-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3wcPacK/TJJLkRF0c+docPrkQ4tc4FlVtKBf6EyQrda3l82Ixb+UQIrnJK1O8P2 80Rm/idwZD4vKcWkc4Hxyg== 0000950134-99-008504.txt : 19991227 0000950134-99-008504.hdr.sgml : 19991227 ACCESSION NUMBER: 0000950134-99-008504 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI CHEMICAL CORP /MS/ CENTRAL INDEX KEY: 0000066895 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 640292638 STATE OF INCORPORATION: MS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12217 FILM NUMBER: 99718190 BUSINESS ADDRESS: STREET 1: P O BOX 388 CITY: YAZOO CITY STATE: MS ZIP: 39194 BUSINESS PHONE: 6017464131 MAIL ADDRESS: STREET 1: P O BOX 388 CITY: YAZOO CITY STATE: MS ZIP: 39194 FORMER COMPANY: FORMER CONFORMED NAME: MISSISSIPPI CHEMICAL CORP DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K FOR FISCAL YEAR END JUNE 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999 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 0-20411 MISSISSIPPI CHEMICAL CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MISSISSIPPI 64-0292638 - -------------------------------------------------------------- ---------------------------------- (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number) Highway 49 East, P.O. Box 388, Yazoo City, MS 39194 - ------------------------------------------------------------- ---------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 746-4131 ---------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ----------------------------------------- ----------------------------------------- Common Stock, par value $.01 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None =============================================================================== 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 [ ] 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At September 14, 1999, Mississippi Chemical Corporation had 26,140,275 shares of common stock, par value $0.01, outstanding. The Company estimates that the aggregate market value of the common stock on September 14, 1999 (based upon the closing price of the common stock on the New York Stock Exchange), held by nonaffiliates was approximately $206,672,000. - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for fiscal year ended June 30, 1999 (Item 1 in Part I; Items 5, 6, 7, 7A and 8 in Part II; and Item 14 in Part IV). Proxy Statement for Annual Meeting of Shareholders to be held on November 9, 1999 (Items 10, 11, 12 and 13 in Part III). 1 2 PART I ITEM 1. BUSINESS Mississippi Chemical Corporation (the "Company") was incorporated in Mississippi on May 23, 1994, and is the successor by merger, effective July 1, 1994, to a business which was incorporated in Mississippi in September 1948 as the first fertilizer cooperative in the United States (the "Cooperative"). The address of the Company's principal executive office is Owen Cooper Administration Building, 3622 Highway 49 East, Yazoo City, Mississippi 39194, and its telephone number is (662) 746-4131. The Company maintains a site on the World Wide Web at www.misschem.com. The term "Company" includes Mississippi Chemical Corporation, its subsidiaries and affiliates, Mississippi Phosphates Corporation; Mississippi Potash, Inc.; Eddy Potash, Inc.; Mississippi Nitrogen, Inc.; MissChem Nitrogen, L.L.C.; Triad Nitrogen, L.L.C.; TNI Barge, Inc.; MCC Investments, Inc.; NSI Land Corporation; Mississippi Chemical Management Company; Mississippi Chemical Company, L.P.; Mississippi Chemical Holdings, Inc.; MissChem (Barbados) SRL; and MissChem Trinidad Limited. References to the Company's operations prior to July 1, 1994, refer to the Cooperative's operations. The principal business of the Cooperative was to provide fertilizer products to its shareholders pursuant to preferred patronage rights that gave the shareholders the right to purchase fertilizer products and receive a patronage refund on those purchases. On June 28, 1994, the shareholders of the Cooperative approved a plan of reorganization (the "Reorganization"), pursuant to which the Cooperative was merged into the Company. As a result of the Reorganization, the capital stock of the Cooperative was converted into common stock and/or cash, and the Company began to operate as a regular business corporation. Since the Reorganization, the Company has sold the fertilizer products produced at its facilities to agricultural and industrial customers around the world. Any reference to an industrial customer or user herein includes producers who convert products purchased from the Company to another fertilizer product. In December 1994, the Company entered into a 50-50 joint venture with Farmland Industries, Inc., known as Farmland MissChem Limited ("Farmland MissChem"), to construct and operate a 2,040-ton-per-day ammonia plant to be located near Point Lisas, The Republic of Trinidad and Tobago. Construction of the facility is complete, and the ammonia plant began producing commercial quantities in July 1998. The Company is obligated by contract to purchase one-half of the ammonia (approximately 350,000 tons per year) produced by the plant at a discount to market, subject to a minimum price. In August 1996, the Company entered into an agreement to acquire the fertilizer businesses of First Mississippi Corporation ("First Mississippi") in an all-stock merger transaction. The transaction was completed on December 24, 1996. The First Mississippi fertilizer operations primarily included a 50% interest in a facility that included an ammonia plant and a urea plant that at the time of the acquisition operated under the name Triad Chemical (the Company already owned the remaining 50% of Triad Chemical) and a stand-alone ammonia plant. These assets are located on contiguous property in Donaldsonville, Louisiana. In August 1996, the Company, through two subsidiaries of its wholly owned subsidiary Mississippi Potash, Inc., acquired substantially all of the assets (including the right to use the corporate names) of New Mexico Potash Corporation and Eddy Potash, Inc., from Trans-Resources, Inc. Since the acquisition, New Mexico Potash Corporation has been merged into Mississippi Potash, Inc. Eddy Potash, Inc., which operated as a wholly owned subsidiary of Mississippi Potash, Inc., suspended its mining and production operations on December 3, 1997. The Company is currently evaluating 2 3 alternative methods of mining the Eddy Potash reserves. The original mine and refinery owned by Mississippi Potash, Inc., is now known as the "West Facility," and the former New Mexico Potash Corporation mine is known as the "East Facility." OPERATING SEGMENTS We have three reportable operating segments: nitrogen, phosphates and potash. The amounts of revenue, operating profit or loss and identifiable assets attributable to each of our segments is set forth in our 1999 Annual Report to Shareholders under the caption "Note 12-Segment Information" contained in the "Notes to Consolidated Financial Statements," which information is incorporated herein by reference. Additional information about each operating segment is set forth below. NITROGEN PRODUCTS The Company produces nitrogen products at its production facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana. The Company's principal nitrogen products include ammonia; fertilizer-grade ammonium nitrate, which is sold under the Company's trade name Amtrate(R); UAN solution, which is sold under the Company's trade name N-Sol(R); urea; and nitric acid. In fiscal 1999, the Company sold approximately 2.7 million tons of nitrogen products to fertilizer dealers and distributors and industrial users located primarily in the southern United States, as compared to approximately 2.5 million tons of nitrogen products in fiscal 1998. The increase in tons sold in fiscal 1999 is primarily due to the offtake of ammonia from Farmland MissChem and the ultimate sale of the ammonia by the Company. Sales of nitrogen products by the Company in fiscal 1999 were $245.4 million, which represented approximately 52% of net sales. Each of the Company's nitrogen products has its own distinct characteristics that produce agronomic preferences among end-users. Farmers determine which nitrogen product to apply based on the crop planted, soil and weather conditions, regional farming practices, and relative prices for nitrogen products. AMMONIA. The basic nitrogen product is anhydrous ammonia, which is a necessary raw material for the production of the Company's other nitrogen products. Anhydrous ammonia, which is 82% nitrogen, is the most concentrated nitrogen product available. It is synthesized as a gas under high temperature and pressure. The raw materials used to produce anhydrous ammonia are natural gas, atmospheric nitrogen, and steam. In fiscal 1999, the Company produced approximately 1,558,000 tons of anhydrous ammonia at its Yazoo City and Donaldsonville facilities and purchased approximately 275,000 tons pursuant to its contract with Farmland MissChem. In fiscal 1999, the Company sold approximately 788,000 tons of anhydrous ammonia as a raw material for industrial users and 31,000 tons as a primary fertilizer for direct application to crops. The balance of the anhydrous ammonia was consumed by the Company as a raw material to manufacture its other nitrogen products and DAP. AMMONIUM NITRATE. The Company is the largest manufacturer and marketer of agricultural-grade ammonium nitrate fertilizer in the United States. Ammonium nitrate, which is 34% nitrogen, is produced by reacting anhydrous ammonia and nitric acid. Ammonium nitrate is less subject to volatilization 3 4 (evaporation) losses than other nitrogen products. Due to its stable nature, ammonium nitrate is the product of choice for such uses as pastures and no-till row crops where fertilizer is spread upon the surface and is subject to volatilization losses. The use of conservation tillage, which reduces soil erosion, is increasing in the United States and should have a positive impact on ammonium nitrate demand. The Company produced approximately 771,000 tons of solid ammonium nitrate fertilizer at its Yazoo City facility in fiscal 1999. The Company sold approximately 765,000 tons of solid ammonium nitrate fertilizer and ammonium nitrate synthesis to fertilizer dealers and distributors in fiscal 1999. The solid ammonium nitrate produced by the Company is sold under the registered trade name Amtrate(R). UAN SOLUTION. The Company produced approximately 514,000 tons of UAN solution at its Yazoo City facility in fiscal 1999. The Company sold approximately 489,000 tons of UAN solution to fertilizer dealers and distributors in fiscal 1999 under the registered trade name N-Sol(R). N-Sol(R) is a 32% nitrogen product that is made by mixing urea liquor and ammonium nitrate liquor. N-Sol(R) is used as a direct application product for cotton, corn, grains, and pastures, as well as for use in liquid fertilizer blends. Over the past 20 years, there has been a substantial increase in the use of UAN solution as a part of the overall growth in the agricultural consumption of nitrogen products in the United States. UREA. In fiscal 1999, the Company produced approximately 544,000 tons of prilled urea and urea melt at its Donaldsonville facility. The Company sold approximately 378,000 tons of prilled urea and approximately 178,000 tons of urea melt in fiscal 1999. Urea is synthesized by the reaction of ammonia and carbon dioxide. At 46% nitrogen by weight, urea is the most concentrated form of dry nitrogen. Because urea undergoes a complex series of changes within the soil before the nitrogen it contains is ultimately converted into a form that can be used by plants, it is considered a long-lasting form of nitrogen. As a fertilizer product, urea is acceptable as both a direct-application material and as an ingredient in fertilizer blends. Approximately 62% of the Company's urea sales in fiscal 1999 were to industrial users and manufacturers of animal feeds. The remainder of the urea sales were to fertilizer dealers and distributors. NITRIC ACID. In fiscal 1999, the Company sold 54,000 tons of nitric acid produced at its Yazoo City facility to industrial users and used the balance of nitric acid produced in fiscal 1999 as a raw material for the production of Amtrate(R) and N-Sol(R). The Yazoo City facility produces more nitric acid than any other U.S. facility. Nitric acid is used to produce end products such as nylon fibers, polyurethane foams, rubber chemicals and specialty fibers. PRODUCTION AND PROPERTIES YAZOO CITY, MISSISSIPPI. The Yazoo City facility is a closely integrated, multiplant production complex located on approximately 1,180 acres. The complex includes two anhydrous ammonia plants, five nitric acid plants, an ammonium nitrate plant, two urea plants, and a UAN solution plant. One of the nitric acid plants and the second ammonia plant were added through a recently completed expansion project. The 650-ton-per-day nitric acid plant became operational in March 1998, while the 500-ton-per-day ammonia plant became operational in March 1999. The expansion project at the Yazoo City facility increased the Company's annual ammonia production capacity to approximately 710,000 tons, annual nitric acid production capacity to approximately 1,055,000 tons, and annual ammonium nitrate capacity to approximately 900,000 tons. The Company had also planned to make certain modifications to the ammonium nitrate plant which were expected to add an additional 50,000 4 5 tons of capacity. Those modification plans have been cancelled due to the current depressed prices for ammonium nitrate. The Company's annual UAN solution production capacity remains at 550,000 tons. The Yazoo City facility includes a 20.5 megawatt cogeneration facility that produces significant savings by the sequential generation of electricity and steam. The Yazoo City plant has direct access to barge, rail, and truck transportation and is strategically located for the purchase of competitively priced natural gas. DONALDSONVILLE, LOUISIANA. The Donaldsonville facility is a closely integrated, multiplant nitrogen complex located on approximately 740 acres fronting the Mississippi River at Donaldsonville, Louisiana, which produces anhydrous ammonia and urea. The facility includes two anhydrous ammonia plants with a combined annual production capacity of 1,080,000 tons and a urea plant with an annual production capacity of approximately 560,000 tons. The Donaldsonville facility has ready access to rail, truck, and ammonia pipeline transportation. The plant is also equipped with a deep-water port facility on the Mississippi River, allowing access to economical oceangoing vessel and barge transportation for its urea and ammonia products. The facility is well-positioned for the purchase of competitively priced natural gas. TRINIDAD. In fiscal 1999, the Company purchased approximately 275,000 tons of ammonia from the Farmland MissChem facility. This ammonia was used as a raw material for upgrading into finished fertilizer products at the Company's existing facilities and to meet the Company's contractual commitments to certain industrial customers. OTHER The Company also owns 9 ammonia barges, two UAN barges, and a 50% interest in an ammonia storage terminal in Pasadena, Texas. MARKETING AND DISTRIBUTION The Company sells its nitrogen products to fertilizer dealers and distributors as well as industrial users located primarily in the southern region of the United States where its facilities are located. Although the Company has traditionally sold the majority of its nitrogen products through the agricultural fertilizer distribution chain, an increasing amount of nitrogen product is being sold to industrial users in order to reduce the Company's exposure to the seasonal nature of the agricultural fertilizer markets. In fiscal 1999, approximately 44% of the Company's nitrogen product sales were to industrial users. In the fertilizer distribution chain, distributors operate as wholesalers supplying dealers who, in turn, sell directly to farmers. Larger customers (distributors and large multilocation dealers) arrange for distribution, storage, and financing of nitrogen products. The majority of the Company's agricultural sales are made to distributors and large dealers in the Company's primary trade area. The ten states that make up the Company's primary trade area are Mississippi, Texas, Alabama, Louisiana, Tennessee, Georgia, Kentucky, Arkansas, Missouri and Florida. The Company transports its nitrogen products by barge, rail, pipeline, truck and oceangoing vessels. The Company's distribution network includes 9 ammonia barges, two UAN barges, numerous trucks, and a pipeline that pumps UAN solution from its Yazoo City plant to its Yazoo River port facility, 5 6 along with owned or leased warehouses and terminals that are strategically placed in high-consumption areas. In fiscal 1998, the Company established with Farmland Industries, Inc., a 50-50 joint venture, FMCL Limited Liability Company ("FMCL"), to arrange for the transportation of ammonia from the Farmland MissChem facility in Trinidad to the United States and other world markets. FMCL has executed two long-term time charter agreements for oceangoing vessels with a European shipowner. Both agreements establish a fixed charter rate for the vessels during the entire time that the agreements are in effect. The Company believes that the time charter agreements provide a hedge against unfavorable fluctuations in shipping rates and will be a cost-effective method of transporting its Trinidad product. RAW MATERIALS NATURAL GAS. Natural gas is the primary raw material used by the Company in the manufacture of nitrogen products. Natural gas is used both as a chemical feedstock and as a fuel to produce anhydrous ammonia that is then upgraded into other nitrogen products. During fiscal 1999, the cost of natural gas represented approximately 73% of the Company's cost of producing ammonia. Because there are no commercially feasible alternatives for natural gas in the production of ammonia, the economic success of the Company's nitrogen business depends upon the availability of competitively priced natural gas. In today's natural gas market, the Company's total delivered natural gas cost generally consists of two components--the market price of the natural gas in the producing area at the point of delivery into a pipeline and the fee charged by the pipeline for transporting the natural gas to the Company's plants. The cost of the transportation component can vary substantially depending on whether or not the pipeline has to compete for the business. Therefore, it is extremely important to the Company's competitiveness that it have access to multiple natural gas sources and transportation services. In addition to the impact on transmission costs, access alternatives enable the Company to benefit from natural gas price differences that may exist from time to time in the various natural gas producing areas. The natural gas requirements of the Yazoo City facility are approximately 72,000 Mcf per day. Since 1996, the Company has received the majority of its natural gas requirements for the Yazoo City facility from Sonat Marketing Company ("Sonat"), an affiliate of Southern Natural Gas Company ("Southern"). In order to secure the incremental gas requirements created by the addition of the new ammonia plant in March 1999, the Company renegotiated its agreement with Sonat. The new agreement with Sonat, which became effective on May 15, 1998, allows for the firm delivery of gas, at market-related prices, through the Yazoo City facility's direct connections to the interstate pipeline systems operated by Southern and Texas Eastern Transmission Corporation. Pursue Energy Corporation ("Pursue") continues to be another major natural gas supplier of the Yazoo City facility from its reserves located in Rankin County, Mississippi. In addition, the Company's 60-mile, 12-inch-diameter natural gas pipeline provides the plant with direct access to the Pursue reserves, along with low-cost transportation of the Pursue gas; direct access to an additional interstate pipeline; and direct access to a large intrastate gathering and transmission system in southern Mississippi. As a result of this access to multiple sources, the Company benefits from competition for the transportation and supply of natural gas. Natural gas requirements for the Donaldsonville facility are approximately 107,000 Mcf per day. The Donaldsonville facility is located in one of the primary natural gas producing regions of the United States. The facility is currently connected to five intrastate pipeline systems and benefits from intense competition among the many suppliers that have transport capabilities on the intrastate lines. All of the Donaldsonville facility's current natural gas requirements are being supplied under fixed-term contracts with Louisiana Gas Marketing Company, a subsidiary of Enron Corp.; Amoco Energy Trading 6 7 Corporation; Noble Gas Marketing, Inc.; Reliant Energy Services, Inc.; and Coral Energy Resources, L.P. These contracts provide for market-sensitive pricing and firm delivery supply commitments. As a result of favorable access to natural gas supplies at the Yazoo City and Donaldsonville facilities, the Company believes that the loss of any particular supplier would not have a material impact on plant operations at either location. There have been no significant supply interruptions at either location. Relative to fiscal 1998 levels, the Company's delivered cost of natural gas decreased approximately 8%. Gas prices can be influenced significantly by short-term factors such as weather, storage levels, gas transportation interruptions, and competing fuel prices. The Company uses natural gas futures contracts to hedge against the risk of market fluctuations in the cost of natural gas. AMMONIA. Ammonia is a necessary raw material for production of the Company's other nitrogen products. The Company supplied practically all of its ammonia requirements in fiscal 1999. Third-party ammonia purchases by the Company from outside suppliers in fiscal 1999 for production of its other nitrogen products totaled only 2,600 tons. The Company anticipates that it will be able to supply all of its ammonia requirements in fiscal 2000 as a result of increased production by the Farmland MissChem facility and the year-round availability of production from the new ammonia plant at the Yazoo City facility. PHOSPHATE PRODUCTS The Company produces diammonium phosphate fertilizer ("DAP") at its facility in Pascagoula, Mississippi. In fiscal 1999, the Company produced approximately 852,000 tons of DAP and sold approximately 788,000 tons. Approximately 54,000 tons damaged in Hurricane Georges were purchased by one of the Company's insurers and are not included in the number of tons sold in fiscal 1999. Sales of DAP by the Company in fiscal 1999 were $136.6 million, which represented approximately 29% of net sales. DAP is the most common form of phosphate fertilizer. DAP is produced by reacting phosphate rock with sulfuric acid to produce phosphoric acid, which is then combined with ammonia. DAP contains 18% nitrogen and 46% phosphate (P205) by weight. DAP is an important fertilizer product both for direct application and for use in blended fertilizers applied to all major types of row crops. PRODUCTION AND PROPERTIES The Company's phosphate production complex in Pascagoula, Mississippi, is located on approximately 1,500 acres. The Pascagoula facility is a closely integrated, multiplant phosphatic fertilizer complex where the primary facilities are a phosphoric acid plant, two sulfuric acid plants, and a DAP granulation plant. The plant has storage facilities for finished product (80,000 tons), as well as for the primary raw materials: phosphate rock (100,000 tons), sulfur (10,000 tons), and ammonia (25,000 tons). All of the phosphate rock used by the Company is purchased pursuant to a single supply contract with Office Cherifien des Phosphates ("OCP"), the national phosphate company of Morocco. The plant site fronts a deep-water channel that provides direct access to the Gulf of Mexico. The complex contains docks and off-loading facilities for receiving shipload quantities of phosphate rock, 7 8 sulfur, and ammonia and for out-loading DAP. The plant's location on deep water provides the Company with an outbound freight cost advantage over central Florida DAP producers with respect to international shipments and domestic shipments along the Mississippi River system. Construction of a new phosphogypsum disposal facility at Pascagoula was substantially completed on June 30, 1998, at an estimated cost of $18 million. In April 1998, an expansion of the Company's diammonium phosphate manufacturing facilities at Pascagoula was placed in service. This project increased annual production capacity from approximately 720,000 to approximately 900,000 tons per year and increased DAP storage capacity from approximately 40,000 to 80,000 tons. MARKETING AND DISTRIBUTION Since October 1, 1997, all of the Company's export sales of DAP have been made through Phosphate Chemicals Export Association, Inc., a Webb-Pomerene corporation known as PhosChem, and all domestic sales of DAP have been made through the Company's sales staff. In fiscal 1999, approximately 62% of the DAP tonnage sold by the Company was sold into international markets through PhosChem. China and India received approximately 83% and 12%, respectively, of the DAP tonnage exported by the Company in fiscal 1999. Most domestic sales are made in barge-lot quantities to major fertilizer distributors and dealers located on the Mississippi River system. The vast majority of the Company's DAP is transported by ship and barge, although truck and rail access is also available. RAW MATERIALS PHOSPHATE ROCK. Phosphate rock is one of the primary raw materials used in the manufacture of DAP. The Pascagoula facility's requirements for phosphate rock are approximately 1.5 million tons per year. On September 15, 1991, the Company entered into a ten-year contract with OCP to supply all of the phosphate rock requirements of the Pascagoula facility. The term of this contract has been extended to June 30, 2016. OCP, the national phosphate company of Morocco, is the world's largest producer and exporter of phosphate rock and upgraded phosphates as a company. The contract price for phosphate rock is based on phosphate rock costs incurred by certain domestic competitors of the Company and on the operating performance of the Company's phosphate operations. Under this formula, the Company realizes favorable phosphate rock prices and is afforded significant protection during periods when market conditions are depressed. Conversely, in favorable markets, when the Company's DAP operations are profitable, the contract price of phosphate rock will escalate based on the profitability of its DAP operations. Pursuant to this contract, the Company and OCP are required to negotiate further adjustments as needed to maintain the viability and economic competitiveness of the Pascagoula plant. The strategic alliance with OCP has functioned effectively since inception, and the Company considers its relations with OCP to be excellent. SULFUR. Sulfur is used in the manufacture of sulfuric acid at the Pascagoula plant. Sulfur is in adequate supply and is available on the open market in quantities sufficient to satisfy the Company's current requirements, which are approximately 330,000 tons per year. The location of the Company's plant at Pascagoula, Mississippi, near major oil and gas fields that supply substantial amounts of sulfur, provides the Company with a strategic advantage in the purchase of sulfur over its Florida competitors. AMMONIA. Ammonia is a necessary raw material for production of DAP. Third-party ammonia purchases by the Company from outside suppliers in fiscal 1999 for use as a raw material in the production of DAP were only 32,000 tons. The Company anticipates that it will be able to supply all of its ammonia requirements in fiscal 2000 as a result of increased production by the Farmland MissChem 8 9 facility and the year-round availability of production from the new ammonia plant at the Yazoo City facility. POTASH PRODUCTS The Company produces potash at two