10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2008
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number 1-8520
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Terra Industries Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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52-1145429
(I.R.S. Employer Identification No.)
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Terra Centre
600 Fourth Street
P. O. Box 6000
Sioux City, Iowa
(Address of principal executive offices)
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51102-6000
(Zip Code)
(712) 277-1340
(Registrants telephone number)
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Securities registered pursuant
to Section 12(b) of the Act:
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Name of each exchange
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Title of each class
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on which registered
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Common Shares, without par value
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New York Stock Exchange
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Securities registered pursuant
to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o
No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o
No x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Exchange during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x
No o
Indicate by check mark 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 Registrants 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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or non-accelerated
filer. See definition of accelerated filed and large accelerated
filer in
Rule 12b-2
of the Act). Large Accelerated
Filer x
Accelerated
Filer o
Non-accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
Yes o No x
The aggregate market value of the voting and non-voting common
shares held by non-affiliates computed by reference to the price
at which the common shares were last sold, or the average bid
and asked price of such common shares, as of the last business
day of the registrants most recently completed second
fiscal quarter was $4,460,503,747.35.
The number of Common Shares, without par value, outstanding as
of February 27, 2009 was 99,700,706.
Documents
Incorporated by Reference
Certain portions of the proxy statement for the 2009 Annual
Meeting of Stockholders of Terra Industries Inc. are
incorporated by reference into Part III hereof. The proxy
statement for the 2009 Annual Meeting of Stockholders will be
filed with the Securities and Exchange Commission, pursuant to
Regulation 14A, not later than 120 days after the end
of the 2008 fiscal year, or, if we do not file the proxy
statement within such
120-day
period, we will amend this Annual Report on
Form 10-K
to include the information required under Part III hereof
not later than the end of such
120-day
period.
Forward-Looking
Information is Subject to Risk and Uncertainty
Certain statements in this report may constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These
statements are not guarantees of future performance and involve
risks, uncertainties and assumptions that are difficult to
predict. Actual outcomes and results may differ materially from
what is expressed or forecasted in these forward-looking
statements. As a result, these statements speak only as of the
date they were made and we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Words such as expects, intends,
plans, projects, believes,
estimates, and similar expressions are used to
identify these forward-looking statements. These include, among
others, statements relating to:
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changes in financial markets,
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general economic conditions within the agricultural industry,
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competitive factors and price changes (principally, sales prices
of nitrogen and methanol products and natural gas costs),
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changes in product mix,
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changes in the seasonality of demand patterns,
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changes in weather conditions,
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changes in environmental and other government regulation,
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changes in agricultural regulations, and
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other risks detailed in the section of this report entitled
Risk Factors.
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Additional information as to these factors can be found in the
section entitled Business, Legal
Proceedings, and Managements Discussion and
Analysis of Financial Condition and Results of Operations
and in the Notes to our consolidated financial statements
included as part of this report.
Part I
Item 1. Business
Terra Industries Inc. together with its subsidiaries (Terra, we,
our, or us) is a leading North American producer and marketer of
nitrogen products, serving agricultural and industrial markets.
In addition to manufacturing facilities at Port Neal, Iowa;
Courtright, Ontario, Canada; Yazoo City, Mississippi;
Donaldsonville, Louisiana and Woodward, Oklahoma, we own a 75.3%
interest in Terra Nitrogen Company, L.P. (TNCLP), which, through
its subsidiary, Terra Nitrogen, Limited Partnership, operates
our manufacturing facility at Verdigris, Oklahoma. We are the
sole general partner and the majority limited partner of TNCLP.
In addition, we own a 50% interest in Point Lisas Nitrogen
Limited (Point Lisas), an ammonia production joint venture in
the Republic of Trinidad and Tobago. We also own a 50% interest
in GrowHow UK Limited (GrowHow), a nitrogen products production
joint venture with facilities located in the United Kingdom.
