UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2010
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland |
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1-8520 |
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52-1145429 |
(State or other jurisdiction |
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(Commission File Number) |
|
(IRS Employer |
of incorporation) |
|
|
|
Identification Number) |
Terra Centre |
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51102-6000 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (712) 277-1340
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. Results of Operations and Financial Condition.
On May 6, 2010, Terra Industries Inc. (Terra) announced net income attributable to common stockholders for the 2010 first quarter of $46.7 million ($0.47 per diluted share), compared to net income of $30.0 million ($0.30 per diluted share) for the same period in 2009.
Analysis of First Quarter Results
Revenues for the 2010 first quarter totaled $408.9 million, compared to revenues of $419.8 million for the 2009 first quarter. Although Terra realized a 27 percent gain in sales volumes over those of the 2009 first quarter, this was not enough to offset fully the 22 percent decline in nitrogen products selling prices. The selling price reduction reflects the strong prices experienced during the 2009 period, as prices were just beginning to retreat from the historic 2008 levels. The stronger sales volumes reflect healthy agricultural and recovering industrial demand, low starting nitrogen products inventories across the supply chain and reduced import volumes.
Lower natural gas prices helped to reduce first quarter 2010 production costs by $62.7 million compared to the 2009 first quarter.
Selling, general and administrative costs increased $4.6 million in the 2010 first quarter over those of the 2009 first quarter, primarily due to an increase in bonus and restricted stock compensation expense.
During the 2010 first quarter, Terras GrowHow UK joint venture benefited from a 59 percent increase in sales volumes and 5 percent lower gas prices, which offset the 29 percent decrease in selling prices, as compared to the 2009 first quarter.
Forward Natural Gas Position
Terras forward purchase contracts at March 31, 2010 fixed prices for about 11 percent of its next 12 months natural gas needs at $9.7 million higher than published prices for March 31, 2010 forward markets. These forward positions hedge production costs primarily associated with product that has been sold and will ship in the 2010 second and third quarters.
Cash Balances, Customer Prepayments and Dividends
Cash balances totaled $635.6 million and customer prepayments totaled $106.3 million at March 31, 2010. Pre-paid products are expected to ship under customer agreements during the 2010 second and third quarters.
Terra paid its $0.10-per-share regular quarterly dividend for the 2009 fourth quarter on April 7, 2010, to holders of record on March 17, 2010, and for the 2010 first quarter on April 22, 2010, to holders of record as of April 1, 2010.
Acquisition by CF Industries
On April 15, 2010, CF Industries Holdings, Inc. (NYSE: CF) (CF Industries) completed the final steps in its acquisition of Terra. As a result Terra, with 2009 revenues of $1.6 billion, is now a direct, wholly owned subsidiary of CF Industries, Inc.
Forward-Looking Statements
Certain statements in this communication may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result,
these statements speak only as of the date they were made and Terra undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law.
Words such as expects, intends, plans, projects, believes, estimates, and similar expressions are used to identify these forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks, uncertainties and assumptions include, among others, statements relating to:
· changes in product mix;
· changes in the seasonality of demand patterns;
· changes in weather conditions;
· changes in environmental and other government regulations;
· changes in agricultural regulations;
· changes in the securities trading markets;
· the potential for disruption from the CF/Terra acquisition to make it more difficult to maintain relationships with customers, employees or suppliers;
· the volatile cost of natural gas in the areas where our production facilities are principally located;
· the global commodity nature of our fertilizer products, the impact of global supply and demand on our selling prices, and the intense global competition in the consolidating markets in which we operate;
· conditions in the U.S. agricultural industry;
· risks involving derivatives and the effectiveness of our risk measurement and hedging activities;
· the reliance of our operations on a limited number of key facilities and the significant risks and hazards against which we may not be fully insured;
· reliance on third party transportation providers;
· risks associated with joint ventures;
· risks associated with expansion of our business, including unanticipated adverse consequences and the significant resources that could be required;
· potential liabilities and expenditures related to environmental and health and safety laws and regulations;
· acts of terrorism and regulations to combat terrorism;
· difficulties in securing the supply and delivery of raw materials we use and increases in their costs;
· risks associated with international operations;
· deterioration of global market and economic conditions;
· our ability to comply with the covenants under our indebtedness and to make payments under such indebtedness when due;
· potential inability to refinance our indebtedness in connection with any change of control affecting us;
· loss of key members of management and professional staff;
· changes in financial and capital markets;
· general economic conditions within the agricultural industry;
· competitive factors and price changes (principally, sales prices of nitrogen products and natural gas costs); and
· other risks detailed in the section entitled Risk Factors in Terras 2009 Annual Report on Form 10-K.