mines and related facilities near Carlsbad, New Mexico, which are referred to by the Company as the "East Facility" and the "West Facility." The Company also operates a granular compaction plant near the East and West Facilities which is referred to as the "North Facility." In fiscal 1999, the Company produced approximately 944,000 tons of potash and sold approximately 921,000 tons, primarily in granular form. Sales of potash products by the Company in fiscal 1999 were $85.9 million, which represented approximately 18% of net sales. The Company's potash is mined from subterranean salt deposits containing a mixture of potassium chloride and sodium chloride. The Carlsbad, New Mexico, potash deposits are located from 800 to 1,200 feet below the surface. Potash is produced in a refining process by which the potassium chloride is separated from the sodium chloride. Potash is an important fertilizer product for both direct application and for use in blended fertilizers applied to all types of crops. In addition, certain forms of potash can be used as a raw material in the production of industrial products such as potassium hydroxide and potassium nitrate. PRODUCTION AND PROPERTIES The West Facility, which consists of a potash mine and refinery, has an annual production capacity of 545,000 tons of red potash as a result of a 100,000-ton expansion that was completed in the third quarter of fiscal 1999. All of the refined product produced at the West Facility is transported to the North Facility compaction plant for conversion to granular form and is sold to agricultural fertilizer dealers and distributors. Located contiguous to the North Facility are storage and shipping facilities from which the finished product is transported by rail and truck to agricultural customers in both the domestic and export markets. The East Facility, which has an annual production capacity of 550,000 tons of white potash, consists of a potash mine, refinery, and compaction plant. All of the refined product produced at the East Facility is a higher-purity potash in standard form. Approximately 40% of that production is converted to a granular form at the on-site compaction plant and sold as an agricultural fertilizer. The remaining 60% is sold to agricultural and industrial users in its original standard form. The East Facility also has storage and shipping facilities suitable for the distribution of product by rail and truck to the Company's agricultural and industrial customers. On December 3, 1997, the Company suspended the plant operations of Eddy Potash due to the fact that the depletion of the higher-grade ore zone rendered the continued operation of conventional mining methods at Eddy Potash uneconomical. The Company continues to evaluate alternative mining methods for the Eddy Potash reserves. The Company's potash reserves are controlled under long-term federal and state potassium leases on approximately 182,000 acres. The estimates of potash ore reserves are calculated using the latest bore hole data and sophisticated modeling programs. According to the latest model completed in 9 10 September 1999, the Company's total reserves are estimated to be 522 million tons with an average grade of 15.2% K2O. The recoverable reserves are estimated to be 467 million tons at an average grade of 14.5% K2O. This reserve base is estimated to be equivalent to approximately 90 million tons of muriate of potash. Eddy Potash's reserves are excluded since these estimates include only the reserves which can be economically recovered by conventional mining techniques. At current production rates, the Company's combined reserves at the East and West Facilities have a remaining life of several decades. MARKETING AND DISTRIBUTION The majority of the Company's agricultural potash sales are in domestic markets in the states west of the Mississippi River where it enjoys freight cost advantages over Canadian and overseas potash producers. In order to increase profit margins, domestic sales are targeted for locations along the freight route of the Burlington Northern Santa Fe Railroad. Domestic potash marketing is coordinated from a sales office located in Dallas, Texas. Approximately 21% of the fiscal 1999 potash sales were to industrial customers, with the remainder of sales to agricultural customers. Approximately 19% of the Company's fiscal 1999 potash sales were to international markets. The Company's export sales are made through Potash Corporation of Saskatchewan Sales Limited. The fiscal 1999 export sales were to Mexico, Central and South America, and Japan. Potash for export is transported by rail to Mexico and to terminal facilities on the Texas Gulf Coast, where it is loaded onto oceangoing vessels for shipment. COMPETITION Since fertilizers are global commodities available from numerous sources, fertilizer suppliers compete primarily on the basis of delivered price. Other competitive factors include product quality, customer service, and availability of product. In each product category, the Company competes with a broad range of domestic producers, including farmer cooperatives, subsidiaries of larger companies, integrated energy companies, and independent fertilizer companies. Many of the Company's domestic competitors have larger financial resources and sales than the Company. The Company also competes with foreign producers. Foreign competitors often have access to cheaper raw materials or are owned or subsidized by their governments and, as a result, may have cost advantages over domestic companies. Additionally, foreign competitors are frequently motivated by nonmarket factors such as the need for hard currency. The Company produces and sells its nitrogen products primarily in the southern United States where it enjoys a logistical and freight advantage over foreign competitors and certain domestic competitors. However, dealers and distributors located in this region re-market a substantial quantity of these nitrogen products to end users outside of the southern United States. Because competition is based largely on the delivered price, maintaining low production costs is critical to competitiveness. Natural gas comprises a significant portion of the raw materials cost of the Company's nitrogen products. Competitive natural gas purchasing is essential to maintaining the Company's low-cost position. This is especially true considering that certain foreign competitors can purchase natural gas at a lower price than the price typically paid by the Company. Equally important is efficient use of this gas because of the energy-intensive nature of the nitrogen business. Therefore, cost-competitive production facilities that allow flexible upgrading of ammonia to other finished products are critical to a low-cost competitive position. In the highly fragmented nitrogen market, product quality and customer service also can be sources of product differentiation. The Company customarily sells approximately two-thirds of its DAP in international markets. The U.S. phosphate industry has become more concentrated as a result of recent consolidations and joint 10 11 ventures, and the Company is smaller than most of its competitors in terms of resources and sales. Most of the Company's principal competitors have captive sources of some or all of the raw materials, and this may provide them with cost advantages. The Company's long-term phosphate rock contract with its flexible pricing mechanism is a key element to the Company's ability to compete. Most potash consumed in the United States is provided by large Canadian producers who have economies of scale and lower variable costs than their U.S. counterparts. Over 80% of U.S. potash production capacity is located in the Carlsbad, New Mexico, area. While the Carlsbad producers have higher mining costs than the Canadian producers, this disadvantage may be offset by logistical and freight advantages in certain markets in the southwestern United States and the lower United States Corn Belt. RESEARCH AND DEVELOPMENT The Company has a research and development staff of 13 full-time professional employees whose activities relate primarily to the improvement of the Company's products and development of new applications for the Company's products. Expenditures on research activities sponsored by the Company were approximately $1.2 million in fiscal 1999; $1.6 million in fiscal 1998, and $1.3 million in fiscal 1997. EMPLOYEES As of June 30, 1999, the Company employed approximately 1,550 persons throughout all of its locations, none of which are represented by unions. The Company considers its employee relations to be satisfactory. COMPLIANCE WITH ENVIRONMENTAL REGULATIONS The Company's operations are subject to federal, state, and local laws and regulations pertaining to the environment, among which are the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Toxic Substances Control Act, and various other federal and state statutes. The Company's facilities require operating permits that are subject to review by governmental agencies. Capital expenditures related to environmental obligations for the past three fiscal years were approximately as follows: 1999 - $1.96 million; 1998 - $8.8 million; 1997 - $8.4 million. Environmental capital expenditures are expected to be approximately $2.4 million for fiscal 2000. The Company has accrued costs for the future closure of the west gypsum disposal facility located at Pascagoula, Mississippi. The balance of the accrual as of June 30, 1999, is $8.8 million. The Company is currently working with regulatory officials to develop an engineering plan for closure of the west facility. The conclusions reached in this engineering plan will determine whether the Company has to accrue additional costs relating to the closure of the west facility. The Company believes that its policies and procedures now in effect are in compliance with applicable laws and with the permits relating to the facilities in all material respects. However, in the normal course of its business, the Company is exposed to risks relating to possible releases of hazardous substances into the environment. Such releases could cause substantial damage or injuries. 11 12 Environmental expenditures have been and will continue to be material. It is impossible to predict or quantify the impact of future environmental laws, regulations and costs. SEASONALITY Sales of the Company's fertilizer products to agricultural customers are typically seasonal in nature and usually result in the Company's generating a greater amount of net sales and operating income in the spring (the Company's fourth fiscal quarter). The Company has reduced its seasonal exposure to the agricultural market over the last several fiscal years by increasing the percentage of its net sales to industrial customers whose purchases are more evenly spread over the Company's fiscal year. The Company anticipates that the percentage of net sales to industrial customers will continue to increase over the next several fiscal years. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The amount of revenue attributable to the Company's sales to foreign markets over the last three fiscal years and value of the Company's assets located outside the United States over the last three fiscal years is set forth in the Company's 1999 Annual Report to Shareholders under the caption "Note 12-Segment Information" contained in the "Notes to Consolidated Financial Statements," which information is incorporated herein by reference. OUTLOOK AND UNCERTAINTIES Except for the historical statements and discussions, statements set forth in this report may constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "will," "expects," "believes," "plans," "anticipates," "estimates," "potential," or "continue," the negatives thereof or other comparable terminology. Since these forward-looking statements rely on a number of assumptions concerning future events, risks and other uncertainties that are beyond the Company's ability to control or predict with certainty, actual results may differ materially from such forward-looking statements. Future events, risks and uncertainties that could cause a material difference in such results include, but are not limited to: Factors Affecting Fertilizer Demand and Prices. With virtually all of its nitrogen net sales and approximately 78% of its total net sales in fiscal 1999 derived from domestic markets, the Company's operating results are highly dependent upon conditions in the U.S. agricultural industry. A variety of factors beyond the Company's control can materially affect domestic fertilizer demand and pricing. These factors include, but are not limited to, futures prices for crops that require significant fertilizer application, U.S. planted acreage, government agricultural policies, projected grain stocks, crop failure, weather, changing or unpredictable crop choices by farmers and changes in agricultural production methods. Since fertilizers, particularly anhydrous ammonia and urea, are also used for industrial applications, industrial markets and the general economy can also affect product demand and prices. International market conditions also significantly influence the Company's operating results. The market for fertilizers is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing or exporting fertilizers; foreign agricultural policies; the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets; changes in the hard currency demands of certain countries; and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment. The Company is also 12 13 subject to general risks of doing business abroad, including risks associated with economic or political instability. As is evidenced by current depressed prices for nitrogen fertilizers and the recent drop in the price of phosphatic fertilizers, fertilizer prices can be extremely volatile, with significant price changes from one growing season to the next. Fertilizers are global commodities and can be subject to intense price competition from domestic and foreign sources. No assurance can be given that average realized prices paid for the Company's fertilizer products will be at any given level. Seasonality. The usage of fertilizer for agricultural application is seasonal, and the Company's quarterly results reflect the fact that, in its markets, significantly more fertilizer is customarily purchased in the spring. In most years, substantial portions of the Company's net sales and operating income are generated in the last four months of its fiscal years (March through June). Quarterly results can vary significantly from one year to the next due primarily to weather-related shifts in planting schedules and purchase patterns. The Company incurs appreciable expenditures for fixed costs throughout the year and for inventory in advance of the spring planting season. Dependence on Natural Gas. Natural gas is the primary raw material used in the manufacture of nitrogen products. Natural gas is used as both a chemical feedstock and a fuel to produce anhydrous ammonia, which is then used in the production of all other nitrogen products. Anhydrous ammonia is also a raw material in the production of DAP. Accordingly, the Company's profitability is dependent upon the price and availability of natural gas. A significant increase in the price of natural gas (such as the recent increase that began in the summer of 1999) that is not recovered through an increase in the price of the Company's nitrogen products, or an extended interruption in the supply of natural gas to its production facilities, will have a material adverse effect on its results of operations and financial condition. Environmental Regulations. The Company is subject to various environmental laws and regulations of federal, state and local governments. Significant capital expenditures and operating costs have been incurred and will continue to be incurred as a result of these laws and regulations. The Company cannot predict or quantify the impact of new or changed laws or regulations. In the normal course of business, the Company is exposed to risks such as possible release of hazardous substances into the environment. Such releases could cause substantial damage or injuries and result in material costs to the Company. Competition. Fertilizer products are global commodities, and customers base their purchasing decisions principally on the delivered price of the product. As a result, markets for the Company's products are highly competitive. A number of U.S. producers compete with the Company in domestic and export markets, and producers in other countries, including state-owned and government-subsidized entities, compete with the Company in the United States and in foreign markets to which the Company exports. Many of the Company's competitors are larger and have greater financial resources than the Company. Year 2000 Issues. The information regarding the Company's efforts relating to Year 2000 issues is set forth in the Company's 1999 Annual Report to Shareholders under the caption "Year 2000" in "Management's Discussion and Analysis of Financial Condition and Results of Operation," which information is incorporated herein by reference. 13 14 ITEM 2. PROPERTIES The Company owns its corporate headquarters in Yazoo City that contains approximately 65,000 square feet of office space. The Company owns production plants in Yazoo City and Pascagoula, Mississippi; Donaldsonville, Louisiana; and Carlsbad, New Mexico, which are complete with necessary support facilities, such as roads, railroad tracks, storage, offices, laboratories, warehouses, machine shops, and loading facilities. Adequate supplies of water and electric power are available at all locations. In addition to the fertilizer storage facilities at Yazoo City and Pascagoula, Mississippi; Carlsbad, New Mexico; and Donaldsonville, Louisiana, the Company also owns or leases 32 major storage and distribution facilities at other locations in Alabama, Arkansas, California, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Ohio, Tennessee, and Texas, with a total system-wide storage capacity of approximately 315,000 tons. ITEM 3. LEGAL PROCEEDINGS CLEVE REBER CERCLA SITE. The Company has received and responded to letters issued by the U.S. Environmental Protection Agency ("EPA") under Section 104 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") relative to the possible disposition of waste by the Company at the disposal site identified as the Cleve Reber site in Ascension Parish, Louisiana. It is the Company's position that, based upon available information and records, the Company did not utilize the Cleve Reber site for the disposition of hazardous material, and it does not appear that the Company has any responsibility for investigation and cleanup on this site. It should be noted that the EPA is contemplating an action under the Resource Conservation and Recovery Act, Section 7003, as well as the CERCLA action mentioned above. The EPA has issued Section 106 orders against the major contributors at the site for cleanup, not including the Company. They are now engaged in negotiations for cleanup. In 1994, the Company received a supplemental 104(e) request for information from the EPA, indicating the EPA's renewed interest in pursuing Potential Responsible Persons at the site. The Company responded, but has received no further requests from the EPA. TERRA INTERNATIONAL, INC. On August 31, 1995, the Company filed suit in federal court in Mississippi against Terra International, Inc. ("Terra"), seeking a declaratory judgment and other relief, establishing that certain technology relating to the design of an ammonium nitrate neutralizer which the Company licensed to Terra is not defective and was not the cause of an explosion which occurred in 1994 at Terra's Port Neal, Iowa, fertilizer facility. The Company is also seeking an unspecified amount of monetary damages for defamation based on Terra's public statement related to the Company's alleged role in the explosion. Also, on August 31, 1995, Terra filed suit in federal court in Iowa against the Company seeking to recover a total of approximately $300 million in property damage, lost profits and other out-of-pocket expenses allegedly caused by the explosion. Terra alleges that the ammonium nitrate neutralizer technology licensed to Terra was defectively designed by the Company and that the design defect caused the Port Neal explosion. It has been conclusively determined that the Mississippi federal district court is the proper venue to resolve all issues between the parties relating to the Port Neal explosion. Discovery is nearly complete and a trial date of May 15, 2000, has been set by the court. The Company does not anticipate that the outcome of this matter will have a material impact on its financial position or future earnings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is set forth in the Company's 1999 Annual Report to Shareholders under the caption "Quarterly Results," contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth in the Company's 1999 Annual Report to Shareholders under the caption "Financial Highlights," which information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth in the Company's 1999 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is incorporated herein by reference. ITEM 7A. MARKET RISK The information required by this item is set forth in the Company's 1999 Annual Report to Shareholders under the caption "Market Risk," which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of Arthur Andersen LLP dated July 28, 1999, appearing in the Company's 1999 Annual Report to Shareholders, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) The information required by this item regarding directors is set forth in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the captions "Nominees for Election to Serve Until 2002," "Directors Continuing to Serve Until 2001," and "Directors Continuing to Serve Until 2000," which information is incorporated herein by reference. (b) Executive officers are elected for a one-year term by the Board of Directors. The Company's executive officers are as follows:
OFFICE AND EMPLOYMENT DURING THE NAME OF OFFICER AGE LAST FIVE FISCAL YEARS - ------------------------------ ----------------------------------------------------------------------- Charles O. Dunn 51 President and Chief Executive Officer since April 1, 1993; Executive Vice President (1988-1993) C. E. McCraw 51 Senior Vice President-Operations since July 12, 1994; Senior Vice President-Fertilizer Group (1991-1994) Robert E. Jones 51 Senior Vice President-Corporate Development effective October 1, 1997; Senior Vice President and General Counsel (1996-1997); Vice President and General Counsel (1989-1996) David W. Arnold 62 Senior Vice President-Technical Group since July 1, 1991 Timothy A. Dawson 45 Senior Vice President and Chief Financial Officer since April 22, 1999; Vice President-Finance (1996-1999); Director of Finance (1993-1996) Ethel Truly 49 Vice President-Administration since January 18, 1996; Director of Administrative Services (1995-1996); Assistant General Counsel (1985-1995) William L. Smith 49 Vice President and General Counsel since November 11, 1998; General Counsel (1997-1998); partner in the law firm of Brunini, Grantham, Grower & Hewes, PLLC (1982-1997) Jerry W. Irwin 58 Vice President-Nitrogen Production since October 15, 1998; General Manager of Yazoo City facility (1986-1998) Joe A. Ewing 48 Vice President-Marketing and Distribution since September 1, 1999; Director of Marketing and Distribution (1998-1999); Director of Converted Nitrogen Sales (1997-1998); Director of Procurement and Distribution (1993-1997)
(c) The information called for with respect to the identification of certain significant employees is not applicable to the Company. (d) There are no family relationships among the directors and executive officers listed above. There are no arrangements or understandings between any named officer and any other person pursuant to which such person was selected as an officer. 16 17 The information required by this item regarding compliance with Section 16(a) of the Exchange Act is set forth in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption "Compliance with Section 16(a) of the Exchange Act," which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the captions "Compensation Committee Report on Executive Compensation" and "Executive Compensation," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption "Management Ownership of the Company's Stock," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption "Board of Directors and Committees," which information is incorporated herein by reference. 17 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND SCHEDULES The consolidated financial statements, together with the report thereon of Arthur Andersen LLP dated July 28, 1999, appearing in the 1999 Annual Report to Shareholders, are incorporated by reference in this Form 10-K. With the exception of the aforementioned information and information incorporated by reference in Items 1, 5, 6, 7, 7A and 8, the 1999 Annual Report to Shareholders is not to be deemed filed as part of this Form 10-K. Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of 50% or less owned persons accounted for by the equity method that are not shown herein have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary. Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets, June 30, 1999 and 1998 Consolidated Statements of Income, Years Ended June 30, 1999, 1998 and 1997 Consolidated Statements of Shareholders' Equity, Years Ended June 30, 1999, 1998 and 1997 Consolidated Statements of Cash Flows, Years Ended June 30, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 18 19 (b) EXHIBITS: Exhibits filed as part of this report are listed below. Certain exhibits have been filed previously with the Commission and are incorporated herein by reference. SEC EXHIBIT REFERENCE NO. DESCRIPTION ------------- ----------- 2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and among the Company, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New Mexico Potash Corporation; filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 0-20411, and incorporated herein by reference. 2.2 Agreement and Plan of Merger and Reorganization, dated as of August 27, 1996, by and among the Company, MISS SUB, INC., and First Mississippi Corporation; filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 0-20411, and incorporated herein by reference. 3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 3.2 Bylaws of the Company; filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, SEC File No. 0-20411, and incorporated herein by reference. 4.1 Shareholder Rights Plan; filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated August 15, 1994, SEC File No. 2-7803, and incorporated herein by reference. 4.2 Indenture dated as of November 25, 1997, between the Company and Harris Trust and Savings Bank, as Trustee, for the issuance of up to $300 million of debt securities; filed as Exhibit 4(a) to the Company's Current Report on Form 8-K filed November 25, 1997, SEC File No. 001-12217, and incorporated herein by reference. 4.3 Indenture of Trust dated as of March 1, 1998, between Mississippi Business Finance Corporation and Deposit Guaranty National Bank, for the issuance of bonds in the aggregate principal amount of $14.5 million to assist the Company in financing and refinancing the cost of construction and equipping of solid waste disposal facilities at its Pascagoula, Mississippi, facility; filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 19 20 10.1 Agreement made and entered into as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 2-7803, and incorporated herein by reference. 10.2 Amendment No. 1, effective as of July 1, 1992, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(1) 10.3 Amendment No. 2, effective as of July 1, 1993, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(2) 10.4 Amendment No. 3, effective as of January 1, 1995, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(3) 10.5 Amendment No. 4, effective as of January 1, 1997, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, SEC File No. 0-20411, and incorporated herein by reference.
