership interest in
GrowHows net income due to the amortization of basis differences.
13. Long-term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Unsecured Senior Notes, 7.0%
due 2017 |
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
330,000 |
|
|
|
330,000 |
|
|
|
330,000 |
|
Less current maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
$ |
330,000 |
|
|
|
|
|
|
|
|
|
|
|
In 2007, Terra Capital, Inc. (TCAPI), a subsidiary of Terra Industries Inc., issued $330
million of 7.0% Senior Notes due 2017 (2017 Notes). The 2017 Notes are unconditionally
guaranteed by Terra and certain of its U.S. subsidiaries (the Guarantor Subsidiaries); see
Note 17 herein. The 2017 Notes and guarantees are unsecured and rank equal in right of
payment with any existing and future senior obligations of such guarantors. On September
24, 2009, TCAPI commenced a cash tender offer for any and all of its 2017 Notes; see Note
19 herein.
25
The Indenture governing the 2017 Notes contains covenants that limit, among other things,
our ability to: incur additional debt, pay dividends on common stock
of Terra or repurchase shares of such common stock, make certain investments, sell assets outside the ordinary
course of business, enter into transactions with affiliates, limit dividends or other
payments by our restricted subsidiaries, enter into sale and leaseback transactions, engage
in other businesses, sell all or substantially all of our assets or merge with or into
other companies, and reduce our insurance coverage.
We are obligated to offer to repurchase the 2017 Notes upon a Change of Control (as defined
in the Indenture) at a cash price equal to 101% of the aggregate principal amount
outstanding at that time, plus accrued and unpaid interest to the date of purchase. The
Indenture governing the 2017 Notes contains events of default and remedies customary for a
financing of this type.
The $200 million revolving credit facilities (the facilities) due 2012 are secured by
substantially all of our working capital. Borrowing availability is generally based on 100%
of eligible cash balances, 85% of eligible accounts receivable, 60% of eligible finished
goods inventory and is reduced by outstanding letters of credit. These facilities include
$50 million available only for the use of Terra Nitrogen Company, L.P. (TNCLP), one of our
consolidated subsidiaries. Borrowings under the revolving credit facilities will bear
interest at a floating rate plus an applicable margin, which can be either a base rate, or,
at our option, a London Interbank Offered Rate (LIBOR). At September 30, 2009, the LIBOR
rate was 0.26%. The base rate is the highest of (1) Citibank, N.A.s base rate (2) the
federal funds effective rate, plus one-half percent (0.50%) per annum and (3) the base
three month certificate of deposit rate, plus one-half percent (0.50%) per annum, plus an
applicable margin in each case. LIBOR loans will bear interest at LIBOR plus an applicable
margin. The applicable margins for base rate loans and LIBOR loans were 0.50% and 1.75%,
respectively, at September 30, 2009. The revolving facilities require an initial one-half
percent (0.50%) commitment fee on the difference between committed amounts and amounts
actually borrowed.
On October 9, 2009, we amended the facilities to allow for the consummation of certain
transactions, including the aforementioned cash tender offer for any and all of the 2017
Notes; see Note 19 herein.
The facilities also require that there be no change of control related to Terra, such that
no individual or group (within the meaning of the Securities Exchange Act of 1934, as
amended) beneficially owns more than 35% of the outstanding voting shares of Terra. Such a
change of control would constitute an event of default under the facilities. During 2009,
CF has made a number of unsolicited proposals for a business combination with us. Such a
business combination, if consummated, would constitute a change of control under both the
facilities and the Indenture governing the 2017 Notes. See Notes 3 and 19 herein for
additional information with respect to CFs unsolicited proposals.
At September 30, 2009, we had no outstanding revolving credit borrowings and $8.0 million
in outstanding letters of credit. The $8.0 million in outstanding letters of credit reduced
our borrowing availability to $192.0 million at September 30, 2009. The facilities require
that we 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. Under the $150 million
facility, if our consolidated borrowing availability falls below $60 million, we are
required to have achieved minimum operating cash flows or earnings before interest, income
taxes, depreciation, amortization and other non-cash items (EBITDA) of $60 million during
the most recent four quarters. Under the $50 million TNCLP facility, if our borrowing
availability as computed for that facility falls below $10 million, we are required to
achieve EBITDA at TNCLP of $25 million during the most recent four quarters. A default
under the $50 million facility results in a cross default to the $150 million facility.
26
14. Pension Plans
We maintain defined benefit and defined contribution pension plans that cover substantially all salaried and hourly
employees. Benefits are based on a pay formula. The defined benefit plans assets consist principally of equity
securities and corporate and government debt securities. We also have certain non-qualified pension plans covering
executives, which are unfunded. We accrue pension costs based upon annual actuarial valuations for each plan and fund
these costs in accordance with statutory requirements.
The estimated components of net periodic pension expense follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
733 |
|
|
$ |
778 |
|
|
$ |
2,199 |
|
|
$ |
2,334 |
|
Interest cost |
|
|
4,648 |
|
|
|
4,412 |
|
|
|
13,944 |
|
|
|
13,236 |
|
Expected return on plan assets |
|
|
(4,701 |
) |
|
|
(4,516 |
) |
|
|
(14,103 |
) |
|
|
(13,548 |
) |
Amortization of prior service cost |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(27 |
) |
|
|
(27 |
) |
Amortization of actuarial loss |
|
|
162 |
|
|
|
468 |
|
|
|
486 |
|
|
|
1,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense |
|
$ |
833 |
|
|
$ |
1,133 |
|
|
$ |
2,499 |
|
|
$ |
3,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash contributions to the defined benefit pension plans for the three months ended
September 30, 2009 and 2008 were $0.5 million and $0.5 million, respectively. Cash
contributions to the defined benefit pension plans for the nine months ended September 30,
2009 and 2008 were $1.3 million and $1.4 million, respectively.
We also sponsor defined contribution savings plans covering most full-time employees.
Contributions made by participating employees are matched based on a specified percentage
of employee contributions. The cost of our contributions to these plans for the three month
periods ended September 30, 2009 and 2008 were $1.2 million and $1.1 million, respectively.
Contributions to these plans for the nine month periods ended September 30, 2009 and 2008
were $3.5 million and $3.1 million, respectively.
We provide health care benefits for certain U.S. employees who retired on or before January
1, 2002. Participant contributions and co-payments are subject to escalation. The plan pays
a stated percentage of most medical expenses reduced for any deductible and payments made
by government programs. These costs are funded as paid.
27
15. Comprehensive Income
|
|
Comprehensive income attributable to Terra Industries Inc. and its components, net of tax,
were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income before noncontrolling interest |
|
$ |
48,900 |
|
|
$ |
187,159 |
|
|
$ |
176,751 |
|
|
$ |
528,672 |
|
Changes in cumulative foreign currency
translation adjustment |
|
|
(5,776 |
) |
|
|
(28,600 |
) |
|
|
24,491 |
|
|
|
(30,356 |
) |
Changes in market value of derivative
financial instruments classified
as cash flow hedges, net of tax |
|
|
4,084 |
|
|
|
(154,543 |
) |
|
|
41,272 |
|
|
|
(107,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income before
noncontrolling interest |
|
|
47,208 |
|
|
|
4,016 |
|
|
|
242,514 |
|
|
|
390,393 |
|
Comprehensive income attributable
to noncontrolling interest |
|
|
(3,338 |
) |
|
|
(691 |
) |
|
|
(25,329 |
) |
|
|
(44,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to
Terra Industries Inc. |
|
$ |
43,870 |
|
|
$ |
3,325 |
|
|
$ |
217,185 |
|
|
$ |
346,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles equity attributable to the noncontrolling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Noncontrolling interest, beginning
of period |
|
$ |
102,682 |
|
|
$ |
112,084 |
|
|
$ |
104,082 |
|
|
$ |
108,581 |
|
Net income attributable to
noncontrolling interest |
|
|
2,972 |
|
|
|
15,748 |
|
|
|
20,354 |
|
|
|
52,369 |
|
Distributions to noncontrolling
interests |
|
|
(10,240 |
) |
|
|
(16,743 |
) |
|
|
(33,631 |
) |
|
|
(56,642 |
) |
Changes in market value of derivative
financial instruments classified as
cash flow hedges, net of tax, attributable
to the noncontrolling interest |
|
|
366 |
|
|
|
(15,057 |
) |
|
|
4,975 |
|
|
|
(8,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest, end of period |
|
$ |
95,780 |
|
|
$ |
96,032 |
|
|
$ |
95,780 |
|
|
$ |
96,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. Common Stockholders Equity |
Terra allocates $1.00 per share upon the issuance of common shares to the common share
capital account. The common shares have no par value. On October 22, 2009, we declared a
dividend of $0.10 per common share, payable December 11, 2009 to shareholders of record as
of November 23, 2009. In addition, on October 28, 2009, we declared a special cash dividend
of $7.50 per common share, payable December 11, 2009 to shareholders of record as of
November 23, 2009; see Note 19 herein. Future dividends are necessarily dependent upon
future earnings, capital requirements, general financial conditions, general business
conditions, approval from our Board of Directors, compliance with covenants in our debt
agreements and other factors.
28
On May 6, 2008, the Board of Directors adopted a resolution for the repurchase of
12,841,717 shares, representing 14 percent of our then outstanding common stock. The stock
buyback program commenced on May 7, 2008 and has been and will be conducted on the open
market, in private transactions or otherwise at such times prior to June 30, 2010, and at
such prices as we determine to be appropriate. Purchases may be commenced or suspended at
any time without notice. As of September 30, 2009 there are 7,448,662 shares available to
be repurchased under the plan. There were no share repurchases during the third quarter of
2009.
17. Guarantor Subsidiaries
Terra Industries Inc., excluding all majority owned subsidiaries (Parent), files a
consolidated United States federal income tax return. Beginning in 1995, the Parent adopted
the tax sharing agreements, under which all domestic operating subsidiaries provide for and
remit income taxes to the Parent based on their pretax accounting income, adjusted for
permanent differences between pretax accounting income and taxable income. The tax sharing
agreements allocated the benefits of operating losses and temporary differences between
financial reporting and tax basis income to the Parent.
Condensed consolidating financial information regarding the Parent, TCAPI, the Guarantor
Subsidiaries and the subsidiaries of the Parent that are not guarantors of the 2017 Notes
(the Non-Guarantor Subsidiaries) (see Note 13 herein for September 30, 2009; December 31,
2008; and September 30, 2008 are presented below for purposes of complying with the
reporting requirements of the Guarantor Subsidiaries. The guarantees of the Guarantor
Subsidiaries are full and unconditional. The Subsidiary issuer and the Guarantor
Subsidiaries guarantees are joint and several with the Parent.
Guarantor Subsidiaries include: subsidiaries that own the Woodward, Oklahoma; Port Neal,
Iowa; Yazoo City, Mississippi; and Beaumont, Texas plants; Terra Environmental
Technologies; Terra Global Holding Company Inc., Terra Investment Fund I LLC, Terra
Investment Fund II LLC, Terra (U.K.) Holdings Inc., and the corporate headquarters facility
in Sioux City, Iowa. All Guarantor Subsidiaries are wholly owned by the Parent. All other
company facilities are owned by Non-Guarantor Subsidiaries. In 2008, we declared the
Beaumont, Texas facility as a discontinued operation and classified the facility as held
for sale. In December 2008, the Beaumont, Texas facility was sold; see Note 18 herein.
