UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
| Maryland (State or other jurisdiction of incorporation or organization) |
52-1145429 (I.R.S. Employer Identification No.) |
|
| Terra Centre P.O. Box 6000 600 Fourth Street Sioux City, Iowa (Address of principal executive offices) |
51102-6000 (Zip Code) |
Registrant’s telephone number, including area code: (712) 277-1340
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.) Yes x No o
As of October 31, 2003, the following shares of the registrant’s stock were outstanding:
| Common Shares, without par value | 77,504,916 shares |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
| September 30, | December 31, | September 30, | ||||||||||
| 2003 | 2002 | 2002 | ||||||||||
ASSETS |
||||||||||||
Cash and short-term investments |
$ | 21,278 | $ | 58,479 | $ | 41,879 | ||||||
Accounts receivable, less allowance for
doubtful accounts of $1,643, $135, $191 |
107,450 | 101,013 | 97,455 | |||||||||
Inventories |
87,599 | 88,598 | 86,838 | |||||||||
Other current assets |
32,835 | 31,201 | 30,528 | |||||||||
Total current assets |
249,162 | 279,291 | 256,700 | |||||||||
Property, plant and equipment, net |
706,610 | 790,475 | 792,182 | |||||||||
Deferred plant turnaround costs |
26,029 | 29,177 | 23,287 | |||||||||
Other assets |
35,194 | 29,167 | 30,147 | |||||||||
Total assets |
$ | 1,016,995 | $ | 1,128,110 | $ | 1,102,316 | ||||||
LIABILITIES |
||||||||||||
Debt due within one year |
$ | 152 | $ | 143 | $ | 140 | ||||||
Accounts payable |
74,956 | 94,916 | 66,883 | |||||||||
Accrued and other liabilities |
105,329 | 98,330 | 54,555 | |||||||||
Total current liabilities |
180,437 | 193,389 | 121,578 | |||||||||
Long-term debt and capital lease obligations |
402,242 | 400,358 | 400,394 | |||||||||
Deferred income taxes |
27,942 | 72,748 | 99,626 | |||||||||
Pension liabilities |
61,248 | 60,722 | 31,080 | |||||||||
Other liabilities |
47,155 | 44,197 | 49,818 | |||||||||
Minority interest |
84,777 | 98,832 | 100,021 | |||||||||
Total liabilities and minority interest |
803,801 | 870,246 | 802,517 | |||||||||
STOCKHOLDERS’ EQUITY |
||||||||||||
Capital stock |
||||||||||||
Common Shares, authorized 133,500 shares;
outstanding 77,505, 76,920 and 76,902 shares |
128,920 | 128,654 | 128,654 | |||||||||
Paid-in capital |
555,509 | 555,167 | 555,167 | |||||||||
Accumulated other comprehensive loss |
(58,964 | ) | (63,668 | ) | (43,572 | ) | ||||||
Retained deficit |
(412,271 | ) | (362,289 | ) | (340,450 | ) | ||||||
Total stockholders’ equity |
213,194 | 257,864 | 299,799 | |||||||||
Total liabilities and stockholders’ equity |
$ | 1,016,995 | $ | 1,128,110 | $ | 1,102,316 | ||||||
See Accompanying Notes to the Consolidated Financial Statements
2
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
REVENUES |
|||||||||||||||||
Net sales |
$ | 324,317 | $ | 257,875 | $ | 982,569 | $ | 770,681 | |||||||||
Other income, net |
525 | 799 | 1,361 | 1,051 | |||||||||||||
Total revenues |
324,842 | 258,674 | 983,930 | 771,732 | |||||||||||||
COSTS AND EXPENSES |
|||||||||||||||||
Cost of sales |
308,554 | 238,546 | 954,659 | 733,900 | |||||||||||||
Selling, general and administrative expense |
10,384 | 10,328 | 29,444 | 28,810 | |||||||||||||
Impairment of long-lived assets |
— | — | 53,091 | — | |||||||||||||
Total costs and expenses |
318,938 | 248,874 | 1,037,194 | 762,710 | |||||||||||||
Income (loss) from operations |
5,904 | 9,800 | (53,264 | ) | 9,022 | ||||||||||||
Interest income |
48 | 116 | 429 | 277 | |||||||||||||
Interest expense |
(13,829 | ) | (13,408 | ) | (41,664 | ) | (40,052 | ) | |||||||||
Minority interest |
234 | (492 | ) | 12,902 | (1,777 | ) | |||||||||||
Loss from continuing operations before
income taxes |
(7,643 | ) | (3,984 | ) | (81,597 | ) | (32,530 | ) | |||||||||
Income tax benefit |
3,094 | 2,048 | 31,615 | 13,012 | |||||||||||||
Loss from continuing operations |
(4,549 | ) | (1,936 | ) | (49,982 | ) | (19,518 | ) | |||||||||
Discontinued operations, net of income taxes of
$6.0 million |
— | (11,000 | ) | — | (11,000 | ) | |||||||||||
