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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number 1-8520
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Terra Industries Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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52-1145429
(I.R.S. Employer Identification No.)
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Terra Centre
600 Fourth Street
P. O. Box 6000
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51102-6000
(Zip Code)
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Sioux City, Iowa
(Address of principal executive offices)
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(712) 277-1340
(Registrants telephone number)
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Securities registered pursuant
to Section 12(b) of the Act:
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Name of each exchange
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Title of each class
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on which registered
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Common Shares, without par value
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New York Stock Exchange
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Securities registered pursuant
to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o
No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o
No x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x
No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statement incorporated by reference in Part III
of this
Form 10-K
or any amendment to this
Form 10-K.
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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 x
Accelerated
filer o Non-accelerated
filer o
(Do not check if a smaller reporting company) Smaller reporting
company o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
Yes o No x
The aggregate market value of the voting and non-voting common
shares held by non-affiliates computed by reference to the price
at which the common shares were last sold, or the average bid
and asked price of such common shares, as of the last business
day of the registrants most recently completed second
fiscal quarter was $2,282,111,309.04.
The number of Common Shares, without par value, outstanding as
of February 22, 2008 was 90,768,279.
Documents
Incorporated by Reference
Certain portions of the proxy statement for the Annual Meeting
of Shareholders of Registrant to be held on May 6, 2008 are
incorporated herein by reference into Part III hereof.
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. These statements are not
guarantees of future performance and involve risks,
uncertainties and assumptions that are difficult to predict.
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.
Words such as expects, intends,
plans, projects, believes,
estimates, and similar expressions are used to
identify these forward-looking statements. These include, among
others, statements relating to:
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changes in financial markets,
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general economic conditions within the agricultural industry,
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competitive factors and price changes (principally, sales prices
of nitrogen and methanol products and natural gas costs),
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changes in product mix,
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changes in the seasonality of demand patterns,
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changes in weather conditions,
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changes in environmental and other government regulation,
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changes in agricultural regulations, and
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other risks detailed in the section entitled Risk
Factors.
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Additional information as to these factors can be found in the
section 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.
Part I
Terra Industries Inc. together with its subsidiaries
(Terra, we, our, or
us) is a leading North American producer and
marketer of nitrogen products, serving agricultural and
industrial markets. In addition to manufacturing facilities at
Port Neal, Iowa; Courtright, Ontario, Canada; Yazoo City,
Mississippi; and Woodward, Oklahoma, we own a 75.3% interest in
Terra Nitrogen Company, L.P. (TNCLP), which, through
its subsidiary, Terra Nitrogen, Limited Partnership, operates
our manufacturing facility at Verdigris, Oklahoma. We are the
sole general partner and the majority limited partner of TNCLP.
In addition, we own a 50% interest in Point Lisas Nitrogen
Limited (Point Lisas), an ammonia production joint
venture in the Republic of Trinidad and Tobago. We also own a
50% interest in GrowHow UK Limited, a nitrogen products
production joint venture with facilities located in the United
Kingdom; the GrowHow UK Limited joint venture was established in
September 2007.
We are one of the largest North American producers of anhydrous
ammonia (or ammonia), the basic building block of nitrogen
fertilizers. We convert a significant portion of the ammonia we
produce into urea ammonium nitrate solutions (UAN), ammonium
nitrate (AN) and urea. Each of these products is easier for
distributors and farmers to transport, store and apply to crops
than ammonia. We also convert ammonia to nitric acid and
dinitrogen tetroxide for use in industrial applications.
We also own two manufacturing facilities in North America that
are not currently in production. The Beaumont, Texas methanol
and ammonia production facilities were mothballed in December
2004 and are under contract to be sold to Eastman Chemical
Company. The Donaldsonville, Louisiana ammonia plant was
mothballed in the first quarter of 2005; however, we announced
in February 2008 that we intend to restart the Donaldsonville
ammonia plant during the third quarter of 2008.
2007
Overview
The North American nitrogen industry experienced substantial
growth in 2007 earnings due to higher product prices in response
to increased demand for fertilizers used as inputs for key
commodities, including corn and wheat, and also due to
relatively stable natural gas prices.
During 2007, we undertook two significant business transactions.
We concluded the merger of our U.K. ammonia production business
and operations with that of Kemira GrowHow Oyj to create a joint
venture, GrowHow UK Limited, which is owned 50/50 by Terra and
Kemira GrowHow Oyj. The joint venture was established in an
effort to secure a sustainable, long term base for manufacturing
ammonium nitrate fertilizer and process chemicals in the U.K. We
also entered into a contract with Eastman Chemical Company to
sell to Eastman the assets of our Beaumont, Texas facility. We
expect the sale of the Beaumont, Texas assets to be concluded on
or before January 1, 2009.
GrowHow Joint
Venture
On September 14, 2007, we completed the formation of
GrowHow UK Limited (GrowHow), a joint venture with Kemira
GrowHow Oyj (Kemira). Pursuant to the Joint Venture Contribution
and Shareholder Agreements with Kemira (the GrowHow
Agreements), we contributed our subsidiary Terra Nitrogen
(UK) Limited to the joint venture for a 50% interest in the
joint venture, and Kemira contributed its Kemira GrowHow UK
Limited subsidiary for the remaining 50% interest. The GrowHow
joint venture in the United Kingdom includes the Kemira site at
Ince and our Billingham and Severnside sites. Pursuant to the
GrowHow Agreements with Kemira, we are eligible to receive
additional consideration based on the
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future operating cash flows of GrowHow. We will receive a
minimum additional consideration payment of
£20 million, and have the right to receive up to
£60 million, based on GrowHows operating income.
On October 9, 2007, GrowHow announced the closure of its
Severnside manufacturing facilities. The closure is expected to
be completed by the end of January 2008. Pursuant to the GrowHow
Agreements, we are responsible for remediation costs required to
prepare the Severnside site for disposal, net of sales proceeds,
in excess of £1 million. We are also entitled to
receive any excess sales proceeds above the cost of remediation,
in excess of £1 million. We anticipate that the
proceeds from sale of the Severnside land would exceed the total
cost of reclamation of the site. For additional information
regarding the GrowHow joint venture, see Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and Note 7 of the
Notes to Consolidated Financial Statements, included in
Item 8, Financial Statements and Supplementary Data,
of this Annual Report on
Form 10-K.
Sale of Beaumont
Facilities
On July 18, 2007, we announced that we entered into
agreements with Eastman Chemical Company (Eastman) resulting in
Eastmans agreement to purchase all the assets of our
Beaumont, Texas facility. We anticipate closing the sale on or
before January 1, 2009. In connection with entering into
these agreements, we determined that the value of our Beaumont
facility was impaired and we recorded a $39 million
impairment charge for the quarter ended September 30, 2007.
For additional information regarding the sale of our Beaumont
facility, see Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
and Notes 1 and 6, of the Notes to Consolidated Financial
Statements, included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on
Form 10-K.
Business
Strategy and Segments
Our business is organized into two segments: nitrogen products
and methanol. We also have an equity method investment in
GrowHow UK Limited, a U.K. joint venture.
The principal customers for our North American nitrogen products
are national agricultural retail chains, farm cooperatives,
independent dealers and industrial customers. Agricultural
customers generally use nitrogen products as fertilizer for
crops. Industrial customers use nitrogen products to manufacture
chemicals, plastics and other products such as acrylonitrile,
polyurethanes, fibers, explosives and adhesives; to reduce
nitrogen oxides (NOx) and other emissions from power plants; and
in water treatment processes. Our facility in Yazoo City,
Mississippi produces industrial grade ammonium nitrate (AN)
prills (a form of dry pellet) and ammonium nitrate solution that
are utilized as explosives in the mining industry as well as a
raw material in the production of catalyst materials. We have a
long term supply contract with one of our customers to provide
industrial grade ammonium nitrate products for a majority of the
Yazoo City capacity.
Agricultural customers accounted for approximately 73% and
industrial customers approximately 27% of our North American
nitrogen product revenue in 2007.
The methanol segment has become less significant to our business
since we mothballed the Beaumont, Texas facility in December
2004. Our remaining manufacturing facility capable of producing
methanol is in Woodward, Oklahoma. In 2007, the Woodward
facility produced 32.5 million gallons of methanol.
GrowHow is a nitrogen manufacturing joint venture in the U.K.
The joint venture was formed in 2007 with Kemira GrowHow Oyj to
combine the two companies and obtain synergies in the sales,
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manufacturing and administrative areas. The primary products
produced by GrowHow are ammonia, ammonium nitrate and fertilizer
components.
Financial information about our segments and geographic areas is
included in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations ,
and Note 21, Industry Segment Data, of the Notes to
Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data, of this
Annual Report on
Form 10-K.
Nitrogen Business
Segment
Overview
The principal forms of globally traded nitrogen fertilizer are
ammonia and urea. Ammonium nitrate (AN) is also traded in global
markets. Urea ammonium nitrate solutions (UAN) is used
principally in North America and Western Europe, and has only
recently been traded in other international markets. UANs
high water content and need for transportation in tankers can
cause transportation costs per unit of nitrogen to be higher
than for other forms of internationally traded nitrogen products.
The locations of our North American production facilities
provide us a competitive advantage in serving agricultural
customers in the Corn Belt and other major agricultural areas in
the United States and Canada. The GrowHow U.K. facilities are
able to competitively serve the entire British agricultural
market. The Point Lisas ammonia production facility in Trinidad
and Tobago serves U.S. and international nitrogen markets,
benefiting from access to low-cost natural gas supplies.
Ammonia, AN, urea and UAN are the principal nitrogen products we
produce and sell in North America. GrowHow produces and sells
primarily ammonia, AN and fertilizer compounds in the U.K. The
Point Lisas production facility in Trinidad provides ammonia for
sale into both the U.S. and international nitrogen markets.
Other products we manufacture include nitric acid, dinitrogen
tetroxide and carbon dioxide. These products, along with a
portion of our ammonia, AN and urea production, are used in
non-agricultural applications.
Our Terra Environmental Technologies business provides products
and services to customers using nitrogen products (primarily
ammonia, aqua ammonia and liquid and dry urea) to reduce NOx
emissions from various sources, including power plants, and in
other environmental processes such as water treatment plants.
Although the different nitrogen fertilizer products are
interchangeable to some extent, each has its own characteristics
which make one product or another preferable to the end-user.
Our plants are designed to provide the fertilizer products
preferred by end-users in the regions which they serve. These
preferences vary according to the crop planted, soil and weather
conditions, regional farming practices, relative prices, and the
cost and availability of storage, handling and application
equipment. Our nitrogen products and 2007 production are
described in greater detail below.
Anhydrous
Ammonia
We are the leading U.S. producer of ammonia. Ammonia is the
simplest form of nitrogen fertilizer and the feedstock for the
production of other nitrogen fertilizers, including urea, AN and
UAN. Ammonia is also a vital raw material for many industrial
applications. Ammonia is produced when natural gas reacts with
steam and air at high temperatures and pressures in the presence
of catalysts. Ammonia has a nitrogen content of 82% by weight
and is generally the least expensive form of fertilizer on a
per-pound-of-contained-nitrogen
basis. Although generally the cheapest source of nitrogen
available to
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agricultural customers, ammonia can be less desirable to
end-users than urea, AN and UAN because of its need for
specialized application equipment and its limited application
flexibility.
In 2007, we produced approximately 2,981,000 tons of ammonia at
our North American facilities and approximately 540,000 tons of
ammonia at our U.K. facilities prior to establishment of GrowHow
UK. We are obligated by contract with Point Lisas to purchase
one-half of the ammonia produced by Point Lisas through 2018
based on market indexed prices. In 2007, we purchased
approximately 337,000 tons pursuant to our contract with Point
Lisas. We sold a total of 1,985,000 tons of ammonia worldwide in
2007 and consumed approximately 2,386,000 tons of ammonia as a
raw material to manufacture our other nitrogen products.
Urea Ammonium
Nitrate Solutions (UAN)
UAN is a liquid fertilizer and, unlike ammonia, is odorless and
does not require refrigeration or pressurization for
transportation or storage. UAN is produced by combining liquid
urea, liquid ammonium nitrate and water. The nitrogen content of
UAN ranges from 28% to 32% by weight. (Unless we state
otherwise, all references to UAN assume a 28% nitrogen content.)
Because of its high water content, UAN is relatively expensive
to transport, making it largely a regionally distributed product.
UAN can be applied to crops directly or mixed with crop
protection products, permitting the application of several
materials simultaneously, reducing energy and labor costs and
accelerating field preparation for planting. UAN may be applied
from ordinary tanks and trucks and sprayed or injected into the
soil, or applied through irrigation systems. In addition, UAN
may be applied throughout the growing season, providing
significant application flexibility. Due to its stability, UAN
(like AN) may be used for no-till row crops where fertilizer is
spread on the surface of the soil.
We are the largest producer of UAN in North America. We produced
approximately 4,131,000 tons of UAN at our North American
facilities in 2007 and sold approximately 4,652,000 tons of UAN
in 2007, primarily to U.S. fertilizer dealers and
distributors.
Ammonium Nitrate
(AN)
We are the largest manufacturer and marketer of
agricultural-grade AN fertilizer in the U.S. and produce AN
through our GrowHow joint venture in the U.K. AN is produced by
combining nitric acid and ammonia into a liquid form which is
then converted to a solid, largely for fertilizer applications.
The nitrogen content of AN is 34% by weight. AN is less subject
to volatilization (evaporation) losses than other nitrogen
products. Due to its stability, AN is often the product of
choice for pastures and no-till crops (that is,
where the soil is not plowed prior to planting) where fertilizer
is spread upon the surface and is subject to evaporation losses.
During 2007, we produced approximately 284,000 tons of merchant
ammonium nitrate solution (ANS), 687,000 tons of solid AN and
537,000 tons agricultural grade AN. We produced 150,000 tons of
industrial grade ammonium nitrate (IGAN), at our Yazoo City,
Mississippi facility during 2007 and approximately 610,000 tons
of solid AN at our U.K. facilities in 2007 prior to
establishment of GrowHow UK Limited. During 2007, we sold
approximately 683,000 tons of AN in the U.S. and 665,000
tons of AN in the U.K.
Urea
Urea is produced by converting ammonia and carbon dioxide into
liquid urea, which can be further processed into a solid,
granular form. Urea is used for fertilizer and animal feed, in
industrial
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applications as a raw material to produce resins, and
environmentally as a reagent to reduce NOx emissions. Granular
urea has a nitrogen content of 46% by weight, the highest level
of any solid nitrogen product. We produce both a granulated form
of urea, for the industrial market, and urea liquor (liquid) for
animal feed supplements and industrial applications.
In 2007, we produced approximately 921,000 tons of urea and urea
liquor (liquid urea), all of it at North American plants. During
this period, we sold approximately 248,000 tons of urea and urea
liquor.
Nitric
Acid
Nitric acid is made by oxidizing ammonia with air. The product
is used as a raw material for other nitrogen products and by
industrial customers to produce such products as nylon fibers,
polyurethane foams and specialty fibers. In 2007, we produced
approximately 2,820,000 tons of nitric acid worldwide.
Approximately 259,000 of these tons were sold to industrial
users and the remainder was used as a raw material for the
production of our other nitrogen products.
Dinitrogen
Tetroxide
Dinitrogen tetroxide
(N2O4)
is the propellant oxidizer used in various satellite, rocket and
missile propulsion systems. It is also used by industrial
customers in the manufacturing of pharmaceuticals. Dinitrogen
tetroxide is produced by cooling and condensing a slipstream of
process gas from a nitric acid plant containing various oxides
of nitrogen. The recovered product is filtered and its
composition adjusted to meet final product specifications. We
manufactured approximately 369,000 pounds of the product in 2007.
Marketing
Nitrogen is both a global and local commodity: global because it
is produced and traded in almost all regions of the world and
local because fertilizer customers display preferences for
nitrogen in one of its four basic forms based upon local
conditions. Because transportation is a significant component of
a customers total product cost, a key to our
competitiveness in the nitrogen business is proximity to the end
user, which allows us to have the lowest delivered cost for the
customers product of choice. In addition, we must
continuously provide a reliable source of the preferred nitrogen
product.
Our nitrogen customers are broadly segregated into two groups:
(1) North American customers, including those receiving
shipments of imported product from the Point Lisas facility, and
(2) U.K. customers, including export sales to continental
Europe and Australia.
The principal customers for our North American manufactured
nitrogen products fall into two broad
categoriesagricultural fertilizer customers and industrial
customers. The agriculture customers consist of independent
dealers, national retail chains, and cooperatives. These
agricultural customers, in turn, sell product to dealers,
farmers and other users. Industrial customers use nitrogen
products as a feedstock for a variety of chemical processes, in
the manufacture of pulp, paper, and fibers and to control NOx
emissions from power plants. Nearly all of our industrial
customers are end-users. Our agricultural and industrial
customers are located primarily in the Gulf, Midwestern plains
and southern regions of the U.S. where our facilities are
located. It is our objective to ship as much of our North
American production as possible directly from our manufacturing
facilities to our customers.
Distribution
Our Donaldsonville terminal has ready access to rail, truck and
ammonia pipeline transportation and provides us with economical
access to oceangoing vessel and barge transportation for imports
of nitrogen products. The terminal includes two ammonia storage
tanks, each with a capacity of
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30,000 tons, and can receive ocean-going vessels carrying
50,000 tons or more of ammonia. During 2007, the terminal
received and shipped approximately 566,000 and 623,000 tons
of ammonia, respectively. In 2006, we expanded the
terminals capabilities by constructing a new UAN solution
tank with a 50,000-ton capacity. During 2007, we received and
shipped 511,000 and 528,000 tons of UAN, respectively.
In July 2005 we sold our terminal assets in Blytheville,
Arkansas to a subsidiary of Kinder Morgan Energy Partners,
consisting of storage and supporting infrastructure for 40,000
tons of ammonia, 9,500 tons of UAN and 40,000 tons of urea.
In conjunction with this sale of assets, we have entered into a
long-term agreement to exclusively lease from Kinder Morgan
certain of these terminal assets. This arrangement will maintain
our distribution capabilities in the Blytheville, Arkansas
region.
We own a 50% interest in the Houston Ammonia Terminal, located
on the Houston Ship Channel near Pasadena, Texas. This terminal
has two 15,000 ton ammonia storage tanks which provide ammonia
to industrial customers in the area via a pipeline system
capable of shipping approximately 1,000 tons per day. The
terminal can also receive ocean-going vessels.
Transportation
We use several modes of transportation to distribute products to
customers, including rail cars, common carrier trucks, barges
and common carrier pipelines. Railcars are the major mode of
transportation at our North American manufacturing facilities.
At December 31, 2007, we had 2,872 railcars under lease. We
own ten nitric acid railcars. In addition, we operate a common
carrier that specializes in transporting all forms of nitrogen.
The GrowHow joint venture AN production is transported primarily
by contract carrier trucks, and ammonia is transported primarily
by pipelines owned by GrowHow.
We transport purchased natural gas to our Woodward, Oklahoma
facility via both intrastate and interstate pipelines and to our
Verdigris, Oklahoma facility via intrastate pipeline. The
intrastate pipelines serving Woodward and Verdigris are not
open-access carriers, but are nonetheless part of a widespread
regional system through which Woodward and Verdigris can receive
natural gas from any major Oklahoma source. We also have limited
access to out-of-state natural gas supplies for these
facilities. Our Beaumont, Texas facility sources natural gas via
four intrastate pipelines. We transport purchased natural gas
for our Port Neal, Iowa facility via interstate, open-access
pipelines. Our Donaldsonville, Louisiana facility sources
purchased natural gas from two intrastate pipelines. Our Yazoo
City facility is served by three interstate pipelines and one
intrastate pipeline. We transport purchased natural gas through
the local utility distribution company, through open access, at
our Courtright, Ontario, Canada facility. At the GrowHow joint
venture locations, purchased natural gas is transported to the
facilities via a nationwide, open-access pipeline system.
FMCL Limited Liability Company, our 50/50 ammonia shipping joint
venture with KNC Trinidad Limited, leases a vessel for
transportation of ammonia, primarily between the Point Lisas
facility in Trinidad and the United States. Use of this vessel
is shared between the joint venture partners.
Nitrogen Industry
Overview
The three major nutrients required for plant growth are
phosphorous, mined as phosphate rock; potassium, mined as
potash; and nitrogen, produced from natural gas. Phosphorus
plays a key role in the photosynthesis process. Potassium is an
important regulator of plants physiological functions.
Nitrogen is an essential element for most organic compounds in
plants because it promotes protein formation. Nitrogen is also a
major component of chlorophyll, which helps promote green
healthy growth and high yields. There are no known substitutes
for nitrogen fertilizers in the cultivation of
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high-yield crops. These three nutrients occur naturally in the
soil to a certain extent, but must be replaced because crops
remove them from the soil. Nitrogen, to a greater extent than
phosphate and potash, must be reapplied each year in areas of
intense agricultural usage because of nitrogen absorption by
crops and its tendency to escape from the soil by evaporation or
leaching. Consequently, demand for nitrogen fertilizer tends to
be more consistent on a
year-by-year,
per-acre-planted
basis than is demand for phosphate or potash fertilizer.
The major nitrogen consuming crops in North America are corn and
wheat and in the United Kingdom, wheat. Certain crops, such as
soybeans and other legumes, can better absorb atmospheric
nitrogen and do not require nitrogen fertilizers.
Demand
Global demand for fertilizers generally grows at predictable
rates that tend to correspond to growth in grain production.
Global fertilizer demand is driven in the long term primarily by
population growth, increases in disposable income and associated
improvements in diet. Short-term demand depends on world
economic growth rates and factors creating temporary imbalances
in supply and demand. These factors include weather patterns,
the level of world grain stocks relative to consumption,
agricultural commodity prices, energy prices, crop mix,
fertilizer application rates, farm income and temporary
disruptions in fertilizer trade from government intervention,
such as changes in the buying patterns of China or India. Grain
consumption has historically grown at approximately 1.2% per
year. According to IFA, International Fertilizer Industry
Association, over the last 45 years global fertilizer
demand has grown 3.7% annually and global nitrogen fertilizer
demand has grown at a faster rate of 4.8% annually. During that
period, North American nitrogen fertilizer demand has grown 3.3%
annually.
Supply
Over the past seven years, global ammonia capacity has remained
relatively flat, growing at an average of approximately 2% per
annum. This result was attributable principally to the
combination of new project capacity being offset by permanent
plant closings in the U.S. and in Europe. As global
operating rates and prices have risen, so have plans for new
capacity.
This anticipated new global capacity will come primarily from
advantaged natural gas regions of the world, such as the Middle
East and Africa. This expansion of capacity could be limited,
however, by high capital and construction costs, lower nitrogen
prices and increasing natural gas prices. Russia has increased
domestic gas prices as well as prices paid by their export
customers. This has increased production costs for new and
existing plants in the former Soviet Union and Europe.
Imports account for a significant portion of U.S. nitrogen
product supply. Producers from the former Soviet Union, Canada,
the Middle East, Trinidad and Venezuela are major exporters to
the U.S. These export producers are often competitive in
regions close to the point of entry for imports, primarily the
Gulf coast and east coast of North America. Due to higher
freight costs and limited distribution infrastructure, importers
are less competitive in serving the main corn-growing regions of
the U.S., which are more distant from these ports. According to
Fertecon, a leading industry publication, world trade in ammonia
grew from 15.4 million tons in 2000 to 19.3 million
tons by 2006 due to the exceptional increase in gas prices in
the U.S. and Europe during this period and the consequent
closure of U.S. capacity.
Outlook
Fertecon forecasts that global nitrogen fertilizer demand is
expected to rise by around 2% per year from 2005 to 2015,
increasing by 21 million tons or close to 22% over the
period. In North America,
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nitrogen fertilizer consumption is expected to increase from
2005 to 2015 from 14 million tons to 16 million tons,
a 15% increase.
The continued growth in demand for nitrogen products has helped
stabilize global ammonia capacity utilization rates, which
averaged 85% between 2005 and 2006. According to Fertecon,
global ammonia utilization rates are forecasted to remain in the
low-80s through 2015. North American ammonia utilization
rates are forecast to decrease from 82% in 2006 to 78% by 2015
due in part to projected long-term growth in worldwide capacity
and in imports.
To help meet the growing global demand for fertilizers,
especially in high growth areas like China and India, new
ammonia capacity is expected to come on stream globally in the
next nine years. According to Fertecon, global ammonia capacity
is forecast to increase by 22.9 million tons by 2015, a
total increase of 7.5%. This projected capacity increase
excludes Chinese plants as any new volumes in China are not
expected to reach global markets. There are a number of new
capacity projects expected or underway in gas advantaged
regions; however, increased construction costs and changes in
market dynamics have delayed a number of such projects.
World trade in ammonia is expected to increase by
1.8 million tons or 8% in the period to 2010, according to
Fertecon, representing more modest growth than seen from 2000 to
2005. Fertecon projects that higher gas costs for Russian and
Ukrainian exporters and the lower-than-previous gas price
outlook for the U.S. would appear to support continued
operating rates at the remaining U.S. ammonia capacity,
limiting the near-term growth in ammonia imports.
Global grain inventories are currently at levels significantly
below the ten-year average, and current corn prices have
increased significantly to $4.37 per bushel as of
January 3, 2008 versus $3.40 per bushel one year prior.
Both of these factors influence and improve the outlook for
demand.
The emergence of ethanol as an alternative energy source has the
potential to drive incremental fertilizer demand. Corn, the
primary feedstock for U.S. ethanol production, represents
approximately 40% of fertilizer demand in North America. New
ethanol capacity is increasing demand for corn and, according to
Fertecon, is expected to contribute to a forecasted
21 million hectare increase in planted corn area in the
world by 2030. The amount of corn used in the U.S. for
ethanol production has more than doubled in the last five years.
In
2006-2007,
approximately 2.1 billion bushels of corn were used for
ethanol production. According to the USDA, a 51% increase is
forecast for the current
2007-2008
crop year, bringing the total bushels used for ethanol to
3.2 billion. This number is projected to rise to over
4 billion bushels by
2008-2009,
equivalent to 30% of the U.S. corn crop.
The 1990 Amendments to the Clean Air Act increasingly require
companies that combust fossil fuels to reduce their emissions.
Reduction of oxides of both nitrogen and sulfur are accomplished
with Selective Catalytic Reduction (SCR) and wet scrubbing
technologies. Environmental control devices using ammonia or
ammonia based compounds, across a broad range of applications
from coal based generation to diesel engines, are very effective
in meeting emissions targets. We believe these new and emerging
markets may increase North American demand for ammonia by up to
1,000,000 tons by 2010.
Methanol Business
Segment
Our methanol business segment has become less significant since
we mothballed our principal methanol production facility at
Beaumont, Texas in December 2004. The facility remained closed
throughout 2005, 2006 and 2007 and remains closed to date. Our
remaining manufacturing facility capable of producing methanol
is in Woodward, Oklahoma.
8
In December 2003, we entered into contracts with the Methanex
Corporation (Methanex), selling certain methanol
related assets to Methanex and providing it exclusive rights to
all methanol production at the Beaumont facility for five years.
Methanex paid approximately $25 million for the assets and
the exclusivity rights, and agreed to purchase our methanol
production at amounts expected to approximate cash production
costs. Methanex also agreed to pay us 50% of any gross profits
earned from its sales of products produced at Beaumont up to
maximum payments of $12 million per year. The agreements
also gave Methanex the right to terminate Beaumonts
production, including the ability to require us to mothball the
facility. In each case, we would be responsible for the costs of
shutting down the facility.
On December 1, 2004, at the request of Methanex and under
the terms of the parties agreement, we ceased production
at the Beaumont facility and mothballed the plant. The
agreements stipulate that, beginning two years from the date of
the shutdown, we may terminate the agreements by paying Methanex
approximately $417,000 for each month remaining in the
agreements term. As long as the Beaumont facility remains
idle through the December 2008 termination of the Methanex
agreements, we will continue to realize revenues relating to the
facility of up to $16.4 million per year consisting of
$4.4 million from annual amortization of deferred revenues
plus one-half of the annual cash margin, if any, attributable to
idled methanol production based on reference prices and natural
gas costs. In 2007, we recorded $12 million in revenue
related to the cash margin clause of the Methanex agreements.
On July 18, 2007, we announced that we executed agreements
with Eastman Chemical Company (Eastman) resulting in an
agreement to sell to Eastman all the assets of our Beaumont,
Texas facility. For additional information regarding the sale of
our Beaumont facility, see 2007 Overview, Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and Notes 1 and 6,
of the Notes to Consolidated Financial Statements, included in
Item 8, Financial Statements and Supplementary Data,
of this Annual Report on
Form 10-K.
We have retained a small number of employees to operate the
Beaumont methanol storage and distribution terminal to service
methanol customers in accordance with the Methanex agreements,
and contemplate that such services could continue to be provided
following the close on the sale of the Beaumont assets to
Eastman pursuant to agreements with both Eastman and Methanex.
Manufacturing
Facilities
We own the plant and processing equipment at the Beaumont
facility, which has an annual methanol production capacity of
225 million gallons. We did not produce any methanol at the
Beaumont plant in 2007. The Woodward, Oklahoma facility produced
32.5 million, 24.1 million and 30.4 million
gallons of methanol in 2007, 2006 and 2005, respectively, and
has an annual methanol production capacity of 40 million
gallons. In addition to the Beaumont/Methanex production
agreement, we also entered into an agreement with Methanex in
December 2006 by which Methanex agreed to market, under a
commission arrangement, all methanol produced at the Woodward,
Oklahoma facility. The customers served under these arrangements
are primarily large domestic chemical producers.
Methanol Industry
Overview
Methanol is a liquid made primarily from natural gas that is
used as a feedstock in the production of formaldehyde, acetic
acid, methyl tertiary-butyl ether (MTBE), and a variety of other
chemical intermediates which form the foundation of a large
number of secondary derivatives.
Methanol is a typical commodity chemical and the methanol
industry is characterized by cycles of oversupply resulting in
lower prices and idled capacity, followed by periods of shortage
and rapidly rising prices until increased prices justify new
plant investments or the re-start of idled capacity. Over
9
the past several years significant industry restructuring has
taken place with most North American methanol capacity shut
down. New methanol production facilities have generally been
constructed in locations with access to low-cost natural gas,
although this advantage is partially offset by higher
distribution costs due to distance from major markets.
Seasonality and
Volatility
The fertilizer business is highly seasonal, based upon the
planting, growing and harvesting cycles. Nitrogen fertilizer
inventories must be accumulated to permit uninterrupted customer
deliveries, and require significant storage capacity. This
seasonality generally results in higher fertilizer prices during
peak consumption periods, with prices normally reaching their
highest point in the spring, decreasing in the summer, and
increasing again in the late fall/early winter period as
depleted inventories are restored.
Nitrogen fertilizer prices can also be volatile as a result of a
number of other factors. The most important of these factors are:
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Weather patterns and field conditions (particularly during
periods of high fertilizer consumption);
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Quantities of fertilizers imported to primary markets;
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Current and projected grain inventories and prices, which are
heavily influenced by U.S. exports, worldwide grain
markets, and domestic demand (food, feed, biofuel); and
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Price fluctuations in natural gas, the principal raw material
used to produce nitrogen fertilizer.
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Governmental policies may directly or indirectly influence the
number of acres planted, the level of grain inventories, the mix
of crops planted and crop prices, as well as environmental
demands.
While most U.S. methanol is sold pursuant to long-term
contracts based on market index pricing and fixed volumes, the
spot market price of methanol can be volatile. The industry has
experienced cycles of oversupply, resulting in depressed prices
and idled capacity, followed by periods of shortages and rapidly
rising prices. Future demand for methanol will depend in part on
the regulatory environment with respect to reformulated gasoline.
Raw
Materials
The principal raw material used to produce manufactured nitrogen
products and methanol is natural gas. Natural gas costs in 2007
accounted for approximately 44% of our total costs and expenses.
Significant increases in natural gas costs that are not hedged
or recovered through increased prices to customers would have an
adverse impact on our business, financial condition and results.
We believe there will be a sufficient supply of natural gas for
the foreseeable future and we will, as opportunities present
themselves, enter into firm transportation contracts to minimize
the risk of interruption or curtailment of natural gas supplies
during the peak-demand season. We use a combination of spot and
term purchases of varied duration from a variety of suppliers to
obtain natural gas supply.
We use derivative instruments to hedge a portion of our natural
gas purchases. We have implemented a policy setting boundaries
to ensure coverage of fixed forward sales as well as potential
outstanding forward priced quotes and prepay programs. Our
policy is designed to hedge exposure to natural gas price
fluctuations for production required for estimated forward sales
commitments. We hedge natural gas prices through the use of
supply contracts, financial derivatives and other instruments.
The settlement dates of forward-pricing contracts coincide with
gas purchase dates as well as shipment periods on forward
committed sales. Forward-pricing contracts are based on a
specified price
10
referenced to spot market prices or appropriate New York
Mercantile Exchange (NYMEX) futures contract prices.
Point Lisas has a contract to purchase natural gas from the
National Gas Company of Trinidad and Tobago. The joint
ventures cost of natural gas has historically been
significantly lower than U.S. natural gas costs, which has
resulted in the joint venture being substantially more
profitable than comparable North American facilities.
Competition
The markets in which we operate are highly competitive.
Competition in agricultural input markets takes place largely on
the basis of price, supply reliability, delivery time and
quality of service. Feedstock availability to production
facilities and the cost and efficiency of production,
transportation and storage facilities are also important
competitive factors.