29
Condensed Consolidating Balance Sheet as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
518,358 |
|
|
$ |
200,265 |
|
|
$ |
282,187 |
|
|
$ |
|
|
|
$ |
1,000,810 |
|
Accounts receivable, net |
|
|
117 |
|
|
|
|
|
|
|
68,708 |
|
|
|
35,037 |
|
|
|
|
|
|
|
103,862 |
|
Inventories, net |
|
|
|
|
|
|
|
|
|
|
73,105 |
|
|
|
37,838 |
|
|
|
|
|
|
|
110,943 |
|
Other current assets |
|
|
44,676 |
|
|
|
1,571 |
|
|
|
4,558 |
|
|
|
18,096 |
|
|
|
|
|
|
|
68,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
44,793 |
|
|
|
519,929 |
|
|
|
346,636 |
|
|
|
373,158 |
|
|
|
|
|
|
|
1,284,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
6,037 |
|
|
|
306,912 |
|
|
|
122,493 |
|
|
|
|
|
|
|
435,442 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
9,448 |
|
|
|
243,938 |
|
|
|
|
|
|
|
253,386 |
|
Intangible assets, other assets
and deferred plant
turnaround costs |
|
|
1,816 |
|
|
|
6,273 |
|
|
|
33,665 |
|
|
|
16,280 |
|
|
|
|
|
|
|
58,034 |
|
Investments in and advances
to (from) affiliates |
|
|
1,386,749 |
|
|
|
109,527 |
|
|
|
2,958,553 |
|
|
|
424,428 |
|
|
|
(4,879,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,433,358 |
|
|
$ |
641,766 |
|
|
$ |
3,655,214 |
|
|
$ |
1,180,297 |
|
|
$ |
(4,879,257 |
) |
|
$ |
2,031,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
143 |
|
|
$ |
|
|
|
$ |
42,833 |
|
|
$ |
27,933 |
|
|
$ |
|
|
|
$ |
70,909 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
13,483 |
|
|
|
27,399 |
|
|
|
|
|
|
|
40,882 |
|
Derivative hedge liabilities |
|
|
1,298 |
|
|
|
|
|
|
|
92 |
|
|
|
992 |
|
|
|
|
|
|
|
2,382 |
|
Accrued and other
current liabilities |
|
|
18,018 |
|
|
|
3,327 |
|
|
|
29,245 |
|
|
|
11,582 |
|
|
|
|
|
|
|
62,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
19,459 |
|
|
|
3,327 |
|
|
|
85,653 |
|
|
|
67,906 |
|
|
|
|
|
|
|
176,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
78,531 |
|
|
|
|
|
|
|
|
|
|
|
4,204 |
|
|
|
|
|
|
|
82,735 |
|
Pension and other liabilities |
|
|
78,284 |
|
|
|
(518 |
) |
|
|
9,963 |
|
|
|
1,705 |
|
|
|
|
|
|
|
89,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
176,274 |
|
|
|
332,809 |
|
|
|
95,616 |
|
|
|
73,815 |
|
|
|
|
|
|
|
678,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares liquidation
value of $500 |
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
152,787 |
|
|
|
|
|
|
|
73 |
|
|
|
92,262 |
|
|
|
(92,335 |
) |
|
|
152,787 |
|
Paid-in capital |
|
|
584,556 |
|
|
|
150,218 |
|
|
|
1,947,687 |
|
|
|
742,960 |
|
|
|
(2,840,865 |
) |
|
|
584,556 |
|
Accumulated other
comprehensive loss |
|
|
(114,741 |
) |
|
|
|
|
|
|
|
|
|
|
(91,406 |
) |
|
|
91,406 |
|
|
|
(114,741 |
) |
Retained earnings |
|
|
633,999 |
|
|
|
140,027 |
|
|
|
1,534,770 |
|
|
|
362,666 |
|
|
|
(2,037,463 |
) |
|
|
633,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,256,601 |
|
|
|
290,245 |
|
|
|
3,482,530 |
|
|
|
1,106,482 |
|
|
|
(4,879,257 |
) |
|
|
1,256,601 |
|
Noncontrolling interest |
|
|
|
|
|
|
18,712 |
|
|
|
77,068 |
|
|
|
|
|
|
|
|
|
|
|
95,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
1,256,601 |
|
|
|
308,957 |
|
|
|
3,559,598 |
|
|
|
1,106,482 |
|
|
|
(4,879,257 |
) |
|
|
1,352,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,433,358 |
|
|
$ |
641,766 |
|
|
$ |
3,655,214 |
|
|
$ |
1,180,297 |
|
|
$ |
(4,879,257 |
) |
|
$ |
2,031,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Consolidating Statement of Operations for the three months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
217,572 |
|
|
$ |
128,207 |
|
|
$ |
|
|
|
$ |
345,779 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
941 |
|
|
|
326 |
|
|
|
|
|
|
|
1,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
218,513 |
|
|
|
128,533 |
|
|
|
|
|
|
|
347,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
84 |
|
|
|
173,566 |
|
|
|
107,971 |
|
|
|
|
|
|
|
281,621 |
|
Selling, general and
administrative expenses |
|
|
426 |
|
|
|
(1,853 |
) |
|
|
11,377 |
|
|
|
7,350 |
|
|
|
|
|
|
|
17,300 |
|
Equity earnings of
North American affiliates |
|
|
|
|
|
|
|
|
|
|
(345 |
) |
|
|
(5,761 |
) |
|
|
|
|
|
|
(6,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
426 |
|
|
|
(1,769 |
) |
|
|
184,598 |
|
|
|
109,560 |
|
|
|
|
|
|
|
292,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(426 |
) |
|
|
1,769 |
|
|
|
33,915 |
|
|
|
18,973 |
|
|
|
|
|
|
|
54,231 |
|
Interest income |
|
|
118 |
|
|
|
344 |
|
|
|
120 |
|
|
|
143 |
|
|
|
|
|
|
|
725 |
|
Interest expense |
|
|
(465 |
) |
|
|
(6,213 |
) |
|
|
27,077 |
|
|
|
(27,161 |
) |
|
|
|
|
|
|
(6,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(773 |
) |
|
|
(4,100 |
) |
|
|
61,112 |
|
|
|
(8,045 |
) |
|
|
|
|
|
|
48,194 |
|
Income tax benefit (provision) |
|
|
(1,314 |
) |
|
|
(5,726 |
) |
|
|
121 |
|
|
|
1,870 |
|
|
|
|
|
|
|
(5,049 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
48,015 |
|
|
|
58,414 |
|
|
|
|
|
|
|
4,945 |
|
|
|
(106,429 |
) |
|
|
4,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
45,928 |
|
|
|
48,588 |
|
|
|
61,233 |
|
|
|
(1,230 |
) |
|
|
(106,429 |
) |
|
|
48,090 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
|
45,928 |
|
|
|
48,588 |
|
|
|
62,043 |
|
|
|
(1,230 |
) |
|
|
(106,429 |
) |
|
|
48,900 |
|
Less: Net income attributable to
the noncontrolling interest |
|
|
|
|
|
|
573 |
|
|
|
2,399 |
|
|
|
|
|
|
|
|
|
|
|
2,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to Terra Industries Inc. |
|
$ |
45,928 |
|
|
$ |
48,015 |
|
|
$ |
59,644 |
|
|
$ |
(1,230 |
) |
|
$ |
(106,429 |
) |
|
$ |
45,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Consolidating Statement of Operations for the nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
678,482 |
|
|
$ |
537,998 |
|
|
$ |
|
|
|
$ |
1,216,480 |
|
Other income |
|
|
|
|
|
|
|
|
|
|
2,834 |
|
|
|
988 |
|
|
|
|
|
|
|
3,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
681,316 |
|
|
|
538,986 |
|
|
|
|
|
|
|
1,220,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
250 |
|
|
|
525,225 |
|
|
|
395,793 |
|
|
|
|
|
|
|
921,268 |
|
Selling, general and
administrative expenses |
|
|
1,781 |
|
|
|
(6,478 |
) |
|
|
29,477 |
|
|
|
24,994 |
|
|
|
|
|
|
|
49,774 |
|
Other operating expenses |
|
|
14,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,260 |
|
Equity earnings of
North American affiliates |
|
|
|
|
|
|
|
|
|
|
(1,205 |
) |
|
|
(9,675 |
) |
|
|
|
|
|
|
(10,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
16,041 |
|
|
|
(6,228 |
) |
|
|
553,497 |
|
|
|
411,112 |
|
|
|
|
|
|
|
974,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(16,041 |
) |
|
|
6,228 |
|
|
|
127,819 |
|
|
|
127,874 |
|
|
|
|
|
|
|
245,880 |
|
Interest income |
|
|
118 |
|
|
|
1,749 |
|
|
|
928 |
|
|
|
905 |
|
|
|
|
|
|
|
3,700 |
|
Interest expense |
|
|
(1,395 |
) |
|
|
(18,604 |
) |
|
|
76,070 |
|
|
|
(76,318 |
) |
|
|
|
|
|
|
(20,247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(17,318 |
) |
|
|
(10,627 |
) |
|
|
204,817 |
|
|
|
52,461 |
|
|
|
|
|
|
|
229,333 |
|
Income tax benefit (provision) |
|
|
3,594 |
|
|
|
(18,993 |
) |
|
|
(42,511 |
) |
|
|
2,061 |
|
|
|
|
|
|
|
(55,849 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
170,121 |
|
|
|
203,669 |
|
|
|
|
|
|
|
2,457 |
|
|
|
(373,790 |
) |
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
156,397 |
|
|
|
174,049 |
|
|
|
162,306 |
|
|
|
56,979 |
|
|
|
(373,790 |
) |
|
|
175,941 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
|
156,397 |
|
|
|
174,049 |
|
|
|
163,116 |
|
|
|
56,979 |
|
|
|
(373,790 |
) |
|
|
176,751 |
|
Less: Net income attributable to
the noncontrolling interest |
|
|
|
|
|
|
3,928 |
|
|
|
16,426 |
|
|
|
|
|
|
|
|
|
|
|
20,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Terra Industries Inc. |
|
$ |
156,397 |
|
|
$ |
170,121 |
|
|
$ |
146,690 |
|
|
$ |
56,979 |
|
|
$ |
(373,790 |
) |
|
$ |
156,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Consolidating Statement of Cash Flows for the nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
$ |
156,397 |
|
|
$ |
174,049 |
|
|
$ |
163,116 |
|
|
$ |
56,979 |
|
|
$ |
(373,790 |
) |
|
$ |
176,751 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
156,397 |
|
|
|
174,049 |
|
|
|
162,306 |
|
|
|
56,979 |
|
|
|
(373,790 |
) |
|
|
175,941 |
|
Adjustments to reconcile
income from continuing
operations to net cash
flows from operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
41,331 |
|
|
|
21,796 |
|
|
|
|
|
|
|
63,127 |
|
Loss on sale of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
767 |
|
|
|
33 |
|
|
|
|
|
|
|
800 |
|
Deferred income taxes |
|
|
(6,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,972 |
) |
Distributions in excess of
(less than) equity earnings |
|
|
(170,121 |
) |
|
|
(203,669 |
) |
|
|
200 |
|
|
|
2,313 |
|
|
|
373,790 |
|
|
|
2,513 |
|
Equity earnings of
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,457 |
) |
|
|
|
|
|
|
(2,457 |
) |
Non-cash gain on derivatives |
|
|
(1,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,224 |
) |
Share-based compensation |
|
|
13,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,408 |
|
Amortization of intangible
and other assets |
|
|
|
|
|
|
|
|
|
|
5,314 |
|
|
|
1,552 |
|
|
|
|
|
|
|
6,866 |
|
Change in operating assets
and liabilities continuing
operations |
|
|
3,404 |
|
|
|
34,055 |
|
|
|
(83,082 |
) |
|
|
(40,308 |
) |
|
|
|
|
|
|
(85,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating
activities continuing
operations |
|
|
(5,108 |
) |
|
|
4,435 |
|
|
|
126,836 |
|
|
|
39,908 |
|
|
|
|
|
|
|
166,071 |
|
Net cash flows from operating
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Operating Activities |
|
|
(5,108 |
) |
|
|
4,435 |
|
|
|
127,646 |
|
|
|
39,908 |
|
|
|
|
|
|
|
166,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant
turnaround expenditures |
|
|
|
|
|
|
|
|
|
|
(66,423 |
) |
|
|
(29,256 |
) |
|
|
|
|
|
|
(95,679 |
) |
Proceeds from the sale of
property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
101 |
|
Distributions received from
North American affiliates |
|
|
|
|
|
|
|
|
|
|
470 |
|
|
|
11,212 |
|
