-----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, KrIT48ySV1QZfU24/p1XLMMqhaYwnTzMQUbbql8RpDsIh+KNWup46ykDhcWgcGAH 6AmQ9XeoxKDvmZ4luImCEA== 0000950131-01-501150.txt : 20010507 0000950131-01-501150.hdr.sgml : 20010507 ACCESSION NUMBER: 0000950131-01-501150 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERRA NITROGEN CO L P /DE CENTRAL INDEX KEY: 0000879575 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 731389684 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-43007 FILM NUMBER: 1622281 BUSINESS ADDRESS: STREET 1: TERRA CENTRE 600 FOURTH STREET STREET 2: PO BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 BUSINESS PHONE: 7122771340 MAIL ADDRESS: STREET 1: TERRA CENTER 600 FOURTH STREET STREET 2: PO BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 10-Q 1 d10q.txt FORM 10-Q ================================================================================ FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2001 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____________________to_________________ Commission file number 1-10877 TERRA NITROGEN COMPANY, L.P. (Exact name of registrant as specified in its charter) Delaware 73-1389684 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Terra Centre PO Box 6000, 600 Fourth Street Sioux City, Iowa 51102-6000 (Address of principal executive office) (Zip Code) Registrant's telephone number: (712) 277-1340 At the close of business on April 30, 2001, there were 18,501,576 Common Units outstanding. 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. X Yes ___ No - --- ================================================================================ PART I. FINANCIAL INFORMATION TERRA NITROGEN COMPANY, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
March 31, December 31, March 31, 2001 2000 2000 -------- ------------ --------- ASSETS Current assets: Cash and cash equivalents $ 10 $ 17,941 $ 5,859 Accounts receivable 27,901 24,739 31,464 Inventory - finished products 49,525 9,431 25,095 Inventory - materials and supplies 9,737 9,950 12,915 Prepaid expenses and other current assets 3,038 3,117 1,179 - ------------------------------------------------------------------------------------ Total current assets 90,211 65,178 76,512 Net property, plant and equipment 145,549 147,597 154,125 Other assets 9,115 11,259 12,366 - ------------------------------------------------------------------------------------ Total assets $244,875 $224,034 $243,003 ==================================================================================== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Short-term note payable to affiliates $ 1,387 $ --- $ 19,229 Accounts payable and accrued liabilities 24,707 19,680 19,536 Customer prepayments 20,060 3,076 23,339 Current portion of long-term debt and capital lease obligations 1,000 1,000 637 - ------------------------------------------------------------------------------------ Total current liabilities 47,154 23,756 62,741 Long-term debt 7,481 8,250 --- Long-term payable to affiliates 5,316 5,316 5,316 Partners' capital 184,924 186,712 174,946 - ------------------------------------------------------------------------------------ Total liabilities and partners' capital $244,875 $224,034 $243,003 ====================================================================================
See Accompanying Notes to the Consolidated Financial Statements.a 2 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit amounts) (unaudited)
Three Months Ended March 31, 2001 2000 ------- ------- Revenues $59,899 $69,716 Other income 90 169 - -------------------------------------------------- Total revenues 59,989 69,885 Cost of goods sold 56,233 62,580 - -------------------------------------------------- Gross profit 3,756 7,305 Operating expenses 2,098 2,378 - -------------------------------------------------- Operating income 1,658 4,927 Interest expense (222) (640) Interest income 162 1 - -------------------------------------------------- Net income $ 1,598 $ 4,288 ================================================== Net income allocable to limited partners' interest $ 1,566 $ 4,202 ================================================== Net income per limited partnership unit $ .08 $ .23 ==================================================
See Accompanying notes to the Consolidated Financial Statements. 3 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Three Months Ended March 31, 2001 2000 -------- -------- Operating activities: Net income from operations $ 1,598 $ 4,288 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 3,180 3,201 Changes in operating assets and liabilities: Receivables (3,162) (1,620) Inventories (39,881) 1,102 Prepaid expenses 78 405 Accounts payable, accrued liabilities and customer prepayments 22,011 16,871 Change in other assets 2,144 2,259 - ---------------------------------------------------------------------------- Net cash flows from operating activities (14,032) 26,506 Net cash flows from investing activities: Capital expenditures (1,131) (79) Financing activities: Net changes in short-term borrowings 1,387 (20,371) Issuance (repayment) of long-term debt and capital lease obligations (769) (210) Partnership distributions paid (4,152) --- Other 766 --- - ---------------------------------------------------------------------------- Net cash flows from financing activities (2,768) (20,581) - ---------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (17,931) 5,846 Cash and cash equivalents at beginning of period 17,941 13 - ---------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 10 $ 5,859 ============================================================================
See Accompanying Notes to the Consolidated Financial Statements. 4 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF PARTNER'S CAPITAL