Government intervention in international trade can distort the
competitive environment. The relative cost and availability of
natural gas are also important competitive factors. Significant
determinants of the competitive position of our plants are the
natural gas acquisition and transportation contracts negotiated
with our major suppliers as well as proximity to natural gas
sources
and/or
end-users.
Our domestic competitors in the nitrogen fertilizer markets are
primarily other independent fertilizer companies. Nitrogen
fertilizers imported into the United States compete with
domestically produced nitrogen fertilizers, including those we
produce. Imports of nitrogen products represent approximately
56% of nitrogen used in North America. Countries with
inexpensive sources of natural gas (whether as a result of
government regulation or otherwise) can produce nitrogen
fertilizers at a low cost. A substantial amount of new ammonia
capacity is expected to be added abroad in the foreseeable
future in countries with favored natural gas costs.
In the methanol segment, production and trade have become
increasingly globalized and a number of foreign competitors
produce methanol primarily for the export market. Many of these
foreign competitors have access to favorably priced sources of
natural gas and are relatively insensitive to raw material price
fluctuations. However, because of low domestic demand in the
country of production, foreign competitors aggressively pursue
the U.S. and other export markets.
Credit
Our credit terms are generally
15-30 days,
but may be extended for longer periods during certain sales
seasons, consistent with industry practices.
Environmental and
Other Regulatory Matters
Our U.S. operations are subject to various federal, state
and local environmental, health and safety laws and regulations,
including laws relating to air quality, hazardous or solid
wastes and water quality. Our operations in Canada are subject
to various federal and provincial regulations regarding such
matters, including the Canadian Environmental Protection Act
administered by Environment Canada, and the Ontario
Environmental Protection Act administered by the Ontario
Ministry of the Environment. The GrowHow U.K. joint venture
operations are subject to similar regulations under a variety of
acts governing hazardous chemicals, transportation and worker
heath and safety. All of our facilities require operating
permits that are subject to review by governmental agencies. We
are also involved in the manufacturing, handling,
transportation, storage and disposal of materials that are or
may be classified as hazardous or toxic by federal, state,
provincial or other regulatory agencies. We take precautions to
reduce the likelihood of accidents involving these materials. If
such materials have been or are disposed
11
of at sites that are targeted for investigation
and/or
remediation by federal or state regulatory agencies, we may be
responsible under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) or
analogous laws for all or part of the costs of such
investigation and remediation, and damages to natural resources.
The State of Arizona designated Inspiration Consolidated Copper
Company (Inspiration), one of our subsidiaries that
disposed of its assets in a 1988 asset sale agreement
(1988 Asset Sale Agreement) and no longer operates a
business, as one of several potentially responsible parties
(PRP) under the state Superfund law at the Pinal
Creek Drainage Basin Site (Pinal Site) in
Globe/Miami, Arizona. The Pinal Site generally consists of two
separate properties, each a copper mining and production
facility, one of which had been owned by Inspiration. The PRP
designation was based upon Inspirations prior ownership
and operation of one of the Pinal Site properties. Under state
and federal Superfund laws, all PRPs may be jointly and
severally liable for the costs of investigation
and/or
remediation of an environmentally impaired site regardless of
fault or the legality of original disposals. The Pinal Site is
the subject of ongoing investigation and cleanup to address
groundwater releases of acidic metal-bearing solutions from past
copper mining and production facilities. The remedial actions
are governed by a 1997 consent decree (1997 Consent
Decree) between the Arizona Department of Environmental
Quality and the two current owners/operators of the copper
mining and production facilities (one of whom is the successor
to Inspirations buyer), both of whom the State also
designated as PRPs, and Inspiration (collectively, the
Group).
The two current owners/operators of the copper mining and
production facilities have been jointly financing and performing
the investigation and remediation work since the late
1980s. Inspiration has been and will be indemnified by its
buyer and the buyers successor for its share of the common
costs under the terms of the 1988 Asset Sale Agreement and a
subsequent April 2005 settlement agreement. The April 2005
settlement agreement further confirmed and documented that the
buyers successor will indemnify Inspiration for its share
of all past and future costs arising out of the 1997 Consent
Decree, judicially determined claims against Inspiration arising
out of the cost recovery suit discussed below, and
Inspirations share of common counsel legal fees in
conjunction with all these matters, as well as other matters
described in the 1988 Asset Sale Agreement.
In 1991, the Group filed a cost recovery action against other
former owners and operators of the two properties constituting
the Pinal Site. A substantial portion of this litigation has
been settled and resolved. The one principal unresolved issue is
the allocation of liability between the two current
owners/operators of the two copper mining and production
facilities. As noted above, Inspiration is no longer actively
involved in the cost recovery litigation since it is fully
indemnified by the buyers successor under the terms of the
April 2005 settlement agreement. More than a decade ago,
residents in an area of the Pinal Site brought a class action
lawsuit against the Group seeking property damages and medical
monitoring for potential personal injuries allegedly related to
the acidic, metal-bearing groundwater. The class action lawsuit
was settled in September 2000, although plaintiffs reserved the
right to assert personal injury claims individually. Pursuant to
the terms of certain environmental indemnity provisions of the
1988 Asset Sale Agreement, Inspiration paid 50% of the September
2000 settlement agreement costs allocated to the former
Inspiration copper mining and production facility. After
consideration of such factors as the number of PRPs and the
levels of financial responsibility, including the ongoing
litigation and contractual indemnities, we believe our liability
with respect to these matters will not be material.
We retained a small number (less than 10%) of our retail
locations after the sale of our distribution business in 1999.
Some of these locations are now, or are expected in the future
to be, the subject of
12
environmental
clean-up
activities for which we have retained liability. We do not
believe that those environmental costs and liabilities will have
a material effect on our results of operations, financial
position or net cash flows. As of December 31 2007, there were
13 remaining retail locations with which we were engaged in some
level of environmental
clean-up
activities
and/or
monitoring. The total net cost associated with the former retail
locations in 2008 and beyond (including environmental
expenditures and proceeds from voluntary
clean-up
reimbursements and sale of properties) is not expected to exceed
$1.0 million.
With respect to the Verdigris, Oklahoma facility,
Freeport-McMoRan Resource Partners, Limited Partnership (a
former owner and operator of the facility) retains liability for
certain environmental matters. With respect to the Beaumont,
Texas facility, DuPont retains responsibility for certain
environmental costs and liabilities stemming from conditions or
operations to the extent they existed or occurred prior to its
sale of the facility to us in 1991. Likewise, with respect to
the Billingham and Severnside, England facilities, the seller,
ICI, indemnified us, subject to certain conditions, for
pre-December 31, 1997 environmental contamination
associated with the purchased assets. Known conditions are not
expected to result in material expenditures but discovery of
unknown conditions or the failure of prior owners and operators
and indemnitors to meet their obligations could require
significant expenditures. We retained certain liability for the
pre-closing environmental condition of the Billingham and
Severnside, England facilities in conjunction with the
establishment of GrowHow UK joint venture in 2007. Upon
cessation of production at the Severnside England facility on
January 31, 2008, we commenced dismantling of the facility
and remediation of the site.
We may be required to install additional air and water quality
control equipment, such as low nitrous oxide burners, scrubbers,
ammonia sensors and continuous emission monitors, at certain
facilities to comply with applicable environmental requirements.
We estimate that the total cost of additional equipment to
comply with these requirements in 2008 and the next two years
will be less than $23 million. Our capital expenditures
related to environmental control in 2007, 2006 and 2005 were
approximately $2.5 million, $1.2 million and
$1.3 million, respectively. Projected environmental capital
expenditures are $9.1 million for 2008, $9.1 million
for 2009 and $4.8 million for 2010.
We endeavor to comply in all material respects with applicable
environmental, health and safety regulations and we have
incurred substantial costs in connection with this compliance.
Because these laws and regulations are expected to continue to
change and generally to be more restrictive than current
requirements, the costs of compliance will likely increase. We
do not expect our compliance with these laws and regulations to
have a material adverse effect on our results of operations,
financial position or net cash flows. However, there can be no
guarantee that new regulations will not result in material costs.
We believe that our policies and procedures now in effect are in
compliance with applicable environmental laws and with the
permits relating to the facilities in all material respects.
However, in the normal course of our business, we are exposed to
risks relating to possible releases of hazardous substances into
the environment. Such releases could cause substantial damages
or injuries. Although environmental expenditures have not been
material during the past year, it is impossible to predict or
quantify the impact of future environmental liabilities
associated with releases of hazardous substances from our
facilities. Such liabilities could have a material adverse
impact on our results of operations, financial position or net
cash flows.
Employees
We had 871 full-time employees at December 31, 2007.
13
Available
Information
Terra was incorporated in Maryland in 1978 and is subject to the
reporting requirements of the Securities Exchange Act of 1934
and its rules and regulations. The Exchange Act requires us to
file reports, proxy statements and other information with the
U.S. Securities and Exchange Commission (SEC).
Copies of these reports, proxy statements and other information
can be obtained from the SEC through the following site:
Office of Public Reference
100 F Street, NE
Room 1580
Washington, D.C.
20549-0102
Phone:
(202) 551-8090
Fax:
(202) 777-1027
E-mail:
publicinfo@sec.gov
The SEC maintains a Web site that contains reports, proxy
statements and other information regarding issuers that file
electronically with the SEC. These materials may be obtained
electronically by accessing the SECs Web site at
http://www.sec.gov.
We make available, free of charge on our Web site, our Annual
Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file these
documents with, or furnish them to, the SEC. These documents are
posted on our Web site at www.terraindustries.com.
We also make available, free of charge on our Web site, the
charters of the Audit Committee, the Compensation Committee, and
the Nominating and Corporate Governance Committee, as well as
the Corporate Governance Guidelines of our Board of Directors
(Board) and our Code of Ethics and Standards of
Business Conduct (including any amendment to, or waiver from, a
provision of our Code of Ethics and Standards of Business
Conduct) adopted by our Board. These documents are posted on our
Web site at www.terraindustries.com.
Copies of any of these documents will also be made available,
free of charge, upon written request to:
Terra Industries Inc.
Attention: Investor Relations
600 Fourth Street
P.O. Box 6000
Sioux City, Iowa
51102-6000
Phone:
(712) 277-1340
14
In addition to the other information contained in this
Form 10-K,
the following risk factors should be considered carefully in
evaluating our business. Our business, financial condition, or
results of operations could be materially adversely affected by
any of these risks. Please note that additional risks not
presently known to us or that our management currently deems
immaterial may also impair our business and operations.
A substantial portion of Terras operating expense is
related to the cost of natural gas, and an increase in such cost
that is either unexpected or not accompanied by increases in
selling prices of products could result in reduced profit
margins and lower product production.
The principal raw material used to produce nitrogen products is
natural gas. Natural gas costs in 2007 comprised about 44% of
total costs and expenses. A significant increase in the price of
natural gas (which can be driven by, among other things, supply
disruptions, governmental or regulatory actions, cold weather
and oil price spikes) that is not hedged or recovered through an
increase in the price of related nitrogen products could result
in reduced profit margins and lower product production. We have
previously idled one or more of our plants in response to high
natural gas prices. A significant portion of our
competitors global nitrogen production occurs at
facilities with access to fixed-priced
and/or
product related natural gas supplies, similar to our gas supply
contract in Trinidad. The natural gas costs for these
competitors facilities have been and likely will continue
to be substantially lower than our costs.
Declines in the prices of our products may reduce profit
margins.
Prices for nitrogen products are influenced by the global supply
and demand conditions for ammonia and other nitrogen-based
products. Long-term demand is affected by population growth and
rising living standards that determine food consumption.
Short-term demand is affected by world economic conditions and
international trade decisions. Supply is affected by increasing
worldwide capacity and the increasing availability of nitrogen
product exports from major producing regions such as the former
Soviet Union, Canada, the Middle East, Trinidad and Venezuela.
New global ammonia capacity is expected abroad in the
foreseeable future. If this anticipated growth in new capacity
exceeds the growth in demand, the price at which we sell our
nitrogen products may decline, resulting in reduced profit
margins, lower production of products and potential plant
closures. Supply in the U.S. and Europe is also affected by
trade regulatory measures, which restrict import supply into
those markets. Changes in those measures would likely adversely
impact available supply and pricing.
Our products are subject to price volatility resulting from
periodic imbalances of supply and demand, which may cause the
results of operations to fluctuate.
Historically, the prices for our products have reflected
frequent changes in supply and demand conditions. Changes in
supply result from capacity additions or reductions and from
changes in inventory levels. Demand for products is dependent on
demand for crop nutrients by the global agricultural industry
and on the level of industrial production. Periods of high
demand, high capacity utilization and increasing operating
margins tend to result in new plant investment and increased
production until supply exceeds demand, followed by periods of
declining prices and declining capacity utilization until the
cycle is repeated. In addition, markets for our products are
affected by general economic conditions. As a result of periodic
imbalances of supply and demand, product prices have been
volatile, with frequent and significant price changes. During
periods of oversupply, the price at
15
which we sell our products may be depressed and this could have
a material adverse effect on our business, financial condition
and results of operations.
Our products are global commodities and we face intense
competition from other producers.
Our products are global commodities and can be subject to
intense price competition from both domestic and foreign
sources. Customers, including end-users, dealers and other
crop-nutrient producers and distributors, base their purchasing
decisions principally on the delivered price and availability of
the product. We compete with a number of U.S. producers and
producers in other countries, including state-owned and
government-subsidized entities. The U.S. and the European
Commission each have implemented trade regulatory measures which
are designed to address this type of unfair trade. Changes in
these measures could have an adverse impact on our sales and
profitability of the particular products involved. Some of our
principal competitors have greater total resources and are less
dependent on earnings from nitrogen fertilizer sales. In
addition, a portion of global production benefits from natural
gas contracts that have been, and could continue to be,
substantially lower priced than our natural gas. Our inability
to compete successfully could result in the loss of customers,
which could adversely affect sales and profitability.
Our business is subject to risks related to weather
conditions.
Adverse weather conditions may have a significant effect on
demand for the Companys nitrogen products. Weather
conditions that delay or intermittently disrupt field work
during the planting and growing season may cause agricultural
customers to use less or different forms of nitrogen fertilizer,
which may adversely affect demand for the product that we sell.
Weather conditions following harvest may delay or eliminate
opportunities to apply fertilizer in the fall. Weather can also
have an adverse effect on crop yields, which lowers the income
of growers and could impair their ability to pay our customers.
Weather
and/or
weather forecasts can dramatically affect the price of natural
gas, our main raw material. Colder than normal winters as well
as warmer than normal summers increase the natural gas demand
for residential use. Also, hurricanes affecting the gulf coastal
states can severely impact the supply of natural gas and cause
prices to rise sharply.
Our risk measurement and hedging activities might not prevent
losses.
We manage commodity price risk for our businesses as a whole.
Although we implemented risk measurement systems that use
various methodologies to quantify the risk, these systems might
not always be followed or might not always work as planned.
Further, such risk measurement systems do not in themselves
manage risk, and adverse changes involving volatility, adverse
correlation of commodity prices and the liquidity of markets
might still adversely affect earnings and cash flows, as well as
the balance sheet under applicable accounting rules, even if
risks have been identified. The ability to manage exposure to
commodity price risk in the purchase of natural gas through the
use of financial derivatives may be affected by limitations
imposed by our bank agreement covenants.
In an effort to manage financial exposure related to commodity
price and market fluctuations, we have entered into contracts to
hedge certain risks associated with its assets and operations.
In these hedging activities, we have used fixed-price, forward,
physical purchase and sales contracts, futures, financial swaps
and option contracts traded in the over-the-counter markets or
on exchanges. Nevertheless, no
16
single hedging arrangement can adequately address all risks
present in a given contract or industry. Therefore, unhedged
risks will always continue to exist. We may not be able to
successfully manage all credit risk and as such, future cash
flows could be impacted by counterparty default.
We are substantially dependent on our manufacturing
facilities, and any operational disruption could result in a
reduction of sales volumes and could cause us to incur
substantial expenditures.
Our manufacturing operations may be subject to significant
interruption if one or more of our facilities were to experience
a major accident, equipment failure or were damaged by severe
weather or other natural disaster. In addition, our operations
are subject to hazards inherent in chemical manufacturing. Some
of those hazards may cause personal injury and loss of life,
severe damage to or destruction of property and equipment and
environmental damage, and may result in suspension of operations
and the imposition of civil or criminal penalties. For example,
an explosion at our Port Neal, Iowa facility in 1994 required us
to rebuild nearly the entire facility, and a June 1, 2006
explosion shut down the ammonia production plant in Billingham,
England until repairs were completed in August 2006. In
addition, approximately four weeks of unplanned outages at our
Point Lisas Nitrogen facility during the 2006 third quarter to
repair failing heat exchangers were only partly successful and
the plant operated at about 80% of capacity until replacement
exchangers were installed during a scheduled turnaround in early
2007. Also, a mechanical outage at the Courtright, Ontario
facility in April 2001 required us to shut down that facility
for approximately two months. We currently maintain property
insurance, including business interruption insurance, but it may
not have sufficient coverage, or may be unable in the future to
obtain sufficient coverage at reasonable costs.
We may be adversely affected by environmental laws or
regulations to which it is subject.
Our U.S., Canadian and U.K. operations and properties are
subject to various federal, state and local environmental,
safety and health laws and regulations, including laws relating
to air quality, hazardous and solid materials and wastes, water
quality, investigation and remediation of contamination,
transportation and worker health and safety. We could incur
substantial costs, including capital expenditures for equipment
upgrades, fines and penalties and third-party claims for
damages, as a result of compliance with, violations of or
liabilities under environmental laws and regulations. We are
also involved in the manufacturing, handling, transportation,
storage and disposal of materials that are or may be classified
as hazardous or toxic by federal, state, provincial or other
regulatory agencies. If such materials have been or are disposed
of or released at sites that require investigation
and/or
remediation, Terra may be responsible under CERCLA,
or analogous laws for all or part of the costs of such
investigation
and/or
remediation, and for damages to natural resources. Under some of
these laws, responsible parties may be held jointly and
severally liable for such costs, regardless of fault or the
legality of the original disposal or release.
We have liability as a potentially responsible party at certain
sites under certain environmental remediation laws, and have
also been subject to related claims by private parties alleging
property damage and possible personal injury arising from
contamination relating to active as well as discontinued
operations. We may be subject additional liability or additional
claims in the future. Some of these matters may require
expenditure of significant amounts for investigation
and/or
cleanup or other costs.
17
We may be required to install additional pollution control
equipment at certain facilities in order to maintain compliance
with applicable environmental requirements.
Continued government and public emphasis on environmental issues
can be expected to result in increased future investments for
environmental controls at ongoing operations. We may be required
to install additional air and water quality control equipment,
such as low emission burners, scrubbers, ammonia sensors and
continuous emission monitors, at certain of our facilities to
comply with applicable environmental requirements. Such
investments would reduce income from future operations. Present
and future environmental laws and regulations applicable to
operations, more vigorous enforcement policies and discovery of
unknown conditions may require substantial expenditures and may
have a material adverse effect on results of operations,
financial position or net cash flows.
Government regulation and agricultural policy may reduce the
demand for our products.
Existing and future government regulations and laws may reduce
the demand for our products. Existing and future agricultural
and/or
environmental laws and regulations may impact the amounts and
locations of fertilizer application and may lead to decreases in
the quantity of nitrogen fertilizer applied to crops. Changes in
U.S. energy policies may affect the demand for our nitrogen
products. Any such decrease in the demand for fertilizer
products could result in lower unit sales and lower selling
prices for nitrogen fertilizer products. U.S. and E.U.
governmental policies affecting the number of acres planted, the
level of grain inventories, the mix of crops planted and crop
prices could also affect the demand and selling prices of our
products. In addition, we manufacture and sell ammonium nitrate
(AN) in the U.S., and in the U.K. through its GrowHow joint
venture. Ammonium nitrate can be used as an explosive and was
used in the Oklahoma City bombing in April 1995. It is possible
that either the U.S. or U.K. governments could impose
limitations on the use, sale or distribution of AN, thereby
limiting our ability to manufacture or sell this product.
We are subject to risks associated with international
operations.
Our international business operations are subject to numerous
risks and uncertainties, including difficulties and costs
associated with complying with a wide variety of complex laws,
treaties and regulations; unexpected changes in regulatory
environments; currency fluctuations; tax rates that may exceed
those in the U.S.; earnings that may be subject to withholding
requirements; and the imposition of tariffs, exchange controls
or other restrictions. During 2007, we derived approximately 16%
of our net sales from outside of the U.S. Terras
business operations include a 50% interest in an ammonia
production joint venture in the Republic of Trinidad and Tobago
and a 50% interest in a U.K. joint venture for the production of
ammonia, and a 50% interest in an ammonia shipping joint venture
that provides transportation of ammonia from the Trinidad
facility to the U.S. and other world markets.
Our business may be adversely impacted by our leverage, which
may require the use of a substantial portion of excess cash flow
to service debt and may limit our access to additional
capital.
Our debt could have important consequences on our business. For
example, it could (i) increase our vulnerability to adverse
economic and industry conditions by limiting flexibility in
reacting to changes in the business industry, (ii) reduce
our cash flow available to fund working capital, capital
expenditures and other general corporate purposes,
(iii) place us at a competitive disadvantage compared to
competitors that have less leverage and (iv) limit our
ability to borrow additional funds and increase the cost of
funds that we can borrow. We may not be able to reduce our
financial leverage when we choose to do so, and may not be able
to raise capital to fund growth opportunities.
18
We may not be able to finance a change of control offer.
If we consider an offer that would result in a change of
control (as defined in its bond indentures and the
instruments governing its Series A convertible preferred
shares), it may need to refinance large amounts of debt. If a
change of control occurs, we must offer to buy back the notes
under its indenture governing its 7% senior notes due 2017
and the Series A convertible preferred shares for a price
equal to 101% of the notes principal amount or 100% of the
liquidation value of the Series A convertible preferred
shares, as applicable, plus any interest or dividends which have
accrued and remain unpaid as of the repurchase date. There can
be no assurance that there will be sufficient funds available
for any repurchases that could be required by a change of
control.
19
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Terras North American manufacturing facilities and its
joint venture manufacturing facilities, in which Terra owns a
50% interest, are designed to operate continuously, except for
planned shutdowns (usually biennial) for maintenance and
efficiency improvements. Capacity utilization (gross tons
produced divided by capacity tons at expected operating rates
and on-stream factors) of the nitrogen products manufacturing
facilities was approximately 98%, 83% and 96% in 2007, 2006 and
2005, respectively.
Terra owns all of its manufacturing facilities, unless otherwise
indicated below.
Our facilities have the following production capacities:
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Capacity1
|
Location
|
|
Ammonia2
|
|
UAN3
|
|
AN4
|
|
Urea5
|
|
Methanol6
|
|
|
Beaumont,
Texas7
|
|
|
255,000
|
|
|
|
|
|
|
|
|
|
|
|
225,000,000
|
Donaldsonville,
Louisiana8
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Neal, Iowa
|
|
|
370,000
|
|
|
840,000
|
|
|
|
|
|
60,000
|
|
|
|
Verdigris, Oklahoma
|
|
|
1,050,000
|
|
|
2,200,000
|
|
|
|
|
|
|
|
|
|
Woodward,
Oklahoma9
|
|
|
440,000
|
|
|
340,000
|
|
|
|
|
|
25,000
|
|
|
40,000,000
|
Yazoo City,
Mississippi10
|
|
|
500,000
|
|
|
600,000
|
|
|
775,00011
|
|
|
20,000
|
|
|
|
Courtright, Ontario
|
|
|
480,000
|
|
|
400,000
|
|
|
|
|
|
175,000
|
|
|
|
|
|
Total
|
|
|
3,595,000
|
|
|
4,380,000
|
|
|
775,000
|
|
|
280,000
|
|
|
265,000,000
|
|
|
|
|
|
|
1.
|
Annual capacity
includes an allowance for planned maintenance shutdowns.
|
|
2.
|
Measured in gross
tons of ammonia produced; net tons available for sale will vary
with upgrading requirements.
|
|
3.
|
Measured in tons of
UAN containing 28% nitrogen by weight.
|
|
4.
|
Measured in tons.
|
|
5.
|
Urea is sold as urea
liquor from the Port Neal, Woodward and Yazoo City facilities
and as either granular urea or urea liquor from the Courtright
facility. Production capacities shown are for urea sold in tons.
|
|
6.
|
Measured in gallons.
|
|
|
|
|
7.
|
The Beaumont
facility was mothballed in December 2004 and remains out of
production. The Beaumont plant is under contract to be sold in
2009.
|
|
|
|
|
8.
|
The Donaldsonville
facilitys manufacturing capacity consists of a single
ammonia plant. This plant was mothballed in January 2005 and is
currently out of production. In February 2008, we announced that
we intend to restart the facility in the third quarter 2008.
|
|
9.
|
Woodwards
plant capacity depends on product mix (ammonia/methanol).
|
|
10.
|
The Yazoo City
facility also produces merchant nitric acid; sales for the
twelve months ended December 31, 2007 were 53,000 product
tons.
|
|
11.
|
Terras full AN
capacity at Yazoo City is 835,000 tons, however such production
would limit Yazoo Citys UAN production to approximately
450,000 tons and increase urea production to 45,000 tons. The
plant has the ability to produce both agricultural grade AN and
industrial grade AN (IGAN).
|
20
Beaumont, Texas. The Beaumont facility is located
six miles south of Beaumont, Texas on the Neches River. Terra
owns the plant and processing equipment. The facilitys
real estate is leased from E.I. Dupont de Nemours and Company
(DuPont) at a nominal rate under a lease that
expires in 2090. The facility is entirely contained within an
industrial complex owned and operated by DuPont and is under
contract for sale to Eastman Chemical Company. See further
discussion of the Beaumont facility under the Methanol
Business Segment heading.
Donaldsonville, Louisiana. The Donaldsonville
facility is located on approximately 766 acres fronting the
Mississippi River and, in 2004, included two ammonia plants, a
urea plant and two melamine crystal production plants. During
2006 all of these plants, except for one ammonia plant, were
decommissioned and sold for parts or scrap. The remaining
ammonia plant is currently not in production but we have
announced that we will restart it in the third quarter of 2008.
The facility contains a deep-water port facility on the
Mississippi River, allowing for barge transportation and making
Donaldsonville one of the northernmost points on the river
capable of receiving economical ocean-going vessels.
Port Neal, Iowa. The Port Neal facility is located
on approximately 120 acres 12 miles south of Sioux
City, Iowa on the Missouri River. The facility consists of an
ammonia plant, two urea plants, two nitric acid plants and a UAN
plant.
Verdigris, Oklahoma. The Verdigris facility is
located on 650 acres northeast of Tulsa, Oklahoma, near the
Verdigris River. It is the second largest UAN production
facility in North America. The facility comprises two ammonia
plants, two nitric acid plants, two UAN plants and a port
terminal. Terra owns the plants and leases the port terminal
from the Tulsa-Rogers County Port Authority.
Woodward, Oklahoma. The Woodward facility is
located on approximately 450 acres in rural northwest
Oklahoma and consists of an integrated ammonia/methanol plant, a
nitric acid plant, a urea plant and a UAN plant.
Yazoo City, Mississippi. The Yazoo City facility
is located on approximately 2,240 acres in Yazoo County,
Mississippi with approximately 60 acres of such land
subject to a long-term lease with Yazoo County. The facility
includes one ammonia plant, five nitric acid plants, an AN
plant, two urea plants, a UAN plant and a dinitrogen tetroxide
production and storage facility.
Courtright, Ontario, Canada. The Courtright
facility is located on 700 acres south of Sarnia, Ontario
near the St. Clair River. The facility consists of an ammonia
plant, a UAN plant, a nitric acid plant and a urea plant.
21
Joint
Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Capacity1
|
Location
|
|
Ammonia2
|
|
AN3
|
|
Fertilizer3
|
|
|
|
|
|
|
Compounds
|
|
|
Ince,
U.K.4
|
|
|
201,000
|
|
|
343,000
|
|
|
340,000
|
Billingham,
U.K.4
|
|
|
225,000
|
|
|
260,000
|
|
|
|
Point Lisas, Trinidad and
Tobago5
|
|
|
360,000
|
|
|
|
|
|
|
|
|
Total
|
|
|
786,000
|
|
|
603,000
|
|
|
340,000
|
|
|
|
|
|
|
1.
|
Annual
capacity includes an allowance for planned maintenance shutdowns.
|
|
2.
|
Measured
in gross tons of ammonia produced; net tons available for sale
will vary with upgrading requirements.
|
|
3.
|
Measured
in tons.
|
|
4.
|
Represents
Terras 50% interest in capacity of facilities owned by
GrowHow UK, a
50/50 joint
venture between Terra and Kemira GrowHow Oyj established in
September 2007.
|
|
5.
|
Represents
Terras 50% interest in the Point Lisas plant capacity.
|
Billingham, U.K. The Billingham facility, located
in the Teesside chemical area, is geographically split among
three separate areas: the main site contains an ammonia plant,
three nitric acid plants and a carbon dioxide plant; the
Portrack site approximately two miles away contains an AN
fertilizer plant; and the north Tees site approximately five
miles away has ammonia storage which GrowHow operates under a
99-year
lease with a third-party and import/export facility that GrowHow
uses under license from the Crown and under an agreement with a
third-party operator. The Billingham facility is owned by
GrowHow UK, a
50/50 joint
venture with Kemira GrowHow.
Ince, U.K. The Ince facility is located in
northwestern England and is owned by GrowHow UK. The facility
consists of one ammonia plant, three nitric acid plants, an AN
plant and three fertilizer compound plants.
Trinidad. The Point Lisas Nitrogen facility in the
Republic of Trinidad and Tobago is owned by a
50/50 joint
venture with KNC Trinidad Limited. This facility has the
capacity to produce annually 720,000 tons of ammonia from
natural gas supplied under contract with the National Gas
Company of Trinidad and Tobago.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in claims, disputes,
administrative proceedings and litigation, 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
business, results of operations, financial position or net cash
flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our security holders
during the fourth quarter of 2007.
22
Executive
Officers of Terra
The following paragraphs set forth the name, age and offices of
each present executive officer of Terra, the period during which
each executive officer has served as such and each executive
officers business experience during the past five years:
|
|
|
|
|
Present positions
and offices with the Company
|
Name
|
|
and
principal occupations during the past five years
|
|
|
Michael L. Bennett
|
|
President and Chief Executive Officer of Terra since April 2001.
Age 54.
|
Joe A. Ewing
|
|
Vice President, Investor Relations and Human Resources of Terra
since December 2004; Vice President, Human Resources of
Mississippi Chemical Corporation from April 2003 to December
2004; Vice President, Marketing and Distribution of Mississippi
Chemical Corporation from 1999 to April 2003. Age 57.
|
Brian K. Frantum
|
|
Vice President and Controller of Terra since July 2007;
Assistant Controller from 2005 to July 2007; Senior Accountant
of Stillwater Mining Company from August 2003 to July 2005 and
Senior Accountant of KPMG from August 1999 to August 2003.
Age 38.
|
Joseph D. Giesler
|
|
Senior Vice President, Commercial Operations of Terra since
December 2004; Vice President of Industrial Sales and Operations
of Terra from December 2002 to December 2004; Global Director,
Industrial Sales of Terra from September 2001 to December 2002.
Age 49.
|
Daniel D. Greenwell
|
|
Senior Vice President and Chief Financial Officer of Terra since
July 2007; Vice President, Controller from April 2005 to July
2007; Corporate Controller for Belden CDT Inc. from 2002 to
2005; and Chief Financial Officer of Zoltek Companies Inc. from
1996 to 2002. Age 45.
|
John W. Huey
|
|
Vice President, General Counsel and Corporate Secretary of Terra
since October 2006; Counsel with Shughart Thomson &
Kilroy, P.C. from 2005-2006; Attorney with Butler
Manufacturing Company from 1978 to 2004, Vice President of
Administration from 1993 to 1998, Vice President, General
Counsel and Corporate Secretary from 1998 to 2004. Age 60.
|
Francis G. Meyer
|
|
Executive Vice President of Terra since July 2007; Senior Vice
President and Chief Financial Officer of Terra from November
1995 to July 2007. Age 55.
|
Richard S. Sanders Jr.
|
|
Vice President, Manufacturing of Terra since August 2003; Plant
Manager, Verdigris, Oklahoma manufacturing facility from 1995 to
August 2003. Age 50.
|
23
|
|
|
|
|
Present positions
and offices with the Company
|
Name
|
|
and
principal occupations during the past five years
|
|
|
Douglas M. Stone
|
|
Senior Vice President, Sales and Marketing since September 2007;
Vice President, Corporate Development and Strategic Planning
from 2006 to September 2007; Director, Industrial Sales from
2003 to 2006; Manager, Methanol and Industrial Nitrogen from
2000 to 2003. Age 42.
|
There are no family relationships among the executive officers
and directors of Terra or arrangements or understandings between
any executive officer and any other person pursuant to which any
executive officer was selected as such. Officers of Terra are
elected annually to serve until their respective successors are
elected and qualified.
Part II
|
|
Item 5.
|
Market
for Terras Common Equity and Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The market in which Terras common shares are traded is the
NYSE. Set forth below are the high and low sales prices of
Terras common shares during each quarter specified as
reported on the NYSE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(per-share data and stock prices)
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
18.93
|
|
|
$
|
25.90
|
|
|
$
|
32.25
|
|
|
$
|
51.15
|
|
Low
|
|
|
11.08
|
|
|
|
17.01
|
|
|
|
17.69
|
|
|
|
27.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
7.40
|
|
|
$
|
9.19
|
|
|
$
|
7.99
|
|
|
$
|
12.40
|
|
Low
|
|
|
5.45
|
|
|
|
5.93
|
|
|
|
6.07
|
|
|
|
7.80
|
|
As of February 22, 2008 there were approximately 5,840
record holders of Terras common stock.