|
|
|
|
|
|
11,682 |
|
Balancing consideration and
other payments received
from GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,700 |
|
|
|
|
|
|
|
18,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
|
|
(65,852 |
) |
|
|
656 |
|
|
|
|
|
|
|
(65,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Consolidating Statement of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends paid |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Common stock dividends paid |
|
|
(29,912 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,912 |
) |
Common stock issuances and
vestings |
|
|
(7,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,213 |
) |
Change in investments and
advances from (to) affiliates |
|
|
35,980 |
|
|
|
188,473 |
|
|
|
(118,820 |
) |
|
|
(105,633 |
) |
|
|
|
|
|
|
|
|
Excess tax benefits from equity
compensation plans |
|
|
6,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,304 |
|
Distributions to noncontrolling
interests |
|
|
|
|
|
|
(6,264 |
) |
|
|
(27,367 |
) |
|
|
|
|
|
|
|
|
|
|
(33,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Financing Activities |
|
|
5,108 |
|
|
|
182,209 |
|
|
|
(146,187 |
) |
|
|
(105,633 |
) |
|
|
|
|
|
|
(64,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate
Changes on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,072 |
) |
|
|
|
|
|
|
(3,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in Cash
and Cash Equivalents |
|
|
|
|
|
|
186,644 |
|
|
|
(84,393 |
) |
|
|
(68,141 |
) |
|
|
|
|
|
|
34,110 |
|
Cash and Cash Equivalents
at Beginning of Period |
|
|
|
|
|
|
331,714 |
|
|
|
284,658 |
|
|
|
350,328 |
|
|
|
|
|
|
|
966,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
at End of Period |
|
$ |
|
|
|
$ |
518,358 |
|
|
$ |
200,265 |
|
|
$ |
282,187 |
|
|
$ |
|
|
|
$ |
1,000,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Condensed Consolidating Balance Sheet as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
331,714 |
|
|
$ |
284,658 |
|
|
$ |
350,328 |
|
|
$ |
|
|
|
$ |
966,700 |
|
Accounts receivable, net |
|
|
9 |
|
|
|
74 |
|
|
|
73,358 |
|
|
|
56,949 |
|
|
|
|
|
|
|
130,390 |
|
Inventories, net |
|
|
|
|
|
|
|
|
|
|
111,295 |
|
|
|
85,796 |
|
|
|
|
|
|
|
197,091 |
|
Margin deposits with
derivative counterparties |
|
|
|
|
|
|
36,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,945 |
|
Other current assets |
|
|
23,807 |
|
|
|
10,440 |
|
|
|
13,596 |
|
|
|
13,495 |
|
|
|
|
|
|
|
61,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
23,816 |
|
|
|
379,173 |
|
|
|
482,907 |
|
|
|
506,568 |
|
|
|
|
|
|
|
1,392,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
6,037 |
|
|
|
288,449 |
|
|
|
108,827 |
|
|
|
|
|
|
|
403,313 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
10,117 |
|
|
|
260,798 |
|
|
|
|
|
|
|
270,915 |
|
Deferred plant turnaround
costs, intangible and
other assets |
|
|
2,230 |
|
|
|
7,156 |
|
|
|
21,146 |
|
|
|
15,793 |
|
|
|
|
|
|
|
46,325 |
|
Investments in and advances
to (from) affiliates |
|
|
1,252,608 |
|
|
|
94,331 |
|
|
|
3,103,568 |
|
|
|
588,172 |
|
|
|
(5,038,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,278,654 |
|
|
$ |
486,697 |
|
|
$ |
3,906,187 |
|
|
$ |
1,480,158 |
|
|
$ |
(5,038,679 |
) |
|
$ |
2,113,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
205 |
|
|
$ |
62 |
|
|
$ |
70,473 |
|
|
$ |
29,153 |
|
|
$ |
|
|
|
$ |
99,893 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
58,922 |
|
|
|
52,670 |
|
|
|
|
|
|
|
111,592 |
|
Derivative hedge liabilities |
|
|
35,254 |
|
|
|
7,476 |
|
|
|
39,880 |
|
|
|
43,315 |
|
|
|
|
|
|
|
125,925 |
|
Accrued and other
current liabilities |
|
|
51,861 |
|
|
|
8,947 |
|
|
|
42,261 |
|
|
|
24,701 |
|
|
|
|
|
|
|
127,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
87,320 |
|
|
|
16,485 |
|
|
|
211,536 |
|
|
|
149,839 |
|
|
|
|
|
|
|
465,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
51,770 |
|
|
|
|
|
|
|
|
|
|
|
9,673 |
|
|
|
|
|
|
|
61,443 |
|
Pension and other liabilities |
|
|
74,975 |
|
|
|
|
|
|
|
10,983 |
|
|
|
1,765 |
|
|
|
|
|
|
|
87,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
214,065 |
|
|
|
346,485 |
|
|
|
222,519 |
|
|
|
161,277 |
|
|
|
|
|
|
|
944,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Shares liquidation
value of $1,600 |
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
152,111 |
|
|
|
|
|
|
|
73 |
|
|
|
83,332 |
|
|
|
(83,405 |
) |
|
|
152,111 |
|
Paid-in capital |
|
|
579,164 |
|
|
|
150,218 |
|
|
|
2,201,646 |
|
|
|
963,435 |
|
|
|
(3,315,299 |
) |
|
|
579,164 |
|
Accumulated other
comprehensive loss |
|
|
(175,529 |
) |
|
|
|
|
|
|
|
|
|
|
(170,574 |
) |
|
|
170,574 |
|
|
|
(175,529 |
) |
Retained earnings
(accumulated deficit) |
|
|
507,299 |
|
|
|
(30,094 |
) |
|
|
1,397,955 |
|
|
|
442,688 |
|
|
|
(1,810,549 |
) |
|
|
507,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,063,045 |
|
|
|
120,124 |
|
|
|
3,599,674 |
|
|
|
1,318,881 |
|
|
|
(5,038,679 |
) |
|
|
1,063,045 |
|
Noncontrolling interest |
|
|
|
|
|
|
20,088 |
|
|
|
83,994 |
|
|
|
|
|
|
|
|
|
|
|
104,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity 1,063,045 |
|
|
|
|
|
|
140,212 |
|
|
|
3,683,668 |
|
|
|
1,318,881 |
|
|
|
(5,038,679 |
) |
|
|
1,167,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,278,654 |
|
|
$ |
486,697 |
|
|
$ |
3,906,187 |
|
|
$ |
1,480,158 |
|
|
$ |
(5,038,679 |
) |
|
$ |
2,113,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Condensed Consolidating Balance Sheet as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
191,431 |
|
|
$ |
186,977 |
|
|
$ |
305,087 |
|
|
$ |
(2,829 |
) |
|
$ |
680,666 |
|
Accounts receivable, net |
|
|
|
|
|
|
263 |
|
|
|
144,473 |
|
|
|
90,851 |
|
|
|
|
|
|
|
235,587 |
|
Inventories, net |
|
|
|
|
|
|
|
|
|
|
105,066 |
|
|
|
52,870 |
|
|
|
17,984 |
|
|
|
175,920 |
|
Margin deposits with
derivative counterparties |
|
|
|
|
|
|
132,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,058 |
|
Other current assets |
|
|
21,993 |
|
|
|
9,892 |
|
|
|
15,217 |
|
|
|
15,091 |
|
|
|
|
|
|
|
62,193 |
|
Current
assets held for sale
discontinued operations |
|
|
|
|
|
|
|
|
|
|
45,607 |
|
|
|
|
|
|
|
|
|
|
|
45,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
21,993 |
|
|
|
333,644 |
|
|
|
497,340 |
|
|
|
463,899 |
|
|
|
15,155 |
|
|
|
1,332,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
|
|
|
|
|
|
|
|
290,637 |
|
|
|
116,400 |
|
|
|
|
|
|
|
407,037 |
|
Equity method investments |
|
|
|
|
|
|
|
|
|
|
10,884 |
|
|
|
371,722 |
|
|
|
|
|
|
|
382,606 |
|
Intangible assets, other assets
and deferred plant
turnaround costs |
|
|
6,732 |
|
|
|
7,450 |
|
|
|
24,151 |
|
|
|
29,066 |
|
|
|
(6,131 |
) |
|
|
61,268 |
|
Investments in and advances to (from) affiliates |
|
|
1,181,107 |
|
|
|
131,684 |
|
|
|
2,802,502 |
|
|
|
757,030 |
|
|
|
(4,872,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,209,832 |
|
|
$ |
472,778 |
|
|
$ |
3,625,514 |
|
|
$ |
1,738,117 |
|
|
$ |
(4,863,299 |
) |
|
$ |
2,182,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,053 |
|
|
$ |
|
|
|
$ |
73,982 |
|
|
$ |
49,103 |
|
|
$ |
|
|
|
$ |
124,138 |
|
Customer prepayments |
|
|
|
|
|
|
|
|
|
|
91,821 |
|
|
|
103,218 |
|
|
|
|
|
|
|
195,039 |
|
Derivative hedge liabilities |
|
|
117,435 |
|
|
|
11,593 |
|
|
|
7,971 |
|
|
|
81,653 |
|
|
|
|
|
|
|
218,652 |
|
Accrued and other
current liabilities |
|
|
18,451 |
|
|
|
3,384 |
|
|
|
66,546 |
|
|
|
24,663 |
|
|
|
(2 |
) |
|
|
113,042 |
|
Current liabilities held for
sale discontinued
operations |
|
|
|
|
|
|
|
|
|
|
2,749 |
|
|
|
|
|
|
|
|
|
|
|
2,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
136,939 |
|
|
|
14,977 |
|
|
|
243,069 |
|
|
|
258,637 |
|
|
|
(2 |
) |
|
|
653,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
Deferred taxes |
|
|
37,242 |
|
|
|
|
|
|
|
|
|
|
|
14,153 |
|
|
|
1,740 |
|
|
|
53,135 |
|
Pension and other liabilities |
|
|
74,293 |
|
|
|
(510 |
) |
|
|
11,675 |
|
|
|
2,078 |
|
|
|
1,261 |
|
|
|
88,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
248,474 |
|
|
|
344,467 |
|
|
|
254,744 |
|
|
|
274,868 |
|
|
|
2,999 |
|
|
|
1,125,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Shares liquidation
value of $2,100 |
|
|
2,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027 |
|
|
Common Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
154,866 |
|
|
|
|
|
|
|
73 |
|
|
|
32,458 |
|
|
|
(32,531 |
) |
|
|
154,866 |
|
Paid-in capital |
|
|
625,058 |
|
|
|
150,218 |
|
|
|
2,128,311 |
|
|
|
1,050,476 |
|
|
|
(3,329,005 |
) |
|
|
625,058 |
|
Accumulated other
comprehensive income
(loss) |
|
|
(174,183 |
) |
|
|
|
|
|
|
|
|
|
|
96,016 |
|
|
|
(96,016 |
) |
|
|
(174,183 |
) |
Retained earnings
(accumulated deficit) |
|
|
353,590 |
|
|
|
(40,667 |
) |
|
|
1,165,114 |
|
|
|
284,299 |
|
|
|
(1,408,746 |
) |
|
|
353,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
959,331 |
|
|
|
109,551 |
|
|
|
3,293,498 |
|
|
|
1,463,249 |
|
|
|
(4,866,298 |
) |
|
|
959,331 |
|
Noncontrolling interest |
|
|
|
|
|
|
18,760 |
|
|
|
77,272 |
|
|
|
|
|
|
|
|
|
|
|
96,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
959,331 |
|
|
|
128,311 |
|
|
|
3,370,770 |
|
|
|
1,463,249 |
|
|
|
(4,866,298 |
) |
|
|
1,055,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
1,209,832 |
|
|
$ |
472,778 |
|
|
$ |
3,625,514 |
|
|
$ |
1,738,117 |
|
|
$ |
(4,863,299 |
) |
|
$ |
2,182,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Consolidating Statement of Operations for the three months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
474,025 |
|
|
$ |
314,247 |
|
|
$ |
|
|
|
$ |
788,272 |
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
975 |
|
|
|
967 |
|
|
|
|
|
|
|
1,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
475,000 |
|
|
|
315,214 |
|
|
|
|
|
|
|
790,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
84 |
|
|
|
384,115 |
|
|
|
194,111 |
|
|
|
|
|
|
|
578,310 |
|
Selling, general and administrative expenses |
|
|
784 |
|
|
|
(3,459 |
) |
|
|
19,192 |
|
|
|
1,784 |
|
|
|
|
|
|
|
18,301 |
|
Equity earnings
of North American affiliates |
|
|
|
|
|
|
|
