-----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, O0YUwtit39WUmvL/CCke436DoZpVL/uRW33FE6KIy3k6YDcbfXjDro9VVaza72HW 5xrh9qw17JAfISftDBveog== 0000950131-99-003112.txt : 19990517 0000950131-99-003112.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950131-99-003112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-43007 FILM NUMBER: 99621932 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 FORM 10-Q ================================================================================ FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________________ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 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 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, 1999, 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, 1999 1998 1998 --------- ------------ --------- ASSETS Current assets: Cash and cash equivalents $ 36 $ 1,094 $ 1,535 Accounts receivable 2,281 6,663 2,389 Inventory - finished products 36,489 32,644 31,586 Inventory - materials and supplies 13,690 17,811 15,287 Prepaid expenses and other current assets 1,316 2,440 2,961 - --------------------------------------------------------------------------------------- Total current assets 53,812 60,652 53,758 Net property, plant and equipment 164,241 164,689 169,073 Other assets 8,758 10,736 11,925 - --------------------------------------------------------------------------------------- Total assets $226,811 $236,077 $234,756 ======================================================================================= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Short-term note payable $ 15,197 $ --- $ --- Payable to affiliates 4,915 23,587 --- Accounts payable and accrued liabilities 15,143 18,972 27,043 Customer prepayments 737 482 4,306 Current portion of long-term debt and capital lease obligations 1,132 1,119 1,083 - --------------------------------------------------------------------------------------- Total current liabilities 37,124 44,160 32,432 Long-term debt and capital lease obligations 7,655 7,846 8,770 Long-term payable to affiliates 5,316 5,316 4,996 Other long-term obligations --- --- 1,060 Partners' capital 176,716 178,755 187,498 - --------------------------------------------------------------------------------------- Total liabilities and partners' capital $226,811 $236,077 $234,756 =======================================================================================
See accompanying Notes to the Consolidated Financial Statements. 2 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per unit amounts) (unaudited)
Three Months Ended March 31, 1999 1998 --------- -------- Revenues $53,784 $48,499 Other income 289 417 ------- ------- Total revenues 54,073 48,916 Cost of goods sold 53,763 40,595 ------- ------- Gross profit 310 8,321 Operating expenses 2,217 2,443 ------- ------- Operating income (loss) (1,907) 5,878 Interest expense (432) (491) Interest income 300 414 ------- ------- Net income (loss) $(2,039) $ 5,801 ======= ======= Net income (loss) allocable to limited partners' interest $(1,997) $ 5,685 ======= ======= Net income (loss) per limited partnership unit $ (0.11) $ 0.31 ======= =======
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, 1999 1998 ---------- --------- Operating activities: Net income (loss) $ (2,039) $ 5,801 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,233 3,045 Changes in operating assets and liabilities: Receivables 4,382 1,618 Inventories 276 (16,195) Prepaid expenses 1,124 (650) Accounts payable, accrued liabilities and customer prepayments (3,574) 79 Payable to affiliate (18,672) --- Change in other assets 1,978 4,106 Other --- 311 -------- -------- Net cash provided by (used in) operating activities (13,292) (1,885) NET CASH USED IN INVESTING ACTIVITIES: Capital expenditures (2,785) (2,587) FINANCING ACTIVITIES: Borrowings of short-term debt 15,197 --- Repayment of long-term debt and capital lease obligations (178) (183) Partnership distributions --- (25,078) -------- -------- Net cash provided by (used in) financing activities 15,019 (25,261) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS (1,058) (29,733) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,094 31,268 -------- -------- Cash and cash equivalents at end of period $ 36 $ 1,535 ======== ========
See accompanying Notes to the Consolidated Financial Statements. 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, 1998. 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 that 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 or loss per limited partnership unit is computed by dividing net income, less a 2% and 28% share allocable to the General Partner for the three months ended March 31, 1999 and 1998, respectively, by 18,501,576 limited partner units. According to the Agreement of Limited Partnership of TNCLP, net loss is allocated to the General Partner and the Limited Partners in each period in the same proportion as net income was allocated to such Partners in prior years (up to the aggregate of such prior net income allocations and beginning with the first taxable year). 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 during a year, net income for that year is allocated to the Limited Partners and the General Partner 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 target levels. There was no Available Cash for the three months ended March 31, 1999 due primarily to the net loss incurred for the period and payment of liabilities. 