Terra Industries Inc. Reports Record Second Quarter Results, Declares Dividend
14:20 24.07.08
SUMMARY Q2/08 vs. Q2/07: Operating income up $154 million, or 117%. North American revenues up $151 million, or 22%. Ammonia, UAN and AN selling prices up 48%, 48% and 25%. Outlook: Terra plans to start producing ammonia at its previously idled Donaldsonville, La. plant, replacing approximately 400,000 tons per year of imported product at higher margins. Nitrogen markets continue to be tight as dealers secure supply early for next springs application season. Natural gas price volatility will continue to affect Terras manufacturing costs.
SIOUX CITY, Iowa--(BUSINESS WIRE)--
Terra Industries Inc. (NYSE: TRA) announced today record net income available to common shareholders for the 2008 second quarter of $202.2 million ($1.94 per diluted share), up from $69.4 million ($.66 per diluted share) for the same period in 2007. For the 2008 first half, Terra reported net income available to common shareholders of $302.3 million ($2.91 per diluted share), up from $75.3 million ($.73 per diluted share) in the 2007 first half.
Terra also declared a dividend of $.10 per common share, payable Sept. 12, 2008, to holders of record as of Aug. 25, 2008.
Analysis of second quarter results
Revenues for the 2008 second quarter totaled $843.1 million compared to $692.5 million for the 2007 second quarter. The 2007 revenues included $121.2 million from Terras UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $271.8 million from the 2007 to the 2008 second quarter, primarily due to higher nitrogen products selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 48, 48 and 25 percent, respectively, over those of the same period last year. The improved selling prices reflect continued strong nitrogen products demand resulting from low grain inventories and strong commodity grain prices. North American sales volumes for ammonia and AN increased by 13 and 8 percent, respectively, while sales volumes for UAN decreased 4 percent. Sales volumes were affected by delayed product movement due to cool, wet conditions and flooding throughout much of the Midwest. UAN sales volumes were also reduced by planted corn acres that were approximately 6 percent lower than those of 2007.
Second quarter equity earnings of affiliates of $37.6 million reflect Terras interest in earnings from the GrowHow UK joint venture. Second quarter earnings from continuing operations were positively affected by an aggregate pretax amount of $14.2 million ($9.2 million or $0.07 per share, after tax) related to the sale of assets.
Results of discontinued operations included $12.0 million in revenues realized under the Beaumont facility's methanol production contract, which are payable when methanol margins achieve specified levels. In 2007, these revenues were recognized in the third quarter.
Analysis of first half results
Revenues for the 2008 first half totaled $ 1.4 billion compared to $1.2 billion for the 2007 first half. The 2007 revenues included $211.0 million from Terras UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $435.4 million from the 2007 to the 2008 first half, mostly due to higher nitrogen products selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 45, 51 and 31 percent, respectively, over those of the same period last year. Selling prices for the first half improved for substantially the same reasons as they did for the second quarter. North American sales volumes for ammonia increased by 9 percent, while sales volumes for UAN decreased 3 percent and AN sales volumes remained stable. Sales volumes for the first half were generally affected by the same factors affecting those of the second quarter.
First half equity earnings of affiliates of $46.9 million reflect Terras interest in earnings from the GrowHow UK joint venture.
Forward natural gas position
Terras forward purchase contracts at June 30, 2008, fixed prices for about 31 percent of its next 12 months natural gas needs at about $68 million below the published forward market prices at that date. These forward positions hedge production costs associated with product that Terra has sold and plans to ship primarily in the third and fourth quarters of 2008.
Cash balances, customer prepayments and share buybacks
Cash balances, including about $92 million in customer prepayments, totaled $752 million at June 30, 2008. Terra expects to ship products under the prepay agreements during the 2008 third and fourth quarters.
During the 2008 second quarter, Terra repurchased 189,150 of its common shares under its share buyback program at an average price of $39.65 per share and a total cost of $7.5 million. The program authorizes Terra to repurchase approximately 12.8 million shares (14 percent of its current outstanding shares) and extends through June 30, 2010. At June 30, 2008, approximately 12.7 million shares remained available for repurchase under the program.
CEOs remarks
Said Terra President and CEO Mike Bennett, Terra realized record earnings for the second quarter, reflecting not only a very positive nitrogen industry environment, but also excellent performance in all areas of the company, including our joint ventures in Trinidad and the UK. While our costs increased due to higher natural gas prices, continued strong product demand allowed nitrogen selling prices to keep pace.
Looking ahead, Bennett continued, we expect this strong demand to continue for the remainder of 2008 as customers fill their storage capacity in anticipation of a robust spring 2009 planting and application season. The tight global supply/demand balance for nitrogen products has continued to put upward pressure on selling prices.