|
|
|
(15,857 |
) |
|
|
|
|
|
|
|
|
|
|
(15,857 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
784 |
|
|
|
(3,375 |
) |
|
|
387,450 |
|
|
|
195,895 |
|
|
|
|
|
|
|
580,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(784 |
) |
|
|
3,375 |
|
|
|
87,550 |
|
|
|
119,319 |
|
|
|
|
|
|
|
209,460 |
|
Interest income |
|
|
|
|
|
|
2,434 |
|
|
|
1,212 |
|
|
|
1,763 |
|
|
|
|
|
|
|
5,409 |
|
Interest expense |
|
|
(465 |
) |
|
|
(6,207 |
) |
|
|
(2 |
) |
|
|
(99 |
) |
|
|
|
|
|
|
(6,773 |
) |
Foreign currency gain (loss) |
|
|
13 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(1,236 |
) |
|
|
(398 |
) |
|
|
88,747 |
|
|
|
120,983 |
|
|
|
|
|
|
|
208,096 |
|
Income tax benefit (provision) |
|
|
411 |
|
|
|
(26,200 |
) |
|
|
(28,499 |
) |
|
|
(8,881 |
) |
|
|
|
|
|
|
(63,169 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
172,236 |
|
|
|
201,873 |
|
|
|
|
|
|
|
42,091 |
|
|
|
(374,109 |
) |
|
|
42,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
171,411 |
|
|
|
175,275 |
|
|
|
60,248 |
|
|
|
154,193 |
|
|
|
(374,109 |
) |
|
|
187,018 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
$ |
171,411 |
|
|
$ |
175,275 |
|
|
$ |
60,389 |
|
|
$ |
154,193 |
|
|
$ |
(374,109 |
) |
|
$ |
187,159 |
|
Less: Net income attributable to
the noncontrolling interest |
|
|
|
|
|
|
3,039 |
|
|
|
12,709 |
|
|
|
|
|
|
|
|
|
|
|
15,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Terra Industries Inc. |
|
$ |
171,411 |
|
|
$ |
172,236 |
|
|
$ |
47,680 |
|
|
$ |
154,193 |
|
|
$ |
(374,109 |
) |
|
$ |
171,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Consolidating Statement of Operations for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,308,594 |
|
|
$ |
889,804 |
|
|
$ |
|
|
|
$ |
2,198,398 |
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
7,040 |
|
|
|
2,577 |
|
|
|
|
|
|
|
9,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
1,315,634 |
|
|
|
892,381 |
|
|
|
|
|
|
|
2,208,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
250 |
|
|
|
1,034,272 |
|
|
|
497,847 |
|
|
|
|
|
|
|
1,532,369 |
|
Selling, general and
administrative expenses |
|
|
2,194 |
|
|
|
(9,549 |
) |
|
|
39,301 |
|
|
|
26,292 |
|
|
|
|
|
|
|
58,238 |
|
Equity earnings
of North American affiliates |
|
|
|
|
|
|
|
|
|
|
(45,665 |
) |
|
|
|
|
|
|
|
|
|
|
(45,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
2,194 |
|
|
|
(9,299 |
) |
|
|
1,027,908 |
|
|
|
524,139 |
|
|
|
|
|
|
|
1,544,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(2,194 |
) |
|
|
9,299 |
|
|
|
287,726 |
|
|
|
368,242 |
|
|
|
|
|
|
|
663,073 |
|
Interest income |
|
|
|
|
|
|
8,357 |
|
|
|
3,195 |
|
|
|
7,778 |
|
|
|
|
|
|
|
19,330 |
|
Interest expense |
|
|
(1,395 |
) |
|
|
(18,633 |
) |
|
|
(5 |
) |
|
|
(554 |
) |
|
|
|
|
|
|
(20,587 |
) |
Foreign currency gain (loss) |
|
|
13 |
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and noncontrolling
interest |
|
|
(3,576 |
) |
|
|
(977 |
) |
|
|
290,903 |
|
|
|
375,466 |
|
|
|
|
|
|
|
661,816 |
|
Income tax benefit (provision) |
|
|
1,385 |
|
|
|
(92,316 |
) |
|
|
(112,634 |
) |
|
|
(26,177 |
) |
|
|
|
|
|
|
(229,742 |
) |
Equity earnings of
unconsolidated affiliates |
|
|
478,494 |
|
|
|
581,894 |
|
|
|
|
|
|
|
88,986 |
|
|
|
(1,060,388 |
) |
|
|
88,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
476,303 |
|
|
|
488,601 |
|
|
|
178,269 |
|
|
|
438,275 |
|
|
|
(1,060,388 |
) |
|
|
521,060 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
$ |
476,303 |
|
|
$ |
488,601 |
|
|
$ |
185,881 |
|
|
$ |
438,275 |
|
|
$ |
(1,060,388 |
) |
|
$ |
528,672 |
|
Less: Net income attributable to
the noncontrolling interest |
|
|
|
|
|
|
10,107 |
|
|
|
42,262 |
|
|
|
|
|
|
|
|
|
|
|
52,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Terra Industries Inc. |
|
$ |
476,303 |
|
|
$ |
478,494 |
|
|
$ |
143,619 |
|
|
$ |
438,275 |
|
|
$ |
(1,060,388 |
) |
|
$ |
476,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Consolidating Statement of Cash Flows for the nine months ended September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
$ |
476,303 |
|
|
$ |
488,601 |
|
|
$ |
185,881 |
|
|
$ |
438,275 |
|
|
$ |
(1,060,388 |
) |
|
$ |
528,672 |
|
Income from discontinued
operations net of tax |
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations net of tax |
|
|
476,303 |
|
|
|
488,601 |
|
|
|
178,269 |
|
|
|
438,275 |
|
|
|
(1,060,388 |
) |
|
|
521,060 |
|
Adjustments to reconcile
income from continuing
operations to net cash
flows from operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
30,459 |
|
|
|
27,947 |
|
|
|
|
|
|
|
58,406 |
|
Loss on sale of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
1,063 |
|
|
|
1,172 |
|
|
|
|
|
|
|
2,235 |
|
Deferred income taxes |
|
|
(51,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,772 |
) |
Distributions in excess of
(less than) equity earnings |
|
|
(551,308 |
) |
|
|
232,259 |
|
|
|
(45,665 |
) |
|
|
|
|
|
|
367,238 |
|
|
|
2,524 |
|
Equity earnings of
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,986 |
) |
|
|
|
|
|
|
(88,986 |
) |
Non-cash gain on derivatives |
|
|
(1,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,610 |
) |
Share-based compensation |
|
|
10,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,333 |
|
Amortization of intangible
and other assets |
|
|
|
|
|
|
|
|
|
|
3,694 |
|
|
|
2,499 |
|
|
|
|
|
|
|
6,193 |
|
Change in operating assets
and liabilities |
|
|
(62,785 |
) |
|
|
(146,324 |
) |
|
|
(51,820 |
) |
|
|
(183,017 |
) |
|
|
181,578 |
|
|
|
(262,368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating
activities continuing
operations |
|
|
(180,839 |
) |
|
|
574,536 |
|
|
|
116,000 |
|
|
|
197,890 |
|
|
|
(511,572 |
) |
|
|
196,015 |
|
Net cash flows from operating
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Operating Activities |
|
|
(180,839 |
) |
|
|
574,536 |
|
|
|
125,439 |
|
|
|
197,890 |
|
|
|
(511,572 |
) |
|
|
205,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and
plant turnaround
expenditures |
|
|
|
|
|
|
|
|
|
|
(61,357 |
) |
|
|
(8,766 |
) |
|
|
|
|
|
|
(70,123 |
) |
Distributions received from
North American affiliates |
|
|
|
|
|
|
|
|
|
|
7,196 |
|
|
|
|
|
|
|
|
|
|
|
7,196 |
|
Contribution settlement
received from
GrowHow UK Limited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,427 |
|
|
|
|
|
|
|
27,427 |
|
Proceeds from the sale of
property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
1,250 |
|
|
|
410 |
|
|
|
|
|
|
|
1,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing
activities continuing
operations |
|
|
|
|
|
|
|
|
|
|
(52,911 |
) |
|
|
19,071 |
|
|
|
|
|
|
|
(33,840 |
) |
Net cash flows from investing
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
|
|
(52,911 |
) |
|
|
19,071 |
|
|
|
|
|
|
|
(33,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Consolidating Statement of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
(in thousands) |
|
Parent |
|
|
TCAPI |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends paid |
|
|
(3,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,825 |
) |
Inducement payment to
preferred stockholders |
|
|
(5,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,248 |
) |
Common stock dividends paid |
|
|
(18,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,299 |
) |
Common stock issuances and
vestings |
|
|
(9,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,839 |
) |
Change in investments and
advances from (to) affiliates |
|
|
313,428 |
|
|
|
(438,962 |
) |
|
|
(96,054 |
) |
|
|
(818,671 |
) |
|
|
1,040,259 |
|
|
|
|
|
Excess tax benefits from equity
compensation plans |
|
|
12,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,122 |
|
Payments under share
repurchase program |
|
|
(107,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,500 |
) |
Distributions to noncontrolling
interests |
|
|
|
|
|
|
|
|
|
|
(56,642 |
) |
|
|
|
|
|
|
|
|
|
|
(56,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing
activities continuing
operations |
|
|
180,839 |
|
|
|
(438,962 |
) |
|
|
(152,696 |
) |
|
|
(818,671 |
) |
|
|
1,040,259 |
|
|
|
(189,231 |
) |
Net cash flows from financing
activities discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from
Financing Activities |
|
|
180,839 |
|
|
|
(438,962 |
) |
|
|
(152,696 |
) |
|
|
(818,671 |
) |
|
|
1,040,259 |
|
|
|
(189,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate
Changes on Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in Cash
and Cash Equivalents |
|
|
|
|
|
|
135,574 |
|
|
|
(80,168 |
) |
|
|
(601,665 |
) |
|
|
528,687 |
|
|
|
(17,572 |
) |
Cash and Cash Equivalents
at Beginning of Period |
|
|
|
|
|
|
55,857 |
|
|
|
267,145 |
|
|
|
906,752 |
|
|
|
(531,516 |
) |
|
|
698,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
at End of Period |
|
$ |
|
|
|
$ |
191,431 |
|
|
$ |
186,977 |
|
|
$ |
305,087 |
|
|
$ |
(2,829 |
) |
|
$ |
680,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. Discontinued Operations
On December 31, 2008, pursuant to a 2007 agreement, we sold our Beaumont, Texas assets,
including the methanol and ammonia production facilities, to Eastman Chemical Company
(Eastman). Consideration received, including cash and a Promissory Note from Eastman of
$5.2 million, approximated this facilitys carrying value. The Promissory Note is due on
December 31, 2009 bearing interest at a rate of 3.0% per annum.
Pursuant to the requirements of the Presentation of Financial Statements topic of the FASB
Accounting Standards Codification, we classified and accounted for the Beaumont assets and
liabilities as held for sale in the statements of financial position and the results of
operations on a net of tax basis in the statement of operations. This guidance requires
that assets held for sale are valued on an asset-by-asset basis at the lower of carrying
amount or fair value less costs to sell. In applying those provisions, we considered cash
flow analyses, and offers related to those assets. In accordance with the provisions of
this guidance, assets for sale are not depreciated.