- -------- (1) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from the first and second paragraphs of paragraph numbered 1 of Amendment No. 1, and an application for confidential treatment has been filed separately with the Commission. (2) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from paragraphs numbered 5 and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1, paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit D; and an application for confidential treatment has been filed separately with the Commission. (3) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Schedule 1 to Amendment No. 3, Exhibit B, and an application for confidential treatment has been filed separately with the Commission. 20 21 10.6 Credit Agreement dated as of November 25, 1997, among the Company; the Lenders Party Thereto; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; and Credit Agricole Indosuez, as Co-Agent, establishing the Company's $200 million revolving line of credit; filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.7 First Amendment, effective as of June 10, 1999, to Credit Agreement dated as of November 25, 1997, among the Company; the Lenders Party Thereto; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; and Credit Agricole Indosuez, as Co-Agent, establishing the Company's $200 million revolving line of credit. 10.8 Form of Severance Agreement dated July 29, 1996, by and between the Company and each of its Executive Officers; filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 2-7803, and incorporated herein by reference. 10.9 Mississippi Chemical Corporation Officer and Key Employee Incentive Plan; filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.10 Mississippi Chemical Corporation Executive Deferred Compensation Plan; filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.11 Mississippi Chemical Corporation Nonemployee Directors' Deferred Compensation Plan; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.12 Mississippi Chemical Corporation Supplemental Benefit Plan, as amended and restated as of July 1, 1996; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.13 Mississippi Chemical Corporation 1994 Stock Incentive Plan; filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 21 22 10.14 Mississippi Chemical Corporation 1995 Stock Option Plan for Nonemployee Directors; filed as Exhibit 4.3 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 10.15 Mississippi Chemical Corporation 1995 Restricted Stock Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 13.1 Portions of the Company's 1999 Annual Report to Shareholders as referenced in this Form 10-K for the fiscal year ending June 30, 1999. 21 List of subsidiaries of the Company. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. (c) REPORTS ON FORM 8-K: No reports were filed on Form 8-K during the three months ended June 30, 1999. 22 23 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. MISSISSIPPI CHEMICAL CORPORATION By: /s/ Charles O. Dunn --------------------------- Charles O. Dunn Principal Executive Officer By: /s/ Timothy A. Dawson --------------------------- Timothy A. Dawson Principal Financial Officer and Chief Accounting Officer Date: September 28, 1999 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 DATE /s/ Charles O. Dunn Director, September 28, 1999 - ---------------------------- President and Chief Executive Officer Charles O. Dunn (principal executive officer) /s/ Coley L. Bailey Director, Chairman of the Board September 28, 1999 - ---------------------------- Coley L. Bailey /s/ John Sharp Howie Director, Vice Chairman of the Board September 28, 1999 - ---------------------------- John Sharp Howie /s/ John W. Anderson Director September 28, 1999 - ---------------------------- John W. Anderson /s/ Haley Barbour Director September 28, 1999 - --------------------------- Haley Barbour /s/ Frank R. Burnside, Jr. Director September 28, 1999 - ---------------------------- Frank R. Burnside, Jr. /s/ W. R. Dyess Director September 28, 1999 - --------------------------- W. R. Dyess /s/ Woods E. Eastland Director September 28, 1999 - ---------------------------- Woods E. Eastland /s/ George D. Penick, Jr. Director September 28, 1999 - ---------------------------- George D. Penick, Jr. /s/ W. A. Percy II Director September 28, 1999 - ---------------------------- W. A. Percy II /s/ David M. Ratcliffe Director September 28, 1999 - ---------------------------- David M. Ratcliffe /s/ Wayne Thames Director September 28, 1999 - ---------------------------- Wayne Thames
23 24 MISSISSIPPI CHEMICAL CORPORATION EXHIBIT INDEX TO FORM 10-K
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- -------------------------------------------------------- ------ 2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and among the Company, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New Mexico Potash Corporation; filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 0-20411, and incorporated herein by reference. 2.2 Agreement and Plan of Merger and Reorganization, dated as of August 27, 1996, by and among the Company, MISS SUB, INC., and First Mississippi Corporation; filed as Exhibit 2.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 0-20411, and incorporated herein by reference. 3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 3.2 Bylaws of the Company; filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, SEC File No. 0-20411, and incorporated herein by reference. 4.1 Shareholder Rights Plan; filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated August 15, 1994, SEC File No. 2-7803, and incorporated herein by reference. 4.2 Indenture dated as of November 25, 1997, between the Company and Harris Trust and Savings Bank, as Trustee, for the issuance of up to $300 million of debt securities; filed as Exhibit 4(a) to the Company's Current Report on Form 8-K filed November 25, 1997, SEC File No. 001-12217, and incorporated herein by reference. 4.3 Indenture of Trust dated as of March 1, 1998, between Mississippi Business Finance Corporation and Deposit Guaranty National Bank, for the issuance of bonds in the aggregate principal amount of $14.5 million to assist the Company in financing and refinancing the cost of construction and equipping of solid waste disposal facilities at its Pascagoula, Mississippi, facility; filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference.
24 25 10.1 Agreement made and entered into as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 2-7803, and incorporated herein by reference. 10.2 Amendment No. 1, effective as of July 1, 1992, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(4) 10.3 Amendment No. 2, effective as of July 1, 1993, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(5) 10.4 Amendment No. 3, effective as of January 1, 1995, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(6) 10.5 Amendment No. 4, effective as of January 1, 1997, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company for the sale and purchase of phosphate rock; filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, SEC File No. 0-20411, and incorporated herein by reference. - -------- (4) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from the first and second paragraphs of paragraph numbered 1 of Amendment No. 1, and an application for confidential treatment has been filed separately with the Commission. (5) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from paragraphs numbered 5 and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1, paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit D; and an application for confidential treatment has been filed separately with the Commission. (6) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Schedule 1 to Amendment No. 3, Exhibit B, and an application for confidential treatment has been filed separately with the Commission. 25 26 10.6 Credit Agreement dated as of November 25, 1997, among the Company; the Lenders Party Thereto; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; and Credit Agricole Indosuez, as Co-Agent, establishing the Company's $200 million revolving line of credit; filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference.. 10.7 First Amendment, effective as of June 10, 1999, to Credit [ ] Agreement dated as of November 25, 1997, among the Company; the Lenders Party Thereto; Harris Trust and Savings Bank, as Administrative Agent; Bank of Montreal, Chicago Branch, as Syndication Agent; and Credit Agricole Indosuez, as Co-Agent, establishing the Company's $200 million revolving line of credit. 10.8 Form of Severance Agreement dated July 29, 1996, by and between the Company and each of its Executive Officers; filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, SEC File No. 2-7803, and incorporated herein by reference. 10.9 Mississippi Chemical Corporation Officer and Key Employee Incentive Plan; filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.10 Mississippi Chemical Corporation Executive Deferred Compensation Plan; filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.11 Mississippi Chemical Corporation Nonemployee Directors' Deferred Compensation Plan; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.12 Mississippi Chemical Corporation Supplemental Benefit Plan, as amended and restated as of July 1, 1996; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, SEC File No. 0-20411, and incorporated herein by reference. 10.13 Mississippi Chemical Corporation 1994 Stock Incentive Plan; filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference.
26 27 10.14 Mississippi Chemical Corporation 1995 Stock Option Plan for Nonemployee Directors; filed as Exhibit 4.3 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 10.15 Mississippi Chemical Corporation 1995 Restricted Stock Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 13.1 Portions of the Company's 1999 Annual Report to Shareholders [ ] as referenced in this Form 10-K for the fiscal year ending June 30, 1999. 21 List of subsidiaries of the Company. [ ] 23 Consent of Arthur Andersen LLP. [ ] 27 Financial Data Schedule. [ ] 27 EX-10.7 2 FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.7 MISSISSIPPI CHEMICAL CORPORATION FIRST AMENDMENT TO CREDIT AGREEMENT Harris Trust and Savings Bank, individually and as Administrative Agent Chicago, Illinois The From Time to Time Lenders Party to the Credit Agreement described below Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement dated as of November 25, 1997 (the "Credit Agreement") by and among the undersigned, Mississippi Chemical Corporation, a Mississippi corporation (the "Borrower"), and Harris Trust and Savings Bank, individually and in its capacity as administrative agent thereunder, Bank of Montreal, Chicago Branch, in its capacity as syndication agent thereunder, and Credit Agricole Indosuez (formerly known as Caisse Nationale de Credit Agricole) in its capacity as co-agent thereunder, and you (all of said banks except Bank of Montreal, including Harris Trust and Savings Bank in its individual capacity, being referred to collectively as the "Banks" and individually as a "Bank", and said Harris Trust and Savings Bank as administrative agent for the Banks under the Credit Agreement being hereinafter referred to in such capacity as the "Administrative Agent"). All defined terms used herein shall have the same meaning as in the Credit Agreement unless otherwise defined herein. The Borrower, the Administrative Agent and the Banks wish to amend the Credit Agreement to permit the Borrower to complete a corporate restructuring, to add Triad Nitrogen, Inc., a Delaware corporation, and MissChem Nitrogen, L.L.C., a Delaware limited liability company, as guarantors of the Borrower's indebtedness, obligations and liabilities under the Loan Documents, to permit the Borrower and its Subsidiaries to establish a receivables securitization program and to amend certain other provisions of the Credit Agreement, all on the terms and conditions of this Amendment. SECTION 1. AMENDMENTS. 1.1. Effective as of the date (the "Amendment Effective Date") on which all of the conditions precedent set forth in Section 2.1 of this Amendment are satisfied, Section 3.5 of the Credit Agreement shall be amended to read as follows: "Section 3.5. Revolving Credit Termination. (a) The Borrower shall have the right at any time upon 5 days' prior notice to the Banks to terminate the Revolving Credit in whole or in part (but if in part in a minimum principal amount of $10,000,000 or such greater amount which is an integral multiple of $5,000,000); provided, however, that the Borrower may not terminate any portion of the Revolving Credit which represents 2 outstanding Revolving Credit Obligations unless the Borrower contemporaneously prepays the same or, with respect to any outstanding L/Cs, pledges cash collateral to the Administrative Agent to secure the same. (b) Upon the effectiveness of the Receivables Securitization Program the Revolving Credit Commitments shall automatically and permanently reduce by an amount equal to the maximum amount of the Receivables Securitization Program, and each Bank's Revolving Credit Commitment shall automatically and permanently be reduced by its Commitment Percentage of such reduction." 1.2. Effective on the Amendment Effective Date, the table appearing in the definition of the term "Applicable Margin" contained in Section 4.1 of the Credit Agreement shall be amended to read as follows:
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V >=2.25x >=3.0x >=3.75x and and and Pricing Ratio <2.25x <3.0x <3.75x <4.25x >=4.25x Fed Funds Rate Loans .575% .725% 1.00% 1.20% 1.60% Base Rate Loans 0% 0% .25% .35% .45% Eurodollar Loans .575% .725% 1.00% 1.20% 1.60% Facility Fee .15% .20% .25% .30% .40%
1.3. Effective on the Amendment Effective Date, the definitions of the terms "Debt", "Interest Coverage Ratio" and "Interest Expense" contained in Section 4.1 of the Credit Agreement shall be amended to read as follows: " "Debt" of any Person shall mean as of any time the same is to be determined, the aggregate (without duplication) of: (a) all indebtedness, obligations and liabilities with respect to borrowed money; (b) all guaranties, endorsements (other than any liability arising out of the endorsement of items for deposit or collection in the ordinary course of business) and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, indebtedness or securities of others or to purchase Property of others at the request or demand of any creditor of such Person; (c) all reimbursement and other obligations with respect to letters of credit (whether drawn or undrawn), banker's acceptances, customer advances and -2- 3 other extensions of credit whether or not representing obligations for borrowed money; (d) the aggregate amount of Capitalized Lease Obligations; (e) all indebtedness and liabilities secured by any lien or any security interest on any Property or assets of such Person, whether or not the same would be classified as a liability on a balance sheet; and (f) all indebtedness, obligations and liabilities representing the deferred purchase price of Property, excluding trade payables incurred in the ordinary course of business not more than 90 days past due; all computed and determined on a consolidated basis for such Person and its Subsidiaries after the elimination of intercompany items in accordance with generally accepted accounting principles consistent with those used in the preparation of the audit report referred to in Section 5.2 hereof; provided, that for purposes of the definitions of the terms "Leverage Ratio" and "Pricing Ratio" Debt shall include all Debt of the Receivables Securitization Funding Vehicle relating to the Receivables Securitization Program. "Interest Coverage Ratio" shall mean, with reference to each fiscal quarter of the Borrower and its Subsidiaries, the ratio of (x) Annualized Average EBITDA minus the aggregate amount of all purchases, property, plant and equipment as reflected on the Borrower's consolidated statement of cash flows (determined on a consolidated basis in accordance with generally accepted accounting principles, consistently applied) for the preceding four fiscal quarters to (y) Interest Expense, for the preceding four fiscal quarters. "Interest Expense" shall mean, for any Person and with reference to any period, the sum of all interest charges (including imputed interest charges with respect to Capitalized Lease Obligations, all amortization of debt discount and expense and all fees relating to letters of credit accrued and all net obligations pursuant to interest rate hedging agreements) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles, consistently applied; provided, that if the Borrower or any of its Subsidiaries shall have acquired any business, Property or Person during such period (whether before, on or after the date hereof), Interest Expense shall, to the extent the Borrower shall have delivered audited financial statements (or, if audited financial statements are not available to the Borrower, unaudited financial statements in form reasonably satisfactory to the Administrative Agent) for the acquired business, Property or Person for such period, be adjusted to reflect on a pro forma basis Interest Expense for such business, Property or Person as if such business, Property or Person had been acquired at the beginning of such period; and provided further, that for purposes of the definitions of the terms "Annualized Average EBIT", "Annualized Average EBITDA", "EBIT", "EBITDA", "Interest Coverage Ratio", "Leverage Ratio" and "Pricing Ratio", Interest Expense shall include -3- 4 all Interest Expense of the Receivables Securitization Funding Vehicle relating to the Receivables Securitization Program." 1.4. Effective on the Amendment Effective Date, Section 4.1 of the Credit Agreement shall be amended by adding the following definitions thereto: " "Annualized Average EBITDA" shall mean, with reference to any fiscal quarter, an amount equal to the EBITDA of the Borrower and its Subsidiaries, each calculated on a consolidated basis in accordance with generally accepted accounting principles, for the eight consecutive fiscal quarters ending with such fiscal quarter divided by two; provided, that if the Borrower or any of its Subsidiaries shall have acquired any business, Property or Person during such eight fiscal quarters (whether before, on or after the date hereof), EBITDA shall, to the extent the Borrower shall have delivered audited financial statements (or, if audited financial statements are not available to the Borrower, unaudited financial statements in form reasonably satisfactory to the Administrative Agent) for the acquired business, Property or Person for such period, be adjusted to reflect on a pro forma basis EBITDA for such business, Property or Person as if such business, Property or Person had been acquired at the beginning of such period. "Receivables" shall mean the Borrower's and its Subsidiaries' accounts receivable arising from the sale of goods or the provision of services in the ordinary course of business. "Receivables Securitization Funding Vehicle" shall mean a wholly-owned Subsidiary of the Borrower or any of its Subsidiaries created for the sole purpose of purchasing Receivables from the Borrower or any of its Subsidiaries as part of the Receivables Securitization Program. "Receivables Securitization Program" shall mean any accounts receivables securitization program to which the Borrower or any of its Subsidiaries is a party which provides for the sale by the Borrower or any of its Subsidiaries, without recourse, of its Receivables for a cash consideration of not less than 70% of the unpaid value of such Receivables." 1.5. Effective as of the date (the "Guaranty Effective Date") on which all of the conditions precedent set forth in Section 2.2 of this Amendment are satisfied, Section 4.1 of the Credit Agreement shall be amended by adding the following definitions thereto: " "Corporate Restructuring" shall mean collectively (a) the transfer of the Borrower's Yazoo City, Mississippi plant and all related operating assets (including without limitation storage facilities, the port facility, rolling stock and gas pipelines) to MissChem Nitrogen, (b) the transfer of all the Borrower's membership interest in MissChem Nitrogen, its limited partnership interest in MCCLP, and its real estate and related leases in Ascension Parish, Louisiana, to TNI, (c) the transfer of all of TNI's assets (other than its equity interests in Subsidiaries) to Triad Nitrogen, (d) the transfer of all the Borrower's storage and distribution facilities located in the State of Mississippi -4- 5 (other than Yazoo City, Mississippi) having an aggregate book value of less than $1,000,000 to MCCLP, and (e) the reorganization of the current Triad corporate structure as described in writing to the Banks. "Guarantors" shall mean TNI and MissChem Nitrogen in their capacity as guarantors under the Guaranty. "Guaranty" shall mean the Guaranty Agreement substantially in the form of Exhibit M hereto from the Guarantors to the Administrative Agent and the Banks. "MCCLP" shall mean Mississippi Chemical Company, L.P., a Delaware limited partnership. "MissChem Nitrogen" shall mean MissChem Nitrogen, L.L.C., a Delaware limited liability company. "TNI" shall mean Triad Nitrogen, Inc., a Delaware corporation. "Triad Nitrogen" shall mean Triad Nitrogen, L.L.C., a Delaware limited liability company." 1.6. Effective on the Guaranty Effective Date, the Credit Agreement shall be amended by adding the following provision thereto as Section 5.16: "Section 5.16. Organization and Qualification of the Guarantors. Each Guarantor is a corporation or limited liability company duly organized and existing and in good standing under the laws of the State of Delaware, has full and adequate corporate or company power to carry on its business as now conducted, is duly licensed or qualified in all jurisdictions wherein the nature of its activities requires such licensing or qualification except where the failure to be so licensed or qualified would not have a material adverse effect on the condition, financial or otherwise, of such Guarantor, has full right and authority to enter into the Guaranty, to guaranty the payment when due of the Borrower's indebtedness, obligations and liabilities to the Banks under the Loan Documents pursuant to the Guaranty and to perform each and all of the matters and things therein provided for; and the Guaranty does not, nor does the performance or observance by any Guarantor of any of the matters or things provided for in the Guaranty, contravene any provision of law or any provision of any Guarantor's articles of incorporation, articles of organization, by-laws or operating agreement or any covenant, indenture or agreement of or affecting any Guarantor or its Properties." 1.7. Effective on the Amendment Effective Date, Section 7.7 of the Credit Agreement shall be amended by adding the following phrase immediately before the period appearing at the end thereof: ", and provided further that the foregoing shall not prohibit the sale of all or substantially all of the Borrower's or any of its -5- 6 Subsidiaries' Receivables, or any undivided interest therein, pursuant to the Receivables Securitization Program." 1.8. Effective on the Amendment Effective Date, Section 7.9 of the Credit Agreement shall be amended by deleting the word "and" appearing after the semi-colon at the end of subsection (i) thereof, by replacing the period at the end of subsection (j) thereof with the phrase "; and" and by adding the following provision thereto as subsection (k): "(k) the interest of any purchaser of the Borrower's or any of its Subsidiaries' Receivables purchased by it pursuant to the Receivables Securitization Program in such Receivables." 1.9. Effective on the Amendment Effective Date, Section 7.10 of the Credit Agreement shall be amended by deleting the word "and" appearing after the semi-colon at the end of subsection (h) thereof, by replacing the period at the end of subsection (i) thereof with the phrase "; and" and by adding the following provision thereto as subsection (j): "(j) indebtedness of the Borrower and its Subsidiaries pursuant to the Receivables Securitization Program." 1.10. Effective on the Amendment Effective Date, Section 7.11 of the Credit Agreement shall be amended by deleting the word "and" appearing after the semi-colon at the end of subsection (l) thereof, by replacing the period at the end of subsection (m) thereof with the phrase "; and" and by adding the following provision thereto as subsection (n): "(n) an initial capital contribution to the Receivables Securitization Funding Vehicle in an amount not to exceed an amount equal to 20% of the amount of the Receivables Securitization Program, and investments, if any, arising from the sale of Receivables at a discount pursuant to the Receivables Securitization Program." 1.11. Effective on the Amendment Effective Date, Section 7.12 of the Credit Agreement shall be amended by deleting the word "and" appearing after the semi-colon at the end of subsection (c) thereof, by replacing the period at the end of subsection (d) thereof with the phrase "; and" and by adding the following provision thereto as subsection (e): "(e) the sale by the Borrower or any of its Subsidiaries of all or substantially all of its Receivables pursuant to the Receivables Securitization Program, provided that the maximum amount of the Receivables Securitization Program shall not exceed $75,000,000 at any time." 1.12. Effective on the Guaranty Effective Date, Section 7.12 of the Credit Agreement shall be amended by deleting the word "and" appearing after the semi-colon at the end of subsection (d) thereof, by replacing the period at the end of subsection (e) thereof with the phrase "; and" and by adding the following provision thereto as subsection (f): "(f) the transfers of Property in connection with the Corporate Restructuring." -6- 7 1.13. Effective on the Amendment Effective Date, Sections 7.19, 7.20 and 7.21 of the Credit Agreement shall be amended to read as follows: "Section 7.19. New Subsidiaries. Neither the Borrower nor any Subsidiary shall, directly or indirectly, organize or acquire any Subsidiary not listed on Exhibit G attached hereto, except (a) as permitted by Section 7.11(j) hereof, and (b) the formation of the Receivables Securitization Funding Vehicle. Section 7.20. Maximum Leverage Ratio. The Borrower will, as of the last day of each fiscal quarter of the Borrower maintain a Leverage Ratio less than or equal to the ratio specified for such date below:
LEVERAGE RATIO SHALL NOT BE FISCAL QUARTER ENDING GREATER THAN June 30, 1999 5.00 to 1 September 30, 1999 5.00 to 1 December 31, 1999 5.00 to 1 March 31, 2000 5.00 to 1 June 30, 2000 4.50 to 1 September 30, 2000 4.50 to 1 December 31, 2000 5.00 to 1 March 31, 2001 4.50 to 1 June 30, 2001 4.00 to 1 September 30, 2001 4.00 to 1 December 31, 2001 4.50 to 1 March 31, 2002 and thereafter 4.00 to 1
Section 7.21. Minimum Interest Coverage Ratio. The Borrower will, as of the last day of each fiscal quarter of the Borrower, maintain an Interest Coverage Ratio of not less than the ratio specified for such date below: -7- 8