We do not currently intend to declare or pay dividends on our
common stock. Further, our ability to pay dividends is
restricted by certain covenants contained in our credit
facility, as well as certain restrictions contained in the
indenture governing our senior notes. See Note 8 of Notes
to the Consolidated Financial Statements.
24
Performance
Graph
A comparative performance graph is to be included with our
annual report to security holders that accompanies or precedes a
proxy or information statement relating to an annual meeting of
security holders at which directors are to be elected. A
line-graph presentation is required, comparing cumulative,
indexed, five-year stockholder returns on specified,
hypothetical investments. These investments must include the
S&P 500 Stock Index and either a nationally recognized
industry standard or an index or peer companies selected by
Terra.
The Annual Return Percentage graph above illustrates
the annual returns realized in each of the years from 2003
through 2007 on hypothetical investments in Terra, the S&P
500 Stock Index and Terras industry peer group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed
Annual Returns on Hypothetical $100 Investment
|
|
|
|
|
|
|
Year Ending
December 31,
|
|
|
|
Company
Name/Index
|
|
|
2003
|
|
|
|
2004
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
|
Terra Industries Inc.
|
|
|
$
|
216.34
|
|
|
|
$
|
580.39
|
|
|
|
$
|
366.01
|
|
|
|
$
|
783.01
|
|
|
|
$
|
3,121.57
|
|
|
|
|
S&P 500 Stock Index
|
|
|
$
|
128.68
|
|
|
|
$
|
142.69
|
|
|
|
$
|
149.70
|
|
|
|
$
|
173.34
|
|
|
|
$
|
182.86
|
|
|
|
|
Industry Peer Group
|
|
|
$
|
140.27
|
|
|
|
$
|
231.46
|
|
|
|
$
|
222.24
|
|
|
|
$
|
321.19
|
|
|
|
$
|
858.19
|
|
|
|
|
25
The Indexed Annual Returns table assumes three
investments of $100 at the close of the last trading day in
2002, and follows these investments through the subsequent five
years. The three investments are in Terra common shares, the
S&P 500 Stock Index, and Terras industry peer group.
Terra has for some years chosen to use a self-selected industry
peer group. In the graph and table above, companies in
Terras self-selected industry peer group manufacture
commodity chemicals (including chemicals other than nitrogen
products and methanol) and have market caps similar to
Terras. The current peer group consists of the following
companies: Agrium, Inc., Celanese AG, CF Industries, Cytec
Industries, Inc., Georgia Gulf Corporation, Huntsman Chemical,
Methanex Corporation, Millenium Chemicals Inc., Mosiac, NOVA
Chemicals Corp., Potash Corporation of Saskatchewan Inc., TNCLP,
and Yara North America, Inc.
In previous reports, we included Lyondell Chemical Company in
our peer group. We have removed it this year due to its merger
with Basell AF.
Company
Purchases of Equity Securities
On April 25, 2006, the Board of Directors authorized us to
repurchase a maximum of 10 percent, or
9,516,817 shares, of our outstanding common stock. The
stock buyback program has been and will be conducted on the open
market, in private transactions or otherwise at such times prior
to June 30, 2008, and at such prices, as determined
appropriate by us. During 2007, we repurchased
4,000,000 shares at an average price of $21.86. The
remaining number of shares that we are authorized to repurchase
is 2,841,717 at December 31, 2007.
The calculation of the average price paid per share does not
include the effect for any fees, commissions or other costs
associated with the repurchase of such shares.
The following table provides information about share repurchases
by us during 2007. We did not repurchase any shares during the
2007 fourth quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Shares Purchased as
|
|
|
Maximum Number of
|
|
Month of
|
|
Number of
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Shares that May Yet Be
|
|
Share
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
Purchased Under the
|
|
Purchases
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Plans or Programs
|
|
|
|
|
May 2007
|
|
|
650,000
|
|
|
$
|
18.79
|
|
|
|
3,325,100
|
|
|
|
6,191,717
|
|
June 2007
|
|
|
350,000
|
|
|
|
19.97
|
|
|
|
3,675,100
|
|
|
|
5,841,717
|
|
July 2007
|
|
|
200,000
|
|
|
|
25.33
|
|
|
|
3,875,100
|
|
|
|
5,641,717
|
|
August 2007
|
|
|
2,800,000
|
|
|
|
22.55
|
|
|
|
6,675,100
|
|
|
|
2,841,717
|
|
The calculation of the average price paid per share does not
include the effect for any fees, commissions or other costs
associated with the repurchase of such shares.
26
|
|
Item 6.
|
Selected
Financial Data
|
Financial
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share
data)
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
2004(2)
|
|
|
2003(3)
|
|
|
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,360,066
|
|
|
$
|
1,836,722
|
|
|
$
|
1,939,065
|
|
|
$
|
1,509,110
|
|
|
$
|
1,351,055
|
|
|
|
Income (loss) from operations
|
|
|
420,364
|
|
|
|
66,280
|
|
|
|
113,696
|
|
|
|
134,746
|
|
|
|
(23,560
|
)
|
|
|
Net income (loss)
|
|
|
201,896
|
|
|
|
4,213
|
|
|
|
22,087
|
|
|
|
67,596
|
|
|
|
(12,481
|
)
|
|
|
Preferred share dividends
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
(5,134
|
)
|
|
|
(1,029
|
)
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
|
2.17
|
|
|
|
(0.01
|
)
|
|
|
0.18
|
|
|
|
0.87
|
|
|
|
(0.16
|
)
|
|
|
Diluted income per share
|
|
$
|
1.90
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.18
|
|
|
$
|
0.85
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,888,327
|
|
|
$
|
1,572,713
|
|
|
$
|
1,523,625
|
|
|
$
|
1,685,508
|
|
|
$
|
1,125,062
|
|
|
|
Long-term debt
and capital leases
|
|
$
|
330,000
|
|
|
$
|
331,300
|
|
|
$
|
331,300
|
|
|
$
|
435,238
|
|
|
$
|
402,206
|
|
|
|
Preferred stock
|
|
$
|
115,800
|
|
|
$
|
115,800
|
|
|
$
|
115,800
|
|
|
$
|
133,069
|
|
|
$
|
|
|
|
|
|
|
|
|
(1)
|
The 2007 selected financial data includes (i) the effects
of contributing our Terra Nitrogen U.K. operations into the
GrowHow UK Limited joint venture on September 14, 2007
(ii) a $39.0 million impairment charge for our
Beaumont, Texas assets and (iii) a $38.8 million loss
on the early retirement of debt associated with the debt
refinancing that we completed during 2007.
|
|
|
(2)
|
The 2004 selected financial data includes the effects of the
December 21, 2004 acquisition of Mississippi Chemical
Corporation and the issuance of preferred shares during the 2004
fourth quarter.
|
|
|
(3)
|
The 2003 selected financial data includes a $53.1 million
charge for impairment of long-lived assets.
|
27
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
As you read this managements discussion and analysis of
financial condition and results of operations, you should refer
to our Consolidated Financial Statements and related Notes
included in Item 8, Financial Statements and
Supplementary Data, of this report.
Introduction
In this discussion and analysis, we will explain our general
financial condition and results of operations including:
|
|
|
|
|
factors which affect our business,
|
|
|
our earnings and costs in the periods presented,
|
|
|
changes in earnings and costs between periods,
|
|
|
sources of earnings,
|
|
|
impact of these factors on our overall financial condition,
|
|
|
expected future expenditures for capital projects, and
|
|
|
expected sources of cash for future capital expenditures.
|
We have organized our discussion and analysis as follows:
|
|
|
|
|
First, we discuss our strategy.
|
|
|
We then describe the business environment in which we operate
including factors that affect our operating results.
|
|
|
We highlight significant events that are important to
understanding our results of operations and financial condition.
|
|
|
We then review our results of operations beginning with an
overview of our total company results, followed by a more
detailed review of those results by operating segment.
|
|
|
We review our financial condition addressing our sources and
uses of cash, security ratings, capital resources, capital
requirements, commitments, and off-balance sheet arrangements.
|
|
|
Finally, we discuss our critical accounting policies and
recently issued accounting standards. The critical accounting
policies are those that are most important to both the portrayal
of our financial condition and results of operations and require
managements most difficult, subjective or complex judgment.
|
Business
Strategies
We are a leading North American producer and marketer of
wholesale nitrogen products, serving agricultural and industrial
markets. The nitrogen products industry has periods of
oversupply during industry downturns that lead to capacity
shutdowns at the least cost-effective plants. These shutdowns
are followed by supply shortages, which result in higher selling
prices and higher industry-wide production rates during industry
upturns. The higher selling prices encourage capacity additions
until we again start to see an oversupply, and the cycle repeats
itself.
To succeed in this business, a producer must have the financial
strength to weather industry downturns and the ability to serve
its markets cost-effectively during every phase of the cycle. A
nitrogen producer will also benefit from having one or more
business segments that operate in non-agricultural markets to
balance the cyclicality of those markets.
28
We base our business strategies on these concepts. In practice,
this means we:
|
|
|
|
|
Manage our North American and U.K. assets to reap the highest
returns through the cycle. We accomplish this by maintaining our
facilities to be safe and reliable, cultivating relationships
with natural customers who due to their physical location can
receive our product most economically, and closely managing the
supply chain to keep storage, transportation and other costs
down.
|
|
|
Continuously look for opportunities to expand outside our
current geography with gas-advantaged projects. While North
American gas markets are at less of a disadvantage than they
were a few years ago, we still believe it is prudent to
diversify our natural gas sourcing so that a greater share of
our total needs is sourced outside of North America.
|
|
|
Develop higher-return North American product markets, such as
that for UAN, our primary nitrogen fertilizer product and
TerraCair, our diesel exhaust treatment product.
|
|
|
Commit resources to building our industrial and environmental
businesses.
|
In every case, we invest our capital judiciously to realize a
return above the cost of capital over the industry cycle.
Recent
Business Environment
The following factors are the key drivers of our profitability:
nitrogen products selling prices, as determined primarily by the
global nitrogen demand/supply balance; and natural gas costs,
particularly in North American markets.
Demand
Nitrogen products demand is driven by a growing global
population, its desire for a higher-protein diet and to a lesser
degree, by the rise of corn-consuming biofuels in North America.
Nitrogen products can sometimes substitute for one another. For
example, in todays market environment a farmer who would
ordinarily prefer ammonia because of its economics might be
willing to accept another nitrogen product when soil conditions
prohibit ammonia application or when ammonia is not available.
This is because currently, very strong commodity grain prices
are making yields realized at harvestrather than dollars
spent on inputs per acre of cropthe growers primary
concern. While upgraded products contain less nitrogen by
weight, they are generally easier to ship, store and apply than
ammonia. A grower in these circumstances appreciates the greater
application flexibility of upgraded products since it gives him
a larger window of opportunity to get nitrogen on his crops and
encourage a higher yield. In todays market environment,
upgraded products, and UAN in particular, are realizing
significant premiums over ammonia as a nitrogen source. This
should remain the case for as long as commodity grain prices
hold strong.
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, so 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 America producers.
29
Natural Gas
Costs
North American natural gas markets have been volatile for a
number of years. From 2000 to 2005, European and CIS countries
had lower natural gas costs than North America. During the
industry downturn of those years, North American
producershaving the highest cost basiswere the
marginal producers, and many North American producers shut down
capacity or went out of business altogether. In 2006 and 2007,
North American natural gas prices moderated and became less
volatile as liquefied natural gas (LNG) imports and
other factors helped to stabilize supply. With gas markets
leveling across the globe, our natural gas cost disadvantage has
been significantly reduced, and we retain our advantage of close
proximity to our markets.
There continues to be gas-advantaged regions in the world, and
we expect them to continue to export nitrogen products. We will
manage our North American and UK assets to be competitive.
Strategy
Effectiveness
By executing the business strategies discussed above throughout
2007, we were able to:
|
|
|
|
|
Achieve record production, earnings, cash flows and returns for
Terra and our stockholders.
|
|
|
Refinance long-term debt of $330 million for 10 years
with a fixed interest rate of 7.0%, saving us approximately
$18 million per year
|
|
|
Finalize plans to sell our Beaumont facility, consisting
primarily of methanol production assets, focusing us more
completely on our core business of nitrogen production.
|
|
|
Contribute our U.K. assets to a joint venture that we believe
will result in higher returns in that mature market.
|
|
|
Fully fund our pension plans.
|
|
|
Repurchase 6.7 million common shares as part of our share
repurchase program.
|
|
|
End the year with cash balances of $698 million, which
included customer prepayments of $299 million
|
These concepts continue to influence our decisions, as we have
announced since reporting 2007 results that we plan to restart
in the 2008 third quarter our Donaldsonville ammonia plant,
which has been idle since 2004, and that we are evaluating
projects to increase upgrading capacity at several of our North
American facilities.
30
Results
of Operations
Consolidated
Results
We reported 2007 net income of $201.9 million on
revenues of $2.4 billion compared with a 2006 net
income of $4.2 million on revenues of $1.8 billion.
The increase in net income and revenue is due to higher sales
volumes and prices. The 2007 net income includes a
$38.8 million early retirement of debt charge and a
$39.0 million impairment charge. Diluted income per share
for 2007 was $1.90 compared with a loss of $(0.01) for 2006.
In September 2007, we contributed our U.K. operations into
GrowHow UK Limited, a joint venture with Kemira GrowHow Oyj. We
account for this joint venture as an equity method investment
and the fourth quarter results of the historic U.K. operations
are not included as a component of operating income.
Consolidated
Performance Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products
|
|
$
|
2,293,139
|
|
|
$
|
1,793,759
|
|
|
$
|
1,899,236
|
|
|
|
Methanol
|
|
|
55,342
|
|
|
|
34,955
|
|
|
|
31,347
|
|
|
|
Other revenues
|
|
|
11,585
|
|
|
|
8,008
|
|
|
|
8,482
|
|
|
|
|
|
Total revenues
|
|
$
|
2,360,066
|
|
|
$
|
1,836,722
|
|
|
$
|
1,939,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen products
|
|
$
|
447,420
|
|
|
$
|
63,275
|
|
|
$
|
131,474
|
|
|
|
Methanol
|
|
|
(23,374
|
)
|
|
|
4,952
|
|
|
|
(14,089
|
)
|
|
|
Other expensenet
|
|
|
(3,682
|
)
|
|
|
(1,947
|
)
|
|
|
(3,689
|
)
|
|
|
|
|
Total operating income
|
|
$
|
420,364
|
|
|
$
|
66,280
|
|
|
$
|
113,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen Volumes and
Prices
|
|
2007
|
|
2006
|
|
2005
|
|
(quantities in
|
|
Sales
|
|
Average
|
|
Sales
|
|
Average
|
|
Sales
|
|
Average
|
thousands of tons)
|
|
Volumes
|
|
Unit Price*
|
|
Volumes
|
|
Unit Price*
|
|
Volumes
|
|
Unit Price*
|
|
|
Ammonia
|
|
|
1,985
|
|
|
$
|
333
|
|
|
|
1,897
|
|
|
$
|
315
|
|
|
|
1,898
|
|
|
$
|
303
|
|
UAN
|
|
|
4,652
|
|
|
$
|
198
|
|
|
|
3,894
|
|
|
$
|
140
|
|
|
|
4,368
|
|
|
$
|
151
|
|
Urea
|
|
|
106
|
|
|
$
|
313
|
|
|
|
147
|
|
|
$
|
262
|
|
|
|
151
|
|
|
$
|
262
|
|
Ammonium nitrate
|
|
|
1,348
|
|
|
$
|
246
|
|
|
|
1,116
|
|
|
$
|
224
|
|
|
|
1,581
|
|
|
$
|
202
|
|
|
|
*After deducting $137.3 million, $118.6 million and
$93.9 million outbound freight costs for 2007, 2006 and
2005, respectively.
31
Results
of Operations2007 Compared with 2006
Nitrogen
Nitrogen product revenues increased by $499.4 million to
$2.3 billion for 2007 compared to $1.8 billion for
2006. The increase was primarily due to increased nitrogen
prices and increased sales volumes for ammonia, UAN and ammonium
nitrate. Demand for nitrogen products increased due to higher
production of key commodities, including corn and wheat, in
response to higher prices.
Nitrogen product operating income increased by
$384.1 million to $447.4 million for 2007, compared to
$63.3 million for 2006. The increase in operating income
was primarily due to a $285.3 million increase in sales
prices, a $75.3 million increase in sales volumes and lower
natural gas unit costs.
Natural gas unit costs, net of forward pricing gains and losses,
were $6.68 per million British thermal units (MMBtu)
during 2007 compared to $7.14 per MMBtu during 2006. 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. As a result of forward
price contracts, 2007 natural gas costs for the nitrogen
products segment were $53.7 million higher than spot
prices, as compared to 2006 natural gas costs which were
$50.3 million higher than spot prices.
Methanol
Methanol revenues were $55.3 million and $35.0 million
for the years ended December 31, 2007 and 2006,
respectively. The 2007 and 2006 revenues included
$12.0 million of cash margin revenue under the Methanex
contract. Methanol sales in 2007 and 2006 were 36.8 million
and 18.6 million gallons, respectively. The increased sales
volumes were primarily due to operating the Woodward, Oklahoma
methanol facility at 92% of operating capacity during 2007.
During 2006, we operated the facility at 46% of operating
capacity in response to the high natural gas prices during the
first half.
The methanol segment had a 2007 operating loss of
$23.4 million compared to 2006 operating income of
$5.0 million. In connection with entering into the Beaumont
facility sales agreement with Eastman Chemical Company, our
methanol segment loss included a $39.0 million impairment
charge.
Other Operating
ActivitiesNet
We had $3.8 million of charges from other operating
activities in 2007 compared to $1.9 million in 2006. The
increase in expense relates primarily to administrative fees for
general corporate activities not allocable to any particular
business segment.
Selling, General
and Administrative Costs
Selling, general and administrative costs increased
$36.7 million primarily due to higher share-based
compensation expense due to the increases in our financial
performance and stock price during 2007.
Equity Earnings
of Unconsolidated AffiliatesGrowHow
We recorded a loss of $2.7 million from our U.K. joint
venture during 2007. The equity earnings are classified as non
operating and excluded from income from operation as the
investees operations do not provide additional capacity
nor are its operations integrated with our North American supply
chain.
Included in the loss is approximately $13 million related
to severance and other charges from the announced closure of the
Severnside production facility and administrative operations.
32
Interest
Income
Our interest income increased by $10.8 million in 2007 as
compared to 2006. The increase is due to higher levels of cash
throughout 2007.
Interest Expense
and Loss on Early Retirement of Debt
Our interest expense decreased $18.9 million in 2007 to
$29.1 million as compared to $48.0 million in 2006.
The decrease in interest expense is due to the debt refinancing
that we completed in February 2007. As a result of the debt
refinancing, we recorded a $38.8 million charge for the
early retirement of our bonds due in 2008 and 2010.
Income
Taxes
Our income tax expense in 2007 and 2006 was $114.8 million
and $9.2 million, respectively. The 2007 effective tax rate
was 36%, compared to 69% in 2006. The 2006 effective tax rate
differed from the statutory rate due primarily to the effect of
currency fluctuations and disallowed interest expense on
intercompany loans to non-U.S subsidiaries.
33
Results
of Operations2006 Compared with 2005
We reported 2006 net income of $4.2 million on
revenues of $1.8 billion compared with a 2005 net
income of $22.1 million on revenues of $1.9 billion.
Diluted loss per share for 2006 was ($0.01) compared with net
income per share of $0.18 for 2005. The 2005 net income
included a $27.2 million ($24.9 million, net of tax)
loss related to the early retirement of debt and an
$8.9 million ($8.9 million, net of tax) gain relating
to change in fair value of warrants.
Nitrogen
Products
Nitrogen product revenues decreased by $105.5 million to
$1.8 billion for 2006, compared to $1.9 billion for
2005. The decrease is primarily due to lower UAN and ammonium
nitrate sales volumes, which were affected by lower overall
fertilizer consumption during the 2006 planting season.
Nitrogen product operating income decreased by
$68.2 million to $63.3 million for 2006, compared to
$131.5 million for 2005. This decrease was primarily due to
the fact that we limited our production rates during the first
half of 2006 in response to high natural gas prices. Operating
rates averaged 74% of plant capacity during the 2006 first half,
which resulted in higher costs for purchased product and reduced
plant efficiencies. These effects were partially mitigated
during the 2006 second half as operating results normalized in
response to higher grain prices and stable natural gas costs.
Natural gas unit costs, net of forward pricing gains and losses,
were $7.14 per million British thermal units (MMBtu)
during 2006 compared to $7.50 per MMBtu during 2005. Most of the
2005 higher costs were absorbed into 2006 beginning inventory
values and charged against first quarter 2006 cost of sales. 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. As a result of
these natural gas derivative instruments, 2006 natural gas costs
for the nitrogen products segment were $50.3 million higher
than spot prices, as compared to 2005 natural gas costs which
were $0.7 million lower than spot prices.
Methanol
Methanol revenues were $35.0 million and $31.3 million
for the years ended December 31, 2006 and 2005. The 2006
revenues included $12.0 million of cash margin revenue
under the Methanex contract. The decrease was due to high fourth
quarter natural gas costs. Methanol sales in 2006 and 2005 were
18.6 million and 31.6 million gallons, respectively.
The decreased sales volumes in 2006 were primarily due to
curtailment of production at the Woodward facility due to the
high natural gas prices during the 2006 first half.
The methanol segment had 2006 operating income of
$5.0 million compared to an operating loss of
$14.1 million in 2005. The 2006 improvement to operating
results was primarily due to $12.0 million of cash margin
revenue under the Methanex contract and $4.6 million of
higher margins on 2006 sales volumes. Ongoing costs at the idled
Beaumont facility also declined $2.7 million from 2005.
Other Operating
ActivitiesNet
We had $1.9 million of charges from other operating
activities in 2006 compared to $3.7 million in 2005. The
decrease in expense relates primarily to administrative fees for
general corporate activities not allocable to any particular
business segment.
34
Interest
ExpenseNet
Net interest expense was $41.5 million in 2006 compared
with $45.4 million in 2005. The reduction in interest
expense is primarily related to repayment of term debt during
the 2005 first half.
Income
Taxes
Our income tax expense in 2006 and 2005 was $9.2 million
and $14.2 million, respectively. The 2006 effective tax
rate was 69%, compared to 39% in 2005. The increase in the 2006
effective tax rate was due primarily to currency fluctuations
and disallowed interest expense on intercompany loans to non-U.S
subsidiaries.
35
Liquidity
and Capital Resources
Summary
Our primary uses of cash and cash equivalents were to fund our
working capital requirements, make payments on our debt and
other obligations, make payments for plant turnarounds and
capital expenditures, repurchase our common stock under the
share repurchase program and fund our pension plans. The
principal sources of funds were cash flow from operations and,
to the extent required, from funds borrowed under our revolving
credit facilities. Cash and cash equivalent balances at
December 31, 2007 were $698.2 million. During 2007,
cash and cash equivalents increased $519.2 million.
Cash
Flows
The following table summarizes our cash flows from operating,
investing and financing activities for each of the past three
fiscal years ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in):
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Operating activities
|
|
$
|
747.9
|
|
|
$
|
159.3
|
|
|
$
|
10.9
|
|
|
|
|
|
Investing activities
|
|
|
(94.5
|
)
|
|
|
(48.8
|
)
|
|
|
(22.3
|
)
|
|
|
|
|
Financing activities
|
|
|
(133.6
|
)
|
|
|
(19.7
|
)
|
|
|
(144.6
|
)
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(0.6
|
)
|
|
|
1.9
|
|
|
|
8.6
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
519.2
|
|
|
$
|
92.7
|
|
|
$
|
(147.4
|
)
|
|
|
|
|
|
|
Operating
Activities
Our cash flows from operating activities were
$747.9 million during 2007. The $747.9 million is
comprised of $535.1 million from operations and
$212.8 million from changes in our working capital
accounts. The $535.1 million includes $201.9 million
of net income, adjusted for non-cash expenses. The significant
non-cash expenses that we incurred in 2007 were
$100.8 million of depreciation of property, plant and
equipment and amortization of deferred plant turnaround costs;
$90.9 million of deferred income tax expense;
$50.3 million of minority interest; $39.0 million of
impairment expense and $28.1 million of share-based
compensation costs. Cash from working capital increases included
$218.0 million from additional customer prepayments during
2007. At December 31, 2007, we had received approximately
$299.4 million of customer prepayments for the selling
price and delivery costs of products that we expect to ship
during the 2008 first half.
Investing
Activities
We used cash of $94.5 million in our investing activities
during 2007. The primary uses were related to $31.7 million
of property, plant and equipment purchases for our operations,
$50.7 million for turnaround activities and
$16.8 million of cash retained by GrowHow UK Limited during
the formation of the joint venture.
Financing
Activities
Our financing activities used cash of $133.6 million during
2007. The primary uses were $87.4 million to repurchase our
common stock under our stock repurchase plan and
$35.2 million of distributions to the minority interest
holders of TNCLP.
During the 2007 first quarter, we completed a debt refinancing
whereby we issued $330 million of 7% unsecured senior notes
due 2017. These proceeds were used to redeem
$200.00 million of
127/8% senior
secured notes and $131.3 million of
111/2%
second priority senior secured notes due 2010.
36
Long-term Debt
and Revolving Credit Facilities
In connection with the debt refinancing, we extended the term of
our revolving credit facility through 2012. Borrowing
availability under the credit facility is generally based on
eligible cash balances, 85% of eligible accounts receivable and
60% of eligible inventory, less outstanding letters of credit.
These facilities include $50 million only available for the
use of TNCLP, one of our consolidated subsidiaries.
At December 31, 2007, there were no outstanding revolving
credit borrowings and there were $10.8 million in
outstanding letters of credit, resulting in remaining borrowing
availability of approximately $189.2 million under the
facilities. We are required to maintain a combined minimum
unused borrowing availability of $30 million. The credit
facility also requires 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 million, we are required to have
generated $60 million of operating cash flows, or earnings
before interest, income taxes, depreciation, amortization and
other non-cash items (as defined in the credit facility) for the
preceding four quarters.
Our ability to meet credit facility 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 credit facility or could result in termination of the
facility. Access to adequate bank facilities is critical to
funding our need to build inventories during the second half of
the year in order the ensure product availability during the
peak sales season. We believe that our credit facilities are
adequate for expected 2008 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 7A. Quantitative and
Qualitative Disclosures about Market Risk.
Based on our December 31, 2007 financial position and the
current market conditions for our finished products and for
natural gas, we anticipate that we will be able to comply with
our covenants through 2008.
Preferred
Shares
We had 4.25% Cumulative Convertible Perpetual Series A
Preferred Shares with a liquidation value of $120 million
outstanding at December 31, 2007. The Series A
Preferred Shares are not redeemable, but are convertible into
common stock at a conversion price of $9.96 per common share at
the option of the holder. These preferred shares may, at our
option, be automatically converted to common shares after
December 20, 2009 if the closing price for common shares
exceeds 140% of the conversion price for any twenty days within
a consecutive thirty day period prior to such a 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. During
2007, 2006 and 2005 we paid $5.1 million, $5.1 million
and $6.0 million, respectively, for preferred share
dividends.
37
Share
Repurchases
In April 2006, the Board of Directors authorized the repurchase
of up to 10%, or 9.5 million shares, of our outstanding
stock on the open market. Under the repurchase program, we
repurchase our common stock from time to time in the open market.
We consider several factors in determining when to make share
repurchases including, among other things, our cash needs and
the market price of our stock. We expect that cash provided by
future operating activities, as well as available cash
equivalents and short-term investments, will be the sources of
funding for our share repurchase program.
During 2007, we repurchased 4.0 million shares for
$87.4 million, or an average price of $21.86 per share,
leaving 2.8 million shares available for purchase under the
program. We have repurchased a total of 6.7 million shares
for $106.2 million since we announced the stock repurchase
program in April 2006.
Capital
Expenditures
During 2007 and 2006, we funded plant and equipment purchases of
$31.7 million and $50.9 million, respectively. Our
2007 capital expenditures were primarily for replacement or
sustaining capital needs. The 2006 capital expenditures included
approximately $20 million to expand the capabilities of our
Yazoo City facility to handle industrial grade ammonium nitrate
and add UAN solution handling capabilities at the Donaldsonville
terminal. Other capital expenditures in 2006 were primarily for
replacement or sustaining capital needs.
We expect 2008 plant and equipment purchases to approximate
$45-50 million consisting primarily of expenditures for
replacement of equipment or to improve operating results at our
manufacturing facilities. We expect to spend approximately
$5 million for restarting our Donaldsonville plant, which
is anticipated during the 2008 third quarter.
Plant turnaround costs represent cash used for the periodic
scheduled major maintenance of our continuous process production
facilities that is performed at each plant, generally every two
years. We funded $50.7 million and $35.3 million of
plant turnaround costs in 2007 and 2006, respectively. We
estimate 2008 plant turnaround costs will approximate
$10-12 million.
Off-Balance
Sheet Transactions
We have leases for equipment, railcars and production, office
and storage facilities. These leases are accounted for as
operating leases. The assets and liabilities associated with the
operating leases are not recorded on our balance sheet.
We have a right to the proceeds of the Severnside facility upon
its sale. We are responsible for the remediation costs of the
site. We anticipate that the proceeds will exceed the
remediation costs, and, as such, have not recorded any assets or
liabilities associated with the Severnside facility.
We have the right to receive a cash payment from GrowHow UK
Limited related to excess working capital contributions to the
joint venture. We anticipate receiving approximately
$28 million during the first quarter of 2008. This cash
payment has not been recorded as an asset. When received, the
cash payment will reduce our equity investment in the joint
venture.
38
Contractual
Obligations
Contractual obligations and commitments to make future payments
at December 31, 2007 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Payments Due In
|
|
|
|
|
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
Thereafter
|
|
|
|
Long-term debt
|
|
$
|
330.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
330.0
|
|
Interest expense on long-term debt
|
|
|
209.8
|
|
|
|
23.1
|
|
|
|
46.2
|
|
|
|
46.2
|
|
|
|
94.3
|
|
Operating leases
|
|
|
144.0
|
|
|
|
34.7
|
|
|
|
60.8
|
|
|
|
42.8
|
|
|
|
5.7
|
|
Ammonia purchase
obligations(1)
|
|
|
955.6
|
|
|
|
86.8
|
|
|
|
173.8
|
|
|
|
173.8
|
|
|
|
521.2
|
|
Natural gas and other purchase obligations
|
|
|
261.9
|
|
|
|
198.0
|
|
|
|
33.0
|
|
|
|
28.5
|
|
|
|
2.4
|
|
|
|
Total(2)
|
|
$
|
1,901.3
|
|
|
$
|
342.6
|
|
|
$
|
313.8
|
|
|
$
|
291.3
|
|
|
$
|
953.6
|
|
|
|
|
|
|
|
(1)
|
We have a contractual obligation to purchase one-half of the
ammonia produced by Point Lisas. The purchase price is based on
the average market price of ammonia, F.O.B. Caribbean, less a
discount. Obligations in the above table are based on purchasing
360,000 short tons per year at the December 2007 average price
paid. This contract expires in October 2018.
|
|
(2)
|
The total contractual obligations and commitments do not include
a FIN 48 liability of $33.5 million. (See Note 20)
|
We have three pension plansan employees retirement
plan (U.S. Employees Plan) and an excess benefit plan
(U.S. Excess Plan) in the United States and a pension plan
for employees of Terra International (Canada) Inc. (Canadian
Employees Plan) in Canada. Our U.S. Employees
Plan and Canada Employees Plan are fully funded. Our plan
assets exceeded our projected benefit obligations by
$10.6 million. Our U.S. Excess Plan is unfunded and
benefits are paid as incurred. The projected benefit obligation
was $9.9 million at December 31, 2007. The pension
projected benefit obligations were computed based on a 6.3%
discount rate, which was based on yields for high-quality
corporate bonds (Moodys Investor Service AA
rated or equivalent) with a maturity approximating the duration
of our pension obligation. Future declines in comparable bond
yields would increase our pension obligation and future
increases in bond yields would decrease our pension obligation.
Our pension obligation, net of plan assets, could increase or
decrease depending on the extent that returns on pension plan
assets is lower or higher than the discount rate.
Our cash contributions to pension plans were $61.7 million
in 2007. We do not plan to make any pension payments during
2008. Future contributions depend on our funding decisions,
actual returns for plan assets, and legislative changes to
pension funding requirements
and/or plan
amendments. See Note 16 to our Consolidated Financial
Statements included in Item 8, Financial Statements and
Supplementary Data, of this report for further information
on our retirement benefits plans.
Environmental,
Health and Safety
Expenditures related to environmental, health and safety
regulation compliance are primarily composed of operating costs
that totaled $17.8 million in 2007. Because environmental
health and safety regulations are expected to continue to change
and generally to become more restrictive than current
requirements, the costs of compliance likely will increase. We
do not expect compliance with such regulations to have a
material adverse effect on the results of operations, financial
position or net cash flows.
We incurred $3.6 million of 2007 capital expenditures to
ensure compliance with environmental, health and safety
regulations. We may be required to install additional air and
water quality control
39
equipment, such as low nitrous oxide burners, scrubbers, ammonia
sensors and continuous emission monitors to continue to achieve
compliance with the Clean Air Act and similar requirements.
These equipment requirements typically apply to competitors as
well. We estimate that the cost of complying with these existing
requirements in 2008, 2009, 2010 and beyond will be
approximately $22.9 million in the aggregate.