40
Summarized Financial Results of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating revenue |
|
$ |
1,348 |
|
|
$ |
1,770 |
|
|
$ |
1,348 |
|
|
$ |
16,415 |
|
Operating and other expenses |
|
|
|
|
|
|
(1,536 |
) |
|
|
|
|
|
|
(3,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from operations of
discontinued components |
|
|
1,348 |
|
|
|
234 |
|
|
|
1,348 |
|
|
|
12,665 |
|
Income tax expense |
|
|
(538 |
) |
|
|
(93 |
) |
|
|
(538 |
) |
|
|
(5,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
810 |
|
|
$ |
141 |
|
|
$ |
810 |
|
|
$ |
7,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The major classes of assets and liabilities held for sale and related to discontinued
operations as of September 30, 2009, December 31, 2008 and September 30, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
2008 |
|
Trade receivables |
|
$ |
|
|
|
$ |
|
|
$ |
333 |
|
Inventory |
|
|
|
|
|
|
|
|
|
2,203 |
|
Other current assets |
|
|
|
|
|
|
|
|
|
43,071 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
|
|
|
$ |
|
|
$ |
45,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
$ |
739 |
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
2,010 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
|
|
|
$ |
|
|
$ |
2,749 |
|
|
|
|
|
|
|
|
|
|
On October 9, 2009, we amended our $200 million credit facilities to permit TCAPIs private
offering of $600 million aggregate principal amount of senior notes due 2019 (2019 Notes),
the tender offer for TCAPIs 2017 Notes, the declaration of the special cash dividend and
to increase our available basket permitting joint ventures which addresses the agreement
with Agrium, Inc. (Agrium), all described in detail below. The amendments also provided for
an increase in the commitment fee under the $150 million facility from 0.50% to 0.75%,
revised applicable margins and certain other covenant adjustments.
On October 19, 2009, we announced we had entered into an agreement to purchase a 50%
interest in Agriums Carseland, Alberta, Canada nitrogen production assets and certain U.S
assets for a purchase price of approximately $250 million. The closing of the acquisition
is subject to certain closing conditions and contingencies, including the completion by
Agrium of its acquisition of CF.
41
On October 26, 2009, we announced the closing of the 2019 Notes offering. The 2019 Notes
have an interest rate of 7.75% per annum and were issued at a price equal to 98.298% of
their face value. The 2019 Notes were sold in a private offering that is exempt from the
registration requirements of the Securities Act of 1933, as amended (Securities Act). The
2019 Notes are guaranteed on a senior unsecured basis by Terra and certain of its
subsidiaries. Net proceeds related to the 2019 Notes offering were as follows:
|
|
|
|
|
Face value |
|
$ |
600.0 |
|
Discount |
|
|
(10.2 |
) |
Estimated fees |
|
|
(13.4 |
) |
|
|
|
|
Net proceeds |
|
$ |
576.4 |
|
|
|
|
|
On October 27, 2009, we announced that TCAPI completed its previously announced cash tender
offer and consent solicitation for its outstanding 2017 Notes. At the close of the tender
offer, TCAPI received tenders from holders of approximately $317.5 aggregate principle
amount of the 2017 Notes, representing 96.2% of the then outstanding 2017 Notes. TCAPI
funded the purchase of the 2017 Notes tendered with the proceeds of the 2019 Notes
offering. Estimated loss on early retirement of debt, which will be recorded in the quarter
ending December 31, 2009, was as follows:
|
|
|
|
|
Tender premium |
|
$ |
48.8 |
|
Accelerated amortization of
deferred financing fees |
|
|
4.5 |
|
Estimated fees |
|
|
0.3 |
|
|
|
|
|
Estimated loss on
early retirement of debt |
|
$ |
53.6 |
|
|
|
|
|
On October 28, 2009, we declared the previously announced special cash dividend of $7.50
per common share, payable December 11, 2009 to stockholders of record as of November 23,
2009.
On November 1, 2009, CF sent a letter to Terras Board of Directors reaffirming CFs intent
to pursue a business combination with Terra and stating that CF would be prepared to enter
into a negotiated merger agreement with Terra to acquire Terra for $32.00 in cash (reduced
by the $7.50 per share special dividend declared by Terra) and 0.1034 of a CF common share
for each Terra common share. On November 3, 2009, Terras Board of Directors unanimously
concluded that CFs proposal is inadequate, opportunistic and not in the best interests of
Terra and its stockholders.
42
|
|
|
ITEM 2. |
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
You should read the following discussion and analysis in conjunction with our Unaudited
Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1,
of this report. The information contained in this Quarterly Report on Form 10-Q is not a
complete description of our business or the risks associated with an investment in our common
shares. We urge you to carefully review and consider the various disclosures made by us in
this report and in our other reports filed with the SEC, including our Annual Report on Form
10-K and Form 10-K/A for the year ended December 31, 2008 and subsequent reports on Form 8-K,
which discuss our business in greater detail.
The section entitled Risk Factors contained in Part II, Item 1A of this report, and similar
discussions in our other SEC filings, describe some of the important risk factors that may
affect our business, financial condition, results of operations and/or liquidity. You should
carefully consider those risks, in addition to the other information in this report and in our
other filings with the SEC.
INTRODUCTION
In this discussion and analysis, we explain our business in the following areas:
|
|
|
Business Strategy; |
|
|
|
|
Recent Business Environment; |
|
|
|
|
Results of Operations; |
|
|
|
|
Liquidity and Capital Resources; and |
|
|
|
|
Various Quantitative and Qualitative Disclosures. |
BUSINESS STRATEGY
We are a leading North American producer and marketer of nitrogen products made from natural
gas. Terra is the largest producer of ammonia in the United States and the second largest
producer in North America. We also operate production assets in Trinidad and the United
Kingdom through joint venture agreements. Our six North American and our international
production locations, along with a robust distribution capability, provide us with the ability
to effectively serve key agricultural, industrial and environmental markets. Terra has an
extensive history of operating as a public entity and managing complex corporate structures
including master limited partnerships, joint ventures and corporate alliances. In fact, since
the 1980s, Terra has successfully integrated numerous large-scale value enhancing
acquisitions that have contributed to our track record of strong cash flows over the business
cycle.
Regarding the business cycle, the nitrogen products industry in which Terra operates has
periods of oversupply during industry downturns that lead to capacity shutdowns or
curtailments at the least cost-effective plants or at major import points such as the Gulf
Coast. These shutdowns may be followed by supply shortages that result in higher selling
prices and higher industry-wide production rates during any subsequent industry upturns.
Higher selling prices can encourage capacity additions that ultimately lead to an oversupply
of product, and the cycle repeats.
Successful companies in cyclical businesses, like nitrogen products, pursue conservative
capital management and investment strategies. This enables them to weather industry downturns
and continue to effectively serve their target markets cost-effectively throughout the
business cycle.
43
Our business strategy seeks to pursue profitable growth in the core, nitrogen-based
agricultural products business as a scale operator in North America. We also seek to leverage
our current business and manufacturing strength outside the core business in closely-adjacent
market segments that help to assure long-term cash flow growth and tend to reduce volatility
in earnings. Elements of this strategy include:
|
|
|
Development of products and markets for upgraded products made from ammonia such as
UAN, our primary nitrogen fertilizer product, and TerraCair®, a liquid product for the
treatment of diesel exhaust in automotive applications; |
|
|
|
|
Expansion of our existing asset base to take advantage of logistical or feedstock
advantages both domestically and internationally; |
|
|
|
|
Management of North American and international assets to realize a rate of return
that meets or exceeds our cost of capital throughout the business cycle; |
|
|
|
|
Maintenance of our facilities to be safe, reliable and compliant with environmental
regulations, cultivation of relationships with customers whose proximity to our
facilities allows them to receive our product most economically, and close management
of the supply chain to keep storage, transportation and other costs at an appropriate
level; and |
|
|
|
|
Continued evaluation of business opportunities in nitrogen markets and businesses
that leverage Terras core competencies in chemical manufacturing, distribution and
product application. |
RECENT BUSINESS ENVIRONMENT
Demand
Short term demand for nitrogen products indicates a delay in restocking of inventories in
preparation of the 2010 spring planting season. Due to a late spring 2009 planting, coupled
with unfavorable harvest conditions, harvesting is behind schedule leading to a delay in fall
ammonia applications.
U.S. planted winter wheat acres are expected to decrease an estimated 2.5 to 3.0 million acres
as a result of increased foreign production which increased the global wheat supply estimate
for 2009/2010. Consequently, fewer acres will be double cropped much like the 2008/2009
season, where there was a switch from double cropping to full season single crops. However,
overall crop acres available are expected to increase in the 2010 season, pending the release
of the 3 million acres of land that are set to expire in the Conservation Reserve Program
(CRP) and the return of 2 million acres in North Dakota that were not utilized in the 2009
season due to wet conditions. Depending on the economics present in the spring more acres
could be allocated to corn in the 2010 planting season.
In addition, nitrogen demand is expected to benefit from the enactment of the 2010 Emission
Standards of the 1990 Amendments to the Clean Air Act which requires diesel powered vehicles
to achieve near-zero emissions of nitrogen oxides on January 1, 2010. In preparation of the
new emission standard, truck manufacturing customers will utilize TerraCair Ultrapure® Diesel
Exhaust Fluid (TerraCair DEF) for their Selective Catalytic Reduction
(SCR) equipped vehicles.
An expected increase in long term demand for nitrogen products is supported by the global
grain supply. The ending corn stocks to use ratio for the 2008/2009 planting season was
estimated to be 14% by the USDA World Agriculture Supply and Demand Estimates (WASDE)
September 2009 report, which is a historically low level. Historically, the corn ending stock
ratio is approximately 22%. Expected bumper yields in 2009 did not refute this estimate as
the US corn use also is projected higher, on a higher expected use for sweeteners resulting
from tight sugar supplies. Furthermore, the expected increased demand for corn is supported
by the long term outlook for an increased demand for food, seed, industrial markets, increased
ethanol demand and higher expected exports. The United Nations Food
and Agriculture Organization estimates a 70% increase of food production is needed to meet the populations
growing needs by 2050. Pursuant to its September 2009 report, WASDE expects corn prices for
2009 to 2010 to be between $3.05 and $3.65 per bushel, with 2010 corn futures increasing from
$3.80 to $3.90 in recent weeks.
44
Supply
Imports are a major factor in the nitrogen products supply picture, as they account for over
half of the total North American nitrogen supply, with the levels varying among the various
products. Products containing the highest percentage of nitrogen by weight are the most
economical to ship, thus make up the greatest share of those imports. Most producers
exporting nitrogen products into North America can afford to do so because they are
manufacturing product with cheaper gas than that which is available to North American
producers. European and Commonwealth of Independent States (CIS) producers have their own
variable gas cost dynamics and we do not expect these producers will be able to consistently
export nitrogen products at lower costs than North American producers.
In an effort to maintain inventory at acceptable levels, certain North American production has
been curtailed during 2009. Imports have declined as a result of the sluggish demand due to
poor import economics during 2009. Currently, the inventory channels are returning to
balanced market conditions as a result of the corrective actions in demand and production
experienced in the first nine months of 2009. Global ammonia prices and domestic natural gas prices
are approaching levels that will encourage Ukrainian and other non advantaged gas producers to
restart production.
Natural Gas Costs
As a result of the economic slowdown, natural gas consumption has declined in the industrial
sectors, driving near term prices below $4 per MMBtu as of September 30, 2009. The October
NYMEX contract closed at $3.73 per MMBtu compared to $2.84 and $3.38, respectively, for
September and August contracts. Natural gas prices have recently begun to reflect seasonal
adjustments, though U.S. natural gas inventories are at record high levels.
The following is an average NYMEX forward natural gas price for the succeeding twelve month
period noted for the respective dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
(in $ per MMBtu) |
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
$ |
7.90 |
|
|
$ |
6.09 |
|
|
$ |
4.69 |
|
|
$ |
5.09 |
|
|
$ |
5.72 |
|
During the third quarter of 2009, natural gas prices decreased 28% from September 30, 2008.
Generally, as customers place advance orders we secure the prices for the natural gas required
to produce the inventory to satisfy these orders.