INTEREST COVERAGE RATIO SHALL NOT BE LESS FISCAL QUARTER ENDING THAN June 30, 1999 1.5 to 1 September 30, 1999 1.5 to 1 December 31, 1999 1.5 to 1 March 31, 2000 1.5 to 1 June 30, 2000 and thereafter 1.75 to 1"
1.14. Effective on the Amendment Effective Date, Section 7.24 of the Credit Agreement shall be amended by adding the following provision thereto immediately before the period and the end thereof: ", and (v) the foregoing shall not apply to restrictions on the transfer or encumbrance by the Receivables Securitization Funding Vehicle of Receivables owned by it contained in the documentation for the Receivables Securitization Program." 1.15. Effective on the Guaranty Effective Date, Section 8.1 of the Credit Agreement shall be amended by deleting the word "or" appearing after the semi-colon at the end of subsection (i) thereof, by replacing the period at the end of subsection (j) thereof with the phrase "; and" and by adding the following provision thereto as subsection (k): "(k) Any Guarantor shall disavow, repudiate, breach or purport to terminate any of its obligations under the Guaranty or any part thereof, or the Guaranty or any part thereof shall not be valid and binding for any reason upon any Guarantor, or any of the events described in subsections (h) and (i) of this Section 8.1 shall occur with respect to any Guarantor or its Property." 1.16. Effective on the Amendment Effective Date, Exhibit G to the Credit Agreement shall be amended by adding thereto the following information:
JURISDICTION OF NAME OF COMPANY ORGANIZATION MCC Klondike, Inc. Delaware MissChem Nitrogen, L.L.C. Delaware MissChem (Barbados) SRL Barbados MissChem Trinidad Limited Republic of Trinidad and Tobago Mississippi Chemical Holdings, Inc. British Virgin Islands Triad Nitrogen, L.L.C. Delaware
1.17. Effective on the Guaranty Effective Date the Credit Agreement shall be amended by adding Exhibit M hereto as Exhibit M to the Credit Agreement. 1.18. Schedule 5.3 to the Credit Agreement shall be replaced by Schedule 5.3 attached to this Amendment. -8- 9 SECTION 2. CONDITIONS PRECEDENT. 2.1. The Amendment Effective Date shall occur upon the satisfaction of all of the following conditions precedent: (a) The Borrower, the Administrative Agent and the Required Banks shall have executed this Amendment (such execution may be in several counterparts and the several parties hereto may execute on separate counterparts); (b) The Administrative Agent shall have received for the benefit of the Banks in sufficient counterparts for distribution to the Banks: (i) copies, certified as true, correct and complete by the Secretary or Assistant Secretary of the Borrower, of resolutions regarding the transactions contemplated by this Amendment (including without limitation the Corporate Reorganization), duly adopted by the Board of Directors of the Borrower and satisfactory in form and substance to the Required Banks; (ii) an incumbency and signature certificate for the Borrower satisfactory in form and substance to the Administrative Agent; and (iii) the legal opinion of counsel to the Borrower in the form of Exhibit A attached hereto; (c) The Administrative Agent shall have received all fees payable to it and to the Banks in connection with the execution and delivery of this Amendment; (d) Each of the representations and warranties set forth in Section 5 of the Credit Agreement shall be true and correct, except that the representations and warranties made under Section 5.2 shall be deemed to refer to the most recent financial statements furnished to the Banks pursuant to Section 7.4 of the Credit Agreement; and (e) The Borrower shall be in full compliance with all of the terms and conditions of the Loan Documents and no Event of Default or Potential Default shall have occurred and be continuing thereunder or shall result after giving effect to this Amendment. 2.2. The Guaranty Effective Date shall occur upon the satisfaction of all of the following conditions precedent: (a) The Amendment Effective Date shall have occurred; (b) The Administrative Agent shall have received for the benefit of the Banks in sufficient counterparts for distribution to the Banks: (i) the Guaranty Agreement executed by the Guarantors; -9- 10 (ii) good standing certificates for each Guarantor issued by the states of Delaware and Louisiana, as applicable, issued not more than 35 days before the Guaranty Effective Date; (iii) copies of the articles of incorporation or articles of formation, and all amendments thereto, of each Guarantor, certified by the Secretary of State of its state of incorporation or formation not more than 35 days before the date of this Amendment; (iv) copies of the By-Laws or operating agreement, and all amendments thereto, of each Guarantor, certified as true, correct and complete on the date hereof by the Secretary or Assistant Secretary of each Guarantor; (v) copies, certified as true, correct and complete by the Secretary or Assistant Secretary of each Guarantor, of resolutions, or the consent of sole member in the case of MissChem Nitrogen, regarding the transactions contemplated by this Amendment (including without limitation the Corporate Restructuring), duly adopted by the Board of Directors or sole member, as the case may be, of each Guarantor and satisfactory in form and substance to the Required Banks; (vi) an incumbency and signature certificate for each Guarantor satisfactory in form and substance to the Administrative Agent; and (vii) the legal opinion of counsel to each Guarantor in the form of Exhibit B attached hereto; (c) Each of the representations and warranties set forth in Section 5 of the Credit Agreement shall be true and correct, except that the representations and warranties made under Section 5.2 shall be deemed to refer to the most recent financial statements furnished to the Banks pursuant to Section 7.4 of the Credit Agreement. (d) The Borrower shall be in full compliance with all of the terms and conditions of the Loan Documents and no Event of Default or Potential Default shall have occurred and be continuing thereunder or shall result after giving effect to this Amendment. SECTION 3. MISCELLANEOUS. 3.1. Reference to this specific Amendment need not be made in any note, document, letter, certificate, the Credit Agreement itself, the Notes, or any communication issued or made pursuant to or with respect to the Credit Agreement, any reference to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 3.2. This Amendment may be executed in any number of counterparts, and by the different parties on different counterparts, all of which taken together shall constitute one and the -10- 11 same agreement. Any of the parties hereby may execute this agreement by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This agreement shall be governed by the internal laws of the State of Illinois. -11- 12 Upon acceptance hereof by the Administrative Agent and the Banks in the manner hereinafter set forth, this Amendment shall be a contract between us for the purposes hereinabove set forth. Dated as of June 10, 1999. MISSISSIPPI CHEMICAL CORPORATION By /s/ TIMOTHY A. DAWSON ---------------------------- Timothy A. Dawson ---------------------------- Its Senior Vice President & Chief Financial Officer -12- 13 Accepted and Agreed to as of the day and year last above written. HARRIS TRUST AND SAVINGS BANK, individually and as Administrative Agent By /s/ JULIE K. HOSSACK --------------------------------------------- Its Vice President CREDIT AGRICOLE INDOSUEZ By /s/ KATHERINE L. ABBOTT --------------------------------------------- Its First Vice President Managing Director By /s/ BRADLEY C. PETERSON --------------------------------------------- Its Vice President, Manager BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By /s/ WARREN G. PARKHAM --------------------------------------------- Its Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ CASEY COSGROVE --------------------------------------------- Its Vice President THE BANK OF NOVA SCOTIA, ATLANTA AGENCY By /s/ F. C. H. ASHBY --------------------------------------------- Its Senior Manager Loan Operations -13- 14 SUNTRUST BANK, ATLANTA By /s/ GREGORY L. CANNON --------------------------------------------- Its Vice President By /s/ MICHEL A. ODERMATT --------------------------------------------- Its Vice President FIRST UNION NATIONAL BANK By /s/ MARK B. FELKER --------------------------------------------- Its Senior Vice President ABN AMRO BANK N.V. By /s/ KEVIN P. COSTELLO --------------------------------------------- Its Vice President By /s/ GORDON D. CHANG --------------------------------------------- Its Vice President THE FUJI BANK, LIMITED By /s/ RAYMOND VENTURA --------------------------------------------- Its Vice President & Manager THE DAI-ICHI KANGYO BANK, LTD. By /s/ MATTHEW G. MURPHY --------------------------------------------- Its Vice President TRUSTMARK NATIONAL BANK By /s/ W. H. EDWARDS --------------------------------------------- Its Vice President -14- 15 FIRST AMERICAN NATIONAL BANK By /s/ STANLEY A. HERREN --------------------------------------------- Its Senior Vice President -15- 16 EXHIBIT A TO BE RETYPED ON LETTERHEAD OF COUNSEL AND DATED AS OF DATE OF CLOSING) Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 The From Time to Time Lenders Party to the Credit Agreement described in the First Amendment to Credit Agreement Ladies and Gentlemen: I have served as counsel to Mississippi Chemical Corporation (the "Borrower"), a Mississippi corporation, in connection with a revolving credit facility made available by you to the Borrower pursuant to the Credit Agreement, dated as of November 25, 1997 (the "Credit Agreement"). As such counsel, I have reviewed the corporate proceedings taken to authorize the execution and delivery of, and have examined executed originals of, the First Amendment to Credit Agreement, dated as of June 10, 1999 (the "Amendment"), among the Borrower and the Banks (as defined in the Amendment). As counsel to the Borrower, I am familiar with the articles of incorporation and bylaws of the Borrower (the "Organizational Documents"). I have also examined such other factual matters and matters of law as I deem necessary or pertinent to the formulation of the opinions hereinafter expressed. In my examination, I have assumed the genuineness of all signatures (other than those of the Borrower), the authenticity of all documents submitted to me as originals, and the conformity with authentic original documents of all documents submitted to me as copies. Also, I have relied upon statements and certifications of government officials and upon representations made in or pursuant to the Amendment and by representatives of the Borrower with respect to the Amendment. In rendering the opinions expressed below, I have assumed with respect to all documents referred to herein that (except with respect to the Borrower): such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding, and enforceable obligations of, all of the parties to such documents; all signatories to such documents have been duly authorized; and all of the parties to such documents are duly organized and validly existing and have the power and authority to execute, deliver, and perform such documents. Based upon the foregoing and subject to the qualifications and exceptions set forth below, I am of the opinion that: 1. The Borrower is a corporation duly organized and validly existing and in good standing under the laws of the State of Mississippi with full and adequate corporate power and authority to carry on its business as now conducted, and the Borrower is duly qualified to 17 Page 2 transact the business in which it is engaged and in good standing as a foreign corporation in each jurisdiction wherein the conduct of business or the assets and properties owned or leased by it require such qualification, except to the extent the failure to be so qualified would not have a material adverse effect on the business or financial condition of the Borrower and its subsidiaries taken as a whole. 2. The Borrower has full right, power and corporate authority to borrow from you, to execute and deliver the Amendment executed by it, and to observe and perform all the matters and things therein provided for. The execution and delivery of the Amendment executed by the Borrower does not, nor will the observance or performance of any of the matters or things therein provided for, contravene any provision of applicable law, except where such contravention would not have a material adverse effect on the properties, business, operations, or financial condition of the Borrower and its subsidiaries taken as a whole, or of the Organizational Documents of the Borrower (there being no other agreements under which the Borrower is organized), or, to my knowledge, of any material covenant, indenture or agreement binding upon or affecting the Borrower or any of its properties or assets. 3. The Amendment executed by the Borrower has been duly authorized by all necessary corporate action of the Borrower, has been executed and delivered by the proper officers of the Borrower, and constitutes a valid and binding agreement of the Borrower enforceable against the Borrower in accordance with its terms, subject to bankruptcy, insolvency, and other laws affecting creditors' rights generally and to principles of equity. 4. Based solely upon my review of those statutes, rules, and regulations that are generally applicable to transactions in the nature of those contemplated by the Amendment, no order known by me, authorization, consent, license or exemption of, or filing or registration with, any court or governmental department, agency, instrumentality or regulatory body, whether state or federal, is or will be required in connection with the lawful execution and delivery of the Amendment or the observance and performance by the Borrower of any of the terms thereof, except such as have already been obtained or if not obtained would not have a material adverse effect on the properties, business, operations, or financial condition of the Borrower and its subsidiaries taken as a whole. 5. Except as set forth on Schedule 5.3 to the Credit Agreement, to my knowledge, there is no action, suit, proceeding or investigation, at law or in equity, of which we have been directly notified in writing or which has been served upon us, before or by any court or public body, pending or threatened against or affecting the Borrower or any of its assets and properties which, if adversely determined, could result in any material adverse change in the properties, business, operations or financial condition of the Borrower and its subsidiaries taken as a whole. I express no opinion herein as to the legality, validity, binding nature or enforceability of provisions of the Amendment (i) relating to indemnification, exculpation, or contribution, to the extent such provisions may be held unenforceable as contrary to public policy or federal or state securities laws, (ii) relating to the release of a party from, or the indemnification of a party against, liability for its own wrongful or negligent acts under certain circumstances, (iii) insofar as it provides for the payment or reimbursement of costs and expenses or for claims, losses, or liabilities in excess of a reasonable amount determined by any court or other tribunal, (iv) requiring written amendments or waivers of such documents insofar as it suggests that oral or other modifications, amendments, or waivers could not be effectively agreed upon by the parties or that the doctrine of promissory estoppel might not apply, (v) waiving the right to object to venue in any court, or (vi) relating to any consent or agreement to submit to the jurisdiction of 18 Page 3 any court. I also express no opinion as to laws regarding fraudulent transfers, conveyances, or obligations, or usury. I render no opinion herein as to matters involving the laws of any jurisdiction other than the State of Mississippi and the United States of America. This opinion is limited to the effect of the present state of the laws of the State of Mississippi and the United States of America and the facts as they presently exist, and I assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretation thereof or such facts. This opinion is rendered solely to you in connection with the Amendment and may not be relied upon by any person for any purpose other than in connection with the transactions contemplated by the Amendment without, in each instance, my prior written consent. Very truly yours, MISSISSIPPI CHEMICAL CORPORATION William L. Smith Vice President & General Counsel 19 EXHIBIT B (TO BE RETYPED ON LETTERHEAD OF COUNSEL AND DATED AS OF DATE OF CORPORATE RESTRUCTURING) Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 The From Time to Time Lenders Party to the Credit Agreement described in the First Amendment to Credit Agreement Ladies and Gentlemen: I have served as counsel to Mississippi Nitrogen, Inc., formerly known as Triad Nitrogen, Inc. ("MNI"), a Delaware corporation, and MissChem Nitrogen, L.L.C. ("MNLLC," and collectively with MNI, the "Guarantors"), a Delaware limited liability company, with respect to that certain Guaranty Agreement, dated as of July 1, 1999 (the "Guaranty"), executed in connection with a revolving credit facility made available by you to Mississippi Chemical Corporation (the "Borrower") pursuant to the Credit Agreement, dated as of November 25, 1997, as amended by the First Amendment to Credit Agreement, dated as of June 10, 1999 (collectively, the "Credit Agreement"). As such counsel, I have reviewed the corporate proceedings taken to authorize the execution and delivery of, and have examined executed originals of, the Guaranty, from the Guarantors to the Banks (as defined in the Credit Agreement). As counsel to the Guarantors, I am familiar with the Articles of Incorporation and Bylaws of MNI and the certificate of formation and Limited Liability Company Agreement of MNLLC (respectively, the "Organizational Documents"). I have also examined such other factual matters and matters of law as I deem necessary or pertinent to the formulation of the opinions hereinafter expressed. In my examination, I have assumed the genuineness of all signatures (other than those of the Guarantors), the authenticity of all documents submitted to me as originals, and the conformity with authentic original documents of all documents submitted to me as copies. Also, I have relied upon statements and certifications of government officials and upon representations made in or pursuant to the Guaranty and by representatives of the Guarantors with respect to the Guaranty. In rendering the opinions expressed below, I have assumed with respect to all documents referred to herein that (except with respect to the Guarantors): (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding, and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority to execute, deliver, and perform such documents. Based upon the foregoing and subject to the qualifications and exceptions set forth below, I am of the opinion that: 20 Page 2 1. Each Guarantor is a corporation or limited liability company duly organized and validly existing and in good standing under the laws of the State of Delaware with full and adequate corporate or limited liability company power and authority to carry on its respective business as now conducted. 2. Each Guarantor is duly qualified to transact the business in which it is engaged and in good standing as a foreign corporation in each jurisdiction wherein the conduct of its respective business or the assets and properties owned or leased by it require such qualification, except to the extent the failure to be so qualified would not have a material adverse effect on the business or financial condition of the Guarantors taken as a whole. 3. Each Guarantor has full right, power and corporate or limited liability company authority to guarantee the obligations of the Borrower under the Credit Agreement and to observe and perform all of the matters and things provided for in the Guaranty. 4. The execution and delivery of the Guaranty executed by the Guarantors does not, nor will the observance or performance of any of the matters or things therein provided for, contravene any provision of applicable law, except where such contravention would not have a material adverse effect on the properties, business, operations, or financial condition of the Guarantors taken as a whole, or of the respective Organizational Documents of the Guarantors (there being no other agreements under which each Guarantor is organized), or, to my knowledge, of any material agreement binding upon or affecting each Guarantor or any of its properties or assets. 5. The Guaranty executed by the Guarantors has been duly authorized by all necessary corporate or limited liability company action of each Guarantor and has been executed and delivered by the proper officer or member of each Guarantor. 6. The Guaranty executed by the Guarantors constitutes a valid and binding agreement of each Guarantor enforceable against each Guarantor in accordance with its terms, subject to bankruptcy, insolvency, and other laws affecting creditors' rights generally and to principles of equity. 7. Based solely upon my review of those statutes, rules, and regulations that are generally applicable to transactions in the nature of those contemplated by the Guaranty, no order known by me, authorization, consent, license or exemption of, or filing or registration with, any court or governmental department, agency, instrumentality or regulatory body, whether state or federal, is or will be required in connection with the lawful execution and delivery of the Guaranty or the observance and performance by the Guarantors of any of the terms thereof, except such as have already been obtained or, if not obtained, would not have a material adverse effect on the properties, business, operations, or financial condition of the Guarantors taken as a whole. 8. Except as set forth on Schedule 5.3 to the Credit Agreement, to my knowledge, there is no action, suit, proceeding or investigation, at law or in equity, of which we have been directly notified in writing or which has been served upon us, before or by any court or public body, pending or threatened against or affecting any Guarantor or any of its assets and properties which, if adversely determined, could result in any material adverse change in the properties, business, operations or financial condition of the Guarantors taken as a whole. 21 Page 3 I express no opinion herein as to the legality, validity, binding nature or enforceability of provisions of the Guaranty (i) relating to indemnification, exculpation, or contribution, to the extent such provisions may be held unenforceable as contrary to public policy or federal or state securities laws, (ii) relating to the release of a party from, or the indemnification of a party against, liability for its own wrongful or negligent acts under certain circumstances, (iii) insofar as it provides for the payment or reimbursement of costs and expenses or for claims, losses, or liabilities in excess of a reasonable amount determined by any court or other tribunal, (iv) requiring written amendments or waivers of such documents insofar as it suggests that oral or other modifications, amendments, or waivers could not be effectively agreed upon by the parties or that the doctrine of promissory estoppel might not apply, (v) waiving the right to object to venue in any court, or (vi) relating to any consent or agreement to submit to the jurisdiction of any court. I also express no opinion as to laws regarding fraudulent transfers, conveyances, or obligations, or usury. I render no opinion herein as to matters involving the laws of any jurisdiction other than the State of Mississippi, the United States of America, and for purposes of opinion paragraphs 1, 3, and 5 above, the State of Delaware. I am not admitted to practice law in the State of Delaware; however, I am generally familiar with the Delaware General Corporation Law and the Delaware Limited Liability Company Act as presently in effect, and I have made such inquiries as I consider necessary to render the opinions contained in opinion paragraphs 1, 3, and 5 above. This opinion is limited to the effect of the present state of the laws of the State of Mississippi, the United States of America, and to the limited extent set forth above in this paragraph, the State of Delaware and the facts as they presently exist, and I assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretation thereof or such facts. This opinion is rendered solely to you in connection with the Guaranty and may not be relied upon by any person for any purpose other than in connection with the transactions contemplated by the Guaranty without, in each instance, my prior written consent. Very truly yours, William L. Smith Vice President and General Counsel 22 EXHIBIT M MISSISSIPPI CHEMICAL CORPORATION GUARANTY AGREEMENT Harris Trust and Savings Bank, individually and as Administrative Agent Chicago, Illinois The From Time to Time Lenders Party To the Credit Agreement described below Ladies and Gentlemen: Reference is made to that certain Credit Agreement dated as of November 25, 1997 (such Credit Agreement, as the same may be modified or amended from time to time, being hereinafter referred to as the "Credit Agreement") by and among Mississippi Chemical Corporation, a Mississippi corporation (the "Borrower"), and Harris Trust and Savings Bank, individually and in its capacity as administrative agent thereunder, Bank of Montreal, Chicago Branch, in its capacity as syndication agent thereunder, Credit Agricole Indosuez (formerly known as Caisse Nationale de Credit Agricole), in its capacity as co-agent thereunder, and you (all of said banks except Bank of Montreal, including Harris Trust and Savings Bank in its individual capacity ("Harris"), being referred to collectively as the "Banks" and individually as a "Bank", and said Harris Trust and Savings Bank as administrative agent for the Banks under the Credit Agreement being hereinafter referred to in such capacity as the "Administrative Agent"), pursuant to which said Banks agree to make available to the Borrower a Revolving Credit (the "Revolving Credit"), a competitive bid facility (the "Bid Facility") and a swingline facility (the "Swingline"), with all loans thereunder to be evidenced by the Revolving Credit Notes of the Borrower (all such Revolving Credit Notes being hereinafter referred to collectively as the "Notes" and individually as a "Note") and Harris may issue letters of credit for the account of the Borrower. All of the Borrower's indebtedness, obligations and liabilities to the Banks under the Credit Agreement and the other Loan Documents, including, without limitation, all such indebtedness, obligations and liabilities evidenced by the Notes, all indebtedness, obligations and liabilities with respect to letters of credit and all extensions or renewals of any of the foregoing, are hereinafter collectively referred to as the "Indebtedness". All defined terms used herein shall have the meanings set forth in the Credit Agreement unless expressly defined herein. The Borrower and the Banks have amended the Credit Agreement pursuant to a First Amendment to Credit Agreement dated as of June 10, 1999 (the "Amendment") to permit the Borrower and the undersigned, Triad Nitrogen, Inc. ("Triad") to transfer a "material part" (as defined in the Credit Agreement) of their operating assets to two new wholly-owned subsidiaries of Triad (the "Corporate Restructuring"). As an inducement to each of you to accept and enter into said Amendment and permit the Corporate Restructuring of the Borrower, and in consideration of credit extended and to be extended by the Banks to the Borrower under said Credit Agreement as amended by the Amendment, the undersigned (hereinafter collectively referred to as the "Guarantors"), acknowledging that the Banks have informed the Borrower 23 that said credit would not be extended pursuant to the Amendment but for this guarantee, hereby jointly and severally guarantee the full and prompt payment to the Administrative Agent and each of the Banks at maturity (whether by acceleration, lapse of time or otherwise) and at all times thereafter of principal of and interest on all Indebtedness of the Borrower under the Credit Agreement, and all extensions or renewals of all or any part thereof and all other indebtedness, liabilities and obligations of the Borrower to the Banks and the Administrative Agent under the Credit Agreement. SECTION 1. TERMS AND CONDITIONS. Section 1.1. This guaranty of payment by the Guarantors shall be a continuing, absolute and unconditional guaranty and shall remain in full force and effect until all Indebtedness of the Borrower to the Banks and the Administrative Agent shall be fully paid and satisfied and all commitments of the Banks under the Credit Agreement to extend credit to or for the account of the Borrower shall have terminated. The dissolution, liquidation or insolvency (howsoever evidenced) of, or the institution of bankruptcy or receivership proceedings against any one or more of the Guarantors or the Borrower shall not terminate this Agreement. Section 1.2. The obligations and liabilities of the Guarantors, or any of them, hereunder shall not be affected or impaired by any irregularity, invalidity or unenforceability of or in any of the Notes or of any agreement, instrument or other document evidencing or creating or providing for the same. Section 1.3. The obligations and liabilities of the Guarantors, or any of them, hereunder shall not be affected or impaired by (and the Banks are hereby expressly authorized to make from time to time without notice to the Guarantors) any sale, pledge, surrender, compromise, settlement, release, renewal, extension, indulgence, amendment, alteration, substitution, exchange, change in, modification or other disposition of any of the Credit Agreement, the Notes, any other Loan Documents, any other guaranty thereof, or of any security or collateral therefor. Section 1.4. The obligations and liabilities of the Guarantors or any of them hereunder shall not be affected or impaired by any acceptance by the Administrative Agent or the Banks, or any of them, of any security or collateral for, or other guarantors upon any of the Indebtedness or by any failure, neglect, omission, delay or partial action on the part of the Administrative Agent or the Banks, or any of them, in the administration of the Indebtedness or to realize upon or protect any of the Indebtedness or any security or collateral therefor, or to exercise any lien upon or right of appropriation of any moneys, credits or property of the Borrower possessed by any of the Banks toward the liquidation of the Indebtedness or by any application of payments or credits thereon or by any other circumstances whatsoever (with or without notice to or the knowledge of the Guarantors, or any of them) which may in any manner or to any extent vary the risk of the Guarantors, or any of them, hereunder or may otherwise constitute a legal or equitable discharge of a surety or guarantor; it being the purpose and intent that this guaranty of payment and the obligations and liability of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances and shall not be discharged except by payment and performance as herein provided. -2- 24 Section 1.5. In order to hold the Guarantors, or any of them, liable hereunder, there shall be no obligation on the part of any Bank, at any time, to resort for payment to any person directly liable in respect of the Indebtedness or to any other guaranty, or to any other person, their properties or estates, or to resort to any collateral, security, property, liens or other rights or remedies whatsoever, and the Banks shall have the right to enforce this guaranty of payment irrespective of whether or not other proceedings or steps are pending seeking resort to or realization upon or from any of the foregoing. The Guarantors jointly and severally agree to pay all reasonable out-of-pocket expenses, including court costs and reasonable attorneys' fees, paid or incurred by the Administrative Agent and the Banks or any of them in endeavoring to collect on the Indebtedness or any part thereof and in enforcing this Agreement. Section 1.6. The granting of credit to the Borrower by any Bank from time to time in addition to the Indebtedness under the Credit Agreement without notice to the Guarantors, or any of them, is hereby authorized and shall in no way affect or impair the obligations and liability of the Guarantors, or any of them, hereunder. Section 1.7. The payment by any Guarantor of any amount or amounts under this guaranty of payment shall not entitle it, either at law, in equity or otherwise, to any right, title or interest (whether by way of subrogation or otherwise) in and to any of the Indebtedness, or in and to any security or collateral therefor, or in or to any amounts at any time paid or payable under or pursuant to any guaranty by any other person of all or part of Indebtedness, or in and to any amounts theretofore, then or thereafter paid or applicable to the payment of the Indebtedness, howsoever such payment or payments may arise, until all of the Indebtedness has been fully paid and all obligations of the Banks to extend credit to or for the benefit of the Borrower shall have terminated or expired. Section 1.8. This Agreement may be enforced by the Banks acting jointly, or it may be enforced by any Bank acting alone or separately with respect to the Indebtedness which it holds. Any Bank may, without any notice to the Guarantors, sell, assign or transfer, to the extent permitted in the Credit Agreement, the Indebtedness held by it, or any part thereof, or grant participations therein; and in that event, each and every immediate and successive assignee, transferee or holder of or participant in all or any part of the Indebtedness shall, to the extent permitted in the Credit Agreement, have the right to enforce this Agreement, by suit or otherwise, for the benefit of such assignee, transferee, holder or participant as fully as if such assignee, transferee, holder or participant were herein by name specifically given such rights, powers and benefits; but each Bank shall have an unimpaired right to enforce this Agreement for its own benefit or for the benefit of any such participant as to so much of the Indebtedness that it has not sold, assigned or transferred. Section 1.9. If any payment applied by any Bank to any of the Indebtedness is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of any of the Borrower or any other obligor), the Indebtedness to which such payment was applied shall for the purposes of this Agreement be deemed to have continued in existence, notwithstanding such application, and this Agreement shall be enforceable as to such of the Indebtedness as fully as if such application had never been made. -3- 25 SECTION 2. MISCELLANEOUS. Section 2.1. Notices. Unless otherwise expressly provided herein, all communications provided for herein shall be in writing or by telecopy and shall be deemed to have been given or made when served personally, when an answer back is received in the case of notice by telecopy or 2 days after the date when deposited in the United States mail addressed if to any Guarantor to P.O. Box 388, Yazoo City, Mississippi 39194, Attention: Corporate Secretary; if to the Administrative Agent or Harris at 111 West Monroe Street, Chicago, Illinois 60690, Attention: Agribusiness Group; and if to any of the Banks, at the address for each Bank set forth under its signature on the Credit Agreement; or at such other address as shall be designated by any party hereto in a written notice to each other party pursuant to this Section 2.1. Section 2.2. Jurisdiction; Venue. EACH GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS COURT SITTING IN CHICAGO FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 2.3. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE INTERNAL LAWS OF THE STATE OF ILLINOIS, IN WHICH STATE IT SHALL BE PERFORMED BY THE GUARANTORS. This Agreement and every part hereof shall be binding upon the Guarantors jointly and severally and upon their respective legal representatives, successors and assigns of each and all of the undersigned, and shall inure to the benefit of the Banks and their respective successors, legal representatives and assigns. Section 2.4. This writing is intended by the parties to be a complete and final expression of this Agreement and is also intended as a complete and exclusive statement of the terms of that agreement. No course of dealing, course of performance or trade usage, and no parole evidence of any nature, shall be used to supplement or modify any terms hereof, nor are there any conditions to the full effectiveness of this Agreement. Section 2.5. No Guarantor shall be released from any of its obligations under this Agreement, and this Section 2.5 may not be amended, modified or waived, without the prior written consent of all of the Banks. -4- 26 Dated as of , 1999. ---------------- MISSISSIPPI NITROGEN, INC. By -------------------------- Its ------------------- MISSCHEM NITROGEN, L.L.C. By -------------------------- Its ------------------- -5- 27 SCHEDULE 5.3 LITIGATION a. Cleve Reber CERCLA Site. Triad has received and responded to letters issued by the United States Environmental Protection Agency ("EPA") under Section 104 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") relative to the possible disposition of Triad waste at the disposal site identified as the Cleve Reber site in Ascension Parish, Louisiana. It is Triad's position that, based upon available information and records, Triad did not utilize the Cleve Reber site for the disposition of hazardous material, and it does not appear that Triad has any responsibility for investigation and cleanup on this site. It should be noted that the EPA is contemplating an action under the Resource Conservation and Recovery Act, Section 7003, as well as the CERCLA action mentioned above. The EPA has issued Section 106 orders against the major contributors at the site for cleanup. They are now engaged in negotiations for cleanup. Two years ago, Triad received a supplemental 104(e) request for information from the EPA, indicating the EPA's renewed interest in pursuing Potential Responsible Persons ("PRPs") at the site. Triad filed a Freedom of Information Act request to investigate allegations that some plant trash from Triad may have been disposed of at the Cleve Reber site. In the opinion of management, the likelihood of loss and material amount is remote. b. Terra International, Inc. Litigation On August 31, 1995, Mississippi Chemical Corporation (the "Company") filed suit against Terra International, Inc. ("Terra") in the U.S. District Court for the Southern District of Mississippi seeking a declaratory judgment that the Company's design of certain technology relating to a nitric acid sparger licensed to Terra did not contribute to an explosion at Terra's Port Neal, Iowa, fertilizer facility and unspecified damages for defamation based on Terra's false public statements relating to the Company's alleged role in the explosion. On the same day, Terra filed suit against the Company in the U.S. District Court for the Northern District of Iowa seeking an unspecified sum of money for property damage and business interruption losses arising out of the explosion. Terra's lawsuit, which is based on theories of negligence and product liability, alleges that the nitric acid sparger was defectively designed and contributed to the explosion. The Company believes that the explosion was caused by a series of operating errors at the Terra plant. 28 On January 23, 1998, the issue of where this matter would be litigated to conclusion was resolved when the U.S. Supreme Court denied Terra's writ of certiorari seeking review of the U.S. Eighth Circuit Court of Appeals decision affirming Judge Bennett's ruling that the U.S. District Court for the Southern District of Mississippi was the proper venue for this matter. Discovery in this matter is underway and expected to continue through July 1999. Trial is set for September 6, 1999. The Company intends to continue prosecution of the defamation claim and its vigorous defense against Terra's allegations. c. Newsprint South, Inc., Tax Dispute. A dispute exists regarding the tax treatment of an $8.75 million payment (the "Payment") that was made by the Company to its former subsidiary, Newsprint South, Inc. ("NSI"), on July 6, 1994, to terminate the newsprint contract executed by the Company and NSI. The Company's deduction of the Payment on its 1995 fiscal year tax return (July 1, 1994, through June 30, 1995) has been challenged by both NSI and the Internal Revenue Service ("IRS"). NSI has taken the position that the Payment was a contribution to NSI's capital and not income to NSI. The IRS has contested both the Company's and NSI's tax treatment of the Payment. The Payment was part of the agreement between the Company and NSI's creditors regarding the Company's June 1994 divestiture of NSI and was addressed in the contract documents detailing the divestiture agreement. It is the Company's position that these documents, along with other evidence, establish the Company's right to deduct the Payment. NSI filed a petition for declaratory judgment in the Circuit Court for Grenada County, Mississippi, on November 24, 1997, seeking a judgment that the contract documents supported its tax treatment of the Payment. The Company responded by requesting that the Court deny NSI's petition and grant the same declaratory relief to the Company. In July 1998, the Court entered an order holding that the Payment was not a capital contribution and that any tax treatment of the Payment by NSI that is inconsistent with the Company's 1994 fiscal year consolidated tax return was a breach of the Tax Coordination Agreement executed by the Company and NSI. On April 2, 1999, a settlement agreement was reached with NSI that allows the Company to favorably resolve all significant issues arising from the Internal Revenue Service's ("IRS") 1995 and 1996 fiscal year tax audits. The NSI settlement is contingent upon both NSI and the Company reaching separate, binding agreements with the IRS regarding all material, outstanding issues arising from the audits. We expect the settlement agreements with the IRS and NSI to be consummated by June 30, 1999. EX-13.1 3 1999 ANNUAL REPORT 1 EXHIBIT 13.1 MISSISSIPPI CHEMICAL CORPORATION 1999 ANNUAL REPORT 2 MISSISSIPPI CHEMICAL CORPORATION FINANCIAL HIGHLIGHTS
INCOME STATEMENT DATA: Fiscal Years Ended June 30 - ---------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Net sales $ 467,899 $ 493,712 $ 496,316 $ 05,553 $ 364,390 Operating income $ 8,455 $ 37,936 $ 91,209 $ 84,818 $ 80,969 Net (loss) income $ (3,608) $ 22,974 $ 55,815 $ 54,178 $ 52,230 (Loss) earnings per share - basic $ (0.14) $ 0.84 $ 2.29 $ 2.47 $ 2.34 (Loss) earnings per share - diluted $ (0.14) $ 0.84 $ 2.29 $ 2.46 $ 2.34 Weighted average common shares outstanding - basic 26,392 27,355 24,329 21,975 22,337 Weighted average common shares outstanding - diluted 26,392 27,390 24,404 22,039 22,364
BALANCE SHEET DATA: June 30 - ---------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Working capital $ 84,364 $ 64,086 $ 53,910 $ 81,613 $ 70,790 Total assets $ 898,888 $ 912,332 $ 858,545 $ 341,006 $ 302,215 Long-term debt, excluding long-term debt due within one year $ 305,857 $ 304,705 $ 244,516 $ -- $ 2,478 Shareholders' equity $ 420,228 $ 448,525 $ 439,429 $ 247,825 $ 227,307 Cash dividends declared per common share $ 0.40 $ 0.40 $ 0.40 $ 0.36 $ 0.16
2 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) OVERVIEW Our operations are organized into three strategic business units: nitrogen, phosphate and potash. Our nitrogen business unit produces nitrogen fertilizers for distribution to fertilizer dealers and distributors and industrial users located primarily in the southern region of the United States. Our phosphate business unit produces diammonium phosphate fertilizer (commonly referred to as "DAP") and exports the majority of this production through the Phosphate Chemicals Export Association, Inc., a Webb-Pomerene corporation known as "PhosChem." Our potash business unit mines and produces agricultural and industrial potash products for sale to farmers, fertilizer dealers and distributors, and industries for use primarily in the southern and western regions of the United States. The following is management's discussion and analysis of the financial condition and results of operations, which should be read in conjunction with the Consolidated Financial Statements and related notes. For the current fiscal year, we incurred a net loss of $3.6 million (or $0.14 per basic and diluted share) compared to net income of $23.0 million (or $0.84 per basic and diluted share) for the prior fiscal year. Net sales decreased to $467.9 million in fiscal 1999 from $493.7 million in fiscal 1998, and operating income decreased to $8.5 million in fiscal 1999 from $37.9 million in fiscal 1998. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the current year were $57.6 million compared to $87.5 million for the prior year. We recognized one-time gains for both fiscal 1999 and 1998. In fiscal 1999, we recorded a $3.6 million after-tax gain (or $0.14 per share) for an involuntary conversion of property after a hurricane damaged our facilities in Pascagoula, Mississippi. The gain consisted of the difference between the carrying value of the damaged assets and the insurance proceeds expected to be received. The prior year included a $6.8 million after-tax gain (or $0.24 per share) related to the sale of our undeveloped phosphate rock property in Hardee County, Florida. - --------------- (1) Pronouns used herein (for example we, us, our) include Mississippi Chemical Corporation, its subsidiaries and affiliates. 3 4 NITROGEN The operating performance of our nitrogen business unit in the current year was significantly impacted by continued weak product pricing caused by (i) additional worldwide supply resulting from increased nitrogen capacity, (ii) decreased U.S. fertilizer demand, (iii) China's urea embargo and (iv) cheap Russian imported product. As a result, our weighted average nitrogen sales price decreased 19% during the current year. A 9% increase in nitrogen sales volumes partially offset the decline in nitrogen sales prices during the current year. This increase in sales volumes was attributable to additional tons available for sale from Farmland MissChem Limited, our 50%-owned joint venture ammonia production facility which began commercial operations in late July 1998. Lost production associated with downtime at one of our ammonia plants located in Donaldsonville, Louisiana, reduced the increase in nitrogen sales volume during the current year. Our nitrogen costs per ton declined 4% during the current year, primarily as a result of lower costs for natural gas, maintenance and labor. During the prior year, we incurred higher maintenance and labor costs as a result of scheduled maintenance shutdowns. These cost reductions were partially offset by higher depreciation costs in the current year as our Yazoo City nitrogen expansion projects were placed in service. Pursuant to the Farmland MissChem offtake agreement, we purchase one-half of the ammonia production from Farmland MissChem at a discount to market, subject to a minimum price. During fiscal 1999, all purchases from Farmland MissChem were at the minimum price. We recorded $1.5 million in equity income from Farmland MissChem in fiscal 1999, which reduced our cost of products sold in our fiscal 1999 consolidated statement of income. The joint venture equity income was reduced by start-up costs that were written off during the current year in accordance with the early adoption of a change in an accounting principle. PHOSPHATE In April 1998, we completed a plant expansion at our phosphate business unit in Pascagoula, Mississippi, which increased DAP production rates and reduced per-ton production costs. This expansion 4 5 resulted in a 9% sales volume increase during the current year. This increase was partially offset in the current year because our production facilities in Pascagoula, Mississippi, were damaged by Hurricane Georges in late September 1998, and we lost production. Our DAP sales price increased 1% during the current year. DAP costs per ton declined 8% during the current year, primarily as a result of increased production from the expansion and lower raw material costs for ammonia and sulfur. The lower costs were partially offset by the higher cost of phosphate rock during the current year due to the pricing formula in our phosphate rock supply contract that is based on the phosphate rock costs incurred by certain other domestic phosphate producers and the financial performance of our phosphate operations. Our DAP production facilities in Pascagoula were shut down for 22 days as a result of the damage caused by Hurricane Georges. Approximately 54,000 tons of DAP inventory were damaged. The damaged inventory and property were insured, as were all business interruption losses in excess of ten days. We treated the disposal of the damaged property, other than inventory, as an involuntary conversion and recorded, as a component of other income, a gain of $5.7 million based on the difference in the carrying value of those assets and the insurance proceeds expected to be received. POTASH Our potash business unit experienced a 6% increase in sales prices and a 10% decrease in sales volumes during the current year. Sales volumes decreased in fiscal 1999, primarily as a result of (i) reduced spring demand in the current year, (ii) reduced product availability due to suspension of operations at our Eddy mine in December 1997, and (iii) lost production caused by downtime required to complete an expansion in the third quarter of fiscal 1999. Our potash costs per ton increased 2% during the current year as compared to the prior year, primarily as a result of lower production at our west mine. This lower production resulted from downtime associated with the expansion and from declines in ore grades. The higher costs incurred at our west mine were partially offset by improved operations at our east mine and suspension of operations at our higher-cost Eddy mine. 5 6 OUTLOOK Long-term fundamentals driving the fertilizer industry, such as population growth and the improvement of diets worldwide, remain sound; however, the key issue in the short term is the direction of nitrogen pricing, which we believe, for the foreseeable future, will be significantly affected by (i) the purchasing practices of China, (ii) the production and pricing policies of Russian producers, (iii) increases in the supply of nitrogen products available for sale in world markets as a result of recent global capacity expansions, and (iv) the effect of grain prices on U.S. fertilizer demand. Based on the current market outlook, we expect low nitrogen prices to continue to negatively impact our financial results; however, recent announcements of curtailments and shutdowns by various nitrogen producers may positively influence the supply and demand balances for the near term. In July 1999, we announced an indefinite curtailment of production at one of our ammonia plants in Donaldsonville, Louisiana. We are monitoring market conditions to determine an appropriate schedule for resuming ammonia production at this plant. In addition, we are concerned about the future direction of DAP sales prices due to announced capacity expansions expected to come on-line in countries that have historically been significant importers of DAP. RESULTS OF OPERATIONS Our results of operations have historically been influenced by a number of factors beyond our control, which have at times had a significant impact on our operating results. Fertilizer demand and prices are highly dependent upon a variety of conditions in the agricultural industry such as grain prices, planted acreage, projected grain stocks, U.S. Government policies, weather, and changes in agricultural production methods. Our results of operations can also be affected by (i) the volatility of natural gas prices, (ii) operating difficulties, (iii) the relative value of the U.S. dollar, (iv) foreign agricultural policies (in particular, policies of the Governments of India and China regarding fertilizer imports), (v) capacity expansions by competitors, (vi) pricing policies of domestic and foreign competitors (especially Russia), and (vii) the unpredictable nature of international and local economies. 6 7 Summaries of our sales results by business unit are set forth below:
Fiscal Years Ended June 30 -------------------------------- (in thousands) 1999 1998 1997 -------- -------- -------- Net Sales: Nitrogen $244,581 $277,993 $287,847 DAP 135,718 124,123 125,421 Potash 85,917 89,746 80,963 Other 1,683 1,850 2,085 -------- -------- -------- Net Sales $467,899 $493,712 $496,316 ======== ======== ========
Fiscal Years Ended June 30 -------------------------------- (in thousands) 1999 1998 1997 -------- -------- -------- Tons Sold: Nitrogen: Ammonia 819 648 379 Ammonium nitrate 765 765 725 Urea 556 515 425 Nitrogen solutions 489 485 458 Nitric acid 54 57 36 -------- -------- -------- Total Nitrogen 2,683 2,470 2,023 DAP 788 726 723 Potash 921 1,022 1,020
Fiscal Years Ended June 30 -------------------------------- 1999 1998 1997 -------- -------- -------- Average Sales Price Per Ton: Nitrogen $ 91 $ 113 $ 142 DAP $ 172 $ 171 $ 173 Potash $ 93 $ 88 $ 79
Fiscal Years Ended June 30 -------------------------------- 1999 1998 1997 -------- -------- -------- Operating Income: Nitrogen $(20,982) $ 22,500 $ 80,727 Phosphate $ 16,660 $ 5,277 $ 9,788 Potash $ 12,416 $ 10,003 $ 694 Eliminations $ 361 $ 156 $ -- -------- -------- -------- Total $ 8,455 $ 37,936 $ 91,209 ======== ======== ========