Additional information as to these factors can be found in Terras 2009 10-K.
# # #
Terra Industries Inc.
Summarized Results of Operations
(unaudited)
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Three Months Ended |
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March 31, |
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(in thousands except per-share amounts) |
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2010 |
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2009 |
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Revenues |
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Product revenues |
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$ |
407,794 |
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$ |
418,362 |
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Other income |
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1,073 |
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1,391 |
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Total revenues |
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408,867 |
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419,753 |
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Costs and Expenses |
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Cost of sales |
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304,105 |
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342,957 |
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Selling, general and administrative expenses |
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23,159 |
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18,568 |
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Other operating expenses |
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3,332 |
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1,700 |
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Equity earnings of North American affiliates |
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(11,898 |
) |
(3,252 |
) |
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Total costs and expenses |
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318,698 |
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359,973 |
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Income from operations |
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90,169 |
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59,780 |
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Interest income |
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134 |
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1,810 |
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Interest expense |
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(13,389 |
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(6,728 |
) |
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Income before income taxes, noncontrolling interest and equity earnings of GrowHow UK Limited |
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76,914 |
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54,862 |
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Income tax provision |
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(25,151 |
) |
(12,585 |
) |
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Equity earnings (loss) of GrowHow UK Limited |
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3,149 |
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(4,374 |
) |
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Net income |
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54,912 |
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37,903 |
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Less: Net income attributable to the noncontrolling interest |
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8,204 |
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7,908 |
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Net income attributable to Terra Industries Inc. |
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$ |
46,708 |
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$ |
29,995 |
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Amounts Attributable to Terra Industries Inc. Common Stockholders: |
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Net income attributable to Terra Industries Inc. |
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46,708 |
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29,995 |
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Less: Preferred share dividends |
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5 |
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17 |
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Net income attributable to Terra Industries Inc. Common Stockholders |
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$ |
46,703 |
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$ |
29,978 |
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Net Income per Common Share Attributable to Terra Industries Inc. Common Stockholders: |
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Basic |
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$ |
0.47 |
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$ |
0.30 |
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Diluted |
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$ |
0.47 |
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$ |
0.30 |
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Weighted average common shares outstanding: |
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Basic |
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99,833 |
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99,040 |
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Diluted |
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100,249 |
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99,760 |
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Because of the seasonal nature and effects of weather-related conditions in several of Terras marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year.
Terra Industries Inc.
Summarized Financial Position
(unaudited)
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March 31, |
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(in thousands) |
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2010 |
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2009 |
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Assets |
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Cash and cash equivalents |
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$ |
635,628 |
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$ |
1,020,020 |
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Accounts receivable, less allowance for doubtful accounts of $760 and $613 |
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114,874 |
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119,280 |
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Inventories, net |
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172,593 |
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160,339 |
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Other current assets |
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68,052 |
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39,250 |
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Total current assets |
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991,147 |
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1,338,889 |
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Property, plant and equipment, net |
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479,011 |
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406,844 |
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Equity method investments |
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204,972 |
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253,624 |
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Deferred plant turnaround costs, net |
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20,686 |
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27,053 |
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Other assets |
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31,842 |
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24,598 |
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Total assets |
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$ |
1,727,658 |
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$ |
2,051,008 |
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Liabilities and Stockholders Equity |
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Accounts payable |
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$ |
96,712 |
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$ |
98,556 |
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Customer prepayments |
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106,322 |
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176,544 |
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Derivative hedge liabilities |
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9,954 |
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27,274 |
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Accrued and other current liabilities |
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106,219 |
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65,240 |
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Total current liabilities |
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319,207 |
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367,614 |
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Long-term debt |
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602,605 |
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330,000 |
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Deferred taxes |
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71,873 |
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74,618 |
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Pension liabilities |
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27,349 |
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9,322 |
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Other liabilities |
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100,801 |
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78,452 |
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Total liabilities |
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1,121,835 |
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860,006 |
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Preferred Sharesliquidation value of $0 and $1,600 |
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1,544 |
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Common Stockholders Equity |
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Capital stock |
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Common Sharesauthorized 133,500 shares; 100,166 and 99,701 shares outstanding |
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153,127 |
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152,481 |
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Paid-in capital |
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449,247 |
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580,035 |
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Accumulated other comprehensive loss |
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(146,568 |
) |
(172,065 |
) |
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Retained earnings |
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48,905 |
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527,557 |
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Total common stockholders equity |
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504,711 |
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1,088,008 |
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Noncontrolling interest |
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101,112 |
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101,450 |
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Total equity |
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605,823 |
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1,189,458 |
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Total liabilities and equity |
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$ |
1,727,658 |
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$ |
2,051,008 |
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Terra Industries Inc.