RESULTS OF OPERATIONS
Consolidated Results
We
reported for the first nine months of 2009 net income of $156.4 million on revenues of $1.2
billion compared with 2008 first nine month net income of $476.3 million on revenues of $2.2
billion. The decrease in net income and revenue for the first nine months of 2009 is due to
lower overall nitrogen prices, lower ammonia and UAN sales volumes, as well as lower equity
earnings. Diluted income per
share for the nine months ended September 30, 2009 was $1.57 compared with $4.54 for the nine
months ended September 30, 2008.
45
The following table shows the results of operations for the three and nine months ended
September 30, 2009 and 2008 (certain percentages that are not considered to be meaningful are
represented by NM):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Quarter to Date |
|
|
Nine Months Ended |
|
|
Year to Date |
|
|
|
September 30, |
|
|
20092008 |
|
|
September 30, |
|
|
2009-2008 |
|
(in millions except per share data) |
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Percent |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
Percent |
|
Net sales |
|
$ |
347.0 |
|
|
$ |
790.2 |
|
|
$ |
(443.2 |
) |
|
|
-56 |
% |
|
$ |
1,220.3 |
|
|
$ |
2,208.0 |
|
|
$ |
(987.7 |
) |
|
|
-45 |
% |
Cost of goods sold |
|
|
281.6 |
|
|
|
578.3 |
|
|
|
(296.7 |
) |
|
|
-51 |
% |
|
|
921.3 |
|
|
|
1,532.4 |
|
|
|
(611.1 |
) |
|
|
-40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
65.4 |
|
|
|
211.9 |
|
|
|
(146.5 |
) |
|
|
-69 |
% |
|
|
299.0 |
|
|
|
675.6 |
|
|
|
(376.6 |
) |
|
|
-56 |
% |
Gross margin percentage |
|
|
18.8 |
% |
|
|
26.8 |
% |
|
|
-8.0 |
% |
|
|
-30 |
% |
|
|
24.5 |
% |
|
|
30.6 |
% |
|
|
-6.1 |
% |
|
|
-20 |
% |
Selling, general and
administrative expenses |
|
|
17.3 |
|
|
|
18.3 |
|
|
|
(1.0 |
) |
|
|
-5 |
% |
|
|
49.8 |
|
|
|
58.2 |
|
|
|
(8.4 |
) |
|
|
-14 |
% |
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
14.3 |
|
|
|
|
|
|
|
14.3 |
|
|
|
0 |
% |
Equity in earnings of
North American affiliates |
|
|
(6.1 |
) |
|
|
(15.9 |
) |
|
|
9.8 |
|
|
|
-62 |
% |
|
|
(10.9 |
) |
|
|
(45.7 |
) |
|
|
34.8 |
|
|
|
-76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
54.2 |
|
|
|
209.5 |
|
|
|
(155.3 |
) |
|
|
-74 |
% |
|
|
245.8 |
|
|
|
663.1 |
|
|
|
(417.3 |
) |
|
|
-63 |
% |
Interest income (expense), net |
|
|
(6.0 |
) |
|
|
(1.4 |
) |
|
|
(4.6 |
) |
|
|
329 |
% |
|
|
(16.5 |
) |
|
|
(1.3 |
) |
|
|
(15.2 |
) |
|
|
1169 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes,
noncontrolling interest and
equity earnings (loss) of
GrowHow UK Limited |
|
|
48.2 |
|
|
|
208.1 |
|
|
|
(159.9 |
) |
|
|
-77 |
% |
|
|
229.3 |
|
|
|
661.8 |
|
|
|
(432.5 |
) |
|
|
-65 |
% |
Income tax provision |
|
|
(5.0 |
) |
|
|
(63.2 |
) |
|
|
58.2 |
|
|
|
-92 |
% |
|
|
(55.8 |
) |
|
|
(229.7 |
) |
|
|
173.9 |
|
|
|
-76 |
% |
Equity earnings (loss) of
GrowHow UK Limited |
|
|
4.9 |
|
|
|
42.1 |
|
|
|
(37.2 |
) |
|
NM |
|
|
2.5 |
|
|
|
89.0 |
|
|
|
(86.5 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations, net of tax |
|
|
48.1 |
|
|
|
187.0 |
|
|
|
(138.9 |
) |
|
|
-74 |
% |
|
|
176.0 |
|
|
|
521.1 |
|
|
|
(345.1 |
) |
|
|
-66 |
% |
Income from discontinued
operations, net of tax |
|
|
0.8 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
700 |
% |
|
|
0.8 |
|
|
|
7.6 |
|
|
|
(6.8 |
) |
|
|
-89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
noncontrolling interest |
|
|
48.9 |
|
|
|
187.1 |
|
|
|
(138.2 |
) |
|
|
-74 |
% |
|
|
176.8 |
|
|
|
528.7 |
|
|
|
(351.9 |
) |
|
|
-67 |
% |
Net income attributable to
noncontrolling interest |
|
|
3.0 |
|
|
|
15.7 |
|
|
|
(12.7 |
) |
|
|
-81 |
% |
|
|
20.4 |
|
|
|
52.4 |
|
|
|
(32.0 |
) |
|
|
-61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Terra Industries Inc. |
|
$ |
45.9 |
|
|
$ |
171.4 |
|
|
$ |
(125.5 |
) |
|
|
-73 |
% |
|
$ |
156.4 |
|
|
$ |
476.3 |
|
|
$ |
(319.9 |
) |
|
|
-67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.46 |
|
|
$ |
1.64 |
|
|
|
(1.18 |
) |
|
|
-72 |
% |
|
$ |
1.57 |
|
|
$ |
4.54 |
|
|
|
(2.97 |
) |
|
|
-65 |
% |
Weighted average diluted
shares outstanding |
|
|
100,029 |
|
|
|
104,605 |
|
|
|
(4,576.0 |
) |
|
|
-4 |
% |
|
|
99,956 |
|
|
|
104,851 |
|
|
|
(4,895.0 |
) |
|
|
-5 |
% |
The following table shows sales volumes and prices and natural gas cost for the three
months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
(quantities in thousands of tons) |
|
Volumes |
|
|
Unit Price(1) |
|
|
Volumes |
|
|
Unit Price(1) |
|
Ammonia |
|
|
413 |
|
|
$ |
245 |
|
|
|
392 |
|
|
$ |
598 |
|
UAN 32% basis |
|
|
928 |
|
|
$ |
142 |
|
|
|
1,055 |
|
|
$ |
349 |
|
Urea(2) |
|
|
63 |
|
|
$ |
298 |
|
|
|
67 |
|
|
$ |
520 |
|
Ammonium nitrate(3) |
|
|
241 |
|
|
$ |
171 |
|
|
|
251 |
|
|
$ |
341 |
|
Natural gas cost (4) |
|
|
|
|
|
$ |
3.70 |
|
|
|
|
|
|
$ |
9.94 |
|
|
|
|
(1) |
|
After deducting $41.5 million and $45.5 million outbound freight costs for 2009 and
2008, respectively. |
|
(2) |
|
Urea sales volumes and prices include granular urea and urea solutions data. |
|
(3) |
|
Ammonium nitrate sales volumes and prices include agricultural grade AN,
industrial grade AN and ammonium nitrate solution (ANS). |
|
(4) |
|
Per MMBtu. Includes all transportation and other logistical costs and any gains or
losses on financial derivatives related to North American natural gas purchases. Net
costs of derivatives for the third quarter of 2009 and 2008 were $9.5
million and $27.1 million. Excluding the impact of 2009 hedge costs, natural gas cost
was $3.35 per MMBtu for the 2009 third quarter. |
46
The following table shows sales volumes and prices and natural gas cost for the nine
months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Sales |
|
|
Average |
|
|
Sales |
|
|
Average |
|
(quantities in thousands of tons) |
|
Volumes |
|
|
Unit Price(1) |
|
|
Volumes |
|
|
Unit Price(1) |
|
Ammonia |
|
|
1,177 |
|
|
$ |
314 |
|
|
|
1,303 |
|
|
$ |
532 |
|
UAN 32% basis |
|
|
2,361 |
|
|
$ |
214 |
|
|
|
3,072 |
|
|
$ |
326 |
|
Urea(2) |
|
|
215 |
|
|
$ |
309 |
|
|
|
202 |
|
|
$ |
466 |
|
Ammonium nitrate(3) |
|
|
650 |
|
|
$ |
204 |
|
|
|
761 |
|
|
$ |
305 |
|
Natural gas cost(4) |
|
|
|
|
|
$ |
4.98 |
|
|
|
|
|
|
$ |
8.74 |
|
|
|
|
(1) |
|
After deducting $111.8 million and $124.5 million outbound freight costs for
2009 and 2008, respectively. |
|
(2) |
|
Urea sales volumes and prices include granular urea and urea solutions data. |
|
(3) |
|
Ammonium nitrate sales volumes and prices include agricultural grade AN,
industrial grade AN and ammonium nitrate solution (ANS). |
|
(4) |
|
Per MMBtu. Includes all transportation and other logistical costs and any gains or
losses on financial derivatives related to North American natural gas purchases. Net
costs of derivatives for the first nine months of 2009 were $107.5 million. Excluding
the impact of 2009 hedge costs, natural gas cost was $3.60 per MMBtu for the 2009
first nine months. The net benefit of derivatives for the first nine months of 2008
was $17.0 million. |
RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 2009 COMPARED WITH QUARTER
ENDED SEPTEMBER 30, 2008
Our net sales for the third quarter of 2009 were $347.0 million, a decline of $443.2 million
or 56% from the third quarter of 2008 net sales of $790.2 million. Sales price declines
contributed 84% ($370.1 million) of the revenue decline, while sales volumes decreased
revenues by 16% ($73.1 million).
Several factors contributed to the decrease in product price and volume. During the third
quarter of 2009, dealers utilized existing inventory and maintained lower inventory levels
pending the finalization of their spring 2010 order book, unlike the third quarter of 2008
where product was committed to and purchased in advance of firm orders. Unfavorable harvest
conditions across the corn belt have delayed farmers which in turn
have delayed the normal fall
ammonia application. Other uncertainties including crop and nutrient price have added to the
cautious buying behavior of growers. Additionally, the economic downturn continues to
negatively affect industrial customers. Our environmental urea sales experienced a decline in
demand during the third quarter of 2009 as favorable natural gas prices reduced the use of
coal fired generation in favor of less expensive natural gas generation. Urea is used as a
reagent to reduce nitrogen oxide (NOx) emissions from coal fired generation plants.
In order to effectively manage inventory levels in the third quarter, aggregate production
rates were reduced to 91% and the Donaldsonville, Louisiana facility curtailed production from
July 1st to August 5th of 2009. The fixed costs associated with this
curtailment were $3.1 million. During the third quarter of 2009 our Verdigris, Oklahoma
facility performed a turnaround at one of their ammonia, UAN, and nitric acid plants. The
period costs associated with the turnaround were $4.0 million during the third quarter of
2009.
Our gross margin was $65.4 million in the third quarter of 2009 compared to $211.9 million in
the third quarter of 2008. Gross margin decreased as a percentage of sales to 18.8% from
26.8%. The gross margin percentage includes a 63% decrease in natural gas costs for the third
quarter of 2009. The third quarter
natural gas unit costs, net of forward pricing gains and losses, declined from $9.94 per MMBtu
in 2008 to $3.70 per MMBtu in 2009. Lower natural gas costs helped to reduce production costs
by $171.4 million in the third quarter of 2009, when compared to the third quarter of 2008.
47
We enter into forward sales commitments by utilizing forward pricing and prepayment programs
with customers. We use derivative instruments to hedge a portion of our natural gas
requirements. The use of these derivative instruments is designed to hedge exposure to natural
gas price fluctuations for production required for forward sales estimates. The net cost of
derivatives for the third quarter of 2009 and 2008 was $9.5 million and $27.1 million,
respectively. Excluding the impact of the hedge cost, natural gas cost was $3.35 per MMBtu in
the third quarter of 2009.