7 8 FISCAL 1999 COMPARED TO FISCAL 1998 NET SALES. Our net sales decreased 5% to $467.9 million in fiscal 1999 from $493.7 million in fiscal 1998. This decrease, primarily the result of lower sales prices in the current year for our nitrogen products and lower sales volumes for our potash products, was partially offset by higher sales volumes for our nitrogen and DAP products. During the current year, our average sales prices for ammonia decreased 29%, ammonium nitrate decreased 14%, urea decreased 17% and nitrogen solutions decreased 14%, resulting in a 19% reduction in the weighted average sales price per ton of nitrogen when compared to the prior year. Nitrogen fertilizer sales volumes increased 9% during the current year, primarily as a result of increased sales volumes for ammonia. Ammonia sales volumes increased 26% during the current year due to the availability of additional tons for sale from Farmland MissChem Limited. We purchase one-half of the total production from the Farmland MissChem plant. The increase was partially offset by lost production in the current year associated with downtime at one of our ammonia plants located in Donaldsonville, Louisiana. During the current year, DAP sales increased 9% compared to the prior year due to a 9% increase in sales volumes and a 1% increase in sales prices. DAP sales volumes increased as a result of additional tons available for sale through increased production in the current year associated with an expansion completed in the prior year. This increase was partially offset by lost production in the current year as a result of damage to our DAP production facilities at Pascagoula, Mississippi, caused by Hurricane Georges in late September 1998. The plant did not produce for approximately 22 days during the current year, and approximately 54,000 tons of DAP inventory were damaged by the hurricane. Potash sales decreased 4% during fiscal 1999 as compared to fiscal 1998 as a result of a 10% decrease in sales volumes, partially offset by a 6% increase in sales prices. Sales volumes decreased in fiscal 1999, primarily as a result of (i) reduced spring demand in the current year, (ii) reduced product availability due to suspension of operations at our Eddy mine in December 1997, and (iii) lost production caused by downtime during the expansion completed in the third quarter of fiscal 1999. TRADING LOSS ON BROKERED PRODUCT. We did not engage in any brokering activities during fiscal 1999. During fiscal 1998, brokered ammonia sales of $18.5 million and purchases of $19.3 million resulted in a net trading loss of $820,000. We brokered approximately 142,000 short tons of ammonia during fiscal 1998. 8 9 COST OF PRODUCTS SOLD. Our cost of products sold increased to $420.6 million in fiscal 1999 from $417.5 million in fiscal 1998. As a percentage of net sales, cost of products sold increased to 90% in fiscal 1999 from 85% in fiscal 1998, primarily as a result of lower sales prices for our nitrogen products. The increase in cost of products sold as a percentage of net sales was partially offset by lower nitrogen and DAP costs per ton during the current year. Our lower nitrogen costs per ton were achieved through lower costs for natural gas, maintenance and labor during the current year. During the prior year, we incurred higher maintenance and labor costs as a result of scheduled maintenance shutdowns. These lower costs during the current year were partially offset by higher depreciation following the completion of major construction projects at our Yazoo City, Mississippi, facilities. DAP costs per ton decreased 8% in the current year, primarily as a result of increased production associated with an expansion completed in April 1998 and lower raw material costs for ammonia and sulfur. These lower costs were partially offset by higher raw material costs for phosphate rock in the current year. Potash costs per ton increased 2% during the current year as compared to the prior year. This increase was primarily the result of lower production at our west mine. This lower production was the result of (i) losses from downtime associated with the expansion completed in our third fiscal quarter and (ii) declines in ore grade. The increase in costs per ton was partially offset by improved operations at our east mine and suspension of operations at our higher-cost Eddy mine in early December 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and administrative expenses increased to $38.8 million in fiscal 1999 from $37.5 million in fiscal 1998. This increase, primarily the result of increased professional fees and advertising costs, was partially offset by decreased employee incentives related to our income levels. As a percentage of net sales, selling, general and administrative expenses were 8% in fiscal 1999 and 1998. OPERATING INCOME. As a result of the above factors, our operating income decreased to $8.5 million in fiscal 1999 from $37.9 million in fiscal 1998, a 78% decrease. INTEREST, NET. For fiscal 1999, our net interest expense increased to $19.0 million from $10.9 million in fiscal 1998. This increase was primarily due to less interest being capitalized as a result of the completion of major construction projects during the current year. We capitalized $3.9 million of interest 9 10 costs in fiscal 1999 compared to $9.0 million in fiscal 1998. We also incurred additional interest costs resulting from slightly higher debt levels and interest rates during the current year. GAIN ON INVOLUNTARY CONVERSION OF PROPERTY. During fiscal 1999, we recorded a $5.7 million gain on the involuntary conversion of property at our DAP facilities in Pascagoula, Mississippi, damaged by Hurricane Georges. The gain was based on the difference in the carrying value of the assets damaged and the total insurance proceeds expected to be received. OTHER. For fiscal 1999, our other income decreased to $1.0 million compared to $12.3 million in fiscal 1998. This decrease was primarily the result of a $10.9 million gain in fiscal 1998 on the sale of our undeveloped phosphate rock property in Florida. INCOME TAX (BENEFIT) EXPENSE. For fiscal 1999, our income tax benefit was $162,000 compared to income tax expense of $16.3 million in fiscal 1998. The income tax benefit in fiscal 1999 was the result of a loss for the year and permanently reinvested foreign earnings, which were partially offset by nondeductible goodwill amortization. NET (LOSS) INCOME. As a result of the foregoing, we incurred a net loss of $3.6 million in fiscal 1999 compared to net income of $23.0 million in fiscal 1998. FISCAL 1998 COMPARED TO FISCAL 1997 NET SALES. Our net sales decreased to $493.7 million in fiscal 1998 from $496.3 million in fiscal 1997, primarily as a result of lower sales prices for nitrogen. These lower sales prices were partially offset by increased sales volumes for nitrogen and higher sales prices for potash. During fiscal 1998, our average sales prices for ammonia decreased 24%, ammonium nitrate decreased 21%, urea decreased 27% and nitrogen solutions decreased 20%. These decreases resulted in a 21% reduction in the weighted average sales price per ton of nitrogen as compared to the prior year. Nitrogen fertilizer sales volumes increased 22% during fiscal 1998 due to increased ammonia and urea volumes attributable to our acquisition of the fertilizer business of First Mississippi Corporation ("First Mississippi") in December 1996. Potash net sales increased 11% as a result of an 11% increase in sales prices. The higher sales prices were the result of increased domestic and international demand during fiscal 1998. Potash sales volumes did not change significantly during fiscal 1998 as compared to fiscal 1997. Production efficiency gains at our two remaining 10 11 operating mines and a reduction in inventories offset the lost production associated with suspension of operations at our Eddy potash mine in December 1997. Sales of DAP did not change significantly during fiscal 1998. Sales prices decreased 1% while volumes remained relatively unchanged. We experienced some lost DAP production due to a shutdown associated with a production expansion during March and April of fiscal 1998. This expansion increased DAP production rates in the fourth quarter, allowing us to partially make up the lost production. By the end of fiscal 1998, sales volumes were comparable to fiscal 1997. TRADING LOSS ON BROKERED PRODUCT. We began brokering ammonia in the open market following our acquisition of First Mississippi's fertilizer business in December 1996. During fiscal 1998, brokered ammonia sales of $18.5 million and purchases of $19.3 million resulted in an $820,000 net trading loss. During fiscal 1997, brokered ammonia sales of $32.3 million and purchases of $33.2 million resulted in a $57,000 net trading loss after considering certain purchase price adjustments associated with the acquisition. We brokered approximately 142,000 short tons of ammonia during fiscal 1998 compared to 177,000 short tons during fiscal 1997. COST OF PRODUCTS SOLD. For fiscal 1998, our cost of products sold increased to $417.5 million from $372.3 million for fiscal 1997. As a percentage of net sales, cost of products sold increased to 85% from 75%. The increase in cost of products sold, as a percentage of net sales, is primarily the result of decreases in the average sales price for each of our nitrogen products. Our cost per ton for nitrogen products increased 3% in fiscal 1998, primarily as a result of (i) higher maintenance and labor costs associated with scheduled maintenance shutdowns at our nitrogen facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana, and (ii) higher depreciation associated with our acquisition of First Mississippi's fertilizer business. These costs were partially offset by slightly lower natural gas costs and lower prices paid for purchased ammonia. Our DAP costs per ton increased 1% during fiscal 1998 compared to fiscal 1997, primarily as a result of (i) higher conversion costs incurred due to scheduled maintenance shutdowns of the sulfuric acid plants and (ii) increased water treatment costs due to significantly higher rainfall levels experienced during fiscal 1998. These higher costs were partially offset by lower raw material costs, primarily for ammonia and phosphate rock. Phosphate rock costs decreased due to the pricing formula in our phosphate rock supply contract that is based on the phosphate rock costs incurred by certain other 11 12 domestic phosphate producers and the financial performance of our phosphate operations. Our potash costs per ton decreased 3% during fiscal 1998 as compared to fiscal 1997, primarily as a result of the suspension of operations at our higher-cost Eddy mine in early December 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and administrative expenses increased to $37.5 million in fiscal 1998 from $32.8 million in fiscal 1997. This increase was primarily the result of (i) increased goodwill amortization in fiscal 1998 associated with our acquisition of First Mississippi's fertilizer business in fiscal 1997 and (ii) idle plant costs associated with suspension of operations at our Eddy mine in December 1997. During fiscal 1998, we also experienced increased costs for sales administration as a result of the acquisitions made in fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 8% in fiscal 1998 from 7% in fiscal 1997. OPERATING INCOME. As a result of the above factors, our operating income was $37.9 million in fiscal 1998 compared to $91.2 million in fiscal 1997, a 58% decrease. INTEREST, NET. For fiscal 1998, our net interest expense was $10.9 million compared to $4.3 million in fiscal 1997. This increase was primarily the reflection of higher interest expense resulting from higher levels of borrowings during fiscal 1998. We capitalized interest costs of $9.0 million in fiscal 1998 and $3.9 million in fiscal 1997 related to major construction projects at our nitrogen and phosphate operations and to our investment in Farmland MissChem Limited. OTHER. Our other income increased to $12.3 million in fiscal 1998 from $3.7 million in fiscal 1997. This increase was primarily the result of the sale in April 1998 of our undeveloped phosphate rock property in Florida. We sold the property for $57.0 million and were compensated in the form of an initial cash payment of $2.4 million and a note for $54.6 million, which was secured by a mortgage on the property. The note, which carried an interest rate of 6.07% at June 30, 1998, was subject to prepayment, and in August 1998, was paid in full. As a result of the sale of this property, we recorded a net pre-tax gain of $10.9 million as a component of other income in our fiscal 1998 consolidated statement of income. INCOME TAX EXPENSE. For fiscal 1998, our income tax expense decreased to $16.3 million from $34.8 million in fiscal 1997, primarily as a result of a decrease in earnings during fiscal 1998. We also 12 13 incurred an increase in the effective tax rate during fiscal 1998 due to the nondeductible amortization of goodwill associated with our acquisition of First Mississippi's fertilizer business in December 1996. NET INCOME. As a result of the foregoing, our net income decreased to $23.0 million in fiscal 1998 from $55.8 million in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1999, we had cash and cash equivalents of $1.6 million compared to $3.9 million at June 30, 1998, a decrease of $2.3 million. At June 30, 1998, our cash and cash equivalents had decreased to $3.9 million from $8.2 million at June 30, 1997, a decrease of $4.3 million. OPERATING ACTIVITIES. Our net cash provided by operating activities was $20.7 million in fiscal 1999; $53.0 million in 1998; and $72.6 million in 1997. INVESTING ACTIVITIES. Our net cash provided by investing activities was $841,000 in fiscal 1999. Net cash used in investing activities was $98.3 million in fiscal 1998 and $195.5 million in fiscal 1997. During fiscal 1999, we collected $54.6 million on a note receivable obtained during the prior year from the sale of our undeveloped phosphate rock property in Florida. Our fiscal 1999 capital expenditures were $40.0 million, which included approximately $12.6 million related to the nitrogen expansion project at our Yazoo City, Mississippi, facilities and approximately $6.4 million related to the potash production expansion project at our Carlsbad, New Mexico, facilities. The remaining $21.0 million was used for capital maintenance and normal improvements and modifications to our facilities. Our capital expenditures were $96.5 million in fiscal 1998 and $93.8 million in fiscal 1997. Fiscal 1999 included $5.0 million in disbursements, not yet reimbursed by insurance, for property damage caused by Hurricane Georges. Cash invested in Farmland MissChem Limited was $3.4 million in fiscal 1999; $4.5 million in 1998; and $45.2 million in 1997. Our fiscal 1997 investing activities included $56.1 million in costs associated with the acquisition of the potash businesses in August 1996. FINANCING ACTIVITIES. Our net cash used in financing activities was $23.7 million in fiscal 1999. Net cash provided by financing activities was $41.0 million in fiscal 1998 and $70.9 million in fiscal 1997. During the current year, amounts used in our financing activities include $14.1 million for the purchase of treasury stock and $10.6 million in cash dividends. These amounts were partially offset by $1.0 million in 13 14 net proceeds from borrowings. During fiscal 1998, amounts provided by our financing activities included $60.2 million in net proceeds from borrowings. These amounts were partially offset by $3.0 million paid for the purchase of treasury stock, $10.9 million paid in cash dividends, and $5.2 million paid in bond issuance costs. During fiscal 1997, amounts provided by our financing activities included $99.3 million in net proceeds from borrowings, which were partially offset by $18.9 million paid for the purchase of treasury stock and $9.8 million paid in cash dividends. We have unsecured revolving credit facilities totaling $200.0 million with Harris Trust and Savings Bank and a syndicate of other commercial banks. At June 30, 1999, $91.8 million was outstanding under these facilities. The facilities, which have a five-year term, mature on November 25, 2002, and bear interest at rates related to the Prime Rate, the London Interbank Offered Rate or Federal Funds Rate. CAPITAL PROJECTS. In late fiscal 1996, we began an expansion project at our nitrogen fertilizer manufacturing facilities in Yazoo City, Mississippi, which was originally estimated to cost $130.0 million. The project included the addition of a 650-ton-per-day nitric acid plant, a 500-ton-per-day ammonia plant and other modifications designed to increase our ammonium nitrate capacity. The nitric acid plant phase was completed and placed in service in March 1998. The ammonia plant phase was completed and placed in service in March 1999. We completed certain modifications to our ammonium nitrate plant in July 1998, increasing its capacity to 900,000 tons per year. Because of current market conditions, we have decided not to implement additional modifications to the plant (originally estimated to cost $13.0 million) that would increase ammonium nitrate capacity by an additional 50,000 tons per year. The total cost paid to date for this expansion project is $113.1 million. In late fiscal 1998, we began an expansion project at our potash facilities in Carlsbad, New Mexico, estimated to cost approximately $8.2 million. This expansion, completed at a total cost of $6.4 million and placed in service during the third quarter of fiscal 1999, increased our red granular potash production capacity from 445,000 to 545,000 tons per year and storage capacities by 30,000 tons. We now have approximately 1,100,000 tons per year of combined potash production capacity from our two operating mines. SUMMARY. We believe that existing cash, cash generated from operations, and available credit facilities will be sufficient to satisfy our financing requirements for operations and capital projects through 14 15 fiscal 2000 and the foreseeable future. We estimate our capital expenditure requirements for fiscal 2000 to be approximately $25.8 million, which includes normal improvements and modifications to our facilities. Minimum price payments for our ammonia purchases from Farmland MissChem, made pursuant to the offtake agreement, are expected to reduce our available cash in fiscal 2000. QUARTERLY RESULTS Our quarterly results reflect that significantly more fertilizer is marketed in the spring. Therefore, in most years, a significant portion of our net sales are generated in the spring planting season. Since quarterly results are affected by the seasonal nature of our business, they are not indicative of results expected for the full fiscal year. Quarterly results can also vary significantly from one year to the next, primarily due to weather-related shifts in planting schedules and purchase patterns. Additionally, we incur substantial expenditures for fixed costs throughout the year and substantial expenditures for inventory in advance of the spring planting season. The following tables present our selected unaudited quarterly results of operations for fiscal 1999, 1998 and 1997.
Year Ending June 30, 1999 --------------------------------------------------------- (In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q --------------------------------------------------------- Net sales $ 104,715 $ 94,839 $ 140,604 $ 127,741 Operating income (loss) $ 10,990 $ 3,090 $ (5,986) $ 362 Net income (loss) $ 4,221 $ (485) $ (6,131) $ (1,212) Earnings (loss) per share - basic (1) $ 0.16 $ (0.02) $ (0.23) $ (0.05) Earnings (loss) per share - diluted (1) $ 0.16 $ (0.02) $ (0.23) $ (0.05) Weighted average common shares outstanding - basic 26,976 26,178 26,132 26,132 Weighted average common shares outstanding - diluted 26,976 26,178 26,132 26,132 Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10 Common stock price range - high $ 17.31 $ 16.56 $ 15.13 $ 10.75 - low $ 11.50 $ 11.00 $ 9.38 $ 8.13
15 16
Year Ending June 30, 1998 --------------------------------------------------------- (In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q --------------------------------------------------------- Net sales $ 106,814 $ 113,634 $ 118,035 $ 155,232 Operating income $ 8,910 $ 3,725 $ 3,675 $ 21,626 Net income $ 4,297 $ 435 $ 443 $ 17,799 Earnings per share - basic (1) $ 0.16 $ 0.02 $ 0.02 $ 0.65 Earnings per share - diluted (1) $ 0.16 $ 0.02 $ 0.02 $ 0.65 Weighted average common shares outstanding - basic 27,410 27,373 27,335 27,306 Weighted average common shares outstanding - diluted 27,457 27,409 27,366 27,328 Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10 Common stock price range - high $ 22.19 $ 20.13 $ 20.19 $ 20.06 - low $ 18.75 $ 16.75 $ 16.94 $ 15.06
Year Ending June 30, 1997 --------------------------------------------------------- (In thousands, except per share data) 1st Q 2nd Q 3rd Q 4th Q --------------------------------------------------------- Net sales $ 86,218 $ 108,164 $ 136,506 $ 165,428 Operating income $ 14,740 $ 18,600 $ 20,093 $ 37,776 Net income $ 9,295 $ 12,093 $ 10,599 $ 23,828 Earnings per share - basic (1) $ 0.44 $ 0.56 $ 0.38 $ 0.86 Earnings per share - diluted (1) $ 0.44 $ 0.56 $ 0.38 $ 0.86 Weighted average common shares outstanding - basic 21,242 21,506 27,926 27,613 Weighted average common shares outstanding - diluted 21,293 21,598 28,022 27,673 Dividends paid per share $ 0.10 $ 0.10 $ 0.10 $ 0.10 Common stock price range - high $ 23.38 $ 26.00 $ 27.25 $ 24.38 - low $ 17.75 $ 23.00 $ 23.13 $ 19.50
(1) Quarterly amounts do not add to the annual earnings per share because of changes in the number of outstanding shares during the year. 16 17 Effective October 10, 1996, our common stock began trading on the New York Stock Exchange under the symbol "GRO." Our shares had previously traded on the NASDAQ Stock Market's National Market under the symbol "MISS." As of August 12, 1999, shareholders of record numbered approximately 12,234. NEW ACCOUNTING PRONOUNCEMENTS On July 1, 1998, we adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity. We did not have any components of other comprehensive income during fiscal 1999, 1998 or 1997. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for these costs and requires that certain related expenses be capitalized. This statement is effective for fiscal years beginning after December 15, 1998. We do not expect the adoption of SOP 98-1 to have a material effect on our financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 will require companies to expense, as incurred, all costs associated with start-up activities. This pronouncement is effective for fiscal years beginning after December 15, 1998. At June 30, 1999, we had no unexpensed start-up costs and, therefore, the adoption of this pronouncement will have no effect on our financial statements. During fiscal 1999, Farmland MissChem Limited adopted SOP 98-5 and expensed $4.3 million in start-up costs as a cumulative effect of a change in an accounting principle. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards that require all derivative instruments to be recorded on the balance sheet as either an asset or liability and measured at fair value. This statement requires that changes in the 17 18 derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires companies to formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. This statement was amended by SFAS No. 137 in June 1999 to change the effective date of implementation to fiscal years beginning after June 15, 2000. We anticipate that the primary impact of adoption will be the recognition of unrealized gains or losses on open gas futures contracts as a component of other comprehensive income. MARKET RISK We are exposed to market risk, including changes in interest rates and natural gas prices. To manage the risks related to these exposures, we enter into derivative transactions. We do not hold or issue derivative financial instruments for trading purposes. We maintain formal policies with respect to entering into and monitoring derivative transactions. The derivative transactions are intended to hedge our future production and interest costs. For more information about how we manage specific risk exposures, see Note 14 - Hedging Activities, and Note 7 - Credit Agreements and Long-Term Debt, in our Notes to Consolidated Financial Statements. The table below provides information about our derivative instruments and other financial instruments that are sensitive to changes in interest rates. (Dollars in thousands, except interest rates)
Maturity Date Fair Value ---------------------------------------------------------------- ----------------- 2000 2001 2002 2003 2004 Thereafter Total 1999 1998 ---- ---- ---- ---- ---- ---------- ----- ---- ---- Long-term debt Fixed rate Principal amount (1) $ -- -- -- -- -- $214,500 $214,500 $195,786 $202,131 Weighted average interest rate -- -- -- -- -- 7.15% 7.15% Variable rate Principal amount (1) -- -- -- $91,800 -- -- $ 91,800 $ 91,800 $ 90,700 Average interest rate (2) -- -- -- 6.07% -- -- 6.07% Interest rate swaps Weighted average notional principal amount outstanding (3) 36,570 $ (427) $ (704) Fixed weighted average pay rate 6.57% Receive rate - 3 month LIBOR