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 (as this and other capitalized terms are defined in the Partnership Agreement). The Partnership had no Available Cash, and therefore made no cash distributions, for the three months ended March 31, 1999. For the three months ended March 31, 1998 the Partnership distributed $21,647,000 (or $1.17 per unit) to Common Unitholders and $3,431,000 to the General Partner. 5 3. Cash and cash equivalents The Partnership has demand deposit and demand note arrangements 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. The balance is due on demand and at March 31, 1999 the interest rate was 7.45%. The amount owed by the Partnership under the demand note was $15.2 million at March 31, 1999. 4. Natural gas costs The Partnership's natural gas procurement policy is to effectively fix or cap the price of between 40% 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 contracts, financial derivatives and other forward pricing techniques. 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 contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period. The Partnership has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies. Additionally, the Partnership has entered into forward pricing positions for a substantial portion of its natural gas requirements for the remainder of 1999 and 2000, 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. Unrealized gains from forward pricing positions totaled $1.6 million and $24.8 million as of March 31, 1999 and 1998, respectively. The amount recognized by the Partnership will be dependent on prices in effect at the time of settlement. For the first three months of 1999 and 1998, natural gas hedging activities resulted in additional costs of approximately $5.1 million and cost savings of $1.8 million, respectively, compared with spot prices. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND Results Of Operations RESULTS OF OPERATIONS Three months ended March 31, 1999, compared with Three Months Ended March 31, 1998 Volumes and prices for the three-month periods ended March 31, 1999 and 1998 were as follows:
1999 1998 ---------------------------- ----------------------------------- Sales Average Sales Average Volumes Unit Price Volumes Unit Price (000 tons) ($/ton) (000 tons) ($/ton) ------------ ----------- ------------- --------------- Ammonia 131 104 63 142 UAN 470 61 390 63 Urea 127 91 137 108
Revenues for the quarter ended March 31, 1999 increased $5.2 million, or 11%, compared with the same quarter in 1998 due to significantly increased volumes of ammonia and UAN products. Decreased volumes of urea sales as well as lower average unit prices for all of the Partnerships products offset the effects on revenue for most of these volume increases. Surplus worldwide nitrogen production continued to put pressure on prices during the 1999 quarter resulting in price reductions of 27%, 3% and 16% for ammonia, UAN and urea, respectively, compared with the 1998 quarter. Volumes were more than the comparable quarter a year ago due to customers' decisions to delay late 1998 purchases to fill storage in anticipation of continuing price reductions, and an early start to the planting season due to favorable weather conditions in the southeast. Cost of goods sold as a percentage of revenues increased to 99% for the 1999 quarter from 83% in the 1998 period primarily due to the lower nitrogen selling prices. Gas costs increased 4% during the 1999 quarter compared with the 1998 quarter. The Partnership's natural gas forward pricing activities produced $5.1 million in additional costs during the 1999 period. Operating expenses decreased $0.2 million, or 9%, due to lower pension, administrative, and overhead expense allocations from Terra Nitrogen Corporation and Terra Industries. Net interest increased slightly compared with the 1998 period primarily due to the loss incurred for the period. 7 CAPITAL RESOURCES AND LIQUIDITY Net cash used in operating activities for the first three months of 1999 was $13.3 million to fund the loss for the period and repay affiliates for trade items. These uses were partly offset by reductions to accounts receivable, prepaid expenses and other assets. The Partnership's principal needs for funds are for support of its working capital, distributions to Partners, and capital expenditures. The Partnership intends to fund such needs primarily from net cash provided by operating activities and, to the extent permitted thereunder, from funds available under the Operating Partnership's revolving credit facility. Under certain circumstances an affiliate of the Partnership may advance funds to the Partnership under a demand note. At March 31, 1999, the Operating Partnership had $18 million of unused borrowing capacity under its revolving credit facility, and had $15.2 million outstanding under a demand note with an affiliate. The Partnership believes that such sources of funds will be adequate to meet the Partnership's working capital needs, make quarterly distributions to Partners and fund the Partnership's capital expenditures for at least the next twelve months. On April 22, 1999, Terra Nitrogen Company, L.P. announced there would be no cash distribution for the quarter ended March 31, 1999 since there was no Available Cash for distribution for the quarter. CAPITAL EXPENDITURES Capital expenditures totaled $2.8 million for the first three months of 1999. For the remainder of 1999, the Partnership plans to spend approximately $4.1 million. Plans for 1999 include the purchase of heavy equipment to be installed in 2001 at the Blytheville plant and environmental control, equipment replacement and efficiency and capacity improvements at both plants. YEAR 2000 ISSUE The Year 2000 issue concerns computer programs that use only the last two digits to identify the year in date fields. If not corrected, many of