Summarized Cash Flows
(unaudited)
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Three Months Ended March 31, |
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(in thousands) |
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2010 |
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2009 |
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Operating Activities |
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Net income |
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$ |
54,912 |
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$ |
37,903 |
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Adjustments to reconcile income from continuing operations to net cash flows from operating activities: |
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Depreciation of property, plant and equipment and amortization of deferred plant turnaround costs |
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20,673 |
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20,145 |
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Loss on sales of property, plant and equipment |
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32 |
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235 |
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Deferred income taxes |
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(3,149 |
) |
(2,359 |
) |
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Distributions in excess of equity earnings of North American affiliates |
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2,362 |
|
475 |
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Distributions in excess of equity earnings of GrowHow UK Limited |
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15,763 |
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4,374 |
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Non-cash loss on derivatives |
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276 |
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621 |
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Share-based compensation |
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6,811 |
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7,170 |
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Amortization of intangible and other assets |
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2,084 |
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2,340 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(14,154 |
) |
10,640 |
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Inventories |
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(34,387 |
) |
35,907 |
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Accounts payable and customer prepayments |
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75,359 |
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64,112 |
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Derivative hedge liabilities |
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9,673 |
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(98,651 |
) |
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Other assets and liabilities, net |
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26,908 |
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2,211 |
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Net cash flows from operating activities |
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163,163 |
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85,123 |
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Investing Activities |
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Capital expenditures and plant turnaround expenditures |
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(35,055 |
) |
(28,632 |
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Distributions received from North American affiliates |
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1,115 |
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4,473 |
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Balancing consideration and other payments from GrowHow UK Limited |
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13,911 |
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5,230 |
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Net cash flows from investing activities |
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(20,029 |
) |
(18,929 |
) |
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Financing Activities |
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Preferred share dividends paid |
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(5 |
) |
(17 |
) |
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Common stock dividends paid |
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(10,017 |
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Common stock issuances and vestings |
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(888 |
) |
(5,270 |
) |
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Excess tax benefits from equity compensation plans |
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2,190 |
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3,921 |
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Distributions to noncontrolling interests |
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(13,705 |
) |
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Net cash flows from financing activities |
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(8,720 |
) |
(15,071 |
) |
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Effect of exchange rate changes on cash |
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(96 |
) |
2,197 |
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Increase to cash and cash equivalents |
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134,318 |
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53,320 |
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Cash and cash equivalents at beginning of period |
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501,310 |
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966,700 |
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Cash and cash equivalents at end of period |
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$ |
635,628 |
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$ |
1,020,020 |
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Terra Industries Inc.
Summarized Information
(volumes in thousands)
North America Sales Volumes and Prices
Note: All UAN data for 2010 and 2009 are expressed on a 32% nitrogen basis.
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Three Months Ended March 31, |
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2010 |
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2009 |
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Sales |
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Average |
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Sales |
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Average |
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Volumes |
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Unit Price(1) |
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Volumes |
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Unit Price(1) |
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Ammonia (tons) |
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374 |
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$ |
314 |
|
381 |
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$ |
336 |
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UAN (tons) |
|
837 |
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184 |
|
625 |
|
282 |
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Urea (tons) (2) |
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82 |
|
325 |
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77 |
|
322 |
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Ammonium nitrate (tons) (3) |
|
296 |
|
193 |
|
168 |
|
267 |
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Natural gas cost(4) |
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$ 5.39 |
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$ 7.37 |
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(1) After deducting $42.0 million and $34.7 million outbound freight costs for 2010 and 2009, respectively.
(2) Urea sales volumes and prices include granular urea and urea solutions data.
(3) Ammonium nitrate sales volumes and prices include agricultural grade AN, industrial grade AN and ammonium nitrate solution (ANS).
(4) Per MMBtu. Includes all transportation and other logistical costs and any gains or losses on financial derivatives related to North American natural gas purchases. Net benefit of derivatives for the first quarter of 2010 was $2.8 million and the net cost of derivatives for the first quarter of 2009 was $72.9 million. Excluding the impact of 2010 hedge costs, natural gas cost was $5.48 per MMBtu for the 2010 first quarter.
Because of the seasonal nature and effects of weather-related conditions in several of Terras marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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TERRA INDUSTRIES INC. |
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By: |
/s/ Douglas C. Barnard |
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Name: |
Douglas C. Barnard |
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Title: |
Vice President and Secretary |
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Date: May 6, 2010 |
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