Minority
Interest
We own 75.3% of the common units of TNCLP, which in accordance
with the Agreement of Limited Partnership, permits us to call
all common units that we do not own.
TNCLP makes cash distributions to the general and limited
partners based on formulas as defined in its Agreement of
Limited Partnership. Cash available for distribution depends on
earnings, working capital changes and capital expenditures,
among other factors. Cash distributions to limited partners will
also vary based on increasing amounts allocable to the general
partner when cumulative distributions exceed minimum quarterly
distribution (MQD) target levels set forth in the Agreement of
Limited Partnership. As of December 31, 2007, the
cumulative MQD shortfall that must be paid to the limited
partners before the general partner receives an incentive
payment was $125.3 million. On February 7, 2008, TNCLP
announced a $4.45 per unit distribution to be paid during the
2008 first quarter. As a result of this distribution, the pro
forma cumulative shortfall as of March 31, 2008 that must
be paid before we receive an incentive payment is anticipated to
be approximately $53.5 million, or $2.86 per unit.
Information regarding the cash distributions and the MQD target
levels for the general partner and limited partners can be
obtained in various TNCLP filings with the Securities and
Exchange Commission, including
Form 10-K
and
Form 10-Q.
During 2007, 2006 and 2005, TNCLP distributed
$35.2 million, $8.9 million and $13.6 million,
respectively, to the minority TNCLP common unitholders.
Application
of Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in
the United States requires management to make judgments,
assumptions and estimates that affect the amounts reported in
our Consolidated Financial Statements and accompanying notes.
Note 1 to the Consolidated Financial Statements in
Item 8 of this
Form 10-K
describes the significant accounting policies and methods used
in preparing the Consolidated Financial Statements. Management
considers the accounting policies described below to be our most
critical accounting policies because they are impacted
significantly by estimates that management makes. Management
bases its estimates on historical experience or various
assumptions that they believe to be reasonable under the
circumstances, and the results form the basis for making
judgments about the reported values of assets, liabilities,
revenues and expenses. Management has discussed the development
and selection of our critical accounting estimates, and the
disclosure regarding them, with the audit committee of our Board
of Directors, and does so on a regular basis. Actual results may
differ materially from these estimates.
Derivative and
Financial Instruments
We enter into derivative financial instruments, including swaps,
basis swaps and put and call options, to manage the effect of
changes in natural gas costs, the prices of our nitrogen
products and foreign currency risk. We evaluate each derivative
transaction and make an election of whether to designate the
derivative as a fair-value or cash flow hedge or not to elect
hedge designation for the derivative. Upon election of hedge
designation, and to the extent such hedge is determined to be
effective, changes in
40
fair value are either (a) offset by the change in fair
value of the hedged asset or liability or (b) reported as a
component of accumulated other comprehensive income (loss) in
the period of change, and subsequently recognized in the
determination of net income in the period that the offsetting
hedged transaction occurs. For derivatives that are not
designated as hedges, or to the extent a hedge-designated
derivative is determined to be ineffective, changes in fair
value are recognized in earnings in the period of change.
Until our derivatives settle, we test the derivatives for
ineffectiveness. This includes assessing the correlation of
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.
Revenue
Recognition
Revenue is recognized when persuasive evidence of a transaction
exists, delivery has occurred, the price is fixed or
determinable, no obligations remain and collectability is
probable. Revenue from sales is generally recognized upon
shipment of product to the customer in accordance with the terms
of the sales agreement. As part of the revenue recognition
process, we determine whether collection of trade receivables
are reasonably assured based on various factors, including
evaluation of whether there has been deterioration in the credit
quality of our customers that could result in the inability to
collect the receivable balance. In situations where it is
unclear whether we will be able to collect the receivable,
revenue and related costs are deferred. Related costs are
recognized when it has been determined that the collection of
the receivable is unlikely.
Inventory
Valuation
Inventories are stated at the lower of cost or estimated net
realizable value. The cost of inventories is determined by using
the
first-in,
first-out method. We perform a monthly analysis of our inventory
balances to determine if the carrying amount of inventories
exceeds their net realizable value. The analysis of estimated
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.
Pension Assets
and Liabilities
Pension assets and liabilities are affected by the estimated
market value of plan assets, estimates of the expected return on
plan assets and discount rates. Actual changes in the fair
market value of plan assets and differences between the actual
return on plan assets and the expected return on plan assets
will affect the amount of pension expense ultimately recognized.
Our pension plans for U.S. and Canada employees are fully
funded. We have a pension plan for certain employees that is
unfunded. Our net position on all of our pension plans is funded
with a $0.7 million excess amount (net pension asset) at
December 31, 2007. The December 31, 2007 pension
obligation was computed based on an average 6.3% discount rate,
which was based on yields for high-quality corporate bonds with
a maturity
41
approximating the duration of our pension liability. The
long-term return on plan assets is determined based on
historical portfolio results and managements expectations
of the future economic environment. Declines in comparable bond
yields would decrease our net pension asset. Our net pension
asset could increase or decrease depending on the extent to
which returns on pension plan assets are lower or higher than
the discount rate.
Deferred Income
Taxes
Deferred income tax assets and liabilities reflect
(a) differences between financial statement carrying
amounts and corresponding tax bases and (b) temporary
differences resulting from differing treatment of items for tax
and accounting purposes. Deferred tax assets also include the
expected benefits of carrying forward our net operating losses.
We regularly review deferred tax assets for recoverability and
reduce them if we cannot sufficiently determine that they will
be realized. We base this determination on projected future
taxable income and the expected timing of the reversals of
existing temporary differences.
Impairment of
Long-Lived Assets
Management assesses the recoverability of long-lived assets when
indicators of impairment exist. The assessment of the
recoverability of long-lived assets reflects managements
assumptions and estimates. Factors that management must estimate
when performing impairment tests include sales demand,
production levels, prices and costs, inflation, discount rates,
currency exchange rates and capital spending. Significant
management judgment is involved in estimating these factors, and
they include inherent uncertainties. All assumptions utilized in
the impairment analysis are consistent with managements
internal planning.
During 2007, we entered into an option agreement to sell our
Beaumont, Texas facility. In connection with this option
agreement, we evaluated the Beaumont facility for impairment and
determined that the assets were impaired. We recorded a
$39 million impairment charge for these assets.
Recently Issued
Accounting Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
157, Fair Value Measurements, (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS 157 provides a single definition for
fair value that is to be applied consistently for all accounting
applications, and also generally describes and prioritizes
according to reliability the methods and input used in
valuations. SFAS 157 also prescribes various disclosures
about financial statement categories and amounts which are
measured at fair value, if such disclosures are not already
specified elsewhere in GAAP. The statement is effective on a
prospective basis for financial statements issued for fiscal
years beginning after November 15, 2007 and is required to
be adopted January 1, 2008. We do not expect the adoption
of SFAS 157 to have a material impact on our results of
operations or financial condition.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at
fair value at specified election dates. SFAS 159 is
effective beginning January 1, 2008. We do not expect to
adopt SFAS 159 for any instruments at this time.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, which changes how business
acquisitions are accounted. SFAS No. 141R requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction
42
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
standard 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 tack benefits.
SFAS No. 141R is effective for business combinations
and adjustments to an acquired entitys deferred tax asset
and liability balances occurring after December 31, 2008.
We are currently evaluating the future impacts and disclosures
of this standard.
In December 2007 the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,
(SFAS 160). SFAS 160 improves the comparability and
transparency of financial statements when reporting minority
interest. Entities with a noncontrolling interest will be
required to clearly identify and present the ownership interest
in the consolidated statement of financial position within
equity, but separate from the parents equity. The amount
of consolidated net income attributable to the parent and to the
noncontrolling interest will be identified and presented on the
face of the consolidated statement of income. The statement
offers further guidance on changes in ownership interest,
deconsolidation, and required disclosures. The statement is
effective for fiscal years and interim periods within those
fiscal years beginning January 1, 2009. We are currently
assessing the impact SFAS 160 may have on our financial
statements.
43
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Risk
Management and Financial Instruments
Market risk represents the risk of loss that may impact our
financial position, results of operations or cash flows due to
adverse changes in financial and commodity market prices and
rates. We use derivative financial instruments to manage risk in
the areas of (a) foreign currency fluctuations,
(b) changes in natural gas prices (c) changes in
nitrogen prices and (d) changes in interest rates. See
Note 3 to our Consolidated Financial Statements included in
Item 8, Financial Statements and Supplementary Data,
for additional information on the use of derivative
financial instruments.
Our policy is to avoid unnecessary risk and to limit, to the
extent practical, risks associated with operating activities.
Our management may not engage in activities that expose us to
speculative or non-operating risks and is expected to limit
risks to acceptable levels. The use of derivative financial
instruments is consistent with our overall business objectives.
Derivatives are used to manage operating risk within the limits
established by our Board of Directors, and in response to
identified exposures, provided they qualify as hedge activities.
As such, derivative financial instruments are used to manage
exposure to interest rate fluctuations, to hedge specific assets
and liabilities denominated in foreign currency, to hedge firm
commitments and forecasted natural gas purchase transactions, to
set a floor for nitrogen selling prices and to protect against
foreign exchange rate movements between different currencies
that impact revenue and earnings expressed in U.S. dollars.
The use of derivative financial instruments subjects us to some
inherent risks associated with future contractual commitments,
including market and operational risks, credit risk associated
with counterparties, product location (basis) differentials and
market liquidity. We continuously monitor the valuation of
identified risks and adjust the portfolio based on current
market conditions.
Foreign Currency
Fluctuations
Our policy is to manage risk associated with foreign currency
fluctuations by entering into forward exchange and option
contracts covering specific currency obligations or net foreign
currency operating requirements, as appropriate. Such hedging is
limited to the amounts and duration of the specific obligations
being hedged and, in the case of operating requirements, no more
than 75% of the forecasted requirements. The primary currencies
to which we are exposed are the Canadian dollar and the British
pound. At December 31, 2007, we had nominal forward
currency positions that were matched with committed capital
expenditures.
Natural Gas
PricesNorth American Operations
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.
North American natural gas requirements for 2008 are
approximately 105 million MMBtu. We have hedged 28% of our
expected 2008 North American requirements and none of our
requirements beyond December 31, 2008. 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 $9.9 million more than
published prices for December 31, 2007 forward markets.
Market risk is estimated as the potential loss in fair value
resulting from a hypothetical price change.
44
Changes in the market value of these derivative instruments have
a high correlation to changes in the spot price of natural gas.
Based on our derivatives outstanding at December 31, 2007
and 2006, which included swaps and basis swaps, a $1 per MMBtu
increase in NYMEX would increase our natural gas costs by
approximately $12.6 million and $11.1 million,
respectively. A $1 per MMBtu decrease in NYMEX pricing would
decrease our natural gas costs by approximately
$12.6 million and $13.4 million, respectively.
Natural Gas
PricesTrinidad Operation
The natural gas requirements of Point Lisas Nitrogen Limited are
supplied under contract with the Natural Gas Company of Trinidad
and Tobago. The cost of natural gas to the joint venture
fluctuates based on changes in the market price of ammonia.
Nitrogen
Prices
The prices for nitrogen products can be volatile and from time
to time we mitigate some of this volatility through the use of
derivative commodity instruments. We have not hedged any of our
2008 North American sales.
Interest Rate
Fluctuations
The table below provides information about our financial
instruments that are sensitive to changes in interest rates. For
debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity
dates. We had no interest rate financial derivatives outstanding
at December 31, 2007.
Interest
Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Expected Maturity Date
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
|
Thereafter
|
|
Total
|
|
|
Fair Value
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Unsecured Notes
fixed rate of 7% ($US)
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
330.0
|
|
$
|
330.0
|
|
|
$
|
325.1
|
|
|
Short-Term Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility notional amount ($US)
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
|
$
|
150.0
|
Variable interest rate, LIBOR based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.35
|
%
|
|
|
|
|
|
6.35
|
%
|
|
|
|
TNLP revolving credit facility, notional amount ($US)
|
|
$
|
|
|
$
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
|
$
|
50.0
|
Variable interest rate, LIBOR based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.35
|
%
|
|
|
|
|
|
6.35
|
%
|
|
|
|
|
|
45
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Terra Industries
Inc.:
We have audited the accompanying consolidated balance sheets of
Terra Industries Inc. and subsidiaries (the Company)
as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholders equity,
and cash flows for each of the three years in the period ended
December 31, 2007. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Terra Industries Inc. and subsidiaries at December 31, 2007
and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 16 to the consolidated financial
statements, in 2006 the Company adopted Statement of Financial
Accounting Standard No. 158 Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, relating to the recognition and related
disclosure provisions effective December 31, 2006.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 28, 2008, expressed an
unqualified opinion on the Companys internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 28, 2008
46
Consolidated
Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
698,238
|
|
|
$
|
179,017
|
|
|
|
Accounts receivable, less allowance for
doubtful accounts of $264 and $332
|
|
|
171,228
|
|
|
|
198,791
|
|
|
|
Inventories
|
|
|
131,525
|
|
|
|
211,017
|
|
|
|
Other current assets
|
|
|
28,919
|
|
|
|
31,680
|
|
|
|
|
|
Total current assets
|
|
|
1,029,910
|
|
|
|
620,505
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
431,940
|
|
|
|
720,897
|
|
|
|
Deferred plant turnaround costs
|
|
|
42,190
|
|
|
|
44,558
|
|
|
|
Equity investments
|
|
|
351,986
|
|
|
|
164,099
|
|
|
|
Intangible assets
|
|
|
3,763
|
|
|
|
5,645
|
|
|
|
Other assets
|
|
|
28,538
|
|
|
|
17,009
|
|
|
|
|
|
Total assets
|
|
$
|
1,888,327
|
|
|
$
|
1,572,713
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
110,705
|
|
|
$
|
156,493
|
|
|
|
Customer prepayments
|
|
|
299,351
|
|
|
|
77,091
|
|
|
|
Accrued and other current liabilities
|
|
|
107,630
|
|
|
|
75,863
|
|
|
|
|
|
Total current liabilities
|
|
|
517,686
|
|
|
|
309,447
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
|
330,000
|
|
|
|
331,300
|
|
|
|
Deferred taxes
|
|
|
99,854
|
|
|
|
63,851
|
|
|
|
Pension liabilities
|
|
|
9,268
|
|
|
|
134,444
|
|
|
|
Other liabilities
|
|
|
85,615
|
|
|
|
40,188
|
|
|
|
Minority interest
|
|
|
109,729
|
|
|
|
94,687
|
|
|
|
|
|
Total liabilities and minority interest
|
|
|
1,152,152
|
|
|
|
973,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Sharesliquidation value of
$120,000
|
|
|
115,800
|
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
|
|
|
|
|
|
|
|
Common Shares, authorized 133,500 shares;
89,587 and 92,630 shares outstanding
|
|
|
142,170
|
|
|
|
144,976
|
|
|
|
Paid-in capital
|
|
|
618,874
|
|
|
|
693,896
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(45,328
|
)
|
|
|
(63,739
|
)
|
|
|
Accumulated deficit
|
|
|
(95,341
|
)
|
|
|
(292,137
|
)
|
|
|
|
|
Total stockholders equity
|
|
|
620,375
|
|
|
|
482,996
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,888,327
|
|
|
$
|
1,572,713
|
|
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
47
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands, except per-share
amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Revenues
|
|
$
|
2,348,481
|
|
|
$
|
1,828,714
|
|
|
$
|
1,930,583
|
|
|
|
Other income, net
|
|
|
11,585
|
|
|
|
8,008
|
|
|
|
8,482
|
|
|
|
|
|
Total Revenue
|
|
|
2,360,066
|
|
|
|
1,836,722
|
|
|
|
1,939,065
|
|
|
|
|
|
Cost and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,824,976
|
|
|
|
1,732,222
|
|
|
|
1,800,236
|
|
|
|
Selling, general and administrative expense
|
|
|
91,971
|
|
|
|
55,233
|
|
|
|
46,548
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(16,209
|
)
|
|
|
(17,013
|
)
|
|
|
(21,415
|
)
|
|
|
Impairment of long-lived assets
|
|
|
38,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,939,702
|
|
|
|
1,770,442
|
|
|
|
1,825,369
|
|
|
|
|
|
Income from operations
|
|
|
420,364
|
|
|
|
66,280
|
|
|
|
113,696
|
|
|
|
Interest income
|
|
|
17,262
|
|
|
|
6,457
|
|
|
|
8,086
|
|
|
|
Interest expense
|
|
|
(29,100
|
)
|
|
|
(47,991
|
)
|
|
|
(53,478
|
)
|
|
|
Loss on early retirement of debt
|
|
|
(38,836
|
)
|
|
|
|
|
|
|
(27,193
|
)
|
|
|
Change in fair value of warrant liability
|
|
|
|
|
|
|
|
|
|
|
8,860
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
369,690
|
|
|
|
24,746
|
|
|
|
49,971
|
|
|
|
Income tax expense
|
|
|
(114,795
|
)
|
|
|
(9,247
|
)
|
|
|
(14,217
|
)
|
|
|
Minority interest
|
|
|
(50,281
|
)
|
|
|
(11,286
|
)
|
|
|
(13,667
|
)
|
|
|
Equity earnings of unconsolidated affiliates
|
|
|
(2,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
201,896
|
|
|
|
4,213
|
|
|
|
22,087
|
|
|
|
Preferred share dividends
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
(5,134
|
)
|
|
|
|
|
Income (Loss) Available to Common Stockholders
|
|
$
|
196,796
|
|
|
$
|
(887
|
)
|
|
$
|
16,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.17
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.18
|
|
|
|
Diluted
|
|
|
1.90
|
|
|
|
(0.01
|
)
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
90,575
|
|
|
|
92,676
|
|
|
|
92,537
|
|
|
|
Diluted
|
|
|
106,454
|
|
|
|
92,676
|
|
|
|
94,935
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
48
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
201,896
|
|
|
$
|
4,213
|
|
|
$
|
22,087
|
|
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment and amortization
of deferred plant turnaround costs
|
|
|
100,816
|
|
|
|
108,069
|
|
|
|
110,342
|
|
|
|
Impairment of assets
|
|
|
38,964
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
90,879
|
|
|
|
3,777
|
|
|
|
13,538
|
|
|
|
Non-cash loss on derivatives
|
|
|
1,300
|
|
|
|
933
|
|
|
|
4,091
|
|
|
|
Minority interest in earnings
|
|
|
50,281
|
|
|
|
11,286
|
|
|
|
13,667
|
|
|
|
Distributions in excess of (less than) equity earnings
|
|
|
8,536
|
|
|
|
9,202
|
|
|
|
(6,941
|
)
|
|
|
Equity earnings of GrowHow UK Limited (Note 7)
|
|
|
2,718
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
28,102
|
|
|
|
7,010
|
|
|
|
2,431
|
|
|
|
Amortization of intangible and other assets
|
|
|
6,954
|
|
|
|
6,878
|
|
|
|
5,243
|
|
|
|
Non-cash loss on early retirement of debt
|
|
|
4,662
|
|
|
|
|
|
|
|
22,543
|
|
|
|
Change in fair value of warrant liability
|
|
|
|
|
|
|
|
|
|
|
(8,860
|
)
|
|
|
Term loan discount accretion
|
|
|
|
|
|
|
|
|
|
|
1,773
|
|
|
|
Change in operating assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(38,085
|
)
|
|
|
16,135
|
|
|
|
(59,591
|
)
|
|
|
Inventories
|
|
|
45,771
|
|
|
|
(14,003
|
)
|
|
|
(45,579
|
)
|
|
|
Accounts payable and customer prepayments
|
|
|
218,019
|
|
|
|
37,960
|
|
|
|
(60,136
|
)
|
|
|
Other assets and liabilities, net
|
|
|
(12,948
|
)
|
|
|
(32,200
|
)
|
|
|
(3,733
|
)
|
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
747,865
|
|
|
|
159,260
|
|
|
|
10,875
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(31,721
|
)
|
|
|
(50,856
|
)
|
|
|
(30,820
|
)
|
|
|
Plant turnaround expenditures
|
|
|
(50,655
|
)
|
|
|
(35,281
|
)
|
|
|
(22,331
|
)
|
|
|
Cash retained by GrowHow UK Limited
|
|
|
(16,788
|
)
|
|
|
|
|
|
|
|
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
4,705
|
|
|
|
9,660
|
|
|
|
31,901
|
|
|
|
Changes in restricted cash
|
|
|
|
|
|
|
8,595
|
|
|
|
(8,595
|
)
|
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
24
|
|
|
|
19,100
|
|
|
|
7,560
|
|
|
|
|
|
Net Cash Flows used in Investing Activities
|
|
|
(94,435
|
)
|
|
|
(48,782
|
)
|
|
|
(22,285
|
)
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
Payments under borrowing arrangements
|
|
|
(331,300
|
)
|
|
|
(37
|
)
|
|
|
(125,167
|
)
|
|
|
Payments for debt issuance costs
|
|
|
(6,444
|
)
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends paid
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
(5,950
|
)
|
|
|
Common stock issuances and vestings
|
|
|
(1,424
|
)
|
|
|
363
|
|
|
|
142
|
|
|
|
Payments under share repurchase program
|
|
|
(87,426
|
)
|
|
|
(18,796
|
)
|
|
|
|
|
|
|
Distributions to minority interests
|
|
|
(35,239
|
)
|
|
|
(8,861
|
)
|
|
|
(13,607
|
)
|
|
|
Changes in overdraft protection arrangements
|
|
|
|
|
|
|
11,443
|
|
|
|
|
|
|
|
Excess tax benefits from equity compensation plans
|
|
|
3,317
|
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
Net Cash Flows used in Financing Activities
|
|
|
(133,616
|
)
|
|
|
(19,733
|
)
|
|
|
(144,582
|
)
|
|
|
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(593
|
)
|
|
|
1,906
|
|
|
|
8,560
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
519,221
|
|
|
|
92,651
|
|
|
|
(147,432
|
)
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
179,017
|
|
|
|
86,366
|
|
|
|
233,798
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
698,238
|
|
|
$
|
179,017
|
|
|
$
|
86,366
|
|
|
|
|
|
49
Consolidated
Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
23,200
|
|
|
$
|
42,150
|
|
|
$
|
42,110
|
|
|
|
Income tax refunds received
|
|
|
558
|
|
|
|
|
|
|
|
11,933
|
|
|
|
Income taxes paid
|
|
|
22,697
|
|
|
|
1,930
|
|
|
|
1,526
|
|
|
|
|
|
Supplemental schedule of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B preferred stock to common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,066
|
|
|
|
Paid in Capital
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,646
|
|
|
|
Conversion of warrants to common stock
|
|
$
|
568
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Terra Nitrogen U.K. contributed for equity investment
|
|
$
|
213,235
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Stock Incentive Plan
|
|
$
|
|
|
|
$
|
4,218
|
|
|
$
|
5,020
|
|
|
|
Supplemental schedule of unconsolidated affiliates
distributions received:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
$
|
16,209
|
|
|
$
|
17,013
|
|
|
$
|
21,415
|
|
|
|
Distribution in excess of (less than) equity earnings
|
|
$
|
8,536
|
|
|
|
9,202
|
|
|
|
(6,941
|
)
|
|
|
Distributions received from unconsolidated affiliates
|
|
$
|
4,705
|
|
|
|
9,660
|
|
|
|
31,901
|
|
|
|
|
|
Total cash distributions received from unconsolidated affiliates
|
|
$
|
29,450
|
|
|
$
|
35,875
|
|
|
$
|
46,375
|
|
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
50
Consolidated
Statements of Changes in Common Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
|
|
|
Comprehensive
|
|
(in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
Income
|
|
|
|
January 1, 2005
|
|
|
92,994
|
|
|
|
144,531
|
|
|
|
681,639
|
|
|
|
(55,994
|
)
|
|
|
(2,568
|
)
|
|
|
(308,203
|
)
|
|
|
459,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,807
|
|
|
|
22,087
|
|
|
$
|
22,087
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,387
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,387
|
)
|
|
|
(23,387
|
)
|
Change in fair value of derivatives, net of taxes of $2,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,198
|
|
|
|
|
|
|
|
|
|
|
|
14,198
|
|
|
|
14,198
|
|
Minimum pension liability, net of taxes of $5,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,960
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,960
|
)
|
|
|
(4,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,134
|
)
|
|
|
(5,134
|
)
|
|
|
|
|
Conversion of preferred shares
|
|
|
2,066
|
|
|
|
2,066
|
|
|
|
14,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,712
|
|
|
|
|
|
Reclassification of warrant liability
|
|
|
|
|
|
|
|
|
|
|
12,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,240
|
|
|
|
|
|
Exercise of stock options
|
|
|
39
|
|
|
|
39
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
Nonvested stock
|
|
|
72
|
|
|
|
358
|
|
|
|
4,043
|
|
|
|
|
|
|
|
(4,798
|
)
|
|
|
|
|
|
|
(397
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997
|
|
|
|
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
95,171
|
|
|
|
146,994
|
|
|
|
712,671
|
|
|
|
(70,143
|
)
|
|
|
(5,369
|
)
|
|
|
(291,250
|
)
|
|
|
492,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,213
|
|
|
|
4,213
|
|
|
$
|
4,213
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,618
|
|
|
|
|
|
|
|
|
|
|
|
33,618
|
|
|
|
33,618
|
|
Change in fair value of derivatives, net of taxes of $3,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,727
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,727
|
)
|
|
|
(6,727
|
)
|
Pension and post-retirement benefit liabilities, net of taxes of
$4,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,850
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,850
|
)
|
|
|
(11,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS 158, net of taxes of $4,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
|
|
|
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
|
|
Exercise of stock options
|
|
|
95
|
|
|
|
95
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
Nonvested stock
|
|
|
39
|
|
|
|
562
|
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
Shares purchased and retired under share repurchase program
|
|
|
(2,675
|
)
|
|
|
(2,675
|
)
|
|
|
(16,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,796
|
)
|
|
|
|
|
Reclassification for adoption of SFAS 123 R
|
|
|
|
|
|
|
|
|
|
|
(5,369
|
)
|
|
|
|
|
|
|
5,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
92,630
|
|
|
|
144,976
|
|
|
|
693,896
|
|
|
|
(63,739
|
)
|
|
|
|
|
|
|
(292,137
|
)
|
|
|
482,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Consolidated
Statements of Changes in Common Stockholders Equity
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
Comprehensive
|
|
(in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Total
|
|
|
Income
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,896
|
|
|
|
201,896
|
|
|
$
|
201,896
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,882
|
)
|
|
|
|
|
|
|
(46,882
|
)
|
|
|
(46,882
|
)
|
Change in fair value of derivatives, net of taxes of $3,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,224
|
|
|
|
|
|
|
|
6,224
|
|
|
|
6,224
|
|
Pension and post-retirement benefit liabilities, net of taxes of
$8,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,797
|
|
|
|
|
|
|
|
15,797
|
|
|
|
15,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of U.K. pension plan to GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,272
|
|
|
|
|
|
|
|
43,272
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
177,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
|
|
Exercise of stock options
|
|
|
336
|
|
|
|
336
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
Net vested stock
|
|
|
53
|
|
|
|
290
|
|
|
|
(2,836
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,546
|
)
|
|
|
|
|
Net conversion of warrants
|
|
|
568
|
|
|
|
568
|
|
|
|
(568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares purchased and retired under share repurchase program
|
|
|
(4,000
|
)
|
|
|
(4,000
|
)
|
|
|
(83,426
|
)
|
|
|
|
|
|
|
|
|
|
|
(87,426
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
11,022
|
|
|
|
|
|
|
|
|
|
|
|
11,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
89,587
|
|
|
$
|
142,170
|
|
|
$
|
618,874
|
|
|
$
|
(45,328
|
)
|
|
$
|
(95,341
|
)
|
|
$
|
620,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
52
Notes to the
Consolidated Financial Statements
1. Summary of
Significant Accounting Policies
Basis of presentation: The Consolidated Financial
Statements include the accounts of Terra Industries Inc. and all
majority owned subsidiaries (Terra). All intercompany accounts
and transactions have been eliminated. Minority interest in
earnings and ownership has been recorded for the percentage of
limited partnership common units not owned by Terra Industries
Inc. for each respective period presented.
Description of business: Terra produces nitrogen products
for agricultural dealers and industrial users, and methanol for
industrial users.
Foreign exchange: Results of operations for the foreign
subsidiaries are translated using average currency exchange
rates during the period; assets and liabilities are translated
using period-end rates. Resulting translation adjustments are
recorded as foreign currency translation adjustments in
accumulated other comprehensive income (loss) in
stockholders equity.
Cash and cash equivalents: Cash and cash equivalents
consist of all cash balances and all highly liquid investments
purchased with an original maturity of three months or less.
Inventories: Inventories are stated at the lower of cost
or estimated net realizable value. The cost of inventories is
determined using the
first-in,
first-out method. We perform a monthly analysis of our inventory
balances to determine if the carrying amount of inventories
exceeds our net realizable value. The analysis of estimated
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 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 estimate a reserve for obsolescence and excess of our
materials and supplies inventory. Inventory is stated net of the
reserve.
Property, plant and equipment: Expenditures for plant and
equipment additions, replacements and major improvements are
capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives ranging from 15
to 22 years for buildings and 3 to 18 years for plants
and equipment. Equipment under capital leases is recorded in
property with the corresponding obligations in long-term debt.
The amount capitalized is the present value at the beginning of
the lease term of the aggregate future minimum lease payments.
Maintenance and repair costs are expensed as incurred.
Plant turnaround costs: Costs related to the periodic
scheduled major maintenance of continuous process production
facilities (plant turnarounds) are deferred and charged to
product costs on a straight-line basis during the period until
the next scheduled turnaround, generally two years.
Equity investments: Equity investments are carried at
original cost adjusted for the proportionate share of the
investees income, losses and distributions. We assess the
carrying value of our equity investments when an indicator of a
loss in value is present and record a loss in value of the
investment when the assessment indicates that an
other-than-temporary decline in the investment exists.
We classify our equity in earnings of unconsolidated affiliates
for our North America and Trinidad equity investments as a
component of income from operations because these investments
provide additional nitrogen capacity and are integrated with our
supply chain and sales activities in our nitrogen segment. We
classify our equity in earnings of unconsolidated affiliates for
our U.K. equity investment
53
as a component of net income, but not income from operations,
because this investment does not provide additional nitrogen
capacity nor is it integrated with any sales, supply chain or
administrative activities.
Intangible assetscustomer relationships: Our
customer relationships have a finite useful life and are
amortized using the straight-line method over the estimated
useful life of five years. We monitor our intangible asset and
records an impairment loss on the intangible asset when
circumstances indicate that the carrying amount is not
recoverable and that the carrying amount exceeds its fair value.
The customer relationships were recorded at $9.4 million in
connection with the acquisition of Mississippi Chemical
Corporation in December 2004. During 2007, 2006 and 2005, we
recorded $1.9 million of amortization expense each year.
The estimated amortization expense related to the customer
relationships is $1.9 million annually for 2008 and 2009.
Debt issuance costs: Costs associated with the issuance
of debt are included in other noncurrent assets and are
amortized over the term of the related debt using the
straight-line method.
Impairment of long-lived assets: We review and evaluate
our long-lived assets for impairment when events and changes in
circumstances indicate that the carrying amount of its asset may
not be recoverable. Impairment is considered to exist if the
total estimated future cash flows on an undiscounted basis are
less than the carrying value of the asset. Future cash flows
include estimates of production levels, pricing of our products,
costs of natural gas and capital expenditures. If the assets are
impaired, a calculation of fair value is performed; if the fair
value is less than the carrying value of the assets, the assets
are reduced to their fair value.
On September 28, 2007, Eastman Chemical Company exercised
its option to purchase our Beaumont, Texas assets, including the
methanol and ammonia production facilities. We anticipate
closing the sale on or before January 1, 2009. In
connection with entering into this agreement, we determined that
the value of our Beaumont property was impaired. We recorded a
$39.0 million impairment charge for the quarter ended
September 30, 2007. The impairment charge reduces our
carrying value in the Beaumont property to approximately
$51 million.
Derivatives and 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, the prices of our
nitrogen products and foreign currency risk. 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 hedge, and to the extent such
hedge is determined to be effective, changes in fair value are
either (a) offset by the change in fair value of the hedged
asset or liability or (b) 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.
Revenue recognition: Revenue is recognized when
persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, no obligations
remain and collectibility is probable.
Revenues are primarily comprised of sales of our nitrogen- and
methanol-based products, including any realized hedging gains or
losses related to nitrogen product derivatives, and are reduced
by estimated discounts and trade allowances. Revenues also
include profit sharing revenue under the Methanex supply
contract when the estimated margin on an annualized basis is
probable. We classify amounts directly or indirectly billed to
our customers for shipping and handling as revenue.
54
Cost of sales and hedging transactions: Costs of sales
are primarily related to manufacturing and purchased costs
related to our nitrogen- and methanol-based products, including
any realized hedging gains or losses related to natural gas
derivatives. We classify amounts directly or indirectly billed
for delivery of products to its customers or its terminals as
cost of sales.
Share-based compensation: During the 2006 first quarter,
we adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment,
(SFAS 123 R) which requires the measurement and
recognition of compensation expense for all share-based payment
awards made to employees and directors based on estimated fair
values. SFAS 123 R supersedes our previous accounting under
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
25) for periods beginning in 2006. In March 2005, the SEC
issued Staff Accounting Bulletin No. 107
(SAB 107) relating to SFAS 123 R. We have applied
the provision of SAB 107 in our adoption of SFAS 123
R. We adopted SFAS 123 R using the modified prospective
transition method, which requires the application of the
accounting standard as of January 1, 2006 (See
Note 14).