Cumulative effect of change in accounting
principle |
— | — | — | (205,968 | ) | ||||||||||||
NET LOSS |
$ | (4,549 | ) | $ | (12,936 | ) | $ | (49,982 | ) | $ | (236,486 | ) | |||||
Basic and diluted loss per share: |
|||||||||||||||||
Loss from continuing operations |
$ | (0.06 | ) | $ | (0.03 | ) | $ | (0.66 | ) | $ | (0.25 | ) | |||||
Discontinued operations |
— | (0.15 | ) | — | (0.15 | ) | |||||||||||
Cumulative effect of change in accounting
principle |
— | — | — | (2.74 | ) | ||||||||||||
Net loss per share |
$ | (0.06 | ) | $ | (0.18 | ) | $ | (0.66 | ) | $ | (3.14 | ) | |||||
Basic and diluted weighted
average shares outstanding |
75,726 | 75,468 | 75,602 | 75,276 | |||||||||||||
See Accompanying Notes to the Consolidated Financial Statements
3
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended | |||||||||
| September 30, | |||||||||
| 2003 | 2002 | ||||||||
OPERATING ACTIVITIES |
|||||||||
Net loss |
$ | (49,982 | ) | $ | (236,486 | ) | |||
Adjustments to reconcile net loss from
operations to net cash flows from operating activities: |
|||||||||
Impairment of long-lived assets |
53,091 | — | |||||||
Discontinued operations |
— | 11,000 | |||||||
Cumulative effect of change in accounting
principle |
— | 205,968 | |||||||
Depreciation and amortization |
82,041 | 78,977 | |||||||
Deferred income taxes |
(33,806 | ) | (12,854 | ) | |||||
Minority interest in earnings (losses) |
(12,902 | ) | 1,777 | ||||||
Changes in current assets and liabilities: |
|||||||||
Accounts receivable |
(3,874 | ) | 5,931 | ||||||
Inventories |
237 | 25,646 | |||||||
Other current assets |
(4,660 | ) | 12,989 | ||||||
Accounts payable |
(22,419 | ) | (9,733 | ) | |||||
Accrued and other liabilities |
(9,120 | ) | 15,136 | ||||||
Other |
569 | (98 | ) | ||||||
Net cash flows from operating activities |
(825 | ) | 98,253 | ||||||
INVESTING ACTIVITIES |
|||||||||
Purchase of property, plant and equipment |
(7,074 | ) | (16,589 | ) | |||||
Plant turnaround costs |
(20,666 | ) | (15,052 | ) | |||||
Other |
(1,100 | ) | 4,404 | ||||||
Net cash flows from investing activities |
(28,840 | ) | (27,237 | ) | |||||
FINANCING ACTIVITIES |
|||||||||
Issuance of long-term debt |
202,000 | — | |||||||
Principal payments on long-term debt and
capital lease obligations |
(200,107 | ) | (36,068 | ) | |||||
Deferred financing costs |
(8,581 | ) | — | ||||||
Stock issuance-net |
— | 608 | |||||||
Distributions to minority interests |
(1,153 | ) | (923 | ) | |||||
Net cash flows from financing activities |
(7,841 | ) | (36,383 | ) | |||||
Effect of exchange rate changes on cash |
305 | 121 | |||||||
Increase (decrease) in cash and short-term investments |
(37,201 | ) | 34,754 | ||||||
Cash and short-term investments at beginning of period |
58,479 | 7,125 | |||||||
Cash and short-term investments at end of period |
$ | 21,278 | $ | 41,879 | |||||
See Accompanying Notes to the Consolidated Financial Statements
4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands)
(unaudited)
| Accumulated | ||||||||||||||||||||||
| Other | ||||||||||||||||||||||
| Capital | Paid-In | Comprehensive | Retained | |||||||||||||||||||
| Stock | Capital | Income (Loss) | Deficit | Total | ||||||||||||||||||
Balance at January 1, 2003 |
$ | 128,654 | $ | 555,167 | $ | (63,668 | ) | $ | (362,289 | ) | $ | 257,864 | ||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||
Net loss |
— | — | — | (49,982 | ) | (49,982 | ) | |||||||||||||||
Foreign currency
translation adjustment |
— | — | 18,692 | — | 18,692 | |||||||||||||||||
Change in fair value of derivatives,
net of taxes of $8,540 |
— | — | (12,810 | ) | — | (12,810 | ) | |||||||||||||||
Minimum pension liability, net of
taxes of $580 |
— | — | (1,178 | ) | — | (1,178 | ) | |||||||||||||||
Comprehensive loss |
(45,278 | ) | ||||||||||||||||||||
Stock incentive plan |
266 | 342 | — | — | 608 | |||||||||||||||||
Balance at September 30, 2003 |
$ | 128,920 | $ | 555,509 | $ | (58,964 | ) | $ | (412,271 | ) | $ | 213,194 | ||||||||||
| Accumulated | ||||||||||||||||||||||
| Other | ||||||||||||||||||||||