We are one of the largest North American producers of anhydrous
ammonia (or ammonia), the basic building block of nitrogen
fertilizers. We convert a significant portion of the ammonia we
produce into urea ammonium nitrate solutions (UAN), ammonium
nitrate (AN) and urea. Each of these products is easier for
distributors and farmers to transport, store and apply to crops
than ammonia. We also convert ammonia to nitric acid and
dinitrogen tetroxide for use in industrial applications.
2008
Overview
In 2008, we delivered the best annual financial results in our
long history, as the excellent global nitrogen market conditions
from 2007 continued through the first three quarters of 2008.
The broad-based economic decline impacted the nitrogen market
during the fourth quarter of 2008, causing nitrogen product
demand to decline, reducing product sales prices and curtailing
product shipment. Although the unprecedented global economic
challenges of the fourth quarter were a sharp contrast to the
positive operating environment of the first three quarters, we
still delivered impressive financial results for the fourth
quarter 2008. To extrapolate on key initiatives and transactions
that occurred during 2008, we have included a discussion of
significant items below.
Woodward
Expansion
We announced in May 2008 plans to expand the upgrading capacity
at our Woodward, Oklahoma nitrogen manufacturing facility at an
expected cost of approximately $180 million with a
completion date targeted for the end of 2010. As a result of
this project, UAN capacity at the facility should increase from
300,000 tons to 825,000 tons. The expansion project
fits well with Terras strategy of focusing on higher value
upgraded products.
Terra
Environmental Technologies
Terra Environmental Technologies Inc. (TET), an indirect wholly
owned subsidiary of Terra, continued implementation of its plan
to service the vehicle diesel exhaust fluid (DEF) market. DEF is
a 32.5% urea liquor solution used in diesel engine selective
catalytic reduction (SCR) aftertreatment systems. The urea based
SCR technology has been adopted by most of the light to heavy
duty vehicle and engine manufacturers to comply with the 2010
emission standards as defined by the 1990 Amendments to the
Clean Air Act. By doing so, TET expanded on its presence in the
stationary market reducing nitrogen oxide (NOx) emissions from
such facilities as power generating plants. TET announced in
December execution of a Distribution Agreement with Brenntag,
North America, Inc. (Brenntag) for the distribution of
TETs
TerraCair®
DEF product.
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Joint Venture
Operations
Our joint venture operations in North America and the United
Kingdom delivered strong financial results in 2008. We recorded
$95.6 million in equity earnings and received
$88.7 million in cash consideration payments from GrowHow.
We also recorded $56.2 million in equity earnings and
received $72.8 million in cash distributions from our North
American joint ventures in 2008.
Dividends and
Stock Repurchases
In May 2008, we instituted a quarterly dividend of $.10 per
common share. This decision reflects our desire to enhance
shareholder value and our conviction that Terras long-term
prospects are strong. We also extended and expanded our share
repurchase program. The prior share repurchase program was
scheduled to expire on June 30, 2008, and allowed for the
repurchase of up to 10% (or approximately 9.5 million
shares) of Terras outstanding common stock. The new
program adopted by our Board of Directors in May 2008 allows for
the repurchase of an additional 10 million shares and
carries over the balance of 2.8 million unpurchased shares
from the prior program, for a total authorization of
approximately 12.8 million shares, representing 14% of
Terras outstanding shares. The program authorized in May
2008 extends to June 30, 2010. In 2008, Terra repurchased a
total of 5.4 million shares at a total cost of
$157.5 million.
Pension
Stability
During the first quarter of 2008, we decided to reallocate
pension assets into a high-quality, long duration bond
investment mix. With the economic downturn in the fourth
quarter, this prudent decision has provided stability to our
pension plans without significant cash contribution
requirements. Our qualified defined benefit plans are fully
funded at the end of 2008 and have assets of
$285.3 million. Additionally, none of our pension assets
are invested in illiquid asset classes.