Per share results: Basic earnings per share data are
based on the weighted-average number of common shares
outstanding during the period. Diluted earnings per share data
are based on the weighted-average number of common shares
outstanding and the effect of all dilutive potential common
shares including convertible preferred shares, common stock
options, restricted stock and common stock warrants.
Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The
significant areas requiring the use of managements
estimates relate to assumptions used to calculate pension and
other post-retirement benefits costs, future cash flows from
long-lived assets and the useful lives utilized for
depreciation, amortization and accretion calculations. Actual
results could differ from those estimates.
Recently issued accounting standards: In September 2006,
the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 157, Fair Value
Measurements, (SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157
provides a single definition for fair value that is to be
applied consistently for all accounting applications, and also
generally describes and prioritizes according to reliability the
methods and input used in valuations. SFAS 157 also
prescribes various disclosures about financial statement
categories and amounts which are measured at fair value, if such
disclosures are not already specified elsewhere in accounting
principles generally accepted in the United States. The
statement is effective on a prospective basis for financial
statements issued for fiscal years beginning after
November 15, 2007 and is required to be adopted
January 1, 2008. We do not expect the adoption of
SFAS 157 to have a material impact on our results of
operations or financial condition.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at
fair value at specified election dates. SFAS 159 is
effective beginning January 1, 2008. We do not expect to
adopt SFAS 159 for any instruments at this time.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, which changes how business
acquisitions are accounted. SFAS No. 141R requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction
55
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
standard 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 tack benefits.
SFAS No. 141R is effective for business combinations
and adjustments to an acquired entitys deferred tax asset
and liability balances occurring after December 31, 2008.
We are currently evaluating the future impacts and disclosures
of this standard.
In December 2007 the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,
(SFAS 160). SFAS 160 improves the comparability and
transparency of financial statements when reporting minority
interest. Entities with a noncontrolling interest will be
required to clearly identify and present the ownership interest
in the consolidated statement of financial position within
equity, but separate from the parents equity. The amount
of consolidated net income attributable to the parent and to the
noncontrolling interest will be identified and presented on the
face of the consolidated statement of income. The statement
offers further guidance on changes in ownership interest,
deconsolidation, and required disclosures. The statement is
effective for fiscal years and interim periods within those
fiscal years beginning January 1, 2009. We are currently
assessing the impact SFAS 160 may have on the financial
statements.
2. Earnings 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, restricted
shares, convertible preferred shares and common stock warrants.
Nonvested restricted stock carries dividend and voting rights,
but is not involved in the weighted average number of common
shares outstanding used to compute basic income per share.
56
The following table provides a reconciliation between basic and
diluted income per share for the year ended December 31,
2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share
data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Basic income per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
201,896
|
|
|
$
|
4,213
|
|
|
$
|
22,087
|
|
|
|
Less: Preferred share dividends
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
(5,134
|
)
|
|
|
|
|
Income (loss) available to common shareholders
|
|
|
196,796
|
|
|
|
(887
|
)
|
|
|
16,953
|
|
|
|
Weighted average shares outstanding
|
|
|
90,575
|
|
|
|
92,676
|
|
|
|
92,537
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
2.17
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.18
|
|
|
|
|
|
Diluted income (loss) per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common shareholders
|
|
$
|
196,796
|
|
|
$
|
(887
|
)
|
|
$
|
16,953
|
|
|
|
Add: Preferred share dividends
|
|
|
5,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common shareholders and
assumed conversions
|
|
$
|
201,896
|
|
|
$
|
(887
|
)
|
|
$
|
16,953
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
90,575
|
|
|
|
92,676
|
|
|
|
92,537
|
|
|
|
Add incremental shares from assumed conversions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
|
12,048
|
|
|
|
|
|
|
|
1,048
|
|
|
|
Nonvested stock
|
|
|
823
|
|
|
|
|
|
|
|
577
|
|
|
|
Common stock options
|
|
|
111
|
|
|
|
|
|
|
|
179
|
|
|
|
Common stock warrants
|
|
|
2,897
|
|
|
|
|
|
|
|
594
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
106,454
|
|
|
|
92,676
|
|
|
|
94,935
|
|
|
|
|
|
Diluted income (loss) per potential common share
|
|
$
|
1.90
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.18
|
|
|
|
|
|
Common stock options totaling 0.1 million and
0.1 million for the years ended December 31, 2006 and
2005, respectively, were excluded from the computation of
diluted earnings per share because the exercise prices of those
options exceeded the average market price of Terras stock
for the respective periods, and the effect of their inclusion
would be antidilutive.
All dilutive instruments were excluded from computation of
diluted earnings per share due to the loss available to common
shareholders at December 31, 2006.
3. Derivative
Financial Instruments
We manage risk using derivative financial instruments for
(a) currency; (b) changes in natural gas supply
prices; (c) changes in nitrogen prices; and
(d) interest rate fluctuations. 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.
Terra classifies 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.
|
57
|
|
|
|
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 (i.e., there is a high correlation
between the hedge position and changes in market value of the
hedge item).
|
|
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 futures
contracts, 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 Terras 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 futures contracts require maintenance of cash
balances generally 10% to 20% of the contract value and option
contracts require initial premium payments ranging from 2% to 5%
of contract value. Basis swap contracts require payments to or
from Terra for the amount, if any, that monthly published gas
prices from the source specified in the contract differ from
prices of NYMEX natural gas futures during a specified period.
There are no initial cash requirements related to the swap and
basis swap agreements.
We may use a collar structure where we will enter into a swap,
sell a call at a higher price and buy a put. The collar
structure allows for greater participation in a decrease to
natural gas prices and protects against moderate price
increases. However, the collar exposes us to large price
increases.
The following summarizes values and balance sheet effects of
open natural gas derivatives at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Current
|
|
|
Deferred
|
|
|
Net Asset
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
Taxes
|
|
|
(Liability)
|
|
|
|
|
December 31, 2007
|
|
$
|
4,798
|
|
|
$
|
(14,733
|
)
|
|
$
|
3,022
|
|
|
$
|
(6,913
|
)
|
|
|
December 31, 2006
|
|
|
4,731
|
|
|
|
(22,591
|
)
|
|
|
6,373
|
|
|
|
(11,487
|
)
|
|
|
Certain derivatives outstanding at December 31, 2007 and
2006, which settled during January 2008 and January 2007,
respectively, are included in the position of open natural gas
derivatives in the table above. The January 2008 derivatives
settled for an approximate $6.8 million loss compared to
the January 2007 derivatives which settled for an approximate
$7.9 million loss. Substantially all open derivatives at
December 31, 2007 will settle during the next
12 months.
We determined that certain derivative contracts were ineffective
hedges for accounting purposes and recorded a charge of
$1.3 million to cost of sales for the year ended
December 31, 2007. At December 31, 2006, we recorded
an ineffective position of $0.9 million as a charge to cost
of sales.
58
The effective portion of gains and losses on derivative
contracts that qualify for hedge treatment are carried as
accumulated other comprehensive income (loss) 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.
The activity to accumulated other comprehensive loss, net of
income taxes, relating to current period hedging transactions
for the twelve-month periods ended December 31, 2007 and
2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
(in thousands)
|
|
Gross
|
|
|
Net of tax
|
|
|
Gross
|
|
|
Net of tax
|
|
|
|
|
|
Beginning accumulated loss
|
|
$
|
(18,210
|
)
|
|
$
|
(11,836
|
)
|
|
$
|
(7,886
|
)
|
|
$
|
(5,109
|
)
|
|
|
Reclassification into earnings
|
|
|
53,665
|
|
|
|
34,882
|
|
|
|
48,857
|
|
|
|
31,693
|
|
|
|
Net increase (decrease) in market value
|
|
|
(44,090
|
)
|
|
|
(28,658
|
)
|
|
|
(59,181
|
)
|
|
|
(38,420
|
)
|
|
|
|
|
Ending accumulated loss
|
|
$
|
(8,635
|
)
|
|
$
|
(5,612
|
)
|
|
$
|
(18,210
|
)
|
|
$
|
(11,836
|
)
|
|
|
|
|
Approximately $8.6 million of the net accumulated loss at
December 31, 2007 will be reclassified into earnings during
2008.
At times, we also use forward derivative instruments to fix or
set floor prices for a portion of our nitrogen products sales
volumes. At December 31, 2007, we did not have any open
nitrogen swap 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 the
years ending December 31, 2007, 2006 and 2005, we
recognized losses of $3.4 million, $0.6 million and
$2.2 million, respectively on these forward derivative
instruments.
4.
Inventories
Inventories consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Raw materials
|
|
$
|
17,765
|
|
|
$
|
26,583
|
|
Supplies
|
|
|
35,909
|
|
|
|
54,542
|
|
Finished goods
|
|
|
77,851
|
|
|
|
129,892
|
|
|
|
Total
|
|
$
|
131,525
|
|
|
$
|
211,017
|
|
|
|
Inventory is valued at actual first in-first out cost. Costs
include raw materials, labor and overhead. The supplies
inventory balance is stated net of a reserve for obsolescence
and excess.
59
5. Property,
Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Land
|
|
$
|
8,561
|
|
|
$
|
17,096
|
|
|
|
Buildings and improvements
|
|
|
58,909
|
|
|
|
65,573
|
|
|
|
Plant and equipment
|
|
|
1,081,088
|
|
|
|
1,423,302
|
|
|
|
Construction in progress
|
|
|
7,734
|
|
|
|
24,372
|
|
|
|
|
|
|
|
|
1,156,292
|
|
|
|
1,530,343
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(724,352
|
)
|
|
|
(809,446
|
)
|
|
|
|
|
Total
|
|
$
|
431,940
|
|
|
$
|
720,897
|
|
|
|
|
|
Depreciation expense for property, plant and equipment for the
years ending December 31, 2007, 2006 and 2005 was
$70.6 million, $78.9 million and $80.8 million,
respectively.
6. Impairment of
Beaumont Assets
During 2007, we entered into an agreement for Eastman Chemical
Company to purchase our Beaumont, Texas facility. We anticipate
closing the sale of this facility on or before January 1,
2009. In connection with this sales agreement, we evaluated our
Beaumont facility for impairment. We determined that this
facilitys carrying values were impaired and we recorded a
$39 million impairment charge.
7. Equity
Investments
Trinidad and
United States
Our investments in Trinidad and U.S. companies that are
accounted for on the equity method of accounting 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, located in
Verdigris, Oklahoma which produces
CO2
at our Verdigris nitrogen plant. These investments were
$148.6 million at December 31, 2007. We include the
net earnings of these investments as equity in earnings of
unconsolidated affiliates as an element of income from
operations because the investees operations provide
additional capacity to our operations.
60
The combined results of operations and financial position of our
equity basis investments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Condensed income statement information:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
151,723
|
|
|
$
|
171,906
|
|
|
$
|
181,818
|
|
|
|
Net income
|
|
$
|
38,411
|
|
|
$
|
44,751
|
|
|
$
|
62,723
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates
|
|
$
|
16,209
|
|
|
$
|
17,013
|
|
|
$
|
31,362
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Condensed balance sheet information:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
45,110
|
|
|
$
|
59,553
|
|
Long-lived assets
|
|
|
191,394
|
|
|
|
185,621
|
|
|
|
Total assets
|
|
$
|
236,504
|
|
|
$
|
245,174
|
|
|
|
Current liabilities
|
|
$
|
25,905
|
|
|
$
|
22,311
|
|
Long-term liabilities
|
|
|
9,511
|
|
|
|
|
|
Equity
|
|
|
201,088
|
|
|
|
222,863
|
|
|
|
Total liabilities and equity
|
|
$
|
236,504
|
|
|
$
|
245,174
|
|
|
|
The carrying value of these investments at December 31,
2007 was $48.1 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 15 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 percent of the
ammonia produced by PLNL at current market prices. During the
twelve-month period ended December 31, 2007, we purchased
approximately $77.1 million of ammonia from PLNL. During
the twelve-month period ended December 31, 2006, we
purchased approximately $76.0 million of ammonia from PLNL.
The total distributions from our Trinidad and North America
equity investments were $29.5 million, $35.9 million,
and $46.4 million at December 31, 2007, 2006 and 2005,
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.
We account for our investment in GrowHow as an equity method
investment. The equity investment of $213.2 was recorded at our
net historical cost basis.
Our interest in the joint venture is classified as a non
operating equity 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.
61
The results of operations and financial position of our equity
basis investment in GrowHow at December 31, 2007 was:
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
|
|
Condensed income statement information:
|
|
|
|
|
Net sales
|
|
$
|
233,103
|
|
|
|
Net income
|
|
$
|
4,253
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates
|
|
$
|
(2,718
|
)
|
|
|
Condensed balance sheet information:
|
|
|
|
|
Current assets
|
|
$
|
281,021
|
|
Long-lived assets
|
|
|
269,116
|
|
|
|
Total assets
|
|
$
|
550,137
|
|
|
|
Current liabilities
|
|
$
|
190,371
|
|
Long-term liabilities
|
|
|
174,405
|
|
Equity
|
|
|
185,361
|
|
|
|
Total liabilities and equity
|
|
$
|
550,137
|
|
|
|
The carrying value of these investments at December 31,
2007 was $110.7 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
12 years, and the balancing consideration payment from
GrowHow discussed below. Our equity earnings of GrowHow are
different than our ownership interest in GrowHows net
income due to the amortization of basis differences and income
allocation to the respective owners for pre-joint venture
transactions.
We contributed Terra Nitrogen (UK) Limited to the joint venture
for a 50% interest in the joint venture, and Kemira contributed
its GrowHow UK Limited subsidiary for the remaining 50%
interest. The GrowHow joint venture in the United Kingdom
includes the Kemira site at Ince and our Teeside and Severnside
sites. Pursuant to the GrowHow Agreements with Kemira, we are
eligible to receive a balancing consideration payment from
GrowHow in 2011. We will receive a minimum balancing
consideration payment of £20 million, and have the
right to receive up to £60 million, based on
GrowHows operating income. We expect to receive a return
of capital of £14 million from GrowHow for working
capital contributions in excess of amounts specified in the
joint venture agreement.
On October 9, 2007, GrowHow announced the closure of its
Severnside manufacturing facilities. The closure was completed
in January 2008. Pursuant to the agreement with Kemira, we are
responsible for any remediation costs required to prepare the
Severnside site for disposal. We anticipate remediation costs to
be approximately $5.0 million to $10.0 million. We
have an option to purchase the Severnside land for a nominal
amount at any time prior to its 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 would exceed the total cost of reclamation
of the site.
We have rights to receive a cash refund from GrowHow UK Limited
for working capital contributions in excess of amounts specified
in the Joint Venture Contribution Agreement. We anticipate
receiving approximately $28 million during the 2008 first
quarter.
62
There were no distributions from the United Kingdom equity
investment since the joint venture commencement in mid-September
through December 31, 2007.
8. Revolving
Credit Facility, Long-Term Debt and Capital Lease
Obligations
Long-term debt and capital lease obligations consisted of the
following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Unsecured Senior Notes, 7.0%due 2017
|
|
$
|
330,000
|
|
|
$
|
|
|
Senior Secured Notes, 12.875%,due 2008
|
|
|
|
|
|
|
200,000
|
|
Second Priority Senior Secured Notes, 11.5%,due 2010
|
|
|
|
|
|
|
131,300
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
Total long-term debtand capital lease obligations
|
|
|
330,000
|
|
|
|
331,301
|
|
Less current maturities
|
|
|
|
|
|
|
1
|
|
|
|
Total long-term debtand capital lease obligations
|
|
$
|
330,000
|
|
|
$
|
331,300
|
|
|
|
In February 2007, we issued $330 million of 7.0% Unsecured
Senior Notes due in 2017 to refinance our Senior Secured Notes
due in 2008 and 2010. The notes are unconditionally guaranteed
by Terra and certain U.S. subsidiaries (see Note 23.)
These notes and guarantees are unsecured and will rank equal in
right of payment with any existing and future senior obligations
of such guarantors. We recorded a $38.8 million loss on the
early retirement of debt.
The Indenture governing these 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 any
of our principal production facilities or sell other 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 these 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 interest to the date of purchase. The
Indenture governing these notes contains events of default and
remedies customary for a financing of this type.
In conjunction with the bond refinancing, we amended the
$200 million revolving credit facilities to extend the
expiration date to January 31, 2012. The revolving credit
facility is 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
only available 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
December 31, 2007, the LIBOR rate was 4.60%. The base rate
is the highest of (1) Citibank, N.A.s base rate
(2) the federal funds
63
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 are 0.50% and 1.75%, respectively, at
December 31, 2007. The revolving credit facility requires
an initial one-half percent (0.50%) commitment fee on the
difference between committed amounts and amounts actually
borrowed.
At December 31, 2007, we had no outstanding revolving
credit borrowings and $10.8 million in outstanding letters
of credit. The $10.8 million in outstanding letters of
credit reduced our borrowing availability to $189.2 million
at December 31, 2007. The credit 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. If our 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 of $60 million during the most recent four
quarters.
9. Accrued and
Other Current Liabilities
Accrued and other current liabilities consisted of the following
at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Payroll and benefit costs
|
|
$
|
24,471
|
|
|
$
|
10,519
|
|
Income taxes payable
|
|
|
15,620
|
|
|
|
4,378
|
|
Derivative contracts
|
|
|
14,732
|
|
|
|
23,222
|
|
Current accrued phantom shares
|
|
|
10,074
|
|
|
|
|
|
Accrued interest
|
|
|
9,755
|
|
|
|
6,740
|
|
Deferred revenue
|
|
|
5,990
|
|
|
|
5,057
|
|
Other
|
|
|
26,988
|
|
|
|
25,947
|
|
|
|
Total
|
|
$
|
107,630
|
|
|
$
|
75,863
|
|
|
|
10. Other
Liabilities
Other liabilities consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Unrecognized tax benefit (See note 20)
|
|
$
|
33,560
|
|
|
$
|
|
|
Long-term medical and closed facilities reserve
|
|
|
24,368
|
|
|
|
23,206
|
|
Accrued phantom shares
|
|
|
9,231
|
|
|
|
3,379
|
|
Long-term deferred revenue
|
|
|
11,624
|
|
|
|
5,231
|
|
Other
|
|
|
6,832
|
|
|
|
8,372
|
|
|
|
Total
|
|
$
|
85,615
|
|
|
$
|
40,188
|
|
|
|
64
11. Commitments
and Contingencies
We are committed to various non-cancelable operating leases for
equipment, railcars and production, office and storage
facilities expiring on various dates through 2017.
Total minimum rental payments are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
2008
|
|
$
|
34,692
|
|
2009
|
|
|
31,802
|
|
2010
|
|
|
29,020
|
|
2011
|
|
|
25,113
|
|
2012
|
|
|
17,677
|
|
2013 and thereafter
|
|
|
5,659
|
|
|
|
Net minimum lease payments
|
|
$
|
143,963
|
|
|
|
Total rental expense under all leases, including short-term
cancelable operating leases, was $23.1 million,
$18.7 million and $17.5 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
We have entered into various contractual agreements that create
an obligation into the future. These agreements expire on
various dates through 2018 and are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
2008
|
|
$
|
284,798
|
|
2009
|
|
|
103,943
|
|
2010
|
|
|
102,942
|
|
2011
|
|
|
103,540
|
|
2012
|
|
|
98,807
|
|
2013 and thereafter
|
|
|
523,574
|
|
|
|
Total obligations
|
|
$
|
1,217,604
|
|
|
|
Included above are purchase agreements for various services and
products relating to operations. These commitments include open
purchase orders, inventory purchase commitments and firm utility
and natural gas commitments.
We have a contractual agreement to purchase one-half of the
ammonia produced by Point Lisas Nitrogen Limited, our joint
venture ammonia plant located in Trinidad. The purchase price is
based on the average market price of ammonia, F.O.B. Caribbean,
less a discount. The agreement is in place until October of
2018. Assuming purchases of 360,000 short tons per year at the
December 2007 average price paid, the annual purchase obligation
would be $86.9 million.
We are liable for retiree medical benefits of employees of coal
mining operations sold in 1993, under the Coal Industry Retiree
Health Benefit Act of 1992, which mandated liability for certain
retiree medical benefits for union coal miners. We have provided
reserves adequate to cover the estimated present-value of these
liabilities at December 31, 2007. Our long-term medical and
closed facilities reserve at December 31, 2007, includes
$24.4 million for expected future payments for the coal
operations retirees and other former employees. We may
recover a portion of these payments through our rights in
bankruptcy against Harman Coal Company (a former coal
subsidiary), and subject to
65
damages received by Harman Coal Company through its on-going
litigation with Massey Energy Company. No provision for such
recoveries has been made in our financial statements.
FASB Interpretation Number 47, Accounting for
Conditional Asset Retirement Obligations
(FIN 47) requires recognition of a liability for the
fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. We have
certain facilities that contain asbestos insulation around
certain piping and heated surfaces. The asbestos insulation is
in adequate condition to prevent leakage and can remain in place
as long as the facility is operated or remains assembled. We
plan to maintain the facilities in an adequate condition to
prevent leakage through our standard repair and maintenance
activities. We have not recorded a liability relating to the
asbestos insulation, as management believes that it is not
possible to reasonably estimate a settlement date for asbestos
insulation removal because the facilities have an indeterminate
life.
We are involved in various legal actions and claims, including
environmental matters, arising from the normal course of
business. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the
results of our operations, financial position or net cash flows.
66
12. Preferred
Shares
The components of preferred shares outstanding at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
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)
|
|
|
120,000
|
|
|
$
|
115,800
|
|
|
|
120,000
|
|
|
$
|
115,800
|
|
We had 120,000 shares of cumulative convertible perpetual
Series A Preferred Shares with a liquidation value of
$1,000 outstanding at December 31, 2007 and 2006.
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 any
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.
13. 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. At December 31, 2007, 2.0 million
common shares were reserved for issuance upon award of
restricted shares and exercise of employee stock options.
In connection with the Mississippi Chemical Corporation
(MCC) acquisition, we issued warrants to purchase
4.0 million of our common shares at $5.48 per share. These
warrants were valued at $21.1 million at the MCC closing.
During 2005, shareholders approved the issuance of the
underlying shares and the warrant value was reclassified to
common stockholders equity.
During 2007 a portion of these warrants were exercised and were
redeemed for common shares.
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
January 1 warrants outstanding
|
|
$
|
4,000
|
|
|
$
|
4,000
|
|
Exercised
|
|
|
712
|
|
|
|
|
|
|
|
December 31 warrants outstanding
|
|
$
|
3,288
|
|
|
$
|
4,000
|
|
|
|
On April 25, 2006, the Board of Directors authorized us to
repurchase a maximum of 10 percent, or
9,516,817 shares, of our outstanding common stock. The
stock buyback program has been and will be conducted on the open
market, in private transactions or otherwise at such times prior
to June 30, 2008, and at such prices, as determined
appropriate by us. Purchases may be commenced or suspended at
any time without notice.
67
During 2007, our repurchases under the stock buyback program
were:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Average Price
|
|
Total Cost
|
(in thousands, except average
|
|
Shares
|
|
of Shares
|
|
of Shares
|
price of shares repurchased)
|
|
Repurchased
|
|
Repurchased
|
|
Repurchased
|
|
|
May 2007
|
|
|
650
|
|
$
|
18.79
|
|
$
|
12,220
|
June 2007
|
|
|
350
|
|
|
19.97
|
|
|
6,991
|
July 2007
|
|
|
200
|
|
|
25.33
|
|
|
5,067
|
August 2007
|
|
|
2,800
|
|
|
22.55
|
|
|
63,148
|
|
|
|
|
|
4,000
|
|
$
|
21.86
|
|
$
|
87,426
|
|
|
14. Share-Based
Compensation
We sponsor three share-based compensation plansthe Terra
Industries Inc. 1997 Stock Incentive Plan (the 1997
Plan) the Terra Industries Inc. Stock Incentive Plan of
2002 (the 2002 Plan) and Terra Industries Inc. 2007
Omnibus Incentive Compensation Plan (the 2007 Plan).
We no longer issue share-based awards from the 1997 Plan or the
2002 Plan. However, approximately 2,004,000 authorized shares
have been reserved for awards that were issued prior to the
adoption of the 2007 plan. As of December 31, 2007, there
were approximately 5,758,000 shares of common stock
authorized for issuance under the plans, including approximately
3,500,000, 2,227,000 and 11,000 shares authorized for the
2007 Plan, 2002 Plan and 1997 Plan, respectively. Shares for
approximately 3,754,000 and 2,004,000 were available and
reserved, respectively, for share-based compensation grants as
of December 31, 2007.
Awards granted under the plans may consist of incentive stock
options (ISOs) or non-qualified stock options (NQSOs), stock
appreciation rights (SARs), nonvested stock awards or other
share-based awards (i.e. performance shares), with the exception
that non-employee directors may not be granted SARs and only
employees of Terra may be granted ISOs.
The Compensation Committee of our Board of Directors administers
the plans and determines the exercise price, exercise period,
vesting period and all other terms of the grant. All share-based
awards to directors, officers and employees expire ten years
after the date of the grant. ISOs and NQSOs, which are not
exercised after vesting, expire ten years after the date of the
award. The vesting period for nonvested stock is determined at
the grant date of the award; the vesting period is usually three
years. The vesting date for other share-based awards is also set
at the time of the award but can vary in length; there is
usually no expiration date for other share-based awards.
Prior to January 1, 2006, we accounted for awards issued
under our share-based compensation plans using the
intrinsic-value method. We did not recognize compensation
expense on stock options in the year ended December 31,
2005 as all options granted under our plans had an exercise
price equal to the market price of our stock on the date of
grant and were fully vested. We recognized compensation expense
of $2.0 million on nonvested stock awards and phantom share
awards in the year ended December 31, 2005 based on
intrinsic value, which was equal to the market price of our
stock on the date of grant.
On January 1, 2006, we adopted SFAS 123 R using the
modified prospective method. This Statement requires us to
recognize in net income an estimate of expense for stock awards
and options over their vesting periods, typically determined as
of the date of grant. Under the modified prospective method,
this Statement applies to new awards and to awards modified,
repurchased or cancelled after January 1, 2006.
Additionally, we recognized compensation cost for the portion of
awards for which the requisite
68
service has not been rendered that were outstanding on
January 1, 2006. The compensation cost for that portion of
awards was based on the grant-date fair value of those awards as
calculated for either recognition or pro forma disclosures under
SFAS No. 123. Beginning January 1, 2006, the
unearned compensation related to the unvested awards was
reclassified as a component of paid-in capital. The cumulative
effect of the adoption of SFAS 123 R related to estimating
forfeitures of outstanding awards was not significant. Results
for prior periods have not been restated.
The following table illustrates the effect on net income and net
income per share if we had accounted for share-based
compensation using the fair value method in the year ended
December 31, 2005:
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands, except per-share
amounts)
|
|
2005
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
16,953
|
|
Add: Share based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
1,218
|
|
Deduct: Share based employee compensation expense determined
under fair value based method for all awards,
net of related tax effects
|
|
|
(1,218
|
)
|
|
|
Pro forma net income available to common shareholders
|
|
$
|
16,953
|
|
|
|
|
|
|
|
|
Income per share:
|
|
|
|
|
Basicas reported
|
|
$
|
0.18
|
|
|
|
Basicpro forma
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
Dilutedas reported
|
|
$
|
0.18
|
|
|
|
Dilutedpro forma
|
|
$
|
0.18
|
|
|
|
Compensation cost charged against income and the total income
tax benefit recognized for share-based compensation arrangements
is included below:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
Compensation cost charged to SG&A expense
|
|
$
|
31,452
|
|
$
|
7,010
|
|
$
|
2,431
|
|
|
Total compensation cost charged to income
|
|
$
|
31,452
|
|
$
|
7,010
|
|
$
|
2,431
|
|
|
Income tax benefit
|
|
$
|
11,008
|
|
$
|
2,454
|
|
$
|
851
|
|
|
69
Stock
Options
We have stock options with service conditions. No compensation
cost is recognized for the stock options as these instruments
were fully vested upon adoption of SFAS 123 R.
A summary of stock option activity as of December 31, 2007,
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
(options in thousands)
|
|
Number
|
|
|
Price
|
|
|
|
Outstandingbeginning of period
|
|
|
458
|
|
|
$
|
4.78
|
|
Exercised
|
|
|
(447
|
)
|
|
|
4.82
|
|
|
|
Outstandingend of period
|
|
|
11
|
|
|
$
|
3.17
|
|
|
|
The aggregate intrinsic value of the vested stock options
outstanding at December 31, 2007 was $0.5 million.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(options in thousands)
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Exercise
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
|
Prices
|
|
|
Outstanding
|
|
|
Life (years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
$
|
1.43
|
|
|
|
8
|
|
|
|
0.6
|
|
|
$
|
1.43
|
|
|
|
8
|
|
|
$
|
1.43
|
|
|
|
|
7.81
|
|
|
|
3
|
|
|
|
1.4
|
|
|
|
7.81
|
|
|
|
3
|
|
|
|
7.81
|
|
|
|
Total
|
|
|
|
|
|
|
11
|
|
|
|
1.2
|
|
|
$
|
3.17
|
|
|
|
11
|
|
|
$
|
3.17
|
|
|
|
No options were granted during 2007, 2006 and 2005.
Nonvested Stock
Shares and Phantom Share Awards
We currently have outstanding nonvested shares and phantom share
awards with both service conditions and performance conditions.
Nonvested stock shares and phantom share awards with service and
performance conditions usually cliff vest in three
years from the grant date. This means that the performance
conditions of the nonvested shares and phantom share awards are
based on a calculated return on capital over a three-year
period. For awards with performance conditions, the grants will
be forfeited if the performance conditions are not achieved.
We recognize compensation expense for nonvested stock share
awards over the vesting periods based on fair value, which is
equal to the market price of our stock on the date of grant.
During 2007, 2006 and 2005, we recorded compensation expense of
$11.0 million, $4.3 million and $1.9 million,
respectively. We recognize compensation expense for the phantom
share awards over the vesting periods based on fair value, which
is equal to the market price of our stock at each reporting
period date. The phantom share awards settle in cash. During
2007, 2006 and 2005, we recorded compensation expense of
$20.4 million, $2.7 million and $0.5 million,
respectively. Compensation costs for nonvested stock
70
shares and phantom share awards are reduced for estimated
forfeitures and then amortized to expense using the
straight-line method. For awards with performance conditions, we
estimate the expected number of awards to vest at the time of
the award grant. We record the compensation expense for the
awards with performance conditions ratably over the requisite
service period related to the performance condition, taking into
consideration any changes to the expected shares to vest as such
matters arise.
A summary of the status of our nonvested share awards as of
December 31, 2007, and changes during the year then ended,
is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
(in thousands, except fair values)
|
|
Shares
|
|
|
Fair Value
|
|
|
|
Outstanding at January 1, 2007
|
|
|
1,376
|
|
|
$
|
7.23
|
|
Granted
|
|
|
307
|
|
|
|
21.10
|
|
Vested
|
|
|
(391
|
)
|
|
|
9.51
|
|
|
|
Outstanding at December 31, 2007
|
|
|
1,292
|
|
|
$
|
11.57
|
|
|
|
The fair value of the nonvested shares and phantom shares that
vested during 2007 was $9.4 million and $3.3 million,
respectively. The fair value of the nonvested shares that vested
during 2006 was $4.9 million. During 2006, there were no
phantom shares that vested.
At December 31, 2007, the total unrecognized compensation
cost related to all nonvested share awards was
$9.3 million. That cost is expected to be recognized over a
weighted-average period of 1.1 years.
15. Financial
Instruments and Concentrations of Credit Risk
The following table represents the carrying amounts and
estimated fair values of Terras financial instruments at
December 31, 2007 and 2006. SFAS 107 defines the fair
value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(in millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
698.2
|
|
|
$
|
698.2
|
|
|
$
|
179.0
|
|
|
$
|
179.0
|
|
Receivables
|
|
|
171.2
|
|
|
|
171.2
|
|
|
|
198.8
|
|
|
|
198.8
|
|
Equity investments
|
|
|
352.0
|
|
|
|
352.0
|
|
|
|
164.1
|
|
|
|
164.1
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
330.0
|
|
|
|
325.1
|
|
|
|
331.3
|
|
|
|
321.8
|
|
Preferred shares
|
|
|
115.8
|
|
|
|
580.9
|
|
|
|
115.8
|
|
|
|
161.7
|
|
|
|
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.
|
71
|
|
|
|
|
Equity investments: Investments in untraded companies are
valued on the basis of managements estimates and, when
available, comparisons with similar companies whose shares are
publicly traded.
|
|
|
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 December 31, 2007, we
had letters of credit outstanding totaling $10.8 million,
guaranteeing various insurance and financing activities.
72
16. Retirement
Benefit Plans
We maintain defined benefit pension plans that cover certain
salaried and hourly employees. Benefits are based on a pay
formula. We used September 30 as our measurement date. We
adopted the recognition and related disclosure provisions of
SFAS 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
(SFAS 158) at the end of 2006. This resulted in a
$13.3 million increase in the pension liabilities and
increased accumulated other comprehensive income and deferred
tax assets by $8.6 million and $4.7 million,
respectively. Beginning 2008, we will be required to use a
measurement date of December 31 in accordance with
SFAS 158. 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 independent actuarial valuations for
each plan and fund these costs in accordance with statutory
requirements.