Selling, General and Administrative Costs and Other Operating Expenses
Selling, general and administrative (SG&A) costs decreased $1.0 million in the third quarter
of 2009 compared to the third quarter of 2008 primarily due to a decrease in bonus and
restricted stock compensation expense, and a decrease in contracted and professional services,
offset by an increase in phantom stock compensation expense resulting from a 43% appreciation
in the market value of our stock price during the three months ended September 30, 2009.
Equity Earnings of Unconsolidated Affiliates North America
We recorded income of $6.1 million from our North American equity investments in the third
quarter of 2009 as compared to $15.9 million in the third quarter of 2008. In addition, we
also received cash distributions of $4.5 million from our North American equity investments in
2009 as compared to $14.5 million in 2008. The decrease in the third quarter results is
primarily due to the decrease in Gulf ammonia pricing which affects the results of our Point
Lisas facility, as compared to the third quarter of 2008.
Equity Earnings of Unconsolidated Affiliates GrowHow
We recorded income of $4.9 million from GrowHow for the third quarter ended September 30, 2009
as compared to income of $42.1 million for the quarter ended September 30, 2008. The decrease
was attributed to a decrease in sales volumes and prices of 13% and 48%, respectively, offset
by a 66% decrease in natural gas costs. During the third quarter of 2009, we received
balancing consideration and other payments from GrowHow of $10.8 million.
Noncontrolling Interests
Noncontrolling interest represents third-party interests in the earnings of the publicly held
common units of TNCLP. The 2009 and 2008 amounts are directly related to TNCLP earnings which
decreased in 2009 as compared to 2008. During the first quarter of 2008, the cumulative
shortfall of the Minimum Quarterly Distribution was satisfied which entitled us to increased
income allocations as provided for in the TNCLP Partnership Agreement. The current quarter
noncontrolling interest balance reflects the impact of these adjusted income allocations. Our
increased income allocation attributed to our General Partner interest was $1.3 million for
the quarter ended September 30, 2009, as compared to $10.5 million for the quarter ended
September 30, 2008.
48
Income Taxes
Our income tax expense for the third quarter of 2009 and 2008 was $5.0 million and $63.2
million, respectively. The effective tax rate was 10.1% in the quarter ended September 30,
2009. During the third quarter of 2009, we completed the preparation and filing of our 2008
U.S. federal income tax return and recorded adjustments which reduced our effective tax rate
for the quarter ended September 30, 2009 by 16.1%. Excluding the effects of the adjustments,
our effective tax rate would have been 26.2%. The 26.2% rate reflects the reorganization of
Terras subsidiary operations during the fourth quarter of 2008 and expected utilization of
state and federal tax credits. The effective tax rate was 26.9% for the quarter ended
September 30, 2008 which reflects income in foreign jurisdictions with lower statutory tax
rates compared to the United States as well as the utilization of federal and sate tax credits
to reduce the estimated tax liability.
RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2008
Our net sales for the first nine months of 2009 were $1.2 billion, a decline of $987.7 million
or 45% from the first nine months of 2008 net sales of $2.2 billion. Sales price reductions
contributed 62% ($610.5 million) of the revenue decline, while sales volume reductions
decreased revenues by 38% ($377.2 million).
The year over year decline in ammonia, UAN, and ammonium nitrate sales volumes reflects the
continuing trend of delayed purchasing to replenish inventories and a reduction in planted
corn acreage for the 2008/2009 season. This cautionary behavior is a result of inventory
channel corrections residual of the 2007/2008 fertilizer season in addition to current
economic conditions which have driven a conservative approach to capital management.
In response to reduced product movement, we continue to match our production to market demand,
in 2009 aggregate production rates were reduced to 85% and production was curtailed at our
Donaldsonville, Louisiana and Woodward, Oklahoma facilities at different times throughout the
year. The fixed costs associated with these curtailments were $21.2 million. During 2009
several of our facilities have performed turnarounds. The period costs associated with the
facilities being offline were $12.5 million for the nine months ending September 30, 2009.
Our gross margin was $299.0 million in the first nine months of 2009 compared to $675.6
million in the first nine months of 2008, and decreased as a percentage of sales to 24.5% from
30.6%. The gross margin percentage movement reflects a 43% decrease in natural gas costs. The
first nine months of 2009 natural gas unit costs, net of forward pricing gains and losses,
decreased from $8.74 per MMBtu in 2008 to $4.98 per MMBtu in 2009. Lower natural gas costs due
to reduced demand and ample supplies helped to decrease production costs by $291.9 million for
the nine months ending September 30, 2009, when compared to the nine months ending September
30, 2008.
We enter into forward sales commitments by utilizing forward pricing and prepayment programs
with customers. We use derivative instruments to hedge a portion of our natural gas
requirements. The use of these derivative instruments is designed to hedge exposure to natural
gas price fluctuations for production required for forward sales estimates. The net cost of
derivatives for the first nine months of 2009 was $107.5 million as compared to the net
benefit of derivatives for the first nine months of 2008 of $17.0 million. Excluding the
impact of the hedge cost, natural gas cost was $3.60 per MMBtu in the first nine months of
2009.
49
Selling, General and Administrative Costs and Other Operating Expenses
Selling, general and administrative costs decreased $8.4 million in the first nine months of
2009 compared to the first nine months of 2008 primarily due to a decrease in bonus and
restricted stock compensation expense, and a decrease in contracted and professional services,
offset by an increase in phantom stock compensation expense resulting from an appreciation in
the market value of our stock price during the nine months ended September 30, 2009. Other
operating expenses of $14.3 million represents costs associated with the unsolicited exchange
offer by CF, of which $1.7 million was previously reported in SG&A in the first quarter of
2009.
Equity Earnings of Unconsolidated Affiliates North America
We recorded income of $10.9 million from our North American equity investments in the first
nine months of 2009 as compared to $45.7 million in the first nine months of 2008. In
addition, we also received cash distributions of $25.1 million from our North American equity
investments in 2009 as compared to $55.4 million in 2008. The decrease in the first nine month
results is primarily due to the decrease in Gulf ammonia pricing which affects the results of
our Point Lisas facility, as compared to the first nine months of 2008.
Equity Earnings of Unconsolidated Affiliates GrowHow
We recorded income of $2.5 million from GrowHow for the first nine months ended September 30,
2009 as compared to income of $89.0 million for the first nine months ended September 30,
2008. The decrease is primarily due to a 29% decrease in sales volumes and a 28% decrease in
sales price, partially offset by a 58% decrease in natural gas cost in the first nine months
of 2009 compared to the first nine months of 2008. During the first nine months of 2009, we
received balancing consideration and other payments from GrowHow of $18.7 million in the first
nine months of 2009.
Noncontrolling Interests
Noncontrolling interest represents third-party interests in the earnings of the publicly held
common units of TNCLP. The 2009 and 2008 amounts are directly related to TNCLP earnings which
decreased in 2009 as compared to 2008. During the first nine months of 2008, the cumulative
shortfall of the Minimum Quarterly Distribution was satisfied which entitled us to increased
income allocations as provided for in the TNCLP Partnership Agreement. The current nine months
noncontrolling interest balance reflects the impact of these adjusted income allocations. Our
increased income allocation attributed to our General Partner interest was $10.7 million for
the nine months ended September 30, 2009, as compared to $26.1 million for the nine months
ended September 30, 2008.
Income Taxes
Our income tax expense for the first nine months of 2009 and 2008 was $55.8 million and $229.7
million, respectively. The effective tax rate was 26.4% in the nine months ended September 30,
2009. During the third quarter of 2009, we completed the preparation and filing of our 2008
U.S. federal income tax return and recorded adjustments which reduced our effective tax rate
for the nine months ended September 30, 2009 by 3.8%. Excluding the effects of the
adjustments, our effective tax rate would have been 30.2%. The 30.2% rate reflects the
reorganization of Terras subsidiary operations during the fourth quarter of 2008 and expected
utilization of state and federal tax credits. The effective tax rate was 32.9% for the first
nine months of 2008 which reflects income in foreign jurisdiction with lower statutory tax
rates compared to the United States as well as the utilization of federal and state tax
credits to reduce the estimated tax liability.
50
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash and cash equivalents were to fund our working capital requirements,
make payments for plant turnarounds and capital expenditures, common stock dividends and make
distributions to noncontrolling interests. The principal sources of funds were cash flows from
operations and funds received from GrowHow, our 50% owned joint venture, and distributions
received from our North American equity investments. Cash and cash equivalents were $1,001
million at September 30, 2009. During the first nine months of 2009 cash and cash equivalents
increased $34.1 million.
Debt Refinancing, Special Dividend Declaration and Carseland Acquisition
On September 24, 2009, we announced plans to return an aggregate of approximately $750 million
in cash to shareholders through a special cash dividend of $7.50 per common share. On October
28, 2009, we declared the special cash dividend of $7.50 per common share, payable December
11, 2009 to shareholders of record as of November 23, 2009.
Also on September 24, 2009, TCAPI commenced a cash tender offer for any and all of its
outstanding 7% senior notes due 2017, and a solicitation of consents to eliminate
substantially all of the restrictive covenants and certain events of default and to modify
certain other provisions of the indenture governing the 2017 Notes. On October 27, 2009, TCAPI
announced that it had completed its tender offer and received tenders from holders of
approximately $317.5 aggregate principal amount of the 2017 Notes, representing approximately
96.2% of the outstanding 2017 Notes.
On October 26, 2009, TCAPI issued $600 million aggregate principal amount of senior notes due
2019. The 2019 Notes have an interest rate of 7.75% per annum and were issued at a price equal
to 98.298% of their face value. The 2019 Notes were sold in a private offering that is exempt
from the registration requirements of the Securities Act and are guaranteed on a senior
unsecured basis by Terra and certain of its subsidiaries.
We will use the net proceeds of the 2019 Notes offering and available cash to purchase the
tendered 2017 Notes and fund the special cash dividend, per the following table:
|
|
|
|
|
|
|
|
|
|
|
Sources |
|
|
|
|
|
Uses |
|
|
|
|
(dollars in millions) |
|
2019 Notes, less discount |
|
$ |
589.8 |
|
|
Special cash dividend |
|
$ |
750.0 |
|
Estimated decrease in cash on hand |
|
|
540.2 |
|
|
Repay 2017 Notes |
|
|
317.5 |
|
|
|
|
|
|
|
Tender premium for 2017 Notes |
|
|
48.8 |
|
|
|
|
|
|
|
Fees and expenses |
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
Total sources |
|
$ |
1,130.0 |
|
|
Total uses |
|
$ |
1,130.0 |
|
|
|
|
|
|
|
|
|
|
On October 19, 2009, we announced we had entered into an agreement to purchase a 50% interest
in Agriums Carseland, Alberta, Canada nitrogen production assets and certain U.S assets for a
purchase price of approximately $250 million. The closing of the acquisition is subject to
certain closing conditions and contingencies, including the completion by Agrium of its
acquisition of CF.
We recently amended our revolving credit facilities to allow for the consummation of the
transactions referred to above. See Note 19 to our unaudited consolidated financial statements
included herein.
51
Cash Flows
The following table summarized our cash flows from operating, investing and financing
activities for the nine month period ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
($ in millions) |
|
2009 |
|
|
2008 |
|
Operating activities |
|
$ |
166.9 |
|
|
$ |
205.5 |
|
Investing activities |
|
|
(65.2 |
) |
|
|
(33.9 |
) |
Financing activities |
|
|
(64.5 |
) |
|
|
(189.2 |
) |
Effect of exchange rate changes on cash |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
34.1 $ |
|
|
|
(17.6 |
) |
|
|
|
|
|
|
|
Operating Activities
Our cash flows from operating activities were $166.9 million during the first nine months of
2009. The $166.9 million is comprised of $252.0 million from operations offset by $85.9
million from changes in our working capital accounts. The $252.0 million includes $176.8
million of net income before noncontrolling interest, adjusted for non-cash expenses. The
significant non-cash expenses incurred include $63.1 million of depreciation of property,
plant and equipment and amortization of deferred plant turnaround costs, $13.4 million of
share-based compensation, offset by $7.0 million of deferred income taxes.