Sale of Beaumont
Facilities
On December 31, 2008, we closed on the sale of our
Beaumont, Texas facility to Eastman Chemical Company (Eastman)
pursuant to an agreement executed in 2007. For additional
information regarding the sale of our Beaumont facility, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and
Note 2, Discontinued Operations, of the Notes to the
Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data, of this
Annual Report on
Form 10-K.
Business
Strategy
We are a leading North American producer and marketer of
wholesale nitrogen products, serving agricultural and industrial
markets.
The principal customers for our North American nitrogen products
are national agricultural retail chains, farm cooperatives,
independent dealers and industrial customers. Agricultural
customers generally use nitrogen products as fertilizer for
crops. Industrial customers use nitrogen products to manufacture
chemicals, plastics and other products such as acrylonitrile,
polyurethanes, fibers, explosives and adhesives; to reduce NOx
and other emissions from power plants; and in water treatment
processes. Our facility in Yazoo City, Mississippi produces
industrial grade ammonium nitrate (IGAN) prills (a form of dry
pellet) and ammonium nitrate solution that are utilized as
explosives in the mining industry as well as a raw material in
the production of catalyst materials. We have a long term supply
contract with one of our customers to provide IGAN products for
a majority of the Yazoo City capacity.
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Agricultural and industrial customers accounted for
approximately 71% and 29% of our 2008 North American nitrogen
product revenues respectively.
Financial information about our principal industry segment and
geographic areas is included in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and Note 22,
Industry Segment Data, of the Notes to the Consolidated
Financial Statements, included in Item 8, Financial
Statements and Supplementary Data, of this Annual Report on
Form 10-K.
Nitrogen
Business
Overview
The principal forms of globally traded nitrogen fertilizer are
ammonia and urea. AN is also traded in global markets. UAN is
used principally in North America and Western Europe, and has
only recently been traded in other international markets.
UANs high water content and need for transportation in
tankers can cause transportation costs per unit of nitrogen to
be higher than for other forms of internationally traded
nitrogen products.
The locations of our North American production facilities
provide us a competitive advantage in serving agricultural
customers in the Corn Belt and other major agricultural areas in
the United States and Canada. The GrowHow facilities are able to
competitively serve the entire British agricultural market. The
Point Lisas ammonia production facility in Trinidad and Tobago
serves U.S. and international nitrogen markets, benefiting
from access to low-cost natural gas supplies.
Ammonia, AN, urea and UAN are the principal nitrogen products we
produce and sell in North America. GrowHow produces and sells
primarily ammonia, AN and fertilizer compounds in the U.K. The
Point Lisas production facility in Trinidad provides ammonia for
sale into both the U.S. and international nitrogen markets.
Other products we manufacture include nitric acid, dinitrogen
tetroxide and carbon dioxide. These products, along with a
portion of our ammonia, AN and urea production, are used in
non-agricultural applications.
Our Terra Environmental Technologies business provides products
and services to customers using nitrogen products (primarily
ammonia, aqua ammonia and liquid and dry urea) to reduce NOx
emissions from various stationary sources, such as power plants,
and other environmental processes such as water treatment
plants, and also in the emerging DEF market.
Although the different nitrogen fertilizer products are
interchangeable to some extent, each has its own characteristics
which make one product or another preferable to the end-user.
Our plants are designed to provide the fertilizer products
preferred by end-users in the regions which they serve. These
preferences vary according to the crop planted, soil and weather
conditions, regional farming practices, relative prices, and the
cost and availability of storage, handling and application
equipment. Our nitrogen products and 2008 production are
described in greater detail below.
Anhydrous
Ammonia
We are the leading U.S. producer of ammonia. Ammonia is the
simplest form of nitrogen fertilizer and the feedstock for the
production of other nitrogen fertilizers, including urea, AN and
UAN. Ammonia is also a vital raw material for many industrial
applications. Ammonia is produced when natural gas reacts with
steam and air at high temperatures and pressures in the presence
of catalysts. Ammonia has a nitrogen content of 82% by weight
and is generally the least expensive form of fertilizer on a
per-pound-of-contained-nitrogen basis. Although generally the
cheapest source of nitrogen available to
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agricultural customers, ammonia can be less desirable to
end-users than urea, AN and UAN because of its need for
specialized application equipment and its limited application
flexibility.