The components of net periodic pension expense are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,113
|
|
|
$
|
2,991
|
|
|
$
|
2,976
|
|
|
|
|
|
Interest cost
|
|
|
17,648
|
|
|
|
24,926
|
|
|
|
23,550
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(18,063
|
)
|
|
|
(24,224
|
)
|
|
|
(21,575
|
)
|
|
|
|
|
Amortization of prior service cost
|
|
|
(36
|
)
|
|
|
(36
|
)
|
|
|
(28
|
)
|
|
|
|
|
Amortization of actuarial loss
|
|
|
1,871
|
|
|
|
5,636
|
|
|
|
5,632
|
|
|
|
|
|
Termination charge
|
|
|
|
|
|
|
492
|
|
|
|
1,165
|
|
|
|
|
|
|
|
Pension expense
|
|
$
|
4,533
|
|
|
$
|
9,785
|
|
|
$
|
11,720
|
|
|
|
|
|
|
|
We have defined benefit plans in the U.S. and Canada.
During 2007, we contributed our Terra Nitrogen (UK) subsidiary
into a joint venture. The joint venture assumed the pension
liabilities associated with Terra Nitrogen (UK). We administer
our plans to comply with the applicable laws in each country.
73
The following table reconciles, by geographic location, the
plans funded status to amounts included in the
Consolidated Statements of Financial Position at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
U.S.
|
|
|
Canada
|
|
|
Total
|
|
|
|
|
|
|
Change in Projected Benefit Obligation Present Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year
|
|
$
|
260,597
|
|
|
$
|
44,040
|
|
|
$
|
304,637
|
|
|
|
|
|
Service cost
|
|
|
1,809
|
|
|
|
1,304
|
|
|
|
3,113
|
|
|
|
|
|
Interest cost
|
|
|
15,159
|
|
|
|
2,489
|
|
|
|
17,648
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(9,169
|
)
|
|
|
(2,644
|
)
|
|
|
(11,813
|
)
|
|
|
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
8,171
|
|
|
|
8,171
|
|
|
|
|
|
Benefits paid
|
|
|
(14,950
|
)
|
|
|
(1,189
|
)
|
|
|
(16,139
|
)
|
|
|
|
|
|
|
Projected benefit obligationend of year
|
|
|
253,446
|
|
|
|
52,171
|
|
|
|
305,617
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year
|
|
|
191,463
|
|
|
|
35,940
|
|
|
|
227,403
|
|
|
|
|
|
Actual return on plan assets
|
|
|
25,347
|
|
|
|
2,614
|
|
|
|
27,961
|
|
|
|
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
7,824
|
|
|
|
7,824
|
|
|
|
|
|
Employer contribution
|
|
|
48,459
|
|
|
|
10,811
|
|
|
|
59,270
|
|
|
|
|
|
Benefits paid
|
|
|
(14,950
|
)
|
|
|
(1,189
|
)
|
|
|
(16,139
|
)
|
|
|
|
|
|
|
Fair value plan assetsend of year
|
|
|
250,319
|
|
|
|
56,000
|
|
|
|
306,319
|
|
|
|
|
|
|
|
Funded Status
|
|
|
(3,127
|
)
|
|
|
3,829
|
|
|
|
702
|
|
|
|
|
|
Unrecognized net actuarial loss
|
|
|
14,933
|
|
|
|
9,265
|
|
|
|
24,198
|
|
|
|
|
|
Unrecognized prior service cost
|
|
|
(282
|
)
|
|
|
|
|
|
|
(282
|
)
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
11,524
|
|
|
$
|
13,094
|
|
|
$
|
24,618
|
|
|
|
|
|
|
|
74
The following table reconciles, by geographic location, the
plans funded status to amounts included in the
Consolidated Statements of Financial Position at
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
U.S.
|
|
|
Canada
|
|
|
U.K.
|
|
|
Total
|
|
|
|
|
|
|
Change in Projected Benefit Obligation Present Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year
|
|
$
|
267,100
|
|
|
$
|
38,637
|
|
|
$
|
148,774
|
|
|
$
|
454,511
|
|
|
|
|
|
Service cost
|
|
|
1,976
|
|
|
|
1,105
|
|
|
|
|
|
|
|
2,991
|
|
|
|
|
|
Interest cost
|
|
|
14,972
|
|
|
|
2,058
|
|
|
|
7,896
|
|
|
|
24,926
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(8,247
|
)
|
|
|
3,109
|
|
|
|
23,575
|
|
|
|
18,437
|
|
|
|
|
|
Termination charge
|
|
|
|
|
|
|
|
|
|
|
492
|
|
|
|
492
|
|
|
|
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
36
|
|
|
|
22,563
|
|
|
|
22,599
|
|
|
|
|
|
Benefits paid
|
|
|
(15,204
|
)
|
|
|
(905
|
)
|
|
|
(3,686
|
)
|
|
|
(19,795
|
)
|
|
|
|
|
|
|
Projected benefit obligationend of year
|
|
|
260,597
|
|
|
|
44,040
|
|
|
|
199,614
|
|
|
|
504,161
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year
|
|
|
180,574
|
|
|
|
31,042
|
|
|
|
103,691
|
|
|
|
315,307
|
|
|
|
|
|
Actual return on plan assets
|
|
|
18,239
|
|
|
|
2,415
|
|
|
|
8,565
|
|
|
|
29,219
|
|
|
|
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
15
|
|
|
|
15,047
|
|
|
|
15,062
|
|
|
|
|
|
Employer contribution
|
|
|
7,683
|
|
|
|
3,373
|
|
|
|
4,030
|
|
|
|
15,086
|
|
|
|
|
|
Participants contributions
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
|
|
Benefits paid
|
|
|
(15,204
|
)
|
|
|
(905
|
)
|
|
|
(3,686
|
)
|
|
|
(19,795
|
)
|
|
|
|
|
|
|
Fair value plan assetsend of year
|
|
|
191,463
|
|
|
|
35,940
|
|
|
|
127,647
|
|
|
|
355,050
|
|
|
|
|
|
|
|
Funded Status
|
|
|
(69,134
|
)
|
|
|
(8,010
|
)
|
|
|
(71,967
|
)
|
|
|
(149,111
|
)
|
|
|
|
|
Unrecognized net actuarial loss
|
|
|
35,058
|
|
|
|
11,006
|
|
|
|
61,817
|
|
|
|
107,881
|
|
|
|
|
|
Unrecognized prior service cost
|
|
|
(319
|
)
|
|
|
|
|
|
|
|
|
|
|
(319
|
)
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost
|
|
$
|
(34,395
|
)
|
|
$
|
2,996
|
|
|
$
|
(10,150
|
)
|
|
$
|
(41,549
|
)
|
|
|
|
|
|
|
The amount recognized in the balance sheet for the plans
described above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Accrued (prepaid) benefit cost
|
|
$
|
(24,617
|
)
|
|
$
|
41,549
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
15,638
|
|
|
|
73,123
|
|
|
|
|
|
Deferred tax asset
|
|
|
8,278
|
|
|
|
34,439
|
|
|
|
|
|
Funding subsequent to valuation
|
|
|
|
|
|
|
(1,709
|
)
|
|
|
|
|
|
|
Amount recognized
|
|
|
(701
|
)
|
|
|
147,402
|
|
|
|
|
|
|
|
Pension assets
|
|
|
10,652
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(683
|
)
|
|
|
(12,958
|
)
|
|
|
|
|
|
|
Pension liabilities
|
|
$
|
(9,268
|
)
|
|
$
|
134,444
|
|
|
|
|
|
|
|
The accumulated benefit obligation for our pension plans was
$293.9 million and $493.4 million at December 31,
2007 and 2006, respectively. The projected benefit obligation
for our pension plans was $305.6 million and
$504.2 million at December 31, 2007 and 2006,
respectively. Pension plan assets exceeded the projected benefit
obligation by $0.7 million at December 31, 2007 and
were $149.1 million less than the projected benefit
obligation at December 31, 2006.
75
We have two pension plans in the United StatesTerra
Industries Inc. Employees Retirement Plan
(Employees Retirement Plan) and Terra
Industries Inc. Excess Benefit Plan (Excess Benefit
Plan). Our Employees Retirement Plan is fully funded and
has a $6.8 million asset balance. Our Excess Benefit Plan
is not funded and has a $9.9 liability balance.
The assumptions used to determine the actuarial present value of
benefit obligations and pension expense during each of the years
ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted average discount rate
|
|
|
6.3%
|
|
|
5.5%
|
|
|
5.4%
|
Long-term per annum compensation increase
|
|
|
3.6%
|
|
|
3.3%
|
|
|
3.3%
|
Long-term return on plan assets
|
|
|
5.4%
|
|
|
7.6%
|
|
|
7.7%
|
|
|
We employ a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the
long-term return of plan assets for a prudent level of risk. The
intent of this strategy is to minimize plan expenses by
outperforming plan liabilities over the long run. Risk tolerance
is established through careful consideration of plan
liabilities, plan funded status, and our corporate financial
condition. The investment portfolio contains a diversified blend
of equity and fixed income investments. Derivatives may be used
to gain market exposure in an efficient and timely manner;
however, derivatives may not be used to leverage the portfolio
beyond the market value of the underlying investments.
Investment risk is measured and monitored on an ongoing basis
through annual liability measurements, periodic asset/liability
studies, and quarterly investment portfolio reviews.
We select a long-term rate of return of each of our plans
individually. We consult with our two actuaries, as well as each
of the funds money managers. The expected long-term rate
of return is based on the portfolio as a whole and not on the
sum of the returns on individual asset categories. While
historical returns are taken into consideration, current market
trends such as inflation and current equity and fixed income
returns are also taken into consideration.
The percentage of the Fair Market Value of the total plan assets
for each major asset category of the plans assets is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Asset Allocation
|
|
|
|
|
|
|
|
|
Equities
|
|
|
58.2%
|
|
|
|
58.3%
|
|
Bonds
|
|
|
41.1%
|
|
|
|
18.4%
|
|
Cash equivalents
|
|
|
0.7%
|
|
|
|
23.3%
|
|
|
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
During the 2007 fourth quarter, we changed our plan asset
allocation to 23.4%, 23.9% and 52.7% for equities, bonds and
cash equivalents, respectively. We have fully funded our
Employees Retirement Plan and our Canadian Pension Plan.
As a result of the fully funded status of these plans, we have
changed our investment to maintain a higher level of bonds and
cash equivalents.
76
The expected benefits to be paid from the pension plan are as
follows:
|
|
|
|
|
(in thousands)
|
|
Payments
|
|
|
|
Estimated Future Benefit Payments
|
|
|
|
|
2008
|
|
|
$16,840
|
|
2009
|
|
|
17,731
|
|
2010
|
|
|
18,463
|
|
2011
|
|
|
19,161
|
|
2012
|
|
|
20,085
|
|
2013-2017
|
|
|
110,751
|
|
The amounts in accumulated other comprehensive income that have
not yet been recognized as components of pension expense at
December 31, 2007, and the expected amortization of these
amounts as components of net periodic benefit cost for the year
ended December 31, 2008 are:
Components of accumulated other comprehensive income:
|
|
|
|
|
(in thousands)
|
|
|
|
Net actuarial loss
|
|
$
|
24,198
|
|
Net prior service cost (credit)
|
|
|
(282)
|
|
Net transition obligation (asset)
|
|
|
|
|
|
|
|
|
$
|
23,916
|
|
|
|
Expected amortization during 2008:
|
|
|
|
|
(in thousands)
|
|
|
|
Amortization of net transition obligation
|
|
$
|
|
|
Amortization of prior service cost
|
|
|
(37)
|
|
Amortization of net losses
|
|
|
684
|
|
|
|
|
|
$
|
647
|
|
|
|
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 totaled $5.4 million in 2007, $5.3 million in
2006 and $4.8 million in 2005.
17.
Post-Retirement Benefits
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. The
plan is unfunded.
77
The following table indicates the components of the
post-retirement medical benefits obligation included in our
Consolidated Statements of Financial Position at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year
|
|
$
|
5,464
|
|
|
$
|
4,202
|
|
Service cost
|
|
|
12
|
|
|
|
11
|
|
Interest cost
|
|
|
311
|
|
|
|
228
|
|
Participants contributions
|
|
|
181
|
|
|
|
202
|
|
Actuarial (gain) loss
|
|
|
5
|
|
|
|
1,737
|
|
Foreign currency exchange rate changes
|
|
|
159
|
|
|
|
|
|
Benefits paid
|
|
|
(897
|
)
|
|
|
(916
|
)
|
|
|
Projected benefit obligationend of year
|
|
|
5,235
|
|
|
|
5,464
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
716
|
|
|
|
715
|
|
Participants contributions
|
|
|
181
|
|
|
|
202
|
|
Benefits paid
|
|
|
(897
|
)
|
|
|
(917
|
)
|
|
|
Fair value plan assetsend of year
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
|
(5,235
|
)
|
|
|
(5,464
|
)
|
Unrecognized net actuarial gain
|
|
|
1,583
|
|
|
|
1,655
|
|
Unrecognized prior service cost
|
|
|
692
|
|
|
|
761
|
|
Employer contribution
|
|
|
179
|
|
|
|
179
|
|
|
|
Accrued benefit cost
|
|
$
|
(2,781
|
)
|
|
$
|
(2,869
|
)
|
|
|
Net periodic post-retirement medical benefit (income) expense
consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Service cost
|
|
$
|
12
|
|
$
|
11
|
|
$
|
12
|
|
Interest cost
|
|
|
311
|
|
|
228
|
|
|
230
|
|
Amortization of prior service cost
|
|
|
69
|
|
|
77
|
|
|
44
|
|
Amortization of actuarial gain
|
|
|
89
|
|
|
|
|
|
(13
|
)
|
|
|
Post-retirement medical benefit expense
|
|
$
|
481
|
|
$
|
316
|
|
$
|
273
|
|
|
|
The projected benefit obligation (PBO) and accumulated benefit
obligation (ABO) at December 31, 2007 was
$5.2 million. The PBO and ABO at December 31, 2006 was
$5.5 million.
We limit our future obligation for post-retirement medical
benefits by capping at 5% the annual rate of increase in the
cost of claims we assume under the plan. The weighted average
discount rate used in determining the accumulated
post-retirement medical benefit obligation was 6.3% in 2007,
5.98% in 2006 and 5.63% in 2005. The assumed annual health care
cost trend rate was 5% in 2007, 2006 and 2005. The impact on the
benefit obligation of a 1% increase in the assumed health care
cost trend rate would be approximately $0.6 million while a
1% decline in the rate would decrease the benefit obligation by
approximately $0.5 million.
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed into law. The
Act introduced a prescription drug benefit under Medicare
Part D and a
78
federal subsidy to sponsors of retirement health care plans that
provide a benefit that is at least actuarially equivalent to
Medicare Part D. The subsidy is based on approximately 28%
of an individual beneficiarys annual prescription drug
costs between $250 and $5,000. The effects of the subsidy were
factored into the 2005 annual year-end valuation. The reduction
in the benefit obligation attributable to past service cost was
approximately $0.8 million and has been reflected as an
actuarial gain.
Future benefit payments expected to be paid for post-retirement
medical benefits are as follows:
Estimated future benefit payments
|
|
|
|
|
(in thousands)
|
|
Payments
|
|
|
|
2008
|
|
$
|
509
|
|
2009
|
|
|
501
|
|
2010
|
|
|
523
|
|
2011
|
|
|
564
|
|
2012
|
|
|
557
|
|
2013-2016
|
|
|
2,941
|
|
The amounts in accumulated other comprehensive income that have
not yet been recognized as components of retiree medical expense
at December 31, 2007, and the expected amortization of
these amounts as components of net periodic benefit cost for the
year ended December 31, 2008 are:
Components of accumulated other comprehensive income:
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
1,590
|
|
Net prior service cost (credit)
|
|
|
692
|
|
Net transition obligation (asset)
|
|
|
|
|
|
|
|
|
$
|
2,282
|
|
|
|
Expected amortization during 2007:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Amortization of net transition obligation
|
|
$
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
(69
|
)
|
|
|
|
|
Amortization of net losses
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
$
|
(159
|
)
|
|
|
|
|
|
|
18. Accumulated
Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) refers to
revenues, expenses, gains and losses that under accounting
principles generally accepted in the United States are recorded
as an element of shareholders equity but are excluded from
net income. Our accumulated other comprehensive income (loss) is
comprised of (a) adjustments that result from translation
of Terras foreign entity financial statements from their
functional currencies to United States dollars,
(b) adjustments that result from translation of
intercompany foreign currency transactions that are of a
long-term investment nature (that is, settlement is not planned
or anticipated in the foreseeable future) between entities that
are consolidated in Terras financial statements,
(c) the offset to the fair value of derivative assets and
79
liabilities (that qualify as hedged relationships) recorded on
the balance sheet, and (d) minimum pension liability
adjustments.
The components of accumulated other comprehensive income (loss),
net of tax, for the years ended December 31, 2007, 2006 and
2005 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
Post-retirement
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Fair Value of
|
|
|
Benefit
|
|
|
|
|
|
|
|
(in thousands)
|
|
Adjustment
|
|
|
Derivatives
|
|
|
Liabilities
|
|
|
Total
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
$
|
14,287
|
|
|
$
|
(19,307
|
)
|
|
$
|
(50,974
|
)
|
|
$
|
(55,994
|
)
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
(23,387
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,387
|
)
|
|
|
|
|
Reclassification to earnings
|
|
|
|
|
|
|
3,059
|
|
|
|
|
|
|
|
3,059
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
11,139
|
|
|
|
|
|
|
|
11,139
|
|
|
|
|
|
Change in pension and post-retirement benefit liabilities
|
|
|
|
|
|
|
|
|
|
|
(4,960
|
)
|
|
|
(4,960
|
)
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
(9,100
|
)
|
|
|
(5,109
|
)
|
|
|
(55,934
|
)
|
|
|
(70,143
|
)
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
33,618
|
|
|
|
|
|
|
|
|
|
|
|
33,618
|
|
|
|
|
|
Reclassification to earnings
|
|
|
|
|
|
|
31,693
|
|
|
|
|
|
|
|
31,693
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(38,420
|
)
|
|
|
|
|
|
|
(38,420
|
)
|
|
|
|
|
Change in pension and post-retirement benefit liabilities
|
|
|
|
|
|
|
|
|
|
|
(11,850
|
)
|
|
|
(11,850
|
)
|
|
|
|
|
Adoption of SFAS 158
|
|
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
|
(8,637
|
)
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
24,518
|
|
|
|
(11,836
|
)
|
|
|
(76,421
|
)
|
|
|
(63,739
|
)
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
(46,882
|
)
|
|
|
|
|
|
|
|
|
|
|
(46,882
|
)
|
|
|
|
|
Reclassification to earnings
|
|
|
|
|
|
|
34,882
|
|
|
|
|
|
|
|
34,882
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(28,658
|
)
|
|
|
|
|
|
|
(28,658
|
)
|
|
|
|
|
Change in pension and post-retirement benefit liabilities
|
|
|
|
|
|
|
|
|
|
|
15,797
|
|
|
|
15,797
|
|
|
|
|
|
Transfer of U.K. pension plan to GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
43,272
|
|
|
|
43,272
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
$
|
(22,364
|
)
|
|
$
|
(5,612
|
)
|
|
$
|
(17,352
|
)
|
|
$
|
(45,328
|
)
|
|
|
|
|
|
|
80
19. Income
Taxes
Components of the income tax provision (benefit) applicable to
continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,154
|
|
|
$
|
719
|
|
|
$
|
|
|
Foreign
|
|
|
6,056
|
|
|
|
4,351
|
|
|
|
679
|
|
State
|
|
|
12,706
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
23,916
|
|
|
|
5,470
|
|
|
|
679
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
76,226
|
|
|
|
6,417
|
|
|
|
4,196
|
|
Foreign
|
|
|
14,653
|
|
|
|
(2,710
|
)
|
|
|
9,102
|
|
State
|
|
|
|
|
|
|
70
|
|
|
|
240
|
|
|
|
|
|
|
90,879
|
|
|
|
3,777
|
|
|
|
13,538
|
|
|
|
Total income tax provision
|
|
$
|
114,795
|
|
|
$
|
9,247
|
|
|
$
|
14,217
|
|
|
|
The following table reconciles the income tax provision
(benefit) per the Consolidated Statements of Operations to the
federal statutory provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Income before income taxes
and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
239,474
|
|
|
$
|
6,570
|
|
|
$
|
560
|
|
|
|
|
|
Foreign
|
|
|
77,216
|
|
|
|
6,890
|
|
|
|
35,744
|
|
|
|
|
|
|
|
|
|
|
316,690
|
|
|
|
13,460
|
|
|
|
36,304
|
|
|
|
|
|
|
|
Statutory income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
95,550
|
|
|
|
2,432
|
|
|
|
196
|
|
|
|
|
|
Foreign
|
|
|
24,699
|
|
|
|
2,841
|
|
|
|
11,057
|
|
|
|
|
|
|
|
|
|
|
120,249
|
|
|
|
5,273
|
|
|
|
11,253
|
|
|
|
|
|
|
|
Reduction to foreign tax rates
|
|
|
(4,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss)
|
|
|
|
|
|
|
3,553
|
|
|
|
(1,302
|
)
|
|
|
|
|
Debt repayment losses
|
|
|
|
|
|
|
|
|
|
|
7,807
|
|
|
|
|
|
Warrant fair value gain
|
|
|
|
|
|
|
|
|
|
|
(3,278
|
)
|
|
|
|
|
Valuation allowance
|
|
|
4,178
|
|
|
|
(367
|
)
|
|
|
964
|
|
|
|
|
|
Foreign tax credit
|
|
|
(6,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,176
|
|
|
|
788
|
|
|
|
(1,227
|
)
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
114,795
|
|
|
$
|
9,247
|
|
|
$
|
14,217
|
|
|
|
|
|
|
|
81
The tax effect of net operating loss (NOL), tax credit
carryforwards and significant temporary differences between
reported and taxable earnings that gave rise to net deferred tax
assets (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Current deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
2,736
|
|
|
$
|
8,323
|
|
|
|
|
|
Inventory valuation
|
|
|
354
|
|
|
|
(685
|
)
|
|
|
|
|
Unsettled derivative losses
|
|
|
3,223
|
|
|
|
(3,521
|
)
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
|
6,313
|
|
|
|
4,117
|
|
|
|
|
|
|
|
Non-current deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(125,183
|
)
|
|
|
(185,044
|
)
|
|
|
|
|
Investments in partnership
|
|
|
(7,301
|
)
|
|
|
(7,352
|
)
|
|
|
|
|
Investment in affiliates
|
|
|
(43,596
|
)
|
|
|
(34,537
|
)
|
|
|
|
|
Intangible asset
|
|
|
(1,480
|
)
|
|
|
(2,089
|
)
|
|
|
|
|
Unfunded employee benefits
|
|
|
13,992
|
|
|
|
9,111
|
|
|
|
|
|
Discontinued business costs
|
|
|
8,920
|
|
|
|
8,202
|
|
|
|
|
|
Valuation allowance
|
|
|
(31,740
|
)
|
|
|
(61,361
|
)
|
|
|
|
|
NOL, capital loss and tax credit carryforwards
|
|
|
74,283
|
|
|
|
166,386
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
12,097
|
|
|
|
42,592
|
|
|
|
|
|
Other
|
|
|
153
|
|
|
|
241
|
|
|
|
|
|
|
|
Net noncurrent deferred tax liability
|
|
|
(99,854
|
)
|
|
|
(63,851
|
)
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(93,541
|
)
|
|
$
|
(59,734
|
)
|
|
|
|
|
|
|
Our remaining NOLs at December 31, 2007 were generated in
tax year 2004. These NOLs, if unused, will begin to expire in
2024.
20. Unrecognized
Tax Benefit
We adopted the provision of FASB Interpretation No. 48,
Accounting for Uncertainty to Income Taxes (FIN 48),
on January 1, 2007. Under FIN 48, tax benefits are
recorded only for tax positions that are more likely than not to
be sustained upon examination by tax authorities. The amount
recognized is measured as the largest amount of benefit that is
greater than 50% likely to be realized upon ultimate settlement.
Unrecognized tax benefits are tax benefits claimed in our tax
returns that do not meet these recognition and measurement
standards.
The following table summarizes the activity related to our
unrecognized tax benefits:
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
|
Balance at January 1, 2007
|
|
$
|
33,560
|
|
Increases related to current year tax positions
|
|
|
|
|
Expiration of the statute of limitations for the assessment of
taxes
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
33,560
|
|
|
|
The primary jurisdictions in which we or one of our subsidiaries
files income tax returns are the United States, Canada and the
United Kingdom (See Note 7). In most United States
jurisdictions, we have net
82
operating loss (NOL) carryforwards that date back to
2004 and will remain subject to examination by tax authorities
as those NOL positions may be used to offset future taxable
earnings. For jurisdictions in Canada and the United Kingdom,
income tax returns remain subject to examination by tax
authorities for calendar years beginning in 2001 and 2005,
respectively.
The adoption of FIN 48 had no impact on our financial
statements other than the reclassification of the unrecognized
tax benefit. Other liabilities include an unrecognized tax
benefit of $33.5 million at December 31, 2007, which
had been previously recognized under FASB Statement No. 5,
Accounting for Contingencies or FASB Statement
No. 109, Accounting for Income Taxes. There were no
changes in unrecognized tax positions during the period, and
there are no expected changes in the next twelve months. If
recognized, the $33.5 million of unrecognized tax benefit
would have an impact on the effective tax rate.
When applicable, we recognize interest accrued and penalties
related to unrecognized tax benefits in income taxes on the
statement of operations. No interest or penalties were
recognized at December 31, 2007.
21. Industry
Segment Data
We operate in two principal industry segmentsNitrogen
Products and Methanol. The Nitrogen Products business produces
and distributes ammonia, urea, UAN, ammonium nitrate and other
nitrogen products to agricultural and industrial users. The
Methanol business manufactures methanol, which is principally
used as a raw material in the production of a variety of
chemical derivatives and in the production of methyl tertiary
butyl ether (MTBE), an oxygenate and octane enhancer for
gasoline. Management evaluates performance based on operating
earnings of each segment. We do not allocate interest, income
taxes or infrequent items to the business segments. Included in
Other are general
83
corporate activities not attributable to a specific industry
segment. The following summarizes additional information about
Terras industry segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nitrogen
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Products
|
|
|
Methanol
|
|
|
Other
|
|
|
Total
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,293,139
|
|
|
$
|
55,342
|
|
|
$
|
11,585
|
|
|
$
|
2,360,066
|
|
Operating income (loss)
|
|
|
447,420
|
|
|
|
(23,374
|
)
|
|
|
(3,682
|
)
|
|
|
420,364
|
|
Total assets
|
|
|
1,379,584
|
|
|
|
61,614
|
|
|
|
447,129
|
|
|
|
1,888,327
|
|
Depreciation and amortization
|
|
|
94,047
|
|
|
|
5,609
|
|
|
|
1,160
|
|
|
|
100,816
|
|
Capital expenditures
|
|
|
31,510
|
|
|
|
|
|
|
|
211
|
|
|
|
31,721
|
|
Equity earnings
|
|
|
13,491
|
|
|
|
|
|
|
|
|
|
|
|
13,491
|
|
Equity investments
|
|
|
351,986
|
|
|
|
|
|
|
|
|
|
|
|
351,986
|
|
Minority interest in losses
|
|
|
50,281
|
|
|
|
|
|
|
|
|
|
|
|
50,281
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,793,759
|
|
|
$
|
34,955
|
|
|
$
|
8,008
|
|
|
$
|
1,836,722
|
|
Operating income (loss)
|
|
|
63,275
|
|
|
|
4,952
|
|
|
|
(1,947
|
)
|
|
|
66,280
|
|
Total assets
|
|
|
1,377,471
|
|
|
|
98,916
|
|
|
|
96,326
|
|
|
|
1,572,713
|
|
Depreciation and amortization
|
|
|
74,031
|
|
|
|
13,386
|
|
|
|
20,652
|
|
|
|
108,069
|
|
Capital expenditures
|
|
|
50,626
|
|
|
|
2
|
|
|
|
228
|
|
|
|
50,856
|
|
Equity earnings
|
|
|
17,013
|
|
|
|
|
|
|
|
|
|
|
|
17,013
|
|
Equity investments
|
|
|
164,099
|
|
|
|
|
|
|
|
|
|
|
|
164,099
|
|
Minority interest in losses
|
|
|
11,286
|
|
|
|
|
|
|
|
|
|
|
|
11,286
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,899,236
|
|
|
$
|
31,347
|
|
|
$
|
8,482
|
|
|
$
|
1,939,065
|
|
Operating income (loss)
|
|
|
131,474
|
|
|
|
(14,089
|
)
|
|
|
(3,689
|
)
|
|
|
113,696
|
|
Total assets
|
|
|
1,298,289
|
|
|
|
102,811
|
|
|
|
122,525
|
|
|
|
1,523,625
|
|
Depreciation and amortization
|
|
|
90,638
|
|
|
|
10,993
|
|
|
|
8,711
|
|
|
|
110,342
|
|
Capital expenditures
|
|
|
29,967
|
|
|
|
59
|
|
|
|
794
|
|
|
|
30,820
|
|
Equity earnings
|
|
|
21,415
|
|
|
|
|
|
|
|
|
|
|
|
21,415
|
|
Equity investments
|
|
|
183,884
|
|
|
|
|
|
|
|
|
|
|
|
183,884
|
|
Minority interest in earnings
|
|
|
13,667
|
|
|
|
|
|
|
|
|
|
|
|
13,667
|
|
|
|
84
The following summarizes geographic information about Terra:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Long-lived Assets
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
United States
|
|
$
|
1,971,197
|
|
|
$
|
1,397,994
|
|
|
$
|
1,464,375
|
|
|
$
|
524,333
|
|
|
$
|
663,994
|
|
|
$
|
512,572
|
|
Canada
|
|
|
69,760
|
|
|
|
63,902
|
|
|
|
55,641
|
|
|
|
334,084
|
|
|
|
49,637
|
|
|
|
55,625
|
|
United Kingdom
|
|
|
319,109
|
|
|
|
374,826
|
|
|
|
419,049
|
|
|
|
|
|
|
|
238,577
|
|
|
|
219,045
|
|
|
|
|
|
$
|
2,360,066
|
|
|
$
|
1,836,722
|
|
|
$
|
1,939,065
|
|
|
$
|
858,417
|
|
|
$
|
952,208
|
|
|
$
|
787,242
|
|
|
|
22. Minority
interest
We own an aggregate 75.3% of TNCLP through general and limited
partnership interests. Outside investors own 24.7% of the
limited partnership interests. TNCLP has its manufacturing
facility in Verdigris, Oklahoma and is a major
U.S. producer of nitrogen fertilizer products. For
financial reporting purposes, the assets, liabilities and
earnings of the partnership are consolidated into our financial
statements. The outside investors limited partnership interest
in the partnership has been recorded as minority interest on our
consolidated financial statements. The minority interest
represents the minority unitholders interest in the equity
of TNCLP. At December 31, 2007 and 2006, we reported
minority interest in the statement of financial position of
$109.7 million and $94.7 million, respectively. For
the years 2007, 2006 and 2005, we recorded minority
unitholders interest in the statement of operations of
$50.3 million, $11.3 million and $13.7 million,
respectively.
TNCLP makes cash distributions to the general and limited
partners based on formulas as defined in the Agreement of
Limited Partnership. Cash available for distribution depends on
earnings, working capital changes and capital expenditures,
among other factors. Cash distributions to limited partners will
also vary based on increasing amounts allocable to the general
partner when cumulative distributions exceed minimum quarterly
distribution (MQD) target levels set forth in the Agreement of
Limited Partnership. As of December 31, 2007, the
cumulative MQD shortfall that must be paid to the limited
partners before the general partner receives an incentive
payment was $125.3 million.
On February 7, 2008, TNCLP announced a $4.45 per unit
distribution to be paid during the 2008 first quarter. As a
result of this distribution, the pro forma cumulative shortfall
that must be paid before we receive an incentive payment as of
March 31, 2008 is anticipated to be approximately
$53.5 million, or $2.86 per unit.
23. 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, Terra Capital, Inc. (TCAPI), the Guarantor
Subsidiaries and subsidiaries of the Parent that are not
guarantors of the Senior Unsecured Notes (see
Note 8) for December 31, 2007, 2006 and 2005 are
presented below for purposes of complying with the reporting
requirements of the Guarantor Subsidiaries. The guarantees of
the
85
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 as well as 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.