18 19 (1) The fair value of our long-term debt represents the discounted future cash flows of the instruments using current market rates. (2) The average interest rate was based on June 30, 1999, variable rates. Actual rates could differ. (3) The fair value of our interest rate swaps represents the amount that would have to be paid by us as of June 30, 1999 and 1998, to terminate the swap agreements. At June 30, 1998, we had a note receivable in the amount of $54.6 million related to the sale of our undeveloped phosphate rock property in Florida. In August 1998, this note was paid in full. At June 30, 1999, we believe that the fair value of our fixed rate, long-term debt has decreased from June 30, 1998, as a result of increases in interest rates during the year. We use natural gas futures contracts to reduce the impact of changes in natural gas prices. A sensitivity analysis was prepared to estimate our market risk exposure arising from these instruments. The fair value of open contracts was calculated by valuing each position using quoted market prices. Market risk is the potential loss in fair value as a result of a 10% adverse change in market prices. We estimate that this adverse change in prices would have reduced the fair value of open contracts by $2.7 million at June 30, 1999, and $6.3 million at June 30, 1998. YEAR 2000 Through our Year 2000 Committee ("Y2K Committee"), made up of management personnel from various departments, we have made substantial progress in evaluating and addressing the effect of Year 2000-related issues on our operations. The Y2K Committee's efforts to date have included (i) identifying, overseeing and tracking the cost of remediation work to our computer systems necessary to achieve Year 2000 readiness; (ii) assessing Year 2000-related exposures in the event that one or more of our computer systems, or any of our vendors, customers or creditors, experience a Year 2000-related problem; and (iii) developing a contingency plan in the event that our efforts to identify and correct Year 2000-related problems are not successful. The Y2K Committee believes it has identified all remediation work necessary for our computer systems to be Year 2000 ready. The majority of such work has been accomplished. We anticipate that the remaining remediation work will be concluded by October 1999, with the exception of a routine conversion of one plant control system which will not be finished until November 1999 in order to allow the work to coincide with a scheduled plant maintenance outage. To date, we have expended less than 19 20 $200,000 on Year 2000-related projects. Total Year 2000-related project costs are not expected to exceed $600,000. Although the assessment of the Year 2000 readiness of our vendors, customers and creditors is substantially complete, we continue to monitor the efforts of certain third parties. At this time, we do not expect to be materially affected by any Year 2000-related problem experienced by our vendors, customers or creditors. However, despite our best efforts, and since the Year 2000 readiness of any third party is outside our control, there is no guarantee or assurance that we will not be materially impacted by a third party's failure to adequately address Year 2000-related issues. We could sustain what is expected to be nonmaterial operational inconveniences and inefficiencies and/or be involved in nonmaterial business disputes as a result of Year 2000-related failures. A contingency plan developed with the assistance of an outside consultant was finalized in July 1999 and will be implemented in the event we experience Year 2000 problems that are related to either our or a third party's computer system. The Y2K Committee believes that the contingency plan will minimize any adverse effect to us arising from a Year 2000-related problem. The above reference to Year 2000 issues, even if incorporated by reference into other documents or disclosures, is a Year 2000 Readiness Disclosure as defined under the Year 2000 Information and Readiness Disclosure Act of 1998. FORWARD-LOOKING STATEMENTS Except for the historical statements and discussion contained herein, statements set forth in this report constitute "forward-looking statements." Since these forward-looking statements rely on a number of assumptions concerning future events, risks and other uncertainties that are beyond our ability to control, readers are cautioned that actual results may differ materially from such forward-looking statements. Future events, risks and uncertainties that could cause a material difference in such results include, but are not limited to, (i) the relative unpredictability of international and local economic conditions, (ii) changes in matters which affect the supply and demand of fertilizer products, (iii) weather, (iv) the volatility of the natural gas market, (v) environmental regulation, (vi) price competition from both domestic and international competitors, (vi) possible unscheduled plant outages and other operating difficulties, and (vii) other 20 21 important factors affecting the fertilizer industry and us as detailed under "Outlook and Uncertainties" and elsewhere in our most recent Annual Report on Form 10-K which is on file with the Securities and Exchange Commission. 21 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and the Shareholders of Mississippi Chemical Corporation: We have audited the accompanying consolidated balance sheets of Mississippi Chemical Corporation (a Mississippi corporation) and subsidiaries (collectively, the "Company") as of June 30, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for the three years ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Farmland MissChem Limited, an investment which is reflected in the accompanying consolidated financial statements using the equity method of accounting. The investment in Farmland MissChem Limited represents 7.5 percent and 6.9 percent of total assets as of June 30, 1999 and 1998, respectively. The statements of Farmland MissChem Limited were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Farmland MissChem Limited, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. 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, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Mississippi Chemical Corporation and subsidiaries as of June 30, 1999 and 1998, and the results of their operations and their cash flows for the three years ended June 30, 1999, in conformity with generally accepted accounting principles. Memphis, Tennessee, July 28, 1999. 23 23 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) June 30 ---------------------- ASSETS 1999 1998 --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 1,648 $ 3,857 Accounts receivable (less allowances of $2,043 and $1,989) 43,780 51,532 Inventories 76,924 65,429 Income tax receivable 18,189 -- Insurance receivable 11,310 -- Prepaid expenses and other current assets 3,622 6,636 Deferred income taxes 3,286 3,767 Note receivable due within one year -- 9,500 --------- --------- Total current assets 158,759 140,721 INVESTMENTS IN AFFILIATES 77,020 73,073 NOTE RECEIVABLE -- 45,125 OTHER ASSETS 19,263 16,227 PROPERTY, PLANT AND EQUIPMENT, AT COST, LESS ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION 472,084 460,841 GOODWILL, NET OF ACCUMULATED AMORTIZATION 171,762 176,345 --------- --------- $ 898,888 $ 912,332 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Long-term debt due within one year $ -- $ 114 Accounts payable 60,935 58,089 Accrued liabilities 13,460 15,156 Income taxes payable -- 3,276 --------- --------- Total current liabilities 74,395 76,635 LONG-TERM DEBT 305,857 304,705 OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 17,617 17,481 DEFERRED INCOME TAXES 80,791 64,986 COMMITMENTS AND CONTINGENCIES (SEE NOTES 4, 10, 14, 19, 20 AND 21) SHAREHOLDERS' EQUITY: Common stock ($.01 par; authorized 100,000,000 shares; issued 27,975,936) 280 280 Additional paid-in capital 305,901 305,901 Retained earnings 143,626 157,800 Treasury stock, at cost (1,844,019 and 735,719 shares) (29,579) (15,456) --------- --------- Total shareholders' equity 420,228 448,525 --------- --------- $ 898,888 $ 912,332 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 24 24 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data) Years Ended June 30 ----------------------------------- 1999 1998 1997 --------- --------- --------- REVENUES: Net sales $ 467,899 $ 493,712 $ 496,316 Trading loss on brokered product -- (820) (57) --------- --------- --------- 467,899 492,892 496,259 OPERATING EXPENSES: Cost of products sold 420,604 417,506 372,258 Selling, general and administrative 38,840 37,450 32,792 --------- --------- --------- 459,444 454,956 405,050 --------- --------- --------- OPERATING INCOME 8,455 37,936 91,209 OTHER (EXPENSE) INCOME: Interest, net (19,005) (10,948) (4,331) Gain on involuntary conversion of property 5,737 -- -- Other 1,043 12,315 3,709 --------- --------- --------- (LOSS) INCOME BEFORE INCOME TAXES (3,770) 39,303 90,587 INCOME TAX (BENEFIT) EXPENSE (162) 16,329 34,772 --------- --------- --------- NET (LOSS) INCOME $ (3,608) $ 22,974 $ 55,815 ========= ========= ========= (LOSS) EARNINGS PER SHARE - BASIC $ (0.14) $ 0.84 $ 2.29 ========= ========= ========= (LOSS) EARNINGS PER SHARE - DILUTED $ (0.14) $ 0.84 $ 2.29 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 25 25 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands) Additional Common Paid-in Retained Treasury Stock Capital Earnings Stock Total --------- --------- --------- --------- --------- BALANCES, JUNE 30, 1996 $ 229 $ 178,364 $ 99,814 $ (30,582) $ 247,825 Net income -- -- 55,815 -- 55,815 Cash dividends paid -- -- (9,802) -- (9,802) Treasury stock, net -- 56 -- (18,753) (18,697) Stock options exercised -- 203 -- -- 203 Stock issued for business acquired 51 127,278 -- 36,756 164,085 --------- --------- --------- --------- --------- BALANCES, JUNE 30, 1997 280 305,901 145,827 (12,579) 439,429 Net income -- -- 22,974 -- 22,974 Cash dividends paid -- -- (10,948) -- (10,948) Treasury stock, net -- -- (53) (2,877) (2,930) --------- --------- --------- --------- --------- BALANCES, JUNE 30, 1998 280 305,901 157,800 (15,456) 448,525 Net loss -- -- (3,608) -- (3,608) Cash dividends paid -- -- (10,566) -- (10,566) Treasury stock, net -- -- -- (14,123) (14,123) --------- --------- --------- --------- --------- BALANCES, JUNE 30, 1999 $ 280 $ 305,901 $ 143,626 $ (29,579) $ 420,228 ========= ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 26 26 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Years Ended June 30 ----------------------------------- 1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (3,608) $ 22,974 $ 55,815 Reconciliation of net (loss) income to net cash provided by operating activities: Net change in operating assets and liabilities (30,781) (4,781) (9,423) Depreciation, depletion and amortization 42,400 37,228 27,980 Deferred income taxes 16,286 5,958 562 Gain on involuntary conversion of property (5,737) -- -- Gain on sale of phosphate rock property -- (10,867) -- Other 2,093 2,506 (2,322) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 20,653 53,018 72,612 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (39,970) (96,496) (93,816) Investment in Farmland MissChem Limited (3,358) (4,508) (45,165) Collection on note receivable 54,625 -- -- Disbursements for property damaged by hurricane, net of insurance proceeds (4,954) -- -- Acquisition of potash businesses -- -- (56,098) Other (5,502) 2,727 (449) --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 841 (98,277) (195,528) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Debt payments (513,364) (564,742) (390,945) Debt proceeds 514,350 624,905 490,290 Purchase of treasury stock (14,123) (3,027) (18,885) Cash dividends paid (10,566) (10,948) (9,802) Bond issuance costs -- (5,231) -- Proceeds from issuance of common stock -- -- 203 --------- --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (23,703) 40,957 70,861 --------- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,209) (4,302) (52,055) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,857 8,159 60,214 --------- --------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,648 $ 3,857 $ 8,159 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 27 27 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF FINANCIAL STATEMENTS The accompanying consolidated financial statements include the accounts of Mississippi Chemical Corporation and its subsidiaries (collectively, the "Company"). All material intercompany transactions and balances have been eliminated. The Company produces and supplies a full product line of chemicals, including nitrogen, phosphate and potash, which are used primarily as fertilizers and for a broad range of industrial applications. The Company's principal nitrogen products include ammonia, fertilizer-grade ammonium nitrate, UAN solutions, and urea. The Company currently produces nitrogen products at its production facilities in Yazoo City, Mississippi, and Donaldsonville, Louisiana, and produces ammonia at its 50-50 joint venture in The Republic of Trinidad and Tobago. The Company distributes its nitrogen products to agricultural and industrial users primarily in the southern region of the United States. The Company produces diammonium phosphate ("DAP") at its facilities in Pascagoula, Mississippi, and through the Phosphate Chemicals Export Association, Inc. ("PhosChem"), exports the majority of its production. The Company's mines and related facilities near Carlsbad, New Mexico, produce the Company's potash products. The majority of the Company's agricultural potash sales are in domestic markets in states west of the Mississippi River. In addition, the Company produces several grades of potash that are purchased as a raw material by industrial users. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost has been determined under a moving average cost method. INVESTMENTS IN AFFILIATES The Company's investments in affiliates primarily consist of an investment in a 50-50 ammonia production joint venture, Farmland MissChem Limited ("Farmland MissChem"), with Farmland Industries, Inc. (see Note 4). During fiscal 1998, the Company and Farmland Industries, Inc., also formed a separate 50-50 joint venture that is responsible for the transportation of the ammonia produced at Farmland MissChem. The Company also has a 50% interest in an ammonia storage terminal in Pasadena, Texas (see Note 2), acquired as part of its acquisition of the fertilizer assets of First Mississippi in December 1996. 28 28 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, less accumulated depreciation, depletion and amortization. Expenditures for major improvements are capitalized; expenditures for normal maintenance and repairs are charged to expense as incurred. Upon the sale or retirement of properties, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss is recognized in income. The Company uses primarily the declining-balance method of depreciation for assets purchased through June 30, 1995. Effective July 1, 1995, the Company changed its method of depreciating newly acquired long-lived assets from the declining-balance method to the straight-line method. Depletion of mineral properties is provided using the units-of-production method over the estimated life of the reserves. Depreciation of property, plant and equipment is provided over the estimated useful lives of the related assets as follows: Buildings 3-45 years Machinery and equipment 2-30 years Interest costs attributable to major construction projects under development are capitalized in the appropriate property account and amortized over the life of the related asset. The Company maintains spare parts at its production facilities in order to minimize downtime in the event of a part failure. All parts that exceed a minimum value and are repairable are capitalized as property, plant and equipment and are depreciated over their estimated useful lives. Parts that do not exceed the minimum value or are not repairable are maintained as replacement parts and are included as inventory in the Company's current assets. These replacement parts are charged to cost of products sold as they are installed in the facilities. GOODWILL Goodwill represents the excess of cost over the fair value of the net assets acquired by the Company in its December 1996 acquisition of the fertilizer operations of First Mississippi Corporation ("First Mississippi"). Goodwill is amortized on a straight-line basis over 40 years. Accumulated amortization was $11,556,000 and $6,973,000 at June 30, 1999 and 1998, respectively. REVENUE RECOGNITION Revenues are recognized as product is sold and title transfers to the customer. HEDGING ACTIVITIES The Company enters into futures contracts to protect future production costs against price fluctuations of natural gas, which is a key raw material in nitrogen production. At the time the futures contracts are closed and the related natural gas is purchased, the Company records a gain or loss from the change in market value of such contracts as a component of cost of products sold. The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. Those agreements effectively change the Company's interest rate exposure on a portion of its credit facilities from a variable rate to a fixed rate. 29 29 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): INCOME TAXES Deferred tax assets and liabilities are recorded based on the difference between the financial statement and income tax basis of assets and liabilities using existing tax rates. COMPREHENSIVE INCOME On July 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards for reporting comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity. The Company did not have any components of other comprehensive income during fiscal 1999, 1998 or 1997. USE OF ESTIMATES The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for these costs and requires that certain related expenses be capitalized. This statement is effective for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of SOP 98-1 to have a material effect on its consolidated financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 will require companies to expense, as incurred, all costs associated with start-up activities. This pronouncement is effective for fiscal years beginning after December 15, 1998. At June 30, 1999, the Company had no unexpensed start-up costs and, therefore, the adoption of this pronouncement will have no effect on its consolidated financial statements (see Note 4 regarding adoption of SOP 98-5 by Farmland MissChem). In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards that require all derivative instruments to be recorded on the balance sheet as either an asset or liability and measured at fair value. This statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires companies to formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. This statement was amended by SFAS No. 137 in June 1999 to change the effective date of implementation to fiscal years beginning after June 15, 2000. The Company anticipates that the primary impact of adoption will be the recognition of unrealized gains or losses on open gas futures contracts as a component of other comprehensive income. 30 30 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): RECLASSIFICATIONS The Company has reclassified certain prior year information to conform to the current year's presentation. NOTE 2 - ACQUISITIONS: NITROGEN On December 24, 1996, the Company acquired the fertilizer operations of First Mississippi in an all-stock merger transaction. This transaction was accounted for by the purchase method of accounting. According to the terms of the merger, the Company issued approximately 6,902,000 shares of its common stock to former First Mississippi shareholders. Additionally, at closing, First Mississippi's fertilizer businesses had $150,500,000 in outstanding debt that was assumed by the Company. The fertilizer operations of First Mississippi included AMPRO Fertilizer, Inc. ("AMPRO") and a 50% interest in Triad Chemical. Prior to the transaction, the Company held the remaining 50% interest in Triad Chemical, which owned and operated an anhydrous ammonia plant with an annual production of approximately 465,000 tons, and a urea plant with an annual production of approximately 560,000 tons. AMPRO owned and operated an anhydrous ammonia plant with annual production of approximately 615,000 tons. AMPRO and Triad are located on adjacent sites in Donaldsonville, Louisiana. In the transaction, the Company also acquired a 50% interest in an ammonia storage terminal in Pasadena, Texas, and a 50% interest in a company that owns and operates eleven ammonia barges. In March 1997, the Company purchased the other 50% interest in the barge company for $3,824,000. Allocation of the purchase price is as follows:
(Dollars in thousands) Property, plant and equipment $151,407 Goodwill 180,655 Other assets/liabilities acquired, net 19,189 Deferred income taxes (41,931) -------- $309,320 ========
Additionally, the Company incurred approximately $2,663,000 in transaction costs and other related fees associated with the acquisition. The Company recorded these amounts as goodwill. POTASH In August 1996, the Company, through two subsidiaries of its wholly owned subsidiary, Mississippi Potash, Inc., acquired substantially all of the assets of New Mexico Potash Corporation and Eddy Potash, Inc. ("Eddy") from Trans-Resources, Inc., for $45,000,000, plus an adjustment for working capital of approximately $11,000,000. This acquisition was accounted for by the purchase method of accounting with the purchase price being principally allocated to property, plant and equipment. In December 1996, New Mexico Potash Corporation was merged into Mississippi Potash, Inc. Eddy operates as a wholly owned subsidiary of Mississippi Potash, Inc. In December 1997, the Eddy mine suspended its production operations. This suspension of operations did not have a material impact on the financial position or results of operations of the Company. 31 31 NOTE 3 - INVENTORIES: Inventories consisted of the following:
(Dollars in thousands) June 30 ----------------- 1999 1998 ------- ------- Finished products $33,061 $24,959 Raw materials and supplies 7,993 5,894 Replacement parts 35,870 34,576 ------- ------- $76,924 $65,429 ======= =======
NOTE 4 - INVESTMENT IN FARMLAND MISSCHEM LIMITED: The Company's 50-50 joint venture, Farmland MissChem, has constructed a 2,040-short-ton-per-day anhydrous ammonia plant located near Point Lisas, The Republic of Trinidad and Tobago. The plant was placed in service in late July 1998. The Company has a contractual obligation to purchase one-half of the ammonia, approximately 350,000 short tons per year, produced by Farmland MissChem. The Company uses its portion of the production from the new facility as a raw material for upgrading into finished fertilizer products at its existing facilities and for sales into world markets. The Company is accounting for its investment in Farmland MissChem using the equity method. At June 30, 1999, the Company's investment in Farmland MissChem was $67,318,000 and included $6,884,000 of capitalized interest. At June 30, 1998, the Company's investment in Farmland MissChem was $62,794,000 and included $6,846,000 of capitalized interest. Capitalized interest is being amortized over a 20-year period and represents a basis difference in the Company's investment reflected in its consolidated financial statements and its 50% equity reflected in Farmland MissChem's financial statements. Farmland MissChem's financial position as of June 30, 1999 and 1998, and its results of operations for the fiscal year ended June 30, 1999, are summarized below: Summarized Balance Sheet Information:
(Dollars in thousands) June 30 ------------------- 1999 1998 -------- -------- Current assets $ 31,414 $ 6,295 Non-current assets 306,779 306,939 Current liabilities 31,250 6,226 Non-current liabilities 186,075 195,111 Shareholders' equity 120,868 111,897
Summarized Statement of Income Information:
Year Ended June 30 (Dollars in thousands) 1999 ---------- Revenues $57,818 Gross profit 17,213 Income from continuing operations before cumulative effect of change in accounting principle 7,315 Net income 2,992
On July 1, 1998, Farmland MissChem adopted SOP 98-5, which requires companies to expense, as incurred, all costs associated with start-up activities. Farmland MissChem expensed $4,323,000 in start-up costs as a cumulative effect of a change in accounting principle in its fiscal 1999 statement of income related to the pronouncement. 32 32 NOTE 5 - NOTE RECEIVABLE: In April 1998, the Company sold the remaining portion of its undeveloped phosphate rock property in Hardee County, Florida. This property was sold for $57,000,000, and was paid in the form of an initial cash payment of $2,375,000 and a note for $54,625,000, which was secured by a mortgage on the property. The note, which carried an interest rate of 6.07% at June 30, 1998, was subject to prepayment and, in August 1998, was paid in full. As a result of the sale of the land, the Company recorded a net pre-tax gain of $10,867,000 as a component of other income in its fiscal 1998 consolidated statement of income. NOTE 6 - PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consisted of the following:
(Dollars in thousands) June 30 ---------------------- 1999 1998 --------- --------- Mineral properties $ 42,266 $ 42,013 Land 7,797 8,042 Buildings 50,162 48,091 Machinery and equipment 707,836 599,355 Construction in progress 27,245 97,831 --------- --------- 835,306 795,332 Less accumulated depreciation, depletion and amortization (363,222) (334,491) --------- --------- $ 472,084 $ 460,841 ========= =========
In March 1999, the Company completed the final phase of an expansion project at its nitrogen fertilizer manufacturing facilities in Yazoo City at a cost of approximately $113,077,000. The project included the addition of a 650-ton-per-day nitric acid plant, a 500-ton-per-day ammonia plant and modifications to increase its ammonium nitrate capacity. The nitric acid plant was completed and placed in service in March 1998. The Company completed certain modifications to its ammonium nitrate plant in July 1998. The ammonia plant was completed and placed in service in March 1999. NOTE 7 - CREDIT AGREEMENTS AND LONG-TERM DEBT: At June 30, 1999 and 1998, the Company and its subsidiaries had unsecured revolving credit facilities with Harris Trust and Savings Bank ("Harris") and a syndicate of other commercial banks totaling $200,000,000. These facilities have a five-year term and mature on November 25, 2002, and bear interest at rates related to the prime rate, the London Interbank Offered Rate or Federal Funds Rate. At June 30, 1999 and 1998, there were outstanding borrowings of $91,800,000 and $90,700,000, respectively, under these facilities. On November 25, 1997, the Company issued $200,000,000 of 7.25% Senior Notes (the "Notes"), due November 15, 2017. The holders may elect to have the Notes repaid on November 15, 2007. The Notes were issued under a $300,000,000 shelf registration statement filed with the Securities and Exchange Commission in November 1997. The net proceeds from the issuance totaled $194,800,000 and were used to repay a portion of the outstanding indebtedness under the Company's unsecured revolving credit facilities. 33 33 NOTE 7 - CREDIT AGREEMENTS AND LONG-TERM DEBT (CONTINUED): In August 1997, the Company issued $14,500,000 in industrial revenue bonds, a portion of which were tax-exempt, to finance the development of a new phosphogypsum disposal facility at its Pascagoula, Mississippi, DAP manufacturing plant. On April 1, 1998, the Company issued $14,500,000 in fully tax-exempt industrial revenue bonds, the proceeds of which were used to redeem the initial industrial revenue bonds issued in August 1997. The bonds issued on April 1, 1998, mature on March 1, 2022, and carry a 5.8% fixed rate. The bonds may be redeemed at the Company's option at a premium from March 1, 2008, to February 28, 2010, and may be redeemed at face value at any time after February 28, 2010, through the maturity date. Long-term debt consisted of the following:
(Dollars in thousands) June 30 --------------------- 1999 1998 --------- --------- Unsecured revolving credit facilities (1999 - 6.07%; 1998 - 6.66%) $ 91,800 $ 90,700 Senior notes, net of unamortized discount of $443 and $495 (7.25%) 199,557 199,505 Industrial revenue bonds (5.8%) 14,500 14,500 Other -- 114 --------- --------- 305,857 304,819 Long-term debt due within one year -- (114) --------- --------- $ 305,857 $ 304,705 ========= =========
The estimated fair value of the Company's long-term debt, including current maturities at June 30, 1999 and 1998, was $287,586,000 and $292,831,000, respectively, and was computed using an interest rate equal to 2% above the effective yield on U.S. Treasury Notes with similar maturities for the Company's Senior Notes, and the effective yield on state and local bonds for the Company's industrial revenue bonds. The Company's revolving credit facilities carry variable interest rates and, therefore, the balances at June 30, 1999 and 1998 are at fair value. The Company's credit facilities with Harris have covenants that require, among other things, that the Company maintain specified levels of tangible net worth, cash flow to interest expense and debt to cash flow as defined in the credit agreement. As of June 30, 1999, the Company was in compliance with all covenants, as amended, under its facilities. The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. At June 30, 1999 and 1998, the Company had outstanding interest rate swap agreements (the "Agreements") with commercial banks having total notional principal amounts of $40,700,000 and $50,000,000, respectively. Those Agreements effectively change the Company's interest rate exposure on a portion of its unsecured revolving credit facilities from a variable rate to a fixed rate. The Agreements mature in fiscal 2000, and provide for notional amounts varying from a minimum of $33,650,000 to a maximum of $50,000,000. The fair value, which represents the estimated cost to terminate the agreements, was $427,000 and $704,000, respectively, at June 30, 1999 and 1998. 34 34 NOTE 8 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS: Other long-term liabilities and deferred credits consisted of the following:
(Dollars in thousands) June 30 ----------------- 1999 1998 ------- ------- Accrual for closure of gypsum disposal area $ 8,803 $ 9,330 Other 8,814 8,151 ------- ------- $17,617 $17,481 ======= =======
The Company anticipates beginning the closure of its existing phosphogypsum disposal facility located at Pascagoula, Mississippi, during calendar year 2000. Closure costs are being accrued over the estimated life of the disposal facility using the units-of-production method. Amounts accrued are recorded as a component of cost of products sold in the accompanying consolidated statements of income. The Company will continue to utilize the existing facility through December 2000, at which time the new phosphogypsum disposal facility will be fully operational. The new disposal facility was completed in August 1998, at a cost of approximately $18,000,000. NOTE 9 - SHAREHOLDERS' EQUITY: At June 30, 1999, the Company had 100,000,000 authorized shares of common stock at a par value of $.01. Common stock issued and outstanding consisted of the following:
(Shares in thousands) Common Stock ------ Shares outstanding, June 30, 1996 21,353 Treasury stock issued for business acquired 1,545 Stock issued for business acquired 5,357 Stock options exercised 12 Stock reissued 8 Purchase of treasury stock (865) ------ Shares outstanding, June 30, 1997 27,410 Stock reissued 6 Purchase of treasury stock (176) ------ Shares outstanding, June 30, 1998 27,240 Purchase of treasury stock (1,108) ------ Shares outstanding, June 30, 1999 26,132 ======
In authorizations granted in May 1995, March 1996, and September 1998, the Board of Directors authorized the purchase of up to 8,000,000 shares of the Company's common stock in the open market, in privately negotiated transactions, or otherwise at prices and at times determined by the Company to be appropriate. During fiscal 1999, the Company repurchased 1,108,300 shares bringing the total shares repurchased pursuant to these authorizations to 3,700,009 at June 30, 1999. The unused authorization to repurchase 4,299,991 shares remains available to the Company. These treasury stock purchases were funded from cash provided by operations and from borrowings under the Company's revolving credit facilities. The Company's Articles of Incorporation authorize the Board of Directors, at its discretion, to issue up to 500,000 shares of Preferred Stock, par value $.01 per share. The stock is issuable in classes or series that may vary as to certain rights and preferences. As of June 30, 1999, none of these shares were outstanding. 35 35 NOTE 10 - STOCK OPTIONS: In August 1994, the Board of Directors adopted a stock incentive plan for certain officers and key employees of the Company, and in July 1995, adopted a stock option plan for nonemployee directors of the Company. Both plans were approved by the Company's shareholders at its annual meeting held in November 1995. Options may be granted under the provisions of the Company's plans to purchase common stock of the Company at a price not less than the fair market value on the date of grant. Stock options for officers and key employees are exercisable six months from the date of grant. Stock options for nonemployee directors become exercisable in installments beginning one year after the date of grant and become fully exercisable six years after the date of grant. All options expire 10 years from the date of grant. At June 30, 1999, 1998 and 1997, exercisable options were 890,326; 676,180 and 490,489, respectively. There were approximately 713,000 shares available for option plan grants at June 30, 1999. The summary of stock option activity is shown below:
Options Weighted Average Outstanding Exercise Price ----------- ---------------- June 30, 1996 396,104 $ 19.99 Stock options granted 174,576 $ 20.00 Stock options exercised (12,091) $ 16.68 Stock options canceled -- -- ------- June 30, 1997 558,589 $ 20.06 Stock options granted 200,625 $ 20.82 Stock options exercised -- -- Stock options canceled -- -- ------- June 30, 1998 759,214 $ 20.26 Stock options granted 216,000 $ 16.24 Stock options exercised -- -- Stock options canceled -- -- ------- June 30, 1999 975,214 $ 19.37 =======
The following table summarizes information about stock options outstanding at June 30, 1999:
Exercise Price Options Weighted Average Weighted Average Exercise Range Outstanding Remaining Contractual Life Price - --------------- ----------- -------------------------- ------------------------- $15.00 - $16.44 393,014 7.3 $15.71 $18.22 - $21.00 361,796 7.7 $20.55 $23.96 220,404 6.4 $23.96
During fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which requires companies to estimate the fair value of stock options on the date of grant. Under SFAS No. 123, the Company is required to record the estimated fair value of stock options issued as compensation expense in its consolidated statements of income over the related service periods or, alternatively, continue to apply accounting methodologies as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and disclose the pro forma effects of the estimated fair value of stock options issued in the accompanying footnotes to its consolidated financial statements. The determination of fair value is only required for stock options issued beginning in fiscal 1996. In adopting SFAS No. 123, the Company decided to continue to follow the accounting methodologies as prescribed by APB Opinion No. 25. 36 36 NOTE 10 - STOCK OPTIONS (CONTINUED): The pro forma effects of the total compensation expense that would have been recognized under SFAS No. 123 are as follows:
(Dollars in thousands, except per share data) June 30 --------------------------- 1999 1998 1997 ------- ------- ------- Net (loss) income As reported $(3,608) $22,974 $55,815 Pro forma $(4,420) $22,141 $55,015 (Loss) earnings per share - basic As reported $ (0.14) $ 0.84 $ 2.29 Pro forma $ (0.17) $ 0.81 $ 2.26 (Loss) earnings per share - diluted As reported $ (0.14) $ 0.84 $ 2.29 Pro forma $ (0.17) $ 0.81 $ 2.25
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. In adopting SFAS No. 123, the Company utilized the Black-Scholes Option Pricing Model to estimate the fair value of stock options granted using the following assumptions:
Years Ended June 30 ----------------------------------- 1999 1998 1997 -------- ------ -------- Expected option lives 6 years 6 years 6 years Risk-free interest rates 5.80% 5.47% 6.06% Expected dividend yield 2.33% 1.99% 1.94% Expected volatility 33% 33% 33%
Based on the results of the model, the fair value of the stock options issued on the date of grant are as follows:
Weighted Average Number Grant Date Years Issued Fair Value per Option - ----- ------- --------------------- 1999 216,000 $6.00 1998 200,625 $6.64 1997 174,576 $7.35
37 37 NOTE 11 - EARNINGS PER SHARE: In December 1997, the Company adopted SFAS No. 128, "Earnings per Share," which changes the methodology by which companies compute earnings per share. Under SFAS No. 128, basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period, including the dilutive common share equivalents arising from stock options using the treasury stock method. For the Company, diluted earnings per share are not significantly different from basic earnings per share. In the accompanying consolidated financial statements, all prior periods have been restated to reflect the impact of adopting SFAS No. 128. The number of shares used in the Company's basic and diluted earnings per share computations are as follows:
(Shares in thousands) Years Ended June 30 ------------------------ 1999 1998 1997 ------ ------ ------ Weighted average common shares outstanding, net of treasury shares, for basic earnings per share 26,392 27,355 24,329 Common stock equivalents for employee stock options -- 35 75 ------ ------ ------ Weighted average common shares outstanding for diluted earnings per share 26,392 27,390 24,404 ====== ====== ======
Options outstanding at June 30, 1999, were not included in the computation of diluted earnings per share as a result of the options' exercise prices being greater than the average market price for common shares and, therefore, not dilutive. NOTE 12 - SEGMENT INFORMATION: The Company's reportable operating segments are strategic business units that offer different products and services. They are managed separately because each business unit requires different technology and marketing strategies. As of June 30, 1999, the Company had three reportable segments: Nitrogen, Phosphates and Potash. The Nitrogen segment produces ammonia, ammonium nitrate, urea, nitrogen solutions and nitric acid and distributes these products to fertilizer dealers and distributors and industrial users. The Phosphates segment produces DAP that is marketed to agricultural users primarily in international markets through a separate export association. The Potash segment mines and produces granular, coarse and standard potash products and distributes them to agricultural and industrial users. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All intersegment sales prices are market-based. The Company evaluates performance based on net income of the respective business units. Segment information consisted of the following:
(Dollars in thousands) 1999 ----------------------------------------------------------- Nitrogen Phosphates Potash Eliminations Total --------- --------- --------- ------------ --------- Net sales - external customers $ 245,394 $ 136,588 $ 85,917 $ -- $ 467,899 Net sales - intersegment 20,810 76 -- (20,886) -- Operating (loss) income (20,982) 16,660 12,416 361 8,455 Interest expense, net 10,656 3,257 5,092 -- 19,005 Income tax (benefit) expense (10,337) 7,386 2,654 135 (162) Depreciation, depletion and amortization 31,945 4,823 5,632 -- 42,400 Capital expenditures 23,271 3,816 12,883 -- 39,970 Total assets 814,412 100,037 112,134 (127,695) 898,888
38 38 NOTE 12 - SEGMENT INFORMATION (CONTINUED):
1998 ----------------------------------------------------------- Nitrogen Phosphates Potash Eliminations Total --------- --------- --------- ------------ --------- Net sales - external customers $ 278,781 $ 125,185 $ 89,746 $ -- $ 493,712 Net sales - intersegment 21,868 49 -- (21,917) -- Operating income 22,500 5,277 10,003 156 37,936 Interest expense, net 2,762 1,983 6,203 -- 10,948 Income tax expense 13,701 1,361 1,402 (135) 16,329 Depreciation, depletion and amortization 27,678 3,844 5,706 -- 37,228 Capital expenditures 61,859 28,958 5,679 -- 96,496 Total assets 849,745 82,272 104,198 (123,883) 912,332
1997 ----------------------------------------------------------- Nitrogen Phosphates Potash Eliminations Total --------- --------- --------- ------------ --------- Net sales - external customers $ 288,881 $ 126,472 $ 80,963 $ -- $ 496,316 Net sales - intersegment 8,978 33 -- (9,011) -- Operating income 80,727 9,788 694 -- 91,209 Interest (income) expense, net (2,686) 1,092 5,925 -- 4,331 Income tax expense (benefit) 33,598 3,301 (2,127) -- 34,772 Depreciation, depletion and amortization 18,792 3,349 5,839 -- 27,980 Capital expenditures 76,963 9,893 6,960 -- 93,816 Total assets 813,007 56,370 108,972 (119,804) 858,545
The following summarizes geographic information about the Company's net sales:
(Dollars in thousands) 1999 1998 1997 -------- -------- -------- United States $451,602 $478,112 $474,127 Other 16,297 15,600 22,189 -------- -------- -------- $467,899 $493,712 $496,316 ======== ======== ========
Effective October 1, 1997, the Company became a member of PhosChem, a Webb-Pomerene corporation. Since becoming a member, all of the Company's phosphates segment sales into export markets, primarily Asia, are made through PhosChem. The Company ended its exclusive DAP marketing agreement with Atlantic Fertilizer & Chemical Corporation, who was the exclusive distributor of DAP produced by the Company's Pascagoula, Mississippi, facilities prior to October 1, 1997. During fiscal 1999, 1998 and 1997, sales to the Company's exclusive export distributors were $86,306,000, $98,145,000 and $119,412,000, respectively, and were recorded as domestic sales by the Company. The Company had no other customers that represented ten percent or more of its revenues during fiscal 1999, 1998 or 1997. At June 30, 1999, 1998 and 1997, the Company had an investment in a 50-50 joint venture anhydrous ammonia plant located in The Republic of Trinidad and Tobago which amounted to $67,318,000, $62,794,000 and $58,286,000, respectively. All other long-lived assets of the Company are located in the United States. A significant portion of the Company's trade receivables is due from entities that operate in the chemical fertilizer and farm supply industry. A severe downturn in the agricultural economy could have an adverse impact on the collectibility of those receivables. 39 39 NOTE 13 - TRADING LOSS ON BROKERED PRODUCT: The Company began brokering ammonia in the open market following the First Mississippi acquisition. During fiscal 1998 and 1997, the Company brokered approximately 142,000 and 177,000 short tons of ammonia, respectively. Fiscal 1998 brokered ammonia sales of $18,494,000 and purchases of $19,314,000 resulted in an $820,000 net trading loss. Fiscal 1997 brokered ammonia sales of $32,287,000 and purchases of $33,210,000 resulted in a $57,000 net loss after certain purchase price adjustments associated with the First Mississippi acquisition. These trading losses have been reflected in the accompanying consolidated statements of income. The Company did not engage in any brokering activities during fiscal 1999. NOTE 14 - HEDGING ACTIVITIES: During fiscal 1999, natural gas hedging activities resulted in an average cost increase of approximately $0.22 per MMBTU on volumes hedged of 45,800,000. During fiscal 1998 and 1997, natural gas hedging activities resulted in average cost decreases of approximately $0.23 and $0.30 per MMBTU on volumes hedged of 23,730,000 and 15,880,000 MMBTUs, respectively. At June 30, 1999, the Company had open futures contracts covering a total volume of 10,720,000 MMBTUs with some contracts extending through August 2000. The net unrealized gain on these contracts at June 30, 1999, was $2,740,000. The risk associated with outstanding futures positions is directly related to increases or decreases in the prices of natural gas in relation to the contract prices. NOTE 15 - INTEREST, NET: Interest, net, consisted of the following:
(Dollars in thousands) Years Ended June 30 -------------------------------- 1999 1998 1997 -------- -------- -------- Interest expense $(23,626) $(21,518) $ (8,942) Interest capitalized 3,861 8,975 3,858 Interest income 760 1,595 753 -------- -------- -------- $(19,005) $(10,948) $ (4,331) ======== ======== ========
NOTE 16 - INCOME TAXES: The following is a summary of the components of the provision for income taxes:
(Dollars in thousands) Years Ended June 30 ------------------------------- 1999 1998 1997 -------- -------- -------- Current: Federal $(14,305) $ 9,350 $ 30,379 State (1,583) 1,021 3,831 -------- -------- -------- (15,888) 10,371 34,210 -------- -------- -------- Deferred: Federal 14,159 5,345 503 State 1,567 613 59 -------- -------- -------- 15,726 5,958 562 -------- -------- -------- $ (162) $ 16,329 $ 34,772 ======== ======== ========
40 40 NOTE 16 - INCOME TAXES (CONTINUED): The tax effect of the significant temporary differences and tax credit carryforwards at June 30 follows:
(Dollars in thousands) 1999 1998 --------------------- --------------------- Current Non-current Current Non-current -------- ----------- -------- ----------- Employee benefit obligations $ 2,192 $ 81 $ 2,237 $ 88 Reserve for bad debts 765 -- 726 -- Employee post retirement 68 1,344 69 950 Deferred income on affiliate sales 82 -- 600 -- Accrual for closure of gypsum disposal area -- 2,336 -- 2,294 Other 179 257 135 279 -------- -------- -------- -------- Deferred tax assets 3,286 4,018 3,767 3,611 -------- -------- -------- -------- Property, plant and equipment -- (81,113) -- (65,978) Pension -- (1,597) -- (2,102) Capitalized interest on equity investments -- (1,504) -- -- Other -- (595) -- (517) -------- -------- -------- -------- Deferred tax liabilities -- (84,809) -- (68,597) -------- -------- -------- -------- Net deferred tax asset (liability) $ 3,286 $(80,791) $ 3,767 $(64,986) ======== ======== ======== ========
A reconciliation of the statutory rate for income taxes and the effective tax rate for the years ended June 30 follows:
(Dollars in thousands) 1999 1998 1997 --------------------- --------------------- --------------------- % of % of % of Earnings Earnings Earnings Before Before Before Amount Taxes Amount Taxes Amount Taxes -------- -------- -------- -------- -------- -------- Income taxes computed at statutory rate $ (1,320) (35.0)% $ 13,756 35.0% $ 31,705 35.0% Increase (decrease) in taxes resulting from: State taxes, net (10) (0.3)% 1,149 2.9% 2,263 2.5% Non-deductible goodwill 1,604 42.5% 1,604 4.1% 836 0.9% Permanently reinvested foreign earnings (524) (13.9)% -- -- -- -- Other, net 88 2.4% (180) (0.5)% (32) -- -------- -------- -------- -------- -------- -------- $ (162) (4.3)% $ 16,329 41.5% $ 34,772 38.4% ======== ======== ======== ======== ======== ========
Income taxes have been settled with the Internal Revenue Service ("IRS") for all years through June 30, 1993. The IRS has concluded its field examination of the Company's U.S. income tax returns for fiscal years 1994-1996 and has assessed certain taxes that the Company is contesting. The Company has, in principle, reached an agreement with the IRS Appeals Division and anticipates final settlement during fiscal 2000. The Company believes any adjustments that might be required will not be material to the Company's financial position or results of operations. 41 41 NOTE 17 - RETIREMENT PLANS: The Company maintains non-contributory defined benefit pension plans that provide benefits to a majority of its full-time employees. Under the plans, retirement benefits are primarily a function of both the average annual compensation and number of years of credited service. The plans are funded annually by the Company, subject to the Internal Revenue Code funding limitation. The plan's assets consist primarily of cash, equity investments and fixed income securities. On July 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which standardizes disclosure requirements related to pensions and other post-retirement benefits. It does not change the measurement or recognition of those plans. All prior periods have been restated to reflect the requirements of SFAS No. 132. The following tables, prepared in accordance with SFAS No. 132, set forth pension benefit obligations and plan assets for the Company's defined benefit pension plan, based on an April 1 measurement date, as of June 30:
(Dollars in thousands) 1999 1998 --------- --------- Change in benefit obligation Benefit obligation at beginning of year $ 101,649 $ 93,942 Service cost 4,231 3,708 Interest cost 7,215 6,888 Actuarial loss 313 1,301 Benefit payments (4,491) (4,190) --------- --------- Benefit obligation at end of year 108,917 101,649 --------- --------- Change in plan assets Fair value of plan assets at beginning of year 115,162 94,308 Actual return on plan assets 5,413 25,540 Employer contributions 500 344 Benefit payments (4,491) (4,190) Expenses (696) (840) --------- --------- Fair value of plan assets at end of year 115,888 115,162 --------- --------- Funded status 6,971 13,513 Unrecognized transition asset (2,366) (3,072) Unrecognized prior service cost 5,703 6,135 Unrecognized net gain (5,887) (11,005) --------- --------- Prepaid pension cost $ 4,421 $ 5,571 ========= =========
The following assumptions were used to measure net periodic pension expense for the plans for fiscal years ended June 30:
1999 1998 1997 ---- ---- ---- Discount rate 7.25% 7.25% 7.50% Expected long-term rate of return on assets 8.50% 8.50% 8.50% Average increase in compensation levels 5.00% 5.00% 5.00%
42 42 NOTE 17 - RETIREMENT PLANS (CONTINUED): Net periodic pension expense includes the following components:
(Dollars in thousands) Years Ended June 30 -------------------------------- 1999 1998 1997 -------- -------- -------- Service cost - benefits earned during the period $ 4,231 $ 3,708 $ 2,297 Interest cost on projected benefit obligations 7,215 6,888 5,294 Actual return on plan assets (5,413) (25,540) (10,094) Net amortization (274) (274) (240) Unrecognized (loss) gain on plan assets (4,108) 17,763 3,734 -------- -------- -------- Net periodic pension expense $ 1,651 $ 2,545 $ 991 ======== ======== ========
The Company also has contributory thrift plans covering substantially all regular full-time employees who have elected to participate in the plans. Under the plans, the Company matches a certain percentage of each employee's contributions to the plan up to a maximum percentage of the employee's base compensation. Company contributions totaled approximately $1,554,000 in fiscal 1999, $1,529,000 in fiscal 1998, and $1,353,000 in fiscal 1997. The Company has no material post-retirement benefit obligations. NOTE 18 - INVOLUNTARY CONVERSION OF PROPERTY: On September 27, 1998, the Company's Pascagoula, Mississippi, production facilities were shut down as a result of damage caused by Hurricane Georges. The facilities were shut down for 22 days, and approximately 54,000 tons of DAP inventory were damaged. The damaged property and inventory were insured, as were all business interruption losses in excess of ten days. As of June 30, 1999, the Company had recorded, as a component of cost of products sold, net insurance proceeds for the damaged inventory of $1,402,000, and, as a component of other income, a net insurance recovery on the business interruption claim of $514,000. The Company treated the disposal of the damaged property, other than inventory, as an involuntary conversion and also recorded, as a component of other income, a gain of $5,737,000 based on the difference in the carrying value of those assets and the total insurance proceeds expected to be received. At June 30, 1999, the Company had an insurance receivable recorded on its consolidated balance sheet of $11,310,000 related to property damaged by Hurricane Georges. NOTE 19 - LEASE COMMITMENTS: The Company has commitments under operating leases for equipment and storage warehouses. The following is a schedule of the future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year as of June 30, 1999:
(Dollars in thousands) Amount ------- 2000 $ 4,037 2001 2,378 2002 1,928 2003 1,699 2004 1,213 Thereafter 1,506 ------- $12,761 =======
Rental expense for all operating leases was $6,823,000 for fiscal 1999, $3,876,000 for fiscal 1998, and $3,417,000 for fiscal 1997. 43 43 NOTE 20 - COMMITMENTS AND CONTINGENCIES: The Company, in the ordinary course of its business, is the subject of, or a party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a significant impact on the financial position or the future earnings of the Company. The Company encourages officers to purchase target levels of stock in the Company. To facilitate that process, the Company has arranged unsecured credit lines at market rates for each officer with a commercial lending institution. The Company guarantees payment of these loans in the event of default. The total amount outstanding on these loans at June 30, 1999, was less than $500,000. NOTE 21 - RAW MATERIAL CONTRACTS: Mississippi Phosphates Corporation ("MPC"), a wholly owned subsidiary of the Company, has contracted with Office Cherifien des Phosphates to import its full requirement of phosphate rock through June 30, 2016. The purchase price for phosphate rock is based on the estimated phosphate rock costs incurred by certain domestic phosphate producers and the operating performance of MPC. NOTE 22 - SUPPLEMENTAL CASH FLOW INFORMATION: The Company considers its holdings of highly liquid money market debt securities to be cash equivalents if the securities mature within 90 days from the date of purchase. The Company had no short-term investments at June 30, 1999 or 1997. The Company had short-term investments of $1,600,000 at June 30, 1998. The (decrease) increase in cash due to the changes in operating assets and liabilities consisted of the following:
(Dollars in thousands) Years Ended June 30 -------------------------------- 1999 1998 1997 -------- -------- -------- Receivables $(16,793) $ 11,563 $ (2,048) Inventories (11,495) 3,881 (11,378) Prepaid expenses and other current assets 3,014 (1,763) 3,443 Accounts payable (535) (16,445) (4,504) Accrued liabilities (4,972) (2,017) 5,064 -------- -------- -------- $(30,781) $ (4,781) $ (9,423) ======== ======== ========
During fiscal 1999, 1998 and 1997, the Company paid income taxes of $4,589,000, $11,242,000, and $30,451,000, respectively. Payments of interest, net of amounts capitalized, were $18,098,000 in fiscal 1999, $10,021,000 in fiscal 1998, and $3,819,000 in fiscal 1997. Supplemental disclosures regarding non-cash financing and investing activities include the following:
(Dollars in thousands) Years Ended June 30 --------------------------- 1999 1998 1997 ------- ------- ------- Property held for sale converted to note receivable $ -- $54,625 $ -- Land option transferred to land $ -- $ -- $ 941
Other material non-cash activities include the Company's December 1996 acquisition of the fertilizer businesses of First Mississippi in an all-stock merger transaction (see Note 2). 44 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF THE COMPANY 1. Mississippi Chemical Corporation 2. Mississippi Phosphates Corporation 3. Mississippi Potash, Inc. 4. Eddy Potash, Inc. 5. Mississippi Nitrogen, Inc. 6. MissChem Nitrogen, L.L.C. 7. Triad Nitrogen, L.L.C. 8. TNI Barge, Inc. 9. MCC Investments, Inc. 10. NSI Land Corporation 11. Mississippi Chemical Management Company 12. Mississippi Chemical Company, L.P. 13. Mississippi Chemical Holdings, Inc. 14. MissChem (Barbados) SRL 15. MissChem Trinidad Limited EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports, dated July 28, 1999, incorporated by reference in this Form 10-K for the fiscal year ended June 30, 1999, into the Company's previously filed Registration Statement (File No. 333-38619). /s/ Arthur Andersen LLP Memphis, Tennessee, September 27, 1999. EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS YEAR-TO-DATE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MISSISSIPPI CHEMICAL CORPORATION FISCAL 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FILING. 1,000 12-MOS JUN-30-1999 JUN-30-1999 1,648 0 45,823 2,043 76,924 158,759 835,306 363,222 898,888 74,395 214,500 0 0 280 419,948 420,228 467,899 467,899 420,604 459,444 (6,780) 0 19,005 (3,770) (162) (3,608) 0 0 0 (3,608) (0.14) (0.14)
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