In 2008, we produced approximately 3,171,000 tons of ammonia at
our North American facilities. We are obligated by contract with
Point Lisas to purchase one-half of the ammonia produced by
Point Lisas through 2018 based on market indexed prices. In
2008, we purchased approximately 390,000 tons pursuant to our
contract with Point Lisas. We sold a total of 1,669,000 tons of
ammonia worldwide in 2008 and consumed approximately 2,016,000
tons of ammonia as a raw material to manufacture our other
nitrogen products.
Urea Ammonium
Nitrate Solutions (UAN)
UAN is a liquid fertilizer and, unlike ammonia, is odorless and
does not require refrigeration or pressurization for
transportation or storage. UAN is produced by combining liquid
urea, liquid ammonium nitrate and water. The nitrogen content of
UAN ranges from 28% to 32% by weight. (Unless we state
otherwise, all references to UAN assume a 32% nitrogen content.)
Because of its high water content, UAN is relatively expensive
to transport, making it largely a regionally distributed product.
UAN can be applied to crops directly or mixed with crop
protection products, permitting the application of several
materials simultaneously, reducing energy and labor costs and
accelerating field preparation for planting. UAN may be applied
from ordinary tanks and trucks and sprayed or injected into the
soil, or applied through irrigation systems. In addition, UAN
may be applied throughout the growing season, providing
significant application flexibility. Due to its stability, UAN
(like AN) may be used for no-till row crops where fertilizer is
spread on the surface of the soil.
We are the largest producer of UAN in North America. We produced
approximately 3,703,000 tons of UAN at our North American
facilities in 2008 and sold approximately 3,918,300 tons of UAN
in 2008, primarily to U.S. fertilizer dealers and
distributors.
Ammonium Nitrate
(AN)
We are the largest manufacturer and marketer of
agricultural-grade AN fertilizer in the U.S. and produce AN
through GrowHow in the U.K. AN is produced by combining nitric
acid and ammonia into a liquid form which is then converted to a
solid, largely for fertilizer applications. The nitrogen content
of AN is 34% by weight. AN is less subject to volatilization
(evaporation) losses than other nitrogen products.
Due to its stability, AN is often the product of choice for
pastures and no-till crops where fertilizer is spread upon the
surface and is subject to evaporation losses.
During 2008, we produced approximately 310,000 tons of merchant
ammonium nitrate solution (ANS) and 486,000 tons of agricultural
grade AN
(Amtratetm).
We produced 190,000 tons IGAN, at our Yazoo City, Mississippi
facility during 2008. During 2008, we sold approximately 489,800
tons of
Amtratetm,
191,700 tons of IGAN, and 308,800 tons of ANS.
Urea
Urea is produced by converting ammonia and carbon dioxide into
liquid urea, which can be further processed into a solid,
granular form. Urea is used for fertilizer and animal feed, in
industrial applications as a raw material to produce resins, and
environmentally as a reagent to reduce NOx emissions. Granular
urea has a nitrogen content of 46% by weight, the highest level
of any solid
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nitrogen product. We produce both a granulated form of urea, for
the industrial market, and urea liquor (liquid) for animal feed
supplements and industrial applications.
In 2008, we produced and sold approximately 250,000 tons of
merchant urea and urea liquor; all of it at North American
plants.
Nitric
Acid
Nitric acid is made by oxidizing ammonia with air. The product
is used as a raw material for other nitrogen products and by
industrial customers to produce such products as nylon fibers,
polyurethane foams and specialty fibers. In 2008, we produced
approximately 2,110,000 tons of nitric acid. Approximately
35,000 of these tons were sold to industrial users and the
remainder was used as a raw material for the production of our
other nitrogen products.