86
Condensed
Consolidating Statement of Financial Position for the Year Ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
|
|
|
$
|
55,857
|
|
|
$
|
267,145
|
|
$
|
906,752
|
|
|
$
|
(531,516
|
)
|
|
$
|
698,238
|
|
Accounts receivable, net
|
|
|
1
|
|
|
|
2
|
|
|
|
98,514
|
|
|
72,711
|
|
|
|
|
|
|
|
171,228
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
97,985
|
|
|
32,104
|
|
|
|
1,436
|
|
|
|
131,525
|
|
Other current assets
|
|
|
10,614
|
|
|
|
638
|
|
|
|
11,213
|
|
|
6,454
|
|
|
|
|
|
|
|
28,919
|
|
|
|
Total current assets
|
|
|
10,615
|
|
|
|
56,497
|
|
|
|
474,857
|
|
|
1,018,021
|
|
|
|
(530,080
|
)
|
|
|
1,029,910
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
306,410
|
|
|
125,530
|
|
|
|
|
|
|
|
431,940
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
10,488
|
|
|
341,498
|
|
|
|
|
|
|
|
351,986
|
|
Deferred plant turnaround costs, intangible and other assets
|
|
|
6,732
|
|
|
|
8,333
|
|
|
|
19,801
|
|
|
45,174
|
|
|
|
(5,549
|
)
|
|
|
74,491
|
|
Investments in and advances to (from) affiliates
|
|
|
620,375
|
|
|
|
365,762
|
|
|
|
1,848,352
|
|
|
57,752
|
|
|
|
(2,892,241
|
)
|
|
|
|
|
|
|
Total Assets
|
|
$
|
637,722
|
|
|
$
|
430,592
|
|
|
$
|
2,659,908
|
|
$
|
1,587,975
|
|
|
$
|
(3,427,870
|
)
|
|
$
|
1,888,327
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer prepayments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,036
|
|
$
|
174,315
|
|
|
$
|
|
|
|
$
|
299,351
|
|
Accounts payable
|
|
|
128
|
|
|
|
|
|
|
|
66,963
|
|
|
43,614
|
|
|
|
|
|
|
|
110,705
|
|
Accrued and other liabilities
|
|
|
25,715
|
|
|
|
9,169
|
|
|
|
50,483
|
|
|
22,263
|
|
|
|
|
|
|
|
107,630
|
|
|
|
Total current liabilities
|
|
|
25,843
|
|
|
|
9,169
|
|
|
|
242,482
|
|
|
240,192
|
|
|
|
|
|
|
|
517,686
|
|
|
|
Long-term debt and capital lease obligations
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Deferred income taxes
|
|
|
86,157
|
|
|
|
|
|
|
|
|
|
|
10,113
|
|
|
|
3,584
|
|
|
|
99,854
|
|
Pension and other liabilities
|
|
|
79,650
|
|
|
|
|
|
|
|
12,367
|
|
|
2,866
|
|
|
|
|
|
|
|
94,883
|
|
Minority interest
|
|
|
|
|
|
|
21,404
|
|
|
|
88,325
|
|
|
|
|
|
|
|
|
|
|
109,729
|
|
|
|
Total liabilities and minority interest
|
|
|
191,650
|
|
|
|
360,573
|
|
|
|
343,174
|
|
|
253,171
|
|
|
|
3,584
|
|
|
|
1,152,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
142,170
|
|
|
|
|
|
|
|
73
|
|
|
32,458
|
|
|
|
(32,531
|
)
|
|
|
142,170
|
|
Paid in capital
|
|
|
618,873
|
|
|
|
150,218
|
|
|
|
1,910,748
|
|
|
1,133,745
|
|
|
|
(3,194,710
|
)
|
|
|
618,874
|
|
Accumulated other comprehensive income income (loss) and
unearned compensation
|
|
|
(22,002
|
)
|
|
|
|
|
|
|
|
|
|
281,850
|
|
|
|
(305,176
|
)
|
|
|
(45,328
|
)
|
Retained earnings (deficit)
|
|
|
(408,769
|
)
|
|
|
(80,199
|
)
|
|
|
405,913
|
|
|
(113,249
|
)
|
|
|
100,963
|
|
|
|
(95,341
|
)
|
|
|
Total stockholders equity
|
|
|
330,272
|
|
|
|
70,019
|
|
|
|
2,316,734
|
|
|
1,334,804
|
|
|
|
(3,431,454
|
)
|
|
|
620,375
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
637,722
|
|
|
$
|
430,592
|
|
|
$
|
2,659,908
|
|
$
|
1,587,975
|
|
|
$
|
(3,427,870
|
)
|
|
$
|
1,888,327
|
|
|
|
87
Condensed
Consolidating Statement of Operations for the Year Ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,194,343
|
|
|
$
|
1,154,138
|
|
|
$
|
|
|
|
$
|
2,348,481
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
9,634
|
|
|
|
1,951
|
|
|
|
|
|
|
|
11,585
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
1,203,977
|
|
|
|
1,156,089
|
|
|
|
|
|
|
|
2,360,066
|
|
|
|
|
|
Cost and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
900
|
|
|
|
345
|
|
|
|
992,182
|
|
|
|
831,548
|
|
|
|
1
|
|
|
|
1,824,976
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,179
|
|
|
|
(10,611
|
)
|
|
|
32,439
|
|
|
|
67,962
|
|
|
|
2
|
|
|
|
91,971
|
|
|
|
Equity in the (earnings) loss of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(16,209
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,209
|
)
|
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
38,964
|
|
|
|
|
|
|
|
|
|
|
|
38,964
|
|
|
|
|
|
Total cost and expenses
|
|
|
3,079
|
|
|
|
(10,266
|
)
|
|
|
1,047,376
|
|
|
|
899,510
|
|
|
|
3
|
|
|
|
1,939,702
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(3,079
|
)
|
|
|
10,266
|
|
|
|
156,601
|
|
|
|
256,579
|
|
|
|
(3
|
)
|
|
|
420,364
|
|
|
|
Interest income
|
|
|
|
|
|
|
6,093
|
|
|
|
5,077
|
|
|
|
6,092
|
|
|
|
|
|
|
|
17,262
|
|
|
|
Interest expense
|
|
|
(1,860
|
)
|
|
|
(26,909
|
)
|
|
|
(6
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
(29,100
|
)
|
|
|
Loss on debt
|
|
|
|
|
|
|
(38,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,836
|
)
|
|
|
Foreign currency gain (loss)
|
|
|
|
|
|
|
(1,886
|
)
|
|
|
8
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax and minority interests
|
|
|
(4,939
|
)
|
|
|
(51,272
|
)
|
|
|
161,680
|
|
|
|
264,224
|
|
|
|
(3
|
)
|
|
|
369,690
|
|
|
|
Income tax benefit (provision)
|
|
|
1,790
|
|
|
|
(37,582
|
)
|
|
|
(58,294
|
)
|
|
|
(20,709
|
)
|
|
|
|
|
|
|
(114,795
|
)
|
|
|
Minority interest
|
|
|
|
|
|
|
(9,704
|
)
|
|
|
(40,577
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,281
|
)
|
|
|
Equity in subs (earnings) loss
|
|
|
205,045
|
|
|
|
303,602
|
|
|
|
|
|
|
|
(2,718
|
)
|
|
|
(508,647
|
)
|
|
|
(2,718
|
)
|
|
|
|
|
Net Income (Loss)
|
|
$
|
201,896
|
|
|
$
|
205,044
|
|
|
$
|
62,809
|
|
|
$
|
240,797
|
|
|
$
|
(508,650
|
)
|
|
$
|
201,896
|
|
|
|
|
|
88
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
201,896
|
|
|
$
|
205,044
|
|
|
$
|
62,809
|
|
|
$
|
240,796
|
|
|
$
|
(508,649
|
)
|
|
$
|
201,896
|
|
|
|
Depreciation of property, plant and equipment and amortization
of deferred plant turnaround costs
|
|
|
|
|
|
|
|
|
|
|
46,439
|
|
|
|
54,377
|
|
|
|
|
|
|
|
100,816
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
|
|
|
|
38,964
|
|
|
|
|
|
|
|
|
|
|
|
38,964
|
|
|
|
Deferred income taxes
|
|
|
90,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,879
|
|
|
|
Non-cash loss on derivatives
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
Minority interest in earnings
|
|
|
|
|
|
|
2,903
|
|
|
|
47,378
|
|
|
|
|
|
|
|
|
|
|
|
50,281
|
|
|
|
Distributions in excess of (less than) equity earnings
|
|
|
144,211
|
|
|
|
(18,284
|
)
|
|
|
8,536
|
|
|
|
379,935
|
|
|
|
(505,862
|
)
|
|
|
8,536
|
|
|
|
Equity earnings in GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,718
|
|
|
|
|
|
|
|
2,718
|
|
|
|
Share-based compensation
|
|
|
28,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
28,102
|
|
|
|
Amortization of intangible and other assets
|
|
|
|
|
|
|
|
|
|
|
3,713
|
|
|
|
3,240
|
|
|
|
1
|
|
|
|
6,954
|
|
|
|
Non-cash loss on early retirement of debt
|
|
|
|
|
|
|
4,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,662
|
|
|
|
Change in operating assets and liabilities
|
|
|
(83,235
|
)
|
|
|
4,952
|
|
|
|
78,212
|
|
|
|
460,091
|
|
|
|
(247,263
|
)
|
|
|
212,757
|
|
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
383,154
|
|
|
|
199,277
|
|
|
|
286,051
|
|
|
|
1,141,157
|
|
|
|
(1,261,774
|
)
|
|
|
747,865
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(8,721
|
)
|
|
|
(23,000
|
)
|
|
|
|
|
|
|
(31,721
|
)
|
|
|
Plant turnaround expenditures
|
|
|
|
|
|
|
|
|
|
|
(9,955
|
)
|
|
|
(40,699
|
)
|
|
|
(1
|
)
|
|
|
(50,655
|
)
|
|
|
Cash retained by GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,788
|
)
|
|
|
|
|
|
|
(16,788
|
)
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
4,705
|
|
|
|
|
|
|
|
|
|
|
|
4,705
|
|
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
Net Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
(13,947
|
)
|
|
|
(80,487
|
)
|
|
|
(1
|
)
|
|
|
(94,435
|
)
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
|
|
Payments under borrowing arrangements
|
|
|
|
|
|
|
(331,300
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(331,300
|
)
|
|
|
Common stock issuances and vestings
|
|
|
(1,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,424
|
)
|
|
|
89
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2007 (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Payments for debt issuance costs
|
|
|
|
|
|
|
(6,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,444
|
)
|
|
|
Change in investments and advances from (to) affiliates
|
|
|
(292,522
|
)
|
|
|
(236,412
|
)
|
|
|
30,281
|
|
|
|
(231,607
|
)
|
|
|
730,260
|
|
|
|
|
|
|
|
Preferred share dividends paid
|
|
|
(5,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
Payments under share repurchase program
|
|
|
(87,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,426
|
)
|
|
|
Excess tax benefits from equity compensation plans
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,317
|
|
|
|
Distributions to minority interests
|
|
|
|
|
|
|
|
|
|
|
(35,239
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,239
|
)
|
|
|
|
|
Net Cash Flows from Financing Activities
|
|
|
(383,155
|
)
|
|
|
(244,156
|
)
|
|
|
(4,959
|
)
|
|
|
(231,607
|
)
|
|
|
730,261
|
|
|
|
(133,616
|
)
|
|
|
|
|
Effect of Foreign Exchange Rate on Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(593
|
)
|
|
|
|
|
|
|
(593
|
)
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(1
|
)
|
|
|
(44,879
|
)
|
|
|
267,145
|
|
|
|
828,470
|
|
|
|
(531,514
|
)
|
|
|
519,221
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
1
|
|
|
|
100,736
|
|
|
|
|
|
|
|
78,282
|
|
|
|
(2
|
)
|
|
|
179,017
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
|
|
|
$
|
55,857
|
|
|
$
|
267,145
|
|
|
$
|
906,752
|
|
|
$
|
(531,516
|
)
|
|
$
|
698,238
|
|
|
|
|
|
90
Condensed
Consolidating Statement of Financial Position for the Year Ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash
|
|
$
|
1
|
|
|
$
|
100,736
|
|
|
$
|
|
|
|
$
|
78,282
|
|
|
$
|
(2
|
)
|
|
$
|
179,017
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
75,466
|
|
|
|
123,325
|
|
|
|
|
|
|
|
198,791
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
84,924
|
|
|
|
117,958
|
|
|
|
8,135
|
|
|
|
211,017
|
|
|
|
Other current assets
|
|
|
3,166
|
|
|
|
1,319
|
|
|
|
12,918
|
|
|
|
18,355
|
|
|
|
(4,078
|
)
|
|
|
31,680
|
|
|
|
|
|
Total current assets
|
|
|
3,167
|
|
|
|
102,055
|
|
|
|
173,308
|
|
|
|
337,920
|
|
|
|
4,055
|
|
|
|
620,505
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
381,987
|
|
|
|
338,912
|
|
|
|
(2
|
)
|
|
|
720,897
|
|
|
|
Equity investments
|
|
|
|
|
|
|
|
|
|
|
10,710
|
|
|
|
153,389
|
|
|
|
|
|
|
|
164,099
|
|
|
|
Deferred plant turnaround costs, intangible and other assets
|
|
|
(1,839
|
)
|
|
|
7,582
|
|
|
|
22,117
|
|
|
|
39,351
|
|
|
|
1
|
|
|
|
67,212
|
|
|
|
Investments in and advances to (from) affiliates
|
|
|
758,377
|
|
|
|
347,478
|
|
|
|
1,622,696
|
|
|
|
422,436
|
|
|
|
(3,150,987
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
759,705
|
|
|
$
|
457,115
|
|
|
$
|
2,210,818
|
|
|
$
|
1,292,008
|
|
|
$
|
(3,146,933
|
)
|
|
$
|
1,572,713
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt due within one year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
|
Accounts payable
|
|
|
109
|
|
|
|
|
|
|
|
63,634
|
|
|
|
92,750
|
|
|
|
|
|
|
|
156,493
|
|
|
|
Accrued and other liabilities
|
|
|
28,119
|
|
|
|
5,927
|
|
|
|
61,781
|
|
|
|
62,354
|
|
|
|
(5,227
|
)
|
|
|
152,954
|
|
|
|
|
|
Total current liabilities
|
|
|
28,228
|
|
|
|
5,927
|
|
|
|
125,416
|
|
|
|
155,104
|
|
|
|
(5,228
|
)
|
|
|
309,447
|
|
|
|
|
|
Long-term debt and capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations
|
|
|
|
|
|
|
331,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331,300
|
|
|
|
Deferred income taxes
|
|
|
22,214
|
|
|
|
|
|
|
|
|
|
|
|
43,848
|
|
|
|
(2,211
|
)
|
|
|
63,851
|
|
|
|
Pension and other liabilities
|
|
|
166,032
|
|
|
|
|
|
|
|
7,386
|
|
|
|
1,212
|
|
|
|
2
|
|
|
|
174,632
|
|
|
|
Minority interest
|
|
|
|
|
|
|
18,501
|
|
|
|
76,186
|
|
|
|
|
|
|
|
|
|
|
|
94,687
|
|
|
|
|
|
Total liabilities and minority interest
|
|
|
216,474
|
|
|
|
355,728
|
|
|
|
208,988
|
|
|
|
200,164
|
|
|
|
(7,437
|
)
|
|
|
973,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
144,975
|
|
|
|
|
|
|
|
73
|
|
|
|
49,709
|
|
|
|
(49,781
|
)
|
|
|
144,976
|
|
|
|
Paid in capital
|
|
|
693,895
|
|
|
|
150,218
|
|
|
|
2,007,811
|
|
|
|
1,246,129
|
|
|
|
(3,404,157
|
)
|
|
|
693,896
|
|
|
|
Accumulated other comprehensive income income (loss) and
unearned compensation
|
|
|
(92,187
|
)
|
|
|
|
|
|
|
6,373
|
|
|
|
30,828
|
|
|
|
(8,753
|
)
|
|
|
(63,739
|
)
|
|
|
Retained earnings (deficit)
|
|
|
(319,252
|
)
|
|
|
(48,831
|
)
|
|
|
(12,427
|
)
|
|
|
(234,822
|
)
|
|
|
323,195
|
|
|
|
(292,137
|
)
|
|
|
|
|
Total stockholders equity
|
|
|
427,431
|
|
|
|
101,387
|
|
|
|
2,001,830
|
|
|
|
1,091,844
|
|
|
|
(3,139,496
|
)
|
|
|
482,996
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
759,705
|
|
|
$
|
457,115
|
|
|
$
|
2,210,818
|
|
|
$
|
1,292,008
|
|
|
$
|
(3,146,933
|
)
|
|
$
|
1,572,713
|
|
|
|
|
|
91
Condensed
Consolidating Statement of Operations for the Year Ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
859,454
|
|
|
$
|
969,261
|
|
|
$
|
(1
|
)
|
|
$
|
1,828,714
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
5,795
|
|
|
|
2,213
|
|
|
|
|
|
|
|
8,008
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
865,249
|
|
|
|
971,474
|
|
|
|
(1
|
)
|
|
|
1,836,722
|
|
|
|
|
|
Cost and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
882,352
|
|
|
|
901,940
|
|
|
|
(52,070
|
)
|
|
|
1,732,222
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,358
|
|
|
|
(8,142
|
)
|
|
|
(7,601
|
)
|
|
|
16,549
|
|
|
|
52,069
|
|
|
|
55,233
|
|
|
|
Equity in the (earnings) loss of subsidiaries
|
|
|
29,853
|
|
|
|
(184,740
|
)
|
|
|
(91,993
|
)
|
|
|
(46,002
|
)
|
|
|
275,869
|
|
|
|
(17,013
|
)
|
|
|
|
|
Total cost and expenses
|
|
|
32,211
|
|
|
|
(192,882
|
)
|
|
|
782,758
|
|
|
|
872,487
|
|
|
|
275,868
|
|
|
|
1,770,442
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(32,211
|
)
|
|
|
192,882
|
|
|
|
82,491
|
|
|
|
98,987
|
|
|
|
(275,869
|
)
|
|
|
66,280
|
|
|
|
Interest income
|
|
|
|
|
|
|
(167
|
)
|
|
|
7,004
|
|
|
|
(1,267
|
)
|
|
|
887
|
|
|
|
6,457
|
|
|
|
Interest expense
|
|
|
(1,860
|
)
|
|
|
(42,320
|
)
|
|
|
(8
|
)
|
|
|
1,610
|
|
|
|
(5,413
|
)
|
|
|
(47,991
|
)
|
|
|
|
|
Income (loss) before tax and minority interests
|
|
|
(34,071
|
)
|
|
|
150,395
|
|
|
|
89,487
|
|
|
|
99,330
|
|
|
|
(280,395
|
)
|
|
|
24,746
|
|
|
|
Income tax benefit (provision)
|
|
|
(7,607
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,642
|
)
|
|
|
2
|
|
|
|
(9,247
|
)
|
|
|
Minority interest
|
|
|
|
|
|
|
(2,178
|
)
|
|
|
(9,108
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,286
|
)
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(41,678
|
)
|
|
$
|
148,217
|
|
|
$
|
80,379
|
|
|
$
|
97,688
|
|
|
$
|
(280,393
|
)
|
|
$
|
4,213
|
|
|
|
|
|
92
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(41,678
|
)
|
|
$
|
148,217
|
|
|
$
|
80,379
|
|
|
$
|
97,688
|
|
|
$
|
(280,393
|
)
|
|
$
|
4,213
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
2,928
|
|
|
|
45,789
|
|
|
|
35,154
|
|
|
|
31,076
|
|
|
|
114,947
|
|
|
|
Non-cash loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
589
|
|
|
|
344
|
|
|
|
|
|
|
|
933
|
|
|
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
|
|
|
|
|
|
3,777
|
|
|
|
Minority interest in earnings (loss)
|
|
|
|
|
|
|
452
|
|
|
|
10,838
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
11,286
|
|
|
|
Equity earnings in excess of profit distributions
|
|
|
(29,853
|
)
|
|
|
184,740
|
|
|
|
91,993
|
|
|
|
46,002
|
|
|
|
(283,680
|
)
|
|
|
9,202
|
|
|
|
Amortization of unearned compensation
|
|
|
7,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,010
|
|
|
|
Change in operating assets and liabilities
|
|
|
33,137
|
|
|
|
(73,758
|
)
|
|
|
(33,997
|
)
|
|
|
31,657
|
|
|
|
50,853
|
|
|
|
7,892
|
|
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
(31,384
|
)
|
|
|
262,579
|
|
|
|
195,591
|
|
|
|
214,622
|
|
|
|
(482,148
|
)
|
|
|
159,260
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(29,115
|
)
|
|
|
(21,741
|
)
|
|
|
|
|
|
|
(50,856
|
)
|
|
|
Plant turnaround costs
|
|
|
|
|
|
|
|
|
|
|
(13,755
|
)
|
|
|
(21,526
|
)
|
|
|
|
|
|
|
(35,281
|
)
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,660
|
|
|
|
|
|
|
|
9,660
|
|
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
16,400
|
|
|
|
2,700
|
|
|
|
|
|
|
|
19,100
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
8,595
|
|
|
|
|
|
Net Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
(17,875
|
)
|
|
|
(30,907
|
)
|
|
|
|
|
|
|
(48,782
|
)
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments under borrowing arrangements
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(37
|
)
|
|
|
Proceeds from exercise of stock options
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
|
|
Tax benefit of unvested stock
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,255
|
|
|
|
Change in investments and advances from (to) affiliates
|
|
|
53,652
|
|
|
|
(173,351
|
)
|
|
|
(236,202
|
)
|
|
|
(126,256
|
)
|
|
|
482,157
|
|
|
|
|
|
|
|
Preferred share dividends paid
|
|
|
(5,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
Repurchases of TRA stock
|
|
|
(18,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18,796
|
)
|
|
|
Changes in overdraft protection arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,443
|
|
|
|
|
|
|
|
11,443
|
|
|
|
Distributions to minority interests
|
|
|
|
|
|
|
|
|
|
|
(8,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,861
|
)
|
|
|
|
|
Net Cash Flows from Financing Activities
|
|
|
31,384
|
|
|
|
(173,351
|
)
|
|
|
(245,088
|
)
|
|
|
(114,825
|
)
|
|
|
482,147
|
|
|
|
(19,733
|
)
|
|
|
|
|
93
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2006 (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
Effect of Foreign Exchange Rate on Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
1,906
|
|
|
|
|
|
|
1,906
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
|
|
|
89,228
|
|
|
(67,372
|
)
|
|
|
70,796
|
|
|
(1
|
)
|
|
|
92,651
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
1
|
|
|
11,508
|
|
|
67,372
|
|
|
|
7,486
|
|
|
(1
|
)
|
|
|
86,366
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
1
|
|
$
|
100,736
|
|
$
|
|
|
|
$
|
78,282
|
|
$
|
(2
|
)
|
|
$
|
179,017
|
|
|
|
|
94
Condensed
Consolidating Statement of Operations for the Year Ended
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
576,993
|
|
|
$
|
1,353,589
|
|
|
$
|
1
|
|
|
$
|
1,930,583
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
7,189
|
|
|
|
1,293
|
|
|
|
|
|
|
|
8,482
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
584,182
|
|
|
|
1,354,882
|
|
|
|
1
|
|
|
|
1,939,065
|
|
|
|
|
|
Cost and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
3,510
|
|
|
|
603,372
|
|
|
|
1,242,991
|
|
|
|
(49,637
|
)
|
|
|
1,800,236
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,817
|
|
|
|
(8,183
|
)
|
|
|
(4,425
|
)
|
|
|
6,848
|
|
|
|
49,491
|
|
|
|
46,548
|
|
|
|
Equity in the (earnings) loss of subsidiaries
|
|
|
40,800
|
|
|
|
(209,743
|
)
|
|
|
(89,609
|
)
|
|
|
(79,915
|
)
|
|
|
317,052
|
|
|
|
(21,415
|
)
|
|
|
|
|
Total cost and expenses
|
|
|
43,617
|
|
|
|
(214,416
|
)
|
|
|
509,338
|
|
|
|
1,169,924
|
|
|
|
316,906
|
|
|
|
1,825,369
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(43,617
|
)
|
|
|
214,416
|
|
|
|
74,844
|
|
|
|
184,958
|
|
|
|
(316,905
|
)
|
|
|
113,696
|
|
|
|
Interest income
|
|
|
|
|
|
|
2,049
|
|
|
|
5,291
|
|
|
|
(612
|
)
|
|
|
1,358
|
|
|
|
8,086
|
|
|
|
Interest expense
|
|
|
(1,860
|
)
|
|
|
(44,843
|
)
|
|
|
(16
|
)
|
|
|
(6,758
|
)
|
|
|
(1
|
)
|
|
|
(53,478
|
)
|
|
|
Loss on early retirement of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,193
|
)
|
|
|
|
|
|
|
(27,193
|
)
|
|
|
Change in fair value of warrant liability
|
|
|
8,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,860
|
|
|
|
|
|
Income (loss) before tax and minority interests
|
|
|
(36,617
|
)
|
|
|
171,622
|
|
|
|
80,119
|
|
|
|
150,395
|
|
|
|
(315,548
|
)
|
|
|
49,971
|
|
|
|
Income tax benefit (provision)
|
|
|
(4,435
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,782
|
)
|
|
|
|
|
|
|
(14,217
|
)
|
|
|
Minority interest
|
|
|
|
|
|
|
(2,679
|
)
|
|
|
(10,989
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(13,667
|
)
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(41,052
|
)
|
|
$
|
168,943
|
|
|
$
|
69,130
|
|
|
$
|
140,613
|
|
|
$
|
(315,547
|
)
|
|
$
|
22,087
|
|
|
|
|
|
95
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(41,052
|
)
|
|
$
|
168,943
|
|
|
$
|
69,130
|
|
|
$
|
140,613
|
|
|
$
|
(315,547
|
)
|
|
$
|
22,087
|
|
|
|
Non-cash loss on early retirement of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,543
|
|
|
|
|
|
|
|
22,543
|
|
|
|
Change in fair value of warrant liability
|
|
|
(8,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,860
|
)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
43,506
|
|
|
|
64,838
|
|
|
|
7,241
|
|
|
|
115,585
|
|
|
|
Non-cash loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
4,091
|
|
|
|
|
|
|
|
|
|
|
|
4,091
|
|
|
|
Deferred taxes
|
|
|
13,538
|
|
|
|
|
|
|
|
|
|
|
|
(5,400
|
)
|
|
|
5,400
|
|
|
|
13,538
|
|
|
|
Minority interest in earnings (loss)
|
|
|
|
|
|
|
2,679
|
|
|
|
10,989
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
13,667
|
|
|
|
Equity earnings in excess of profit distributions
|
|
|
40,800
|
|
|
|
(209,743
|
)
|
|
|
|
|
|
|
(79,915
|
)
|
|
|
241,917
|
|
|
|
(6,941
|
)
|
|
|
Amortization of unearned compensation
|
|
|
2,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,431
|
|
|
|
Term loan discount accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,773
|
|
|
|
|
|
|
|
1,773
|
|
|
|
Change in operating assets and liabilities
|
|
|
11,211
|
|
|
|
147,075
|
|
|
|
(56,723
|
)
|
|
|
(107,064
|
)
|
|
|
(163,538
|
)
|
|
|
(169,039
|
)
|
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
18,068
|
|
|
|
108,954
|
|
|
|
70,993
|
|
|
|
37,388
|
|
|
|
(224,528
|
)
|
|
|
10,875
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(3,331
|
)
|
|
|
(27,489
|
)
|
|
|
|
|
|
|
(30,820
|
)
|
|
|
Plant turnaround costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,331
|
)
|
|
|
|
|
|
|
(22,331
|
)
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,901
|
|
|
|
|
|
|
|
31,901
|
|
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
7,392
|
|
|
|
|
|
|
|
7,560
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,595
|
)
|
|
|
|
|
Net Cash Flows from Investing Activities
|
|
|
168
|
|
|
|
|
|
|
|
(11,926
|
)
|
|
|
(10,527
|
)
|
|
|
|
|
|
|
(22,285
|
)
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments under borrowing arrangements
|
|
|
|
|
|
|
|
|
|
|
(104
|
)
|
|
|
(125,063
|
)
|
|
|
|
|
|
|
(125,167
|
)
|
|
|
Proceeds from exercise of stock options
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
Stock issuance
|
|
|
|
|
|
|
|
|
|
|
(9,190
|
)
|
|
|
|
|
|
|
9,190
|
|
|
|
|
|
|
|
Change in investments and advances from (to) affiliates
|
|
|
(12,428
|
)
|
|
|
(299,473
|
)
|
|
|
|
|
|
|
239,000
|
|
|
|
72,901
|
|
|
|
|
|
|
|
Preferred share dividends paid
|
|
|
(5,950
|
)
|
|
|
|
|
|
|
|
|
|
|
(133,875
|
)
|
|
|
133,875
|
|
|
|
(5,950
|
)
|
|
|
Distributions to minority interests
|
|
|
|
|
|
|
(2,664
|
)
|
|
|
(10,944
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(13,607
|
)
|
|
|
|
|
96
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2005 (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Net Cash Flows from Financing Activities
|
|
|
(18,236
|
)
|
|
|
(302,137
|
)
|
|
|
(20,238
|
)
|
|
|
(19,938
|
)
|
|
|
215,967
|
|
|
|
(144,582
|
)
|
|
|
|
|
Effect of Foreign Exchange Rate on Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,560
|
|
|
|
8,560
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
|
|
|
|
(193,183
|
)
|
|
|
38,829
|
|
|
|
6,923
|
|
|
|
(1
|
)
|
|
|
(147,432
|
)
|
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
1
|
|
|
|
204,691
|
|
|
|
28,543
|
|
|
|
563
|
|
|
|
|
|
|
|
233,798
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
1
|
|
|
$
|
11,508
|
|
|
$
|
67,372
|
|
|
$
|
7,486
|
|
|
$
|
(1
|
)
|
|
$
|
86,366
|
|
|
|
|
|
97
24. Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share
data)
|
|
March 31
|
|
|
June 30
|
|
|
Sept 30
|
|
|
Dec 31
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
502,286
|
|
|
$
|
693,815
|
|
|
$
|
593,715
|
|
|
$
|
570,249
|
|
Operating income
|
|
$
|
64,670
|
|
|
$
|
128,774
|
|
|
$
|
95,303
|
|
|
$
|
131,417
|
|
Net income
|
|
$
|
7,210
|
|
|
$
|
70,655
|
|
|
$
|
54,380
|
|
|
$
|
69,651
|
|
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.06
|
|
|
$
|
0.76
|
|
|
$
|
0.59
|
|
|
$
|
0.77
|
|
Diluted income per share
|
|
$
|
0.06
|
|
|
$
|
0.66
|
|
|
$
|
0.51
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
398,920
|
|
|
$
|
523,520
|
|
|
$
|
464,781
|
|
|
$
|
449,501
|
|
Operating income (loss)
|
|
$
|
(28,166
|
)
|
|
$
|
26,224
|
|
|
$
|
29,388
|
|
|
$
|
38,834
|
|
Net income (loss)
|
|
$
|
(23,991
|
)
|
|
$
|
6,257
|
|
|
$
|
10,341
|
|
|
$
|
11,606
|
|
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
(0.27
|
)
|
|
$
|
0.05
|
|
|
$
|
0.10
|
|
|
$
|
0.11
|
|
Diluted income (loss) per share
|
|
$
|
(0.27
|
)
|
|
$
|
0.05
|
|
|
$
|
0.10
|
|
|
$
|
0.11
|
|
98
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
(a)
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer has evaluated the
effectiveness of our disclosure controls and procedures (as such
term in defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act), as of the end of the period covered by this report.
Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by us in the reports
that we file or submit under the Exchange Act.
(b)
Changes in Internal Controls
There have not been any significant changes in our internal
controls or in other factors that could significantly affect
these controls subsequent to the date of the review and
evaluation. There were no material weaknesses identified in the
review and evaluation, and therefore no corrective actions were
taken.
(c)
Internal Control over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires that
management document and test the Companys internal control
over financial reporting and include in this Annual report on
Form 10-K
a report on managements assessment of the effectiveness
our internal control over financial reporting. See
Managements Report on Internal Control over
Financial Reporting below. The effectiveness of our
internal control over financial reporting as of
December 31, 2007 has been audited by Deloitte &
Touche LLP, our independent registered accounting firm, and
issued their report, a copy of which is included in this Annual
Report on
Form 10-K.
Managements
Annual Report on Internal Control Over Financial
Reporting
We are responsible for establishing and maintaining adequate
internal controls over financial reporting. Under the
supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial
Officer, we evaluated the effectiveness of the design and
operation of our internal control over financial reporting based
on the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
internal control over financial reporting was effective as of
December 31, 2007.
99
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Terra Industries
Inc.:
We have audited the internal control over financial reporting of
Terra Industries Inc. and subsidiaries (the Company)
as of December 31, 2007, based on the criteria established
in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records, that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
100
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2007 of
the Company and our report dated February 28, 2008
expressed an unqualified opinion on those financial statements
and financial statement schedule.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 28, 2008
101
|
|
Item 9B.
|
Other
Information
|
None.
102
Part III
|
|
Item 10.
|
Directors
and Executive Officers of Terra
|
Information with respect to directors of Terra is set forth
under the heading Election of Directors in the proxy
statement for the Annual Meeting of Stockholders of Terra to be
held on May 6, 2008, and is incorporated herein by
reference. Information with respect to executive officers of
Terra is set forth under the caption Executive Officers of
Terra in Part I hereof and is incorporated herein by
reference.