these computer applications could fail or create erroneous results near January 1, 2000. This issue affects virtually every company. The Partnership relies upon Terra to provide Management Information Systems services. Terra has assigned dedicated resources to address its year 2000 issues with a Year 2000 Steering Committee providing management oversight and coordination. The Partnership has also published Year 2000 Information and Disclosures on Terra's website (http://www.terraindustries.com). In general, management ------------------------------- believes the "State of Readiness" for the Partnership is such that it will be ready for Year 2000 issues on time. Terra's management information systems (MIS) environment has been assessed for Year 2000 issues and some remedial actions have been identified. The cost of remedial actions for the MIS area is not material to the Partnership. Nearly all of these remedial actions are complete with minimal cost. Testing is substantially complete with the mainframe hardware systems and the associated software, 8 with the exception of a few software packages originally purchased from third parties that are scheduled to be updated in 1999. Organization-wide reviews of all possible computing functions have been completed, including the process control systems and instrumentation in the manufacturing facilities. Some remedial actions have been identified in a few areas and the cost of these remedial actions is not expected to be material to the Partnership. Terra is also assessing Year 2000 issues in relation to its customers, suppliers and other constituents because the action or inaction of third parties may materially affect the Partnership. An initial assessment of key third parties, including utility suppliers, has been completed and some follow up is ongoing. Although the Partnership expects that there will be no significant adverse consequences relating to its Year 2000 issues, the Partnership believes its most reasonably likely worst case Year 2000 scenario involves the interruption of its manufacturing facilities due to failed utility supplies or some other cause. The Partnership has in place contingency plans to deal with such interruptions, although restarting these facilities may be dependent on the resumption of utilities from sole source suppliers. Other general contingency planning efforts continue to be evaluated and refined for precautionary purposes. Terra anticipates that it will complete all assessment, remediation, testing, and contingency planning efforts for Year 2000 issues in the third quarter of 1999. Based on substantial completion of activities to date, the Partnership anticipates that Year 2000 issues, including the historical and estimated costs of remediation, will not have a material effect on its business, results of operations or financial condition. However, the costs or consequences of incomplete or untimely resolution of Year 2000 issues by the Partnership or third parties could have a material adverse affect on the Partnership. LIMITED CALL RIGHT If at any time not more than 25% of the Common Units are held by non-affiliates of the General Partner, either TNCLP, the General Partner or its affiliates may call all such outstanding units held by non-affiliated persons in accordance with the terms of the TNCLP partnership agreement. TNCLP is required to give at least 30 but not more than 60 days notice of its decision to purchase the outstanding Common Units. The purchase price per unit is required to 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 paid by the General Partner or any of its affiliates for any unit within 90 days preceding the date the purchase is announced. The General Partner and its affiliates own 69% of the Common Units as of March 31, 1999. Under existing authorization of the board of directors of Terra Industries, Inc., the indirect parent of the General Partner, additional Common Units may be purchased on the open market and through privately negotiated transactions by affiliates of the General Partner to bring this ownership level above 75%. Although TNCLP and its affiliates reserve the right to consider in the future whether to acquire all of the Common Units, they do not have any present plan or intention to do so. 9 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: general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of 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. PART II. OTHER INFORMATION ITEM 5. OTHER MATTERS The majority shareholder of Terra Industries Inc. has announced its intention to sell its stake in Terra Industries. Terra Industries is the indirect parent of the General Partner and the indirect majority owner of approximately 70% of Terra Nitrogen Company, L.P. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.40 Limited Waiver dated as of March 22, 1999 to the 1998 Credit Agreement, filed as Exhibit 4.5 to the Terra Industries Inc. Form 10- Q for the quarter ended March 31, 1999 (File No. 1-8520), is incorporated herein by reference. 27 Financial Data Schedule. (EDGAR only) (b) Reports on Form 8-K: None. 10 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 ------------------------------------ Vice President (Principal Accounting Officer) Date: May 14, 1999 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TERRA NITROGEN COMPANY, L.P., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 36 0 2,281 0 50,179 53,812 286,185 121,944 226,811 37,124 0 0 0 0 176,716 226,811 53,784 54,073 53,763 53,763 2,217 0 132 0 0 (2,039) 0 0 0 (2,039) (.11) (.11) DUE TO THE NATURE OF THE PARTNERSHIP, THIS REPRESENTS PARTNERS' CAPITAL.
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