| Capital | Paid-In | Comprehensive | Retained | |||||||||||||||||||
| Stock | Capital | Income (Loss) | Deficit | Total | ||||||||||||||||||
Balance at January 1, 2002 |
$ | 128,363 | $ | 554,850 | $ | (78,470 | ) | $ | (103,964 | ) | $ | 500,779 | ||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||
Net loss |
— | — | — | (236,486 | ) | (236,486 | ) | |||||||||||||||
Foreign currency
translation adjustment |
— | — | 25,131 | — | 25,131 | |||||||||||||||||
Change in fair value of derivatives,
net of taxes of $3,503 |
— | — | 9,767 | — | 9,767 | |||||||||||||||||
Comprehensive loss |
(201,588 | ) | ||||||||||||||||||||
Stock incentive plan |
291 | 317 | — | — | 608 | |||||||||||||||||
Balance at September 30, 2002 |
$ | 128,654 | $ | 555,167 | $ | (43,572 | ) | $ | (340,450 | ) | $ | 299,799 | ||||||||||
See Accompanying Notes to the Consolidated Financial Statements
5
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| 1. | The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments necessary, in the opinion of management, to summarize fairly the financial position of Terra Industries Inc. and all majority-owned subsidiaries (“Terra”) and the results of Terra’s operations for the periods presented. Because of the seasonal nature of Terra’s operations and effects of weather-related conditions in several of its marketing areas, results of any interim reporting period should not be considered as indicative of results for a full year. These statements should be read in conjunction with Terra’s 2002 Annual Report to Stockholders. Certain reclassifications have been made to prior years’ financial statements to conform with current year presentation. |
| Basic earning (loss) per share data are based on the weighted-average number of Common Shares outstanding during the period. Diluted earnings per share data are based on the weighted-average number of Common Shares outstanding and the effect of all dilutive potential common shares including stock options, restricted shares and contingent shares. |
| Inventories consisted of the following: |
| September 30, | December 31, | September 30, | ||||||||||
| (in thousands) | 2003 | 2002 | 2002 | |||||||||
Raw materials |
$ | 23,812 | $ | 22,546 | $ | 21,619 | ||||||
Supplies |
22,287 | 26,765 | 26,590 | |||||||||
Finished goods |
41,500 | 39,287 | 38,629 | |||||||||
Total |
$ | 87,599 | $ | 88,598 | $ | 86,838 | ||||||
The components of accumulated other comprehensive loss consisted of the following:
| September 30, | December 31, | September 30, | ||||||||||
| (in thousands) | 2003 | 2002 | 2002 | |||||||||
Foreign currency translation
adjustment |
$ | 19,866 | $ | 38,558 | $ | 37,940 | ||||||
Derivatives, net of taxes of
$5,888, ($2,652) and
($3,503) |
8,832 | (3,978 | ) | (5,254 | ) | |||||||
Minimum pension liability,
net of taxes of $17,890,
$17,310 and $7,257 |
30,266 | 29,088 | 10,886 | |||||||||
Total |
$ | 58,964 | $ | 63,668 | $ | 43,572 | ||||||
| Revenue is recognized when title to finished product passes to the customer. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and trade allowances. Revenues include amounts paid by customers for shipping and handling. |
| Realized gains and losses from hedging activities and premiums paid for option contracts are deferred and recognized in the month in which the hedged transactions closed. Swaps, options and other derivative instruments that do not qualify for hedge accounting treatment are marked to fair value |
6
each accounting period. Costs associated with settlement of natural gas purchase contracts and costs for shipping and handling are included in cost of sales.
Terra accounts for its employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and the related interpretations, which utilize the intrinsic value method. The pro forma impact on net loss and diluted loss per share of accounting for stock-based compensation using the fair value method required by Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation” follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||