We have a Code of Ethics and Business Conduct that applies to
Terras principal executive officer and its principal
financial officer. The code also applies to our other officers,
directors and employees. The Code of Ethics and Business Conduct
is posted on Terras Web site, www.terraindustries.com, and
is available on hard copy upon request. In addition, the
information set forth under Equity Security
Ownership and Section 16(a) Beneficial
Ownership Reporting Compliance in the proxy statement and
is incorporated herein by reference.
|
|
Item 11.
|
Executive
Compensation
|
Information with respect to executive and director compensation
set forth under the headings Executive Compensation and
Other Information in the proxy statement for the Annual
Meeting of Stockholders of Terra to be held on May 6, 2008,
is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information with respect to security ownership of certain
beneficial owners and management under the caption Equity
Security Ownership in the proxy statement for the Annual
Meeting of Stockholders of Terra to be held on May 6, 2008
is incorporated herein by reference.
|
|
|
|
|
|
|
Equity
Compensation Plan Information
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
Number of securities
to be
|
|
Weighted-average
|
|
Number of securities
remaining available for
|
|
|
issued upon exercise
of
|
|
exercise price of
|
|
future issuance
under equity compensation
|
|
|
outstanding options,
warrants
|
|
outstanding
options,
|
|
plans (excluding
securities reflected in column
|
Plan
category
|
|
and
rights
|
|
warrants
and rights
|
|
(a))
|
|
Equity compensation plans approved by security holders
|
|
11,000
|
|
$3.17
|
|
3,753,626
|
|
|
Equity compensation plans not approved by
security holders
|
|
-0-
|
|
-0-
|
|
-0-
|
|
|
Total
|
|
11,000
|
|
$3.17
|
|
3,753,626
|
103
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
Information with respect to certain relationships and related
transactions is set forth under the heading Transactions
with Related Persons, Policies and Procedures
and Compensation Committee Interlocks and Insider
Participation contained in the Proxy Statement is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Principal
Accountant Audit Fees and Services Fees
Information with respect to principal accountant audit fees and
service fees is set forth under the heading
Proposal 2: Ratification of Selection of Independent
AccountantsPrincipal Accountant Audit Fees and Service
Fees in the proxy statement for the Annual Meeting of
Stockholders of Terra to be held May 6, 2008, and is
incorporated herein by reference.
Audit
Committee Pre-Approval Policies and Procedures
Pursuant to its charter, the Audit Committee is responsible for
reviewing and approving, in advance, any audit and any
permissible non-audit engagement or relationship between Terra
and its independent auditors. Deloitte & Touche
LLPs engagement to conduct the audit of Terra was approved
by the Audit Committee on February 27, 2007. Additionally,
each permissible non-audit engagement or relationship between
Terra and services performed by Deloitte & Touche LLP
since May 2003 has been reviewed and approved in advance by the
Audit Committee, as provided in its charter.
104
Part IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents
Filed as a Part of this Report
|
|
|
|
1.
|
Consolidated Financial Statements of Terra and its subsidiaries
are included in Item 8 herein.
|
Consolidated Statements of Financial Position at
December 31, 2007 and 2006
Consolidated Statements of Operations for the years ended
December 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2007, 2006 and 2005
Notes to the Consolidated Financial Statements
Report of Independent Registered Accounting Firm
|
|
|
|
2.
|
Index to Financial Statement Schedules, Reports and Consents
|
See Index to Financial Statement Schedules of Terra and its
subsidiaries at
page S-1
3. Other Financial Statements
Individual financial statements of Terras 50% owned joint
ventures accounted for on the equity method have been omitted
because they do not constitute a significant subsidiary.
(b) Exhibits
|
|
|
|
|
|
2
|
.1
|
|
Stock Purchase Agreement dated as of August 6, 2004 among
Terra Industries Inc., MissChem Acquisition Inc. and Mississippi
Chemical Corporation, filed as Exhibit 99.2 to Terra
Industries Inc.s
Form 8-K
dated August 9, 2004, is incorporated herein by reference.
|
|
3
|
.1
|
|
Articles of Restatement of Terra Industries Inc. filed with the
State Department of Assessments and Taxation of Maryland on
August 3, 2005, restating the Charter of Terra Industries
Inc., filed as Exhibit 3.1 to Terra Industries Inc.s
August 4, 2005
Form 8-K,
are incorporated herein by reference.
|
|
3
|
.2
|
|
Amended and Restated By-Laws of Terra Industries Inc., effective
as of August 3, 2005, filed as Exhibit 3.2 to Terra
Industries Inc.s August 4, 2005
Form 8-K,
are incorporated herein by reference.
|
|
3
|
.3
|
|
Certificate of Incorporation of Terra Capital, Inc. filed as
Exhibit 3.i.(a) to Terra Capital, Inc.s
Registration Statement filed on
Form S-4
on November 13, 2001, is incorporated herein by reference.
|
|
3
|
.4
|
|
By-Laws of Terra Capital, Inc. filed as Exhibit 3.ii.(a) to
Terra Capital, Inc.s Registration Statement filed on
Form S-4
on November 13, 2001, is incorporated herein by reference.
|
105
|
|
|
|
|
|
3
|
.5
|
|
Certificate of Incorporation of Terra Nitrogen GP Inc., filed as
Exhibit 3.2 to the September 7, 2005 Terra Nitrogen
Company, L.P.s
Form 8-K,
is incorporated herein by reference.
|
|
3
|
.6
|
|
By-Laws of Terra Nitrogen GP Inc., filed as Exhibit 3.3 to
the September 7, 2005 TNCLP
Form 8-K,
are incorporated herein by reference.
|
|
4
|
.1
|
|
Indenture dated as of October 10, 2001 among Terra Capital,
Inc., certain guarantors and U.S. Bank National Association, as
trustee, including the form of note, filed as Exhibit 4.1
to Terra Industries
Form 8-K
dated October 10, 2001, is incorporated herein by reference.
|
|
4
|
.2
|
|
Amendment No. 1 to the Amended and Restated Credit
Agreement dated January 26, 2005, among Terra Capital,
Inc., Mississippi Chemical Corporation and Terra Nitrogen (U.K.)
Limited (collectively Borrowers), Terra Industries
Inc., Terra Capital Holdings, Inc., the financial institutions
from time to time party thereto as issuing banks
(Issuers) and Citicorp USA Inc., as
administrative agent and collateral agent for Lenders and
Issuers, filed as Exhibit 4.3 to Terra Industries
Form 10-Q
for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
|
|
4
|
.3
|
|
Amendment No. 2 to the Amended and Restated Credit
Agreement dated July 29, 2005, among Terra Capital, Inc.,
Terra Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively
Borrowers), Terra Industries Inc.,
Terra Capital Holdings, Inc., the Lenders party hereto and
Citicorp USA Inc. as administrative agent and collateral agent
for the Lenders and Issuers, filed as Exhibit 4.4 to Terra
Industries Inc.s
Form 10-Q
for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
|
|
4
|
.4
|
|
Amendment No. 3 to the Amended and Restated Credit
Agreement dated October 30, 2006, among Terra Capital,
Inc., Terra Mississippi Holdings Corp. (f/k/a/ Mississippi
Chemical Corporation) and Terra Nitrogen (U.K.) Limited
(collectively Borrowers), Terra Industries Inc.,
Terra Capital Holdings, Inc., the Lenders party hereto and
Citicorp USA Inc. as administrative agent and collateral agent
for the Lenders and Issuers, filed as Exhibit 4.1 to Terra
Industries Inc.s
Form 10-Q
for the fiscal quarter ended September 30, 2006, is
incorporated herein by reference.
|
|
4
|
.5*
|
|
Amendment No. 4 to the Amended and Restated Credit
Agreement dated February 2, 2007, among Terra Capital,
Inc., Terra Mississippi Holdings Corp. (f/k/a Mississippi
Chemical Corporation) and Terra Nitrogen (U.K.) Limited
(collectively Borrowers). Terra Industries Inc.,
Terra Capital Holdings, Inc., the Lenders party hereto and
Citicorp USA Inc. as administrative agent and collateral agent
for the Lenders and Issuers.
|
|
4
|
.6*
|
|
Amendment No. 5 to the Amended and Restated Credit
Agreement dated July 11, 2007, among Terra Capital, Inc.,
Terra Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively
Borrowers), Terra Industries, Inc., Terra Capital
Holdings, Inc., the Lenders party hereto and Citicorp USA Inc.
as administrative agent and collateral agent for the Lenders and
Issuers.
|
106
|
|
|
|
|
|
4
|
.7*
|
|
Amendment No. 6 to the Amended and Restated Credit
Agreement dated August 28, 2007, among Terra Capital Inc.,
Terra Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively
Borrowers), Terra Industries Inc., Terra Capital
Holdings, Inc., the Lenders party hereto and Citicorp USA Inc.
as administrative agent and collateral agent for the Lenders and
Issuers.
|
|
4
|
.8
|
|
Amendment No. 1 to the Credit Agreement dated July 29,
2005 among Terra Nitrogen, Limited Partnership
(Borrower), Terra Nitrogen Company, L.P., the
Lenders party hereto and Citicorp USA Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.5 to Terra Industries
Form 10-Q
for the quarter ended September 30, 2005, is incorporated
herein by reference.
|
|
4
|
.9
|
|
Amendment No. 2 to the Credit Agreement dated
February 2, 2007, among Terra Nitrogen, Limited Partnership
(Borrower), Terra Nitrogen Company, L.P., the
Lenders party hereto, and Citicorp USA, Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.8 to Terra Nitrogen Company, L.P.s Form
10-K for the year ended December 31, 2007.
|
|
4
|
.10
|
|
Indenture dated May 21, 2003 between the Company, the
guarantors party hereto, and U.S. National Bank Association as
Trustee, with respect to the
111/2%
Second Priority Senior Secured Notes due 2010 (including the
form of
111/2%
Second Priority Senior Secured Notes), previously filed as
Exhibit 4.i to Amendment No. 1 to the
Registrants Registration Statement of
Form S-4
filed on June 12, 2003 and incorporated by reference
herein, filed as Exhibit 4.6 to Terra Industries
Form 10-Q
for the quarter ended June 30, 2003, is incorporated herein
by reference.
|
|
4
|
.11
|
|
Articles Supplementary of Terra Industries Inc. relating to
the Retirement of the Companys Trust Shares, filed as
Exhibit 3.1 to Terra Industries Inc.s August 3,
2005
Form 8-K,
are incorporated herein by reference.
|
|
4
|
.12
|
|
Articles Supplementary of Terra Industries Inc. relating to
the Reclassification of the Companys Series B
Cumulative Redeemable Preferred Shares, filed as
Exhibit 3.2 to Terra Industries Inc.s August 3,
2005
Form 8-K,
are incorporated herein by reference.
|
|
4
|
.13
|
|
Registration Rights Agreement dated as of October 7, 2004,
among Terra and Citigroup Global Markets Inc., as Representative
of the Initial Purchasers, filed as Exhibit 4.6 to
Terras
Form S-3
dated January 4, 2005, is incorporated herein by reference.
|
|
4
|
.14
|
|
Registration Rights Agreement, dated as of August 6, 2004,
among Terra Industries Inc., Taurus Investments S.A. and
the other shareholders named therein, filed as Exhibit 99.1
to Terras
Form 8-K
dated August 16, 2004, is incorporated herein by reference.
|
|
4
|
.15
|
|
Registration Rights Agreement, dated as of December 16,
2004, among Terra Industries Inc. and the initial
purchasers named therein, filed as Exhibit 4.7 to
Terras
Form S-3/A
filed February 9, 2005, is incorporated by reference.
|
107
|
|
|
|
|
|
4
|
.16
|
|
Registration Rights Agreement, dated as of December 21,
2004, among Terra Industries Inc., Värde Investment
Partners, L.P., Perry Principals Investments LLC, Citigroup
Global Markets, Inc., filed as Exhibit 10.1 to Terras
Form 8-K
dated December 27, 2004, is incorporated by reference.
|
|
4
|
.17
|
|
Registration Agreement, dated as of February 2, 2007, by
and among Terra Capital, Inc., the guarantors named therein and
Citigroup Global Markets Inc., relating to the 7% Senior Notes
due 2017, filed as Exhibit 10.1 to Terra Industries
Inc.s
Form 8-K
dated February 5, 2007, is incorporated herein by reference.
|
|
4
|
.18
|
|
Form of Indenture relating to the 4.25% Convertible
Subordinated Debentures, filed as Exhibit 4.7 to
Terras
Form S-3
dated January 4, 2005, is incorporated herein by reference.
|
|
4
|
.19
|
|
Purchase Agreement, dated October 7, 2004, among Terra
Industries Inc. and the initial purchasers named therein
relating to the sale of Terras 4.25% Series A
Cumulative Convertible Perpetual Preferred Shares, filed as
Exhibit 1 to
Terras Form S-3
filed on January 4, 2005, is incorporated by reference.
|
|
4
|
.20
|
|
Purchase Agreement, dated as of January 25, 2007, by and
among Terra Capital, Inc., the guarantors named therein and
Citigroup Global Markets Inc., relating to the 7% Senior Notes
due 2017, filed as Exhibit 10.1 to Terra Industries
Inc.s
Form 8-K
dated January 30, 2007, is incorporated herein by reference.
|
|
4
|
.21
|
|
$150,000,000 Amended and Restated Credit Agreement dated as of
December 21, 2004, among Terra Capital, Inc., Terra
Nitrogen (U.K.) Limited, Mississippi Chemical Corporation, as
Borrowers; Terra Industries Inc. and Terra Capital Holdings,
Inc., as Guarantors; and the Lenders and Issuers Party thereto;
and Citicorp USA, Inc., as Administrative Agent and Collateral
Agent, Citigroup Global Markets Inc. as Lead Arranger and Sole
Book Runner, filed as Exhibit 4.18 to the Terra
Industries
Form 10-K
for the fiscal year ended December 31, 2004, is
incorporated herein by reference.
|
|
4
|
.22
|
|
$50,000,000 Credit Agreement dated as of December 21, 2004
among Terra Nitrogen, Limited Partnership, as Borrower;
Terra Nitrogen Company, L.P., as a Guarantor; and the Lenders
and Issuers Party thereto; and Citicorp USA, Inc., as
Administrative Agent and Collateral Agent; and Citigroup
Global Markets Inc., as Lead Arranger and Sole Book Runner,
filed as Exhibit 4.19 to the Terra Industries
Form 10-K
for the fiscal year ended December 31, 2004, is
incorporated herein by reference.
|
|
4
|
.23
|
|
Third Supplement to Indenture, dated as of January 29, 2007, by
and among Terra Capital, Inc., the guarantors named therein and
U.S. Bank National Association, as trustee, with respect to the
127/8%
Senior Secured Notes due 2008, filed as Exhibit 4.1 to Terra
Industries Inc.s Form 8-K dated January 30, 2007, is
incorporated herein by reference.
|
|
4
|
.24
|
|
Third Supplement to Indenture, dated as of January 29,
2007, by and among Terra Capital, Inc., the guarantors named
therein and U.S. Bank National Association, as trustee, with
respect to the
111/2%
Second Priority Senior Secured Notes due 2010, files as
Exhibit 4.2 to Terra Industries Inc.s
Form 8-K
dated January 30, 2007, is incorporated herein by
reference.
|
108
|
|
|
|
|
|
4
|
.25
|
|
Indenture, dated February 2, 2007, by and among Terra
Capital, Inc., Terra Industries Inc., the guarantors named
therein and U.S. Bank National Association, as trustee, relating
to the 7% Senior Notes due 2017, filed as Exhibit 4.1 to
Terra Industries Inc.s
Form 8-K
dated February 5, 2007, is incorporated herein by reference.
|
|
10
|
.1.1
|
|
Resolution adopted by the Personnel Committee of the Board of
Directors of Terra Industries with respect to supplemental
retirement benefits for certain senior executive officers of
Terra Industries, filed as Exhibit 10.4.2 to Terra
Industries
Form 10-Q
for the fiscal quarter ended March 31, 1991, is
incorporated herein by reference.
|
|
10
|
.1.2
|
|
Excess Benefit Plan of Terra Industries, as amended effective as
of January 1, 1992, filed as Exhibit 10.1.13 to Terra
Industries
Form 10-K
for the year ended December 31, 1992, is incorporated
herein by reference.
|
|
10
|
.1.3
|
|
Amendment to the Terra Industries Inc. Excess Benefit Plan,
dated July 26, 2000, filed as Exhibit 10.1.6.a to
Terra Industries
Form 10-K
for the year ended December 31, 2000, is incorporated
herein by reference.
|
|
10
|
.1.4
|
|
Terra Industries Inc. Supplemental Deferred Compensation Plan
effective as of December 20, 1993 filed as
Exhibit 10.1.9 to Terra Industries
Form 10-K
for the year ended December 31, 1993, is incorporated
herein by reference.
|
|
10
|
.1.5
|
|
Amendment No. 1 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, filed as Exhibit 10.1.15 to
Terra Industries
Form 10-Q
for the quarter ended September 30, 1995, is incorporated
herein by reference.
|
|
10
|
.1.5.a
|
|
Amendment No. 2 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, dated July 26, 2000, filed as
Exhibit 10.1.8.a to the Terra Industries
Form 10-K
for the year ended December 31, 2000, is incorporated
herein by reference.
|
|
10
|
.1.5.b
|
|
Amendment No. 3 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, dated March 29, 2002, filed as
Exhibit 10.1.8.b. to the Terra Industries
Form 10-K
for the year ended December 31, 2001, is incorporated
herein by reference.
|
|
10
|
.1.6
|
|
1992 Stock Incentive Plan of Terra Industries Inc. filed as
Exhibit 10.1.6 To Terra Industries
Form 10-K
for the year ended December 31, 1992, is incorporated
herein by reference.
|
|
10
|
.1.7
|
|
Revised Form of Incentive Stock Option Agreement of Terra
Industries Inc. under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.12 to Terra Industries
Form 10-K
for the year ended December 31, 1996, is incorporated
herein by reference.
|
|
10
|
.1.8
|
|
Revised Form of Nonqualified Stock Option Agreement of Terra
Industries Inc. under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.13 to Terra Industries
Form 10-K
for the year ended December 31, 1996, is incorporated
herein by reference.
|
|
10
|
.1.9
|
|
1997 Stock Incentive Plan of Terra Industries, filed as
Exhibit 10.1.14 to Terra Industries Inc.s
Form 10-K
for the year ended December 31, 1996, is incorporated
herein by reference.
|
109
|
|
|
|
|
|
10
|
.1.9.a
|
|
Amendment No. 1 dated as of February 20, 1997 to the
1997 Stock Incentive Plan of Terra Industries Inc. filed as
Exhibit 10.1.21 to Terra Industries Inc.s
Form 10-K
for the year ended December 31, 1999, is incorporated
herein by reference.
|
|
10
|
.1.10
|
|
Form of Incentive Stock Option Agreement of Terra Industries
Inc. under its 1997 Stock Incentive Plan filed as
Exhibit 10.1.13 to Terra Industries Inc.s
Form 10-K
for the year ended December 31, 1999, is incorporated
herein by reference.
|
|
10
|
.1.11
|
|
Form of Nonqualified Stock Option Agreement of Terra Industries
Inc. under its 1997 Stock Incentive Plan filed as
Exhibit 10.1.14 to Terra Industries Inc.s
Form 10-K
for the year ended December 31, 1999, is incorporated
herein by reference.
|
|
10
|
.1.12
|
|
Form of Performance Share Award of Terra Industries under its
1997 Stock Incentive Plan, filed as Exhibit 10.1.15 to
Terra Industries
Form 10-K
for the year ended December 31, 1998, is incorporated
herein by reference.
|
|
10
|
.1.13
|
|
Form of Executive Retention Agreement for Other Executive
Officers, filed as Exhibit 10.1.19 to Terra
Industries
Form 10-K
for the year ended December 31, 1998, is incorporated
herein by reference.
|
|
10
|
.1.14
|
|
Form of Non-Employee Director Stock Option Agreement under the
1997 Stock Incentive Plan, filed as Exhibit 10.2.21 to
Terra Industries Inc.s
Form 10-Q
for the quarter ended September 30, 1999, is incorporated
herein by reference.
|
|
10
|
.1.15
|
|
Form of Performance Share Award of Terra Industries Inc. under
its 1997 Stock Incentive Plan, dated February 16, 2000,
filed as Exhibit 10.1.22 of the Terra Industries
Form 10-K
for the year ended December 31, 2000, is incorporated
herein by reference.
|
|
10
|
.1.16
|
|
Form of Non-Employee Director Performance Share Award of Terra
Industries Inc. under its 1997 Stock Incentive Plan, dated
May 2, 2000, filed as Exhibit 10.1.23 to the Terra
Industries
Form 10-K
for the year ended December 31, 2000, is incorporated
herein by reference.
|
|
10
|
.1.17
|
|
Terra Industries Inc. Stock Incentive Plan of 2002, filed as
Exhibit 10.1.18 to the Terra Industries
Form 10-K
for the year ended December 31, 2001, is incorporated
herein by reference.
|
|
10
|
.1.18
|
|
Form of Restricted Stock Award to Non-Employee Directors under
the Terra Industries Inc. Stock Incentive Plan of 2002, filed as
Exhibit 10.1.23 to the Terra Industries
Form 10-K
for the year ended December 31, 2002, is incorporated
herein by reference.
|
|
10
|
.1.19
|
|
Form of Restricted Stock Award to Officers and Other Key
Employees under the Terra Industries Inc. Stock Incentive Plan
of 2002, filed as Exhibit 10.1.24 to the Terra
Industries
Form 10-K
for the year ended December 31, 2002, is incorporated
herein by reference.
|
|
10
|
.1.20
|
|
Revised Form of Restricted Stock Award of Terra Industries Inc.
under its Stock Incentive Plan of 2002, filed as
Exhibit 10.9 to the Terra Industries
Form 10-Q
for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
|
110
|
|
|
|
|
|
10
|
.1.21
|
|
Form of Long-Term Incentive Award for Time and Performance Based
Shares of Terra Industries Inc. under its Stock Incentive Plan
of 2002, filed as Exhibit 10.10 to the Terra Industries
10-Q for the
fiscal quarter ended September 30, 2005, is incorporated
herein by reference.
|
|
10
|
.1.22
|
|
Form of Long-Term Incentive Award for Phantom Time and
Performance Based Shares of Terra Industries Inc. under its
Stock Incentive Plan of 2002, filed as Exhibit 10.11 to the
Terra Industries
Form 10-Q
for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
|
|
10
|
.1.23
|
|
Form of Long-Term Incentive Award for Performance Shares of
Terra Industries Inc. under its Stock Incentive Plan of 2002
filed as Exhibit 10.1.23 to the Terra Industries
Inc.s
Form 10-K
for the year ended 2005, is incorporated by reference.
|
|
10
|
.1.24
|
|
Form of Long-Term Incentive Award for Phantom Performance Shares
of Terra Industries Inc. under its Stock Incentive Plan of 2002
filed as Exhibit 10.1.24 to the Terra Industries
Inc.s
Form 10-K
for the year ended 2005, is incorporated by reference.
|
|
10
|
.1.25
|
|
Form of Indemnity Agreement of Terra Industries Inc., filed as
Exhibit 10.1.27 to Terra Industries Inc.s
Form 8-K
dated July 1, 2006, is incorporated by reference.
|
|
10
|
.1.26
|
|
Form of Unrestricted Annual Share Award to Non-Employee
Directors under the Terra Industries Inc. Stock Incentive Plan
of 2002, filed as Exhibit 99.1 to Terra Industries
Inc.s
Form 8-K
dated August 10, 2006, is incorporated herein by reference.
|
|
10
|
.1.27
|
|
Employment Severance Agreement between Terra Industries Inc. and
Michael L. Bennett dated October 5, 2006, filed as
Exhibit 10.1 to Terra Industries Inc.s
Form 8-K
dated October 5, 2006, is incorporated herein by reference.
|
|
10
|
.1.28
|
|
Form of Employment Severance Agreement for Section 16(b)
Executive Officers, filed as Exhibit 10.2 to Terra
Industries Inc.s
Form 8-K
dated October 5, 2006, is incorporated herein by reference.
|
|
10
|
.1.29
|
|
Amendment to Employment Severance Agreement between Terra
Industries Inc. and Mark A. Kalafut dated October 6, 2006,
filed as Exhibit 10.1 to Terra Industries Inc.s
Form 8-K
dated October 6, 2006 is incorporated herein by reference.
|
|
10
|
.1.30
|
|
2007 Omnibus Incentive Compensation Plan, adopted by the board
of directors of Terra Industries Inc. (Terra) and
subsequently approved by its stockholders at the annual meeting
of Terra on May 8, 2007, reported on Terras
Form 8-K filed May 10, 2007 and attached as
Appendix A to Terras Proxy Statement on
Schedule 14A filed with the Securities and Exchange
Commission on March 15, 2007, is incorporated herein by
reference.
|
|
10
|
.1.31*
|
|
Amendment Number One to Employment Severance Agreement.
|
|
10
|
.1.32*
|
|
Amendment to Restricted Share Agreement.
|
|
10
|
.1.33*
|
|
Amendment to Performance Share Award Agreement.
|
|
10
|
.1.34*
|
|
Amendment to Terra Long Term Incentive Award dated
October 23, 2007, for former Terra, now GrowHow UK Limited
joint venture employees.
|
111
|
|
|
|
|
|
10
|
.2
|
|
First Amended and Restated Agreement of Limited Partnership of
Terra Nitrogen, Limited Partnership dated September 1,
2005, filed as Exhibit 10.3 to the September 7, 2005
Terra Nitrogen Company, L.P.s
Form 8-K,
is incorporated herein by reference.
|
|
10
|
.3
|
|
General and Administrative Services Agreement regarding Services
by Terra Industries Inc. filed as Exhibit 10.11 to Terra
Industries Inc. Form 10-Q for the quarter ended
March 31, 1995, is incorporated herein by reference.
|
|
10
|
.4
|
|
Amendment No. 1 to the General and Administrative Service
Agreement regarding Services by Terra Industries Inc. dated
September 1, 2005, filed as Exhibit 10.4 to the
September 7, 2005 Terra Nitrogen Company, L.P.s
Form 8-K,
is incorporated herein by reference.
|
|
10
|
.5
|
|
Amendment No. 1 to the General and Administrative Services
Agreement regarding Services by Terra Nitrogen Corporation dated
September 1, 2005, filed as Exhibit 10.5 to the
September 7, 2005 Terra Nitrogen Company, L.P.s
Form 8-K,
is incorporated herein by reference.
|
|
10
|
.6
|
|
Amended and Restated General and Administrative Services
Agreement between Terra Industries Inc., Terra Nitrogen
Corporation, and Terra Nitrogen GP Inc., dated October 23,
2007, filed as Exhibit 10.1 to TNCLPs Form 10-Q
filed on October 29, 2007, is incorporated herein by
reference.
|
|
10
|
.7
|
|
Reorganization Agreement among Terra Nitrogen Company, L.P.,
(the MLP), Terra Nitrogen, Limited Partnership (the
OLP) and Terra Nitrogen Corporation (the
GP) dated September 1, 2005, filed as
Exhibit 10.1 to the September 7, 2005 Terra Nitrogen
Company, L.P.s
Form 8-K,
is incorporated herein by reference.
|
|
10
|
.8
|
|
Conveyance, Assignment and Assumption Agreement by and between
Terra Nitrogen Corporation (the Company) and Terra
Nitrogen GP Inc. (the New GP) dated
September 1, 2005, filed as Exhibit 10.2 to the
September 7, 2005 Terra Nitrogen Company, L.P.s
Form 8-K,
is incorporated herein by reference.
|
|
10
|
.9
|
|
Sale of Business Agreement dated November 20, 1997 between
ICI Chemicals & Polymers Limited, Imperial Chemical
Industries PLC, Terra Nitrogen (U.K.) Limited (f/k/a Terra
Industries Limited) and Terra Industries Inc. filed as
Exhibit 2 to Terra Industries
Form 8-K/A
dated December 31, 1997, is incorporated herein by
reference.
|
|
10
|
.10
|
|
Ammonium Nitrate Agreement dated December 31, 1997 between
Terra International (Canada) Inc and ICI Chemicals &
Polymers Limited filed as Exhibit 99 to Terra
Industries
Form 8-K/A
dated December 31, 1997, is incorporated herein by
reference.
|
|
10
|
.11
|
|
Asset Sale and Purchase Agreement dated as of May 3, 1999
by and between Terra Industries Inc. and Cenex/Land OLakes
Agronomy Company, filed as Exhibit 10.12 to Terra
Industries
Form 8-K
dated May 3, 1999, is incorporated herein by reference.
|
112
|
|
|
|
|
|
10
|
.12
|
|
Asset Purchase and Methanol Exclusivity Agreement among Terra
Industries Inc., BMC Holdings Inc., and Methanex Methanol
Company dated December 15, 2003, filed as Exhibit 10.9
to Terra Industries From
10-K for the
year ended December 31, 2003, is incorporated herein by
reference.
|
|
10
|
.12.1
|
|
Services Agreement among Terra Industries Inc., BMC Holdings
Inc., and Methanex Methanol Company dated December 15, 2003
included as Schedule E to Exhibit 10.9 herein, filed
as Exhibit 10.91.1 to Terra Industries
Form 10-K
for the year ended December 31, 2003, is incorporated
herein by reference.
|
|
10
|
.13
|
|
First Amendment to Asset Purchase and Methanol Exclusivity
Agreement dated February 20, 2004, filed as
Exhibit 10.10 to Terra Industries
Form 10-K
for the year ended December 31, 2003, is incorporated
herein by reference.
|
|
10
|
.14
|
|
Warrant Agreement dated December 21, 2004 among Terra
Industries Inc., Perry Principals Investments LLC, Citigroup
Financial Products Inc. and Värde Investment Partners,
L.P., filed as Exhibit 10.11 to Terra Industries
Form 10-K
for the year ended December 31, 2004, is incorporated
herein by reference.
|
|
10
|
.15
|
|
Ammonium Nitrate Supply Agreement between Terra Mississippi
Nitrogen, Inc. and Orica USA Inc. dated July 21, 2005,
filed as Exhibit 10.7 to Terra Industries Inc.s
Form 10-Q
for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
|
|
10
|
.16
|
|
Conversion Agreement by and between Terra Mississippi Nitrogen,
Inc. and Orica USA Inc. dated July 21, 2005, filed as
exhibit 10.8 to the Terra Industries Inc.
Form 10-Q
for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
|
|
10
|
.17
|
|
Option Agreement, dated as of July 18, 2007, by and between
Terra Industries Inc. and Eastman Chemical Company, filed as
Exhibit 10.1 to Terra Industries Inc.s Form 8-K
dated July 23, 2007, is incorporated herein by reference.
|
|
10
|
.18
|
|
Joint Venture Contribution Agreement, dated September 14,
2007, by and among GrowHow UK Limited, Terra International
(Canada), Inc., Kemira GrowHow Oyj and Terra Industries Inc.,
filed as Exhibit 10.1 to Terra Industries Inc.s
Form 10-Q dated October 29, 2007, is incorporated
herein for reference.
|
113
|
|
|
|
|
|
10
|
.19
|
|
Shareholders Agreement, dated September 14, 2007, by
and among Kemira GrowHow Oyj, Terra International (Canada),
Inc., Terra Industries Inc and GrowHow UK Limited filed as
Exhibit 10.2 to Terra Industries Inc.s
Form 10-Q
dated October 29, 2007, is incorporated herein for
reference.
|
|
12
|
.1*
|
|
Ratio of Earnings to Financial Charges
|
|
21
|
.1*
|
|
Subsidiaries of Terra Industries Inc.
|
|
23
|
.1*
|
|
Consent of Deloitte & Touche LLP
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
*
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
* |
|
Filed herewith. |
|
|
Confidential treatment has been requested for portions of this
document. |
Exhibits 10.1.1 through 10.1.34 are management contracts or
compensatory plans or arrangements.
114
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TERRA INDUSTRIES INC.
|
|
|
|
|
Date: February 28, 2008
|
|
By:
|
|
/s/ DANIEL
D. GREENWELL
Daniel
D. Greenwell
Senior Vice President and Chief Financial
Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ HENRY
R. SLACK
Henry
R. Slack
|
|
Chairman of the Board
|
|
|
|
/s/ MICHAEL
L. BENNETT
Michael
L. Bennett
|
|
Director, President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ DANIEL
D. GREENWELL
Daniel
D. Greenwell
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
|
|
|
|
/s/ DAVID
E. FISHER
David
E. Fisher
|
|
Director
|
|
|
|
/s/ DOD
A. FRASER
Dod
A. Fraser
|
|
Director
|
|
|
|
/s/ MARTHA
O. HESSE
Martha
O. Hesse
|
|
Director
|
|
|
|
/s/ PETER
S. JANSON
Peter
S. Janson
|
|
Director
|
|
|
|
/s/ JAMES
R. KRONER
James
R. Kroner
|
|
Director
|
|
|
|
/s/ DENNIS
MCGLONE
Dennis
McGlone
|
|
Director
|
Date: February 28, 2008
115
Index to
Financial Statement Schedules
|
|
|
Schedule No.
|
|
I Condensed Financial Information of Registrant, is
included in Item 8 herein, Footnote 23, Column 1,
Parent.
|
|
|
|
|
|
|
|
S-2
|
Financial statement schedules not included in this report have
been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
the notes thereto.
S-1
Schedule II
Terra Industries
Inc.
Valuation
and Qualifying Accounts
Years
Ended December 31, 2007, 2006, and 2005
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Write-
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
offs, and
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Transfers,
|
|
|
Balance
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Net of
|
|
|
at End
|
|
Description
|
|
Period
|
|
|
Expenses
|
|
|
Recoveries
|
|
|
of Period
|
|
|
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
332
|
|
|
$
|
15
|
|
|
$
|
(83
|
)
|
|
$
|
264
|
|
Allowance for deferred tax assets
|
|
$
|
61,361
|
|
|
$
|
3,939
|
|
|
$
|
(33,560
|
)
|
|
$
|
31,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
234
|
|
|
$
|
486
|
|
|
$
|
(388
|
)
|
|
$
|
332
|
|
Allowance for deferred tax assets
|
|
$
|
61,728
|
|
|
$
|
|
|
|
$
|
(367
|
)
|
|
$
|
61,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
262
|
|
|
$
|
824
|
|
|
$
|
(852
|
)
|
|
$
|
234
|
|
Allowance for deferred tax assets
|
|
$
|
56,490
|
|
|
$
|
5,238
|
|
|
$
|
|
|
|
$
|
61,728
|
|
S-2