Accumulated Limited General Other Total Partners' Partners' Comprehensive Partners' (in thousands, except for Units) Interests Interests Income Capital - --------------------------------------------------------------------------------------------------- Partners' capital at January 1, 2001 $196,571 $ (9,859) $186,712 Net Income 1,566 32 1,598 Distributions (4,070) (82) (4,152) Cumulative effect of change in accounting for derivative financial investments 14,200 Change in fair value of Derivatives (13,434) ------- Comprehensive income 766 766 - --------------------------------------------------------------------------------------------------- Partners' capital at March 31, 2001 $194,067 $ (9,909) $ 766 $184,924 =================================================================================================== Limited partner units issued and Outstanding at March 31, 2001 18,501,576 ========== Accumulated Limited General Other Total Partners' Partners' Comprehensive Partners' (in thousands, except for Units) Interests Interests Income Capital - --------------------------------------------------------------------------------------------------- Partners' capital at January 1, 2000 $180,838 $(10,180) $ --- $170,658 Net Income 4,202 86 --- 4,288 - --------------------------------------------------------------------------------------------------- Partners' capital at March 31, 2000 $185,040 $(10,094) $ --- $174,946 =================================================================================================== Limited partner units issued and Outstanding at March 31, 2000 18,501,576 ==========
See Accompanying Notes to the Consolidated Financial Statements. 5 TERRA NITROGEN COMPANY, L.P. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Terra Nitrogen Company, L.P. ("TNCLP") Annual Report on Form 10-K for the year ended December 31, 2000. TNCLP and its operating partnership subsidiary, Terra Nitrogen, Limited Partnership (the "Operating Partnership"), are referred to herein, collectively, as the "Partnership". The accompanying unaudited consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. All of these adjustments are of a normal and recurring nature. Results for the quarter are not necessarily indicative of future financial results of the Partnership. Net income per limited partnership unit is computed by dividing net income, less a 2% share allocable to the General Partner for the three months ended March 31, 2001 and 2000, respectively, by 18,501,576 limited partner units. According to the Agreement of Limited Partnership of TNCLP, net income is allocated to the General Partner and the Limited Partners in each taxable year in the same proportion as Available Cash for such taxable year was distributed to the General Partner and the Limited Partners. If there is no cash distribution, net income is allocated to the Limited Partners and the General Partner generally based on their respective ownership percentages. Distributions of Available Cash are made 98% to the Limited Partners and 2% to the General Partner, except that the General Partner is entitled, as an incentive, to larger percentage interests (up to 50%) to the extent that distributions of Available Cash exceed specified amounts. 2. Distributions to Unitholders The Partnership makes quarterly cash distributions to Unitholders and the General Partner in an amount equal to 100% of its Available Cash. No distributions were made in 2000. The Partnership announced a cash distribution of $4.2 million ($0.22 per common unit) which was paid in February, 2001. 3. Financing Arrangements The Partnership has an arrangement for demand deposits and notes with an affiliate to allow for excess Partnership cash to be deposited with or funds to be borrowed from Terra Capital, Inc., the parent of the General Partner. At March 31, 2001 and 2000, no amounts were deposited with Terra Capital, Inc. The amount of the demand notes was $1.4 and $19.2 million at March 31, 2001 and March 31, 2000, respectively, and bore interest at the rate paid by Terra Capital on its short-term borrowings. 6 4. Natural gas costs Natural gas is the principal raw material used in the Partnership's production of nitrogen products. The Partnership enters into forward pricing arrangements for natural gas provided that such arrangements would not result in costs that would be greater than expected selling prices for nitrogen products. Under those conditions, the Partnership's natural gas procurement policy is to effectively fix or cap the price of between 25% and 80% of its natural gas requirements for a one-year period and up to 50% of its natural gas requirements for the subsequent two-year period through supply contacts, financial derivatives and other forward pricing techniques. Variances from this policy are reviewed with the General Partner. The financial derivatives are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical prices are frequently based on the Henry Hub Louisiana price, but natural gas supplies for the Partnership's production facilities are physically purchased from various suppliers which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the change in the price of physical gas. The Partnership has entered into forward pricing positions for a portion of its natural gas requirements for the remainder of 2001 and part of 2002, consistent with its policy. As a result of its policies, the Partnership has reduced the potential adverse financial impact of natural gas price increases during the forward pricing period, but conversely, if natural gas prices were to fall, the Partnership will incur higher costs. Contracts were in place at March 31, 2001 to cover approximately 14% of natural gas requirements for the succeeding twelve months. Unrealized losses from forward pricing positions totaled $.3 million as of March 31, 2001. The ultimate amount recognized by the Partnership will be dependent on prices in effect at the time of settlement for unrealized positions at March 31, 2001. The Partnership also had $1.1 million of realized gains on closed contracts relating to future periods that have been deferred to the respective period. 