Dinitrogen
Tetroxide
Dinitrogen tetroxide is the propellant oxidizer used in various
satellite, rocket and missile propulsion systems. It is also
used by industrial customers in the manufacturing of
pharmaceuticals. Dinitrogen tetroxide is produced by cooling and
condensing a slipstream of process gas from a nitric acid plant
containing various oxides of nitrogen. The recovered product is
filtered and its composition adjusted to meet final product
specifications. We manufactured approximately 262,300 pounds of
the product in 2008.
Marketing
Nitrogen is both a global and local commodity: global because it
is produced and traded in almost all regions of the world and
local because fertilizer customers display preferences for
nitrogen in one of its four basic forms based upon local
conditions. Because transportation is a significant component of
a customers total product cost, a key to our
competitiveness in the nitrogen business is proximity to the end
user, which allows us to have the lowest delivered cost for the
customers product of choice. In addition, we must
continuously provide a reliable source of the preferred nitrogen
product.
The principal customers for our manufactured and imported
nitrogen products fall into two broad
categoriesagricultural fertilizer customers and industrial
customers. The agriculture customers consist of independent
dealers, national retail chains, and cooperatives. These
agricultural customers, in turn, sell product to dealers,
farmers and other users. Industrial customers use nitrogen
products as a feedstock for a variety of chemical processes, in
the manufacture of pulp, paper, and fibers and to control NOx
emissions from power plants and vehicle diesel engines. Our
agricultural and most of our industrial customers are located
primarily in the Gulf States, Midwestern plains and southern
regions of the U.S. where our facilities are located. It is
our objective to ship as much of our North American production
as possible directly from our manufacturing facilities to our
customers.
Distribution
Our Donaldsonville, Louisiana terminal has ready access to rail,
truck and ammonia pipeline transportation and provides us with
economical access to ocean-going vessel and barge transportation
for imports of nitrogen products. The terminal includes two
ammonia storage tanks, each with a capacity of 30,000 tons, and
can receive ocean-going vessels carrying 50,000 tons or more of
ammonia. During 2008, the terminal received and shipped
approximately 700,000 and 786,000 tons of ammonia, respectively.
During 2008, we received and shipped 409,000 and 375,000 tons of
UAN, respectively.
To maintain our distribution capabilities, we lease terminal
assets in Blytheville, Arkansas consisting of storage and
supporting infrastructure for 40,000 tons of ammonia, 9,500 tons
of UAN and 40,000 tons
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of urea. We have entered into a long-term agreement to
exclusively lease certain of these terminal assets.
We own a 50% interest in the Houston Ammonia Terminal, located
on the Houston Ship Channel near Pasadena, Texas. This terminal
has two 15,000 ton ammonia storage tanks which provide ammonia
to industrial customers in the area via a pipeline system
capable of shipping approximately 1,000 tons per day. The
terminal can also receive ocean-going vessels.
Transportation
We use several modes of transportation to distribute products to
customers, including rail cars, common carrier trucks, barges
and common carrier pipelines. Railcars are the major mode of
transportation at our North American manufacturing facilities.
At December 31, 2008, we had 3,048 railcars under lease. We
own ten nitric acid railcars. In addition, we operate a common
carrier that specializes in transporting all forms of nitrogen.
We have three (3) barge tows for UAN and three
(3) barge tows for ammonia under long-term charter. We use
two separate pipeline transportation agreements to move ammonia
to the Corn Belt from our facilities. The Magellan ammonia
pipeline services Verdigris and Port Neal and the NuStar ammonia
pipeline services Donaldsonville.
Nitrogen Industry
Overview
The three major nutrients required for plant growth are
phosphorous, mined as phosphate rock; potassium, mined as
potash; and nitrogen, produced from natural gas. Phosphorus
plays a key role in the photosynthesis process. Potassium is an
important regulator of plants physiological functions.