We also look forward to restarting our Donaldsonville, Louisiana ammonia plant in the 2008 third quarter. Once completed, this startup will allow us to replace approximately 400,000 tons per year of imported ammonia with our own manufactured product, thereby realizing higher margins.
Conference call details
Terra management will conduct a conference call to discuss these second quarter results this afternoon at 3:00 ET. A live webcast of the conference call will be available from Terras Web site at www.terraindustries.com, and will be archived for playback for three months.
About Terra
Terra Industries Inc., with 2007 revenues of $2.4 billion, is a leading international producer of nitrogen products.
Forward-looking statement
Certain statements in this new release 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 Terra undertakes 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:
financial markets,
general economic conditions within the agricultural industry,
competitive factors and price changes (principally, sales prices of nitrogen and methanol products and natural gas costs),
product mix,
the seasonality of demand patterns,
weather conditions,
environmental and other government regulation, and
agricultural regulations.
Additional information as to these factors can be found in Terras 2007 Annual Report/10-K, in the sections entitled Business, Legal Proceedings, and Managements Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements.
Note: Terra Industries news announcements are also available on its Web site, www.terraindustries.com.
Terra Industries Inc.
Summarized Results of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands except per-unit amounts) 2008 2007 2008 2007
Revenues
Product revenues $ 836,924 $ 690,995 $ 1,410,126 $ 1,190,461
Other 6,173 1,540 7,675 2,998
Total revenues $ 843,097 $ 692,535 $ 1,417,801 $ 1,193,459
Costs and expenses
Cost of sales 547,070 532,353 954,059 954,617
SG&A 27,233 28,194 39,937 45,251
Equity earnings of unconsolidated affiliates--Operating
(16,518 ) 804 (29,808 ) (4,813 )
Total costs and expenses 557,785 561,351 964,188 995,055
Operating income 285,312 131,184 453,613 198,404
Interest income 5,513 3,482 13,921 6,369
Interest expense (6,756 ) (6,871 ) (13,814 ) (15,780 )
Loss on early retirement of debt -- (174 ) -- (38,836 )
Income before taxes and minority interest 284,069 127,621 453,720 150,157
Income tax provision (107,069 ) (41,579 ) (166,573 ) (46,736 )
Minority interest (18,495 ) (13,939 ) (36,621 ) (22,576 )
Equity earnings of affiliates 37,611 -- 46,895 --
Income from continuing operations 196,116 72,103 297,421 80,845
Income (loss) from discontinued operations 7,319 (1,448 ) 7,471 (2,981 )
Net income 203,435 70,655 304,892 77,864
Preferred stock dividends (1,275 ) (1,275 ) (2,550 ) (2,550 )
Income available to common shareholders $ 202,160 $ 69,380 $ 302,342 $ 75,314
Income per common share:
Basic--continuing operations $ 2.14 $ 0.77 $ 3.26 $ 0.85
Basic--discontinued operations 0.08 (0.01 ) 0.08 (0.03 )
Net income $ 2.22 $ 0.76 $ 3.34 $ 0.82
Diluted--continuing operations $ 1.87 $ 0.67 $ 2.84 $ 0.76
Diluted--discontinued operations 0.07 (0.01 ) 0.07 (0.03 )
Net income $ 1.94 $ 0.66 $ 2.91 $ 0.73
Weighted average shares outstanding:
Basic 91,011 91,496 90,588 91,677
Diluted 104,678 107,294 104,652 107,311
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
(in thousands)
(unaudited)
June 30,
2008 2007
Assets
Cash and cash equivalents $ 752,008 $ 286,950
Accounts receivable, net 236,112 242,349
Inventories 168,950 167,471
Other current assets 112,000 23,298
Current assets held for sale--discontinued operations 45,785 2,313
Total current assets 1,314,855 722,381
Property, plant and equipment, net 386,800 616,031
Equity method investments 360,805 165,201
Deferred plant turnaround costs--net 37,116 41,375
Other assets 30,109 27,186
Noncurrent assets held for sale--discontinued operations -- 86,892
Total assets $ 2,129,685 $ 1,659,066
Liabilities and Stockholders' Equity
Accounts payable $ 146,846 $ 144,054
Customer prepayments 91,605 25,166
Accrued and other current liabilities 130,145 93,608
Current liabilities held for sale--discontinued operations 3,773 16,632
Total current liabilities 372,369 279,460
Long-term debt 330,000 330,000
Deferred taxes 153,754 66,186
Pension liability 9,251 119,407
Other liabilities 82,550 88,656
Minority interest 106,451 105,549
Noncurrent liabilities held for sale--discontinued operations -- 2,959
Total liabilities and minority interest 1,054,375 992,217
Series A preferred shares 115,800 115,800
Stockholders' equity 959,510 551,049
Total liabilities and stockholders' equity $ 2,129,685 $ 1,659,066
Terra Industries Inc.