Included in the September 30, 2009 cash and cash equivalents balance of $1.0 billion is $40.9
million of customer prepayments for the selling price and delivery costs of products that we
expect to ship during the next six months, as compared to the September 30, 2008 cash and cash
equivalents balance of $680.7 million which included $195.0 million of customer prepayments.
Investing Activities
Our investing activities used cash of $65.2 million during the first nine months of 2009. The
primary use of cash was related to $73.0 million of property, plant and equipment purchases
for our operations and $22.7 million for turnaround activities. The primary sources of cash
were related to the $18.7 million balancing consideration and other payments received from
GrowHow. We also received $11.7 million in distributions from our North American equity
investments above the equity earnings.
We estimate our annual 2009 sustaining capital expenditures and turnaround costs will total
$75 million to $80 million dollars. We also estimate our Woodward UAN expansion will require
$70 million to $80 million dollars. In the aggregate, we estimate our 2009 capital and
turnaround spending will be in the range of $145 million and $160 million dollars.
Financing Activities
Our financing activities used cash of $64.5 million during the first nine months of 2009. The
primary use of cash related to $33.6 million of distributions to the noncontrolling interest
holders of TNCLP and common stock dividends of $29.9 million.
Our current share buyback program extends through June 2010 and we have 7.4 million shares
available to purchase under the authorization. There were no buybacks during the first nine
months of 2009. The stock buyback program will be conducted on the open market, in private
transactions or otherwise at such times prior to June 30, 2010, and at such prices as we
determine to be appropriate.
52
Long-term Debt and Revolving Credit Facilities
TCAPI has 7% senior notes due 2017, of which an aggregate amount of $330.0 million was
outstanding as of September 24, 2009. On September 24, 2009, TCAPI commenced a cash tender
offer for any and all of its 2017 Notes. On October 27, 2009, TCAPI announced that it had
completed its tender offer and received tenders from holders of approximately $317.5 aggregate
principal amount of the 2017 Notes, representing approximately 96.2% of the outstanding 2017
Notes.
On October 26, 2009, TCAPI issued $600 million aggregate principal amount of senior notes due
2019. The 2019 Notes have an interest rate of 7.75% per annum and were issued at a price equal
to 98.298% of their face value. The 2019 Notes are guaranteed on a senior unsecured basis by
Terra and certain of its subsidiaries.
We have entered into revolving credit facilities with a group of banks totaling $200.0 million
that expire on January 31, 2012. Borrowing availability is generally based on 100% of eligible
cash balances, 85% of eligible accounts receivable and 60% of eligible finished goods
inventory, and is reduced by outstanding letters of credit. These facilities include $50
million available only for the use of Terra Nitrogen Company, L.P. (TNCLP), one of our
consolidated subsidiaries. At September 30, 2009, there were no outstanding revolving credit
borrowings and there were $8.0 million in outstanding letters of credit, resulting in
borrowing availability of approximately $192.0 million under the facilities. We are required
to maintain a combined minimum unused borrowing availability of $30.0 million. The facilities
also require that we 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, if our borrowing
availability falls below a combined $60.0 million, we are required to have generated $60.0
million of operating cash flows, or earnings before interest, income taxes, depreciation,
amortization and other non-cash items (as defined in the facilities) for the preceding four
quarters. The facilities also require that there be no change of control related to Terra,
such that no individual or group acquires more than 35% of the outstanding voting shares of
Terra. Such change of control would constitute an event of default under the facilities.
Our ability to meet facilities covenants will depend on future operating cash flows, working
capital needs, receipt of customer prepayments and trade credit terms. Failure to meet these
covenants could result in additional costs and fees to amend the facilities or could result in
termination of the facilities. Access to adequate bank facilities may be required to fund our
need to build inventories during the first nine months of the year in order to ensure product
availability during the peak sales season. We believe that our facilities are adequate for
expected 2009 sales levels.
In addition, our ability to manage our exposure to commodity price risk in the purchase of
natural gas through the use of financial derivatives may be affected by our ability to obtain
sufficient credit terms. For additional information regarding commodity price risk, see Item
3, Quantitative and Qualitative Disclosures about Market Risk.
Based on our September 30, 2009 financial position and the current market conditions for our
financial products and for natural gas, we anticipate that we will be able to comply with our
covenants through 2009.
In connection with the 2019 Notes offering, we entered into amendments to each of the
facilities, which permitted us to consummate the 2019 Notes offering, the tender offer for our
2017 Notes and will permit us to pay the special cash dividend. The amendments also provided
for an increase in the commitment fee under the $150 million facility from 0.50% to 0.75%,
revised applicable margins and certain other covenant adjustments.
53
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risks relating to our operations result primarily from interest rates, foreign exchange
rates, natural gas prices and nitrogen prices. We manage our exposure to these and other
market risks through regular operating and financing activities and through the use of
derivative financial instruments. We intend to use derivative financial instruments as risk
management tools and not for speculative investment purposes. Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, of Terras Annual Report on Form 10-K for the year
ended December 31, 2008 provides more information as to the types of practices and instruments
used to manage risk. There were no material changes in our use of financial instruments during
the quarter ended September 30, 2009.
Natural gas is the principal raw material used to manufacture nitrogen and methanol. Natural
gas prices are volatile and we mitigate some of this volatility through the use of derivative
commodity instruments. Our current policy is to hedge natural gas provided that such
arrangements would not result in costs greater than expected selling prices for our finished
products. Estimated North American natural gas requirements for 2009 are
approximately 113 billion cubic feet (BCF). We have hedged 13% of our expected North American
requirements for the next twelve months. The fair value of these instruments is estimated
based, in part, on quoted market prices from brokers, realized gains or losses and our
computations. These instruments and other natural gas positions fixed natural gas prices at
$3.2 million (including $2.0 million included in accumulated other comprehensive gain) more
than published prices for September 30, 2009 forward markets.
There were no material changes outside the ordinary course of business to Terras contractual
obligations, critical accounting policies or off-balance sheet arrangements presented in Item
7, Managements Discussion and Analysis of Financial Condition and Results of Operations of
the Annual Report on Form 10-K for the period ended December 31, 2008 and our Current Report
on Form 8-K filed with the SEC on September 30, 2009.
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Our Chief Executive Officer and Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this report, that our disclosure controls
and procedures are effective to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time periods specified in the SECs
rules and forms.
There were no significant changes in our internal control over financial reporting that
occurred during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in this report may constitute forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995. Forward-looking statements are based
upon assumptions as to future events that may not prove to be accurate. Actual outcomes and
results may differ materially from what is expressed or forecasted in these forward-looking
statements. As a result, these statements speak only as of the date they were made and we
undertake no obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as otherwise required by
law.
54
Words such as expects, intends, plans, projects, believes, estimates, and similar
expressions are used to identify these forward-looking statements. Forward looking statements
are not guarantees of future performance and involve risks, uncertainties and assumptions that
are difficult to predict. These risks, uncertainties and assumptions include, among others,
statements relating to:
|
|
|
changes in financial and capital markets, |
|
|
|
|
general economic conditions within the agricultural industry, |
|
|
|
|
competitive factors and price changes (principally, sales prices of nitrogen
products and natural gas costs), |
|
|
|
|
changes in product mix, |
|
|
|
|
changes in the seasonality of demand patterns, |
|
|
|
|
changes in weather conditions, |
|
|
|
|
changes in environmental and other government regulations, |
|
|
|
|
changes in agricultural regulations, |
|
|
|
|
changes in the securities trading markets, and |
|
|
|
|
other risks detailed in the section entitled Risk Factors in our 2008 Annual
Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. |
Additional information as to these factors can be found in our 2008 Annual Report on Form 10-K
and in our subsequent Quarterly Reports on Form 10-Q, in each case in the sections entitled
Business, Legal Proceedings, and Managements Discussion and Analysis of Financial
Condition and Results of Operations and in the Notes to our consolidated financial
statements included as part of this report.
55
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
From time to time, we are involved in various claims, disputes, administrative proceedings and
legal actions arising in the ordinary course of business. We do not believe that the matters in
which we are currently involved, either individually or in the aggregate, will have a material
adverse effect on our consolidated financial position, results of operations or liquidity.
Except for the addition of the risk factors listed below, there were no significant changes in our
risk factors during the first nine months of 2009 as compared to the risk factors identified in our
2008 Form 10-K.
If the global economic downturn continues or worsens, our business could be adversely impacted.
In the latter part of 2008 and into 2009, the global economic downturn worsened and the nitrogen
markets continued to weaken. We have experienced declining demand and falling prices for some of
our products due to the general economic slowdown and our customers reluctance to replenish
inventories. In particular, industrial demand for ammonia has remained relatively weak as the
economy has struggled to recover. At the same time, the economic downturn has also reduced demand
and pricing for natural gas, the primary raw material used in the production of nitrogen products,
which has helped to reduce our production costs. In light of these varied and sometimes offsetting
effects, the overall impact of the global economic downturn is difficult to predict and our
business could be adversely impacted.
We are exposed to risks associated with our joint venture investments.
We participate in several joint ventures with third parties. Our joint venture partners may have
shared or majority control over the operations of our joint ventures. As a result, our investments
in joint ventures involve risks that are different from the risks involved in owning facilities and
operations independently. These risks include the possibility that our joint ventures or our
partners:
|
|
|
have economic or business interests or goals that are or become inconsistent with
our business interests or goals; |
|
|
|
|
are in a position to take action contrary to our instructions, requests, policies
or objectives; |
|
|
|
|
subject the property to liabilities exceeding those contemplated; |
|
|
|
|
take actions that reduce our return on investment; or |
|
|
|
|
take actions that harm our reputation or restrict our ability to run our business. |
In addition, we may become involved in disputes with our joint venture partners, which could
lead to impasses or situations that could harm the joint venture, which could reduce our
revenues, increase our costs and lower our profits.
Disruption in or increased costs of transportation services could have an adverse effect on
our profitability.
We depend on rail, barge, truck and pipeline transportation services to deliver nitrogen
products to our customers, and transportation costs are a significant component of the total
cost of supplying nitrogen products. Disruptions of these transportation services could
temporarily impair our ability to supply nitrogen products to our customers. In addition,
increases in our transportation costs, or changes in such costs relative to transportation
costs incurred by our competitors, could have an adverse effect on our revenues and costs of
operations.
56
CFs continued proposals for a business combination with us may be disruptive to our business and
adversely affect our operations and results.
Since the beginning of 2009, CF has made five separate proposals for a business combination with
us. Each proposal has been carefully considered by our board of directors and thoroughly reviewed
by our financial and legal advisors. Our board of directors has unanimously determined that each of
CFs proposals runs counter to our strategic objectives, substantially undervalues Terra both
absolutely and relative to CF and would deliver less value to our shareholders than would owning
Terra on a stand-alone basis. In an attempt to advance CFs proposals for a business combination
with Terra, CF has nominated and is soliciting proxies for an opposition slate of three nominees
for election as directors at our 2009 annual meeting, scheduled for November 20, 2009, and has
filed a definitive proxy statement with the SEC with respect to such solicitation. The uncertainty
regarding the outcome of CFs continued proposals may disrupt our business which could result in an
adverse effect on our operating results.
Responding to the CF proposals has been, and may continue to be, a distraction for our management
and employees and has required and may continue to require us to incur significant costs.
Management and employee distraction related to the CF proposals also may adversely impact our
ability to optimally conduct our business and pursue our strategic objectives.
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
|
|
|
ITEM 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
None.
|
|
|
ITEM 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
|
|
|
ITEM 5. |
|
OTHER INFORMATION |
None.
57
(a) Exhibits
|
|
|
Exhibit 31.1*
|
|
Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 31.2*
|
|
Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.1*
|
|
Certification of the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2*
|
|
Certification of the Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
58
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: November 6, 2009
|
|
/s/ Daniel D. Greenwell |
|
|
|
|
|
Daniel D. Greenwell |
|
|
Senior Vice President and Chief Financial Officer |
|
|
and a duly authorized
signatory |
|
|
(Principal Financial Officer and
Principal
Accounting Officer) |
59
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
Exhibit 31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 31.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.1
|
|
Certification of the Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
Exhibit 32.2
|
|
Certification of the Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
60