5. Idled facilities On November 30, 2000, the Partnership reported that it would not restart its Blytheville, Arkansas ammonia and urea production facility as the result of high natural gas costs. On January 2, 2001 the Partnership announced it would idle one of two sets of ammonia and upgrading plants at its Verdigris, Oklahoma facility as the result of high natural gas costs. The Verdigris plant resumed production on January 23, 2001 and the Blytheville plant resumed production in March, 2001. 6. Change in Accounting for Derivative Financial Instruments Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities" requires that all derivative instruments be recorded in the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. On January 1, 2001, the Partnership adopted SFAS 133 which resulted in a $9.9 million increase to current assets to recognize the value of open natural gas contracts, a $4.3 million reduction to current liabilities to reclassify deferred gains on closed contracts relating to 7 future periods and a $14.2 million increase to Partners' equity as accumulated other comprehensive income. Management does not expect the adoption of SFAS 133 to have a material impact on the Partnership's results of operations or cash flow. 8 Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Three months ended March 31, 2001 compared with three months ended March 31, 2000 Volumes and prices for the three-month periods ended March 31, 2001 and 2000 follow:
2001 2000 Volumes Unit Price Volumes Unit Price (000 tons) ($/ton) (000 tons) ($/ton) ---------- ---------- ---------- ---------- Ammonia 19 $314 128 $132 UAN 354 132 601 62 Urea 36 207 128 121
Revenues for the quarter ended March 31, 2001 decreased $9.8 million, or 14%, compared with the same quarter in 2000. Lower sales volumes as the result of wet field conditions that delayed field application of fertilizers sold by the Partnership reduced first quarter 2001 revenues by $40.8 million from last year. Significantly higher prices for all products, however, offset $31.1 million of the revenue decline. The higher prices reflected lower industry inventories as a result of periodic production curtailments by most nitrogen producers in response to the past winter's very high natural gas costs. First quarter gross profits decreased $3.5 million from 2000. Higher sales prices increased gross profits by $31.1 million. These increases were more than offset, however, by higher natural gas costs, which increased from $2.52/MMBtu in 2000 to $6.51/MMBtu in 2001 (net of $2.1 million in forward pricing gains) and lower sales volumes. Operating expenses were $.3 million lower in 2001 than in 2000 primarily as the result of reduced General Partner charges for computer expenses and employee compensation. Net interest expense of $60,000 was $579,000 less than the 2000 first quarter due to lower borrowing levels. Capital resources and liquidity Net cash flows used in operations in the first three months of 2001 totaled $14.0 million with $18.8 million used to increase working capital balances and $4.8 million of operating income after non-cash charges. Most of the working capital increases during the 2001 first quarter are related to seasonal changes in inventory balances. 9 The Partnership's principal needs for funds are for support of its working capital and capital expenditures. The Partnership intends to fund its needs primarily through net cash flows from operating activities, and, to the extent required, from funds borrowed from others, including borrowings from Terra Capital, Inc., the parent of the General Partner. The Partnership believes that such sources of funds will be adequate to meet the Partnership's working capital needs and fund the Partnership's capital expenditures for at least the next 12 months. Quarterly distributions to the Partners of TNCLP are based on Available Cash for the quarter as defined in the Agreement of Limited Partnership of TNCLP. Available Cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. In consideration of the Partnership's working capital and operating cash needs at March 31, 2001, the General Partner determined Available Cash to be $4.2 million, which will be distributed during May, 2001. Capital expenditures Capital expenditures totaled $1.1 million for the first three months of 2001. For the remainder of 2001, the Partnership plans to spend less than $5 million for routine equipment replacement. Limited Call Right If at any time less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner's sole discretion, may call or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated persons. The General Partner and its affiliates owned 75.1% of the Common Units at April 30, 2001. If the General Partner elects to acquire all outstanding units, TNCLP is required to give at least 30 but not more that 60 days notice of its decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous twenty trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price by the General Partner or any of its affiliates for any unit within 90 days preceding the date the purchase is announced. FORWARD LOOKING PRECAUTIONS - --------------------------- Information contained in this report, other than historical information, may be considered forward looking. Forward looking information reflects Management's current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to the following: Changes in the financial markets, general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of nitrogen products and natural gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in weather conditions, changes in agricultural regulations, and other risks detailed in the Partnership's Securities and Exchange Commission filings, in particular the "Factors that Affect Operating Results" section of its most recent Form 10-K. 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERRA NITROGEN COMPANY, L.P. By: TERRA NITROGEN CORPORATION as General Partner By: /s/ Francis G. Meyer -------------------------------------- Francis G. Meyer Vice President (Principal Accounting Officer) Date: April 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----