Summarized Cash Flows
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net income $ 203,435 $ 70,655 $ 304,892 $ 77,864
Income from (loss on) discontinued operations 7,319 (1,448 ) 7,471 (2,981 )
Income from continuing operations 196,116 72,103 297,421 80,845
Non-cash charges and credits:
Depreciation and amortization 19,596 24,702 39,449 48,328
Sale of property, plant and equipment 250 -- 727 --
Deferred income taxes 11,039 28,670 48,940 36,960
Minority interest 18,495 13,940 36,621 22,576
Distributions in excess of (less than) equity earnings 4,213 1,804 3,881 (3,813 )
Equity earnings GrowHow UK Limited (37,611 ) -- (46,895 ) --
Non-cash loss (gain) on derivatives (4,293 ) 3,456 (4,954 ) 624
Share-based compensation 8,508 10,813 9,772 13,681
Amortization of intangible and other assets 2,132 2,144 4,070 4,485
Non-cash loss on early retirement of debt -- -- -- 4,662
Change in operating assets and liabilities:
Accounts receivable (76,565 ) (55,434 ) (65,675 ) (40,494 )
Inventories 48,606 66,664 (36,478 ) 48,192
Accounts payable and customer prepayments (204,209 ) (98,470 ) (171,404 ) (65,559 )
Other assets and liabilities, net 16,087 21,212 (14,574 ) 21,832
Net cash flows from operating activities-- continuing operations 2,364 91,604 100,901 172,319
Net cash flows from operating activities-- discontinued operations (986 ) 11,649 10,051 10,522
Net cash flows from operating activities 1,378 103,253 110,952 182,841
Investing Activities
Purchase of property, plant and equipment (19,219 ) (6,760 ) (25,691 ) (13,496 )
Plant turnaround costs (9,598 ) (11,478 ) (10,225 ) (20,320 )
Proceeds from sales of property, plant and equipment 18 -- 1,632 --
Distributions received from unconsolidated affiliates 269 -- 7,196 --
Contributions received from GrowHow UK Limited 165 -- 28,055 --
Net cash flow from investing activities (28,365 ) (18,238 ) 967 (33,816 )
Financing Activities
Debt issuance -- -- -- 330,000
Payments under borrowing arrangements -- (2,500 ) -- (331,300 )
Payments for debt issuance costs -- (969 ) -- (6,398 )
Preferred share dividends paid (1,275 ) (1,275 ) (2,550 ) (2,550 )
Common stock dividends paid (9,202 ) -- (9,202 ) --
Common stock issuances and vestings (969 ) 130 (6,842 ) 406
Excess tax benefits from equity compensation plans 122 -- 7,817 --
Payments under share repurchase program (7,500 ) (19,211 ) (7,500 ) (19,211 )
Distributions to minority interests (19,373 ) (7,240 ) (39,899 ) (11,714 )
Net cash flows from financing activities (38,197 ) (31,065 ) (58,176 ) (40,767 )
Effect of exchange rate changes on cash (5 ) (310 ) 27 (325 )
Increase (decrease) to cash and cash equivalents (65,189 ) 53,640 53,770 107,933
Cash and cash equivalents at beginning of period 817,197 233,310 698,238 179,017
Cash and short-term investments at end of period 752,008 286,950 752,008 286,950
Terra Industries Inc.
Summarized Information
(volumes in thousands)
North America Volumes and Prices
Note: All UAN data for 2008 and 2007 are expressed on a 32% nitrogen basis.
Three Months Ended June 30,
2008 2007
Sales Average Sales Average
Volumes Unit Price(1) Volumes Unit Price(1)
Ammonia (tons)(2) 547 $ 530 482 $ 357
UAN (tons) 1,099 338 1,146 229
Urea (tons) 30 417 32 317
Ammonium nitrate (tons)(2) 194 328 179 262
Methanol (gallons) 5,886 1.26 8,523 1.12
Natural gas cost(3) $ 8.77
$ 7.03
Six Months Ended June 30,
2008 2007
Sales Average Sales Average
Volumes Unit Price(1) Volumes Unit Price(1)
Ammonia (tons)(2) 911 $ 503 834 $ 347
UAN (tons) 2,016 314 2,086 209
Urea (tons) 55 418 65 308
Ammonium nitrate (tons)(2) 367 316 367 241
Methanol (gallons) 14,586 1.51 18,560 1.11
Natural gas cost(3) $ 8.16
$ 6.89
1 After deducting outbound freight costs.
2 2007 ammonia and AN sales volumes and prices have been adjusted to exclude Terras UK operations for accurate comparison to 2008 volumes and prices.
3 Per MMBtu. Includes all transportation and other logistical costs and any gains or losses on financial derivatives related to North American natural gas purchases.
Because of the seasonal nature and effects of weather-related conditions in several of its marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year.
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