Nitrogen is an essential element for most organic compounds in
plants because it promotes protein formation. Nitrogen is also a
major component of chlorophyll, which helps promote green
healthy growth and high crop yields. There are no known
substitutes for nitrogen fertilizers in the cultivation of
high-yield crops. These three nutrients occur naturally in the
soil to a certain extent, but must be replaced because crops
remove them from the soil. Nitrogen, to a greater extent than
phosphate and potash, must be reapplied each year in areas of
intense agricultural usage because of nitrogen absorption by
crops and its tendency to escape from the soil by evaporation or
leaching. Consequently, demand for nitrogen fertilizer tends to
be more consistent on a
year-by-year,
per-acre-planted
basis than is demand for phosphate or potash fertilizer.
The major nitrogen consuming crops in North America are corn and
wheat and in the United Kingdom, wheat. Certain crops, such as
soybeans and other legumes, can better absorb atmospheric
nitrogen and do not require nitrogen fertilizers.
Demand
Global demand for fertilizers generally grows at predictable
rates that tend to correspond to growth in grain production.
Global fertilizer demand is driven in the long-term primarily by
population growth, increases in disposable income and associated
improvements in diet. Short-term demand depends on world
economic growth rates and factors creating temporary imbalances
in supply and demand. These factors include weather patterns,
the level of world grain stocks relative to consumption,
agricultural commodity prices, energy prices, crop mix,
fertilizer application rates, farm income and temporary
disruptions in fertilizer trade from government intervention,
such as changes in the buying patterns of China or India. Grain
consumption has historically grown at approximately 1.2% per
year. According to the International Fertilizer Industry
Association, over the last 45 years global fertilizer
demand has grown 3.7% annually and global nitrogen fertilizer
demand has grown at a faster rate of 4.8% annually. During that
period, North American nitrogen fertilizer demand has grown 3.3%
annually.
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Supply
Over the past seven years, global ammonia capacity has remained
relatively flat, growing at an average of approximately
2% per year. This result was attributable principally to
the combination of new project capacity being offset by
permanent plant closings in the U.S. and in Europe. As
global operating rates and prices have risen, so have plans for
new capacity.
This anticipated new global capacity will come primarily from
advantaged natural gas regions of the world, such as the Middle
East and Africa. This expansion of capacity could be limited,
however, by high capital and construction costs, lower nitrogen
prices and increasing natural gas prices. Russia has increased
domestic gas prices as well as prices paid by their export
customers. This has increased production costs for new and
existing plants in the former Soviet Union and Europe.
Imports account for a significant portion of U.S. nitrogen
product supply. Producers from the former Soviet Union, Canada,
the Middle East, Trinidad and Venezuela are major exporters to
the U.S. These export producers are often competitive in
regions close to the point of entry for imports, primarily the
Gulf coast and east coast of North America. Due to higher
freight costs and limited distribution infrastructure, importers
are less competitive in serving the main corn-growing regions of
the U.S., which are more distant from these ports. According to
Fertecon, a leading fertilizer industry publication, world
ammonia imports grew from 17.0 million tons in 2000 to
20.9 million tons by 2007 due to the exceptional increase
in gas prices in the U.S. and Europe during this period and
the consequent closure of U.S. capacity.
Outlook
As of October 2008, Fertecon forecasts that global nitrogen
fertilizer demand is expected to rise by around 2% per year from
2005 to 2015, increasing by 25 million tons or close to 25%
over the period. In North America, nitrogen fertilizer
consumption is expected to increase in the period from 2005 to
2015 from 14 million tons to 16 million tons, a 15%
increase.
The continued growth in demand for nitrogen products has helped
stabilize global ammonia capacity utilization rates, which
averaged 83.5% between 2006 and 2007. According to Fertecon,
global ammonia utilization rates are forecasted to remain in the
low-80s through 2015. North American ammonia utilization
rates are forecast to remain stable at 89% through 2015.
To help meet the growing global demand for fertilizers,
especially in high growth areas like China and India, new
ammonia capacity is expected to come on stream globally in the
next nine years. According to Fertecon, global ammonia capacity
is forecast to increase by 23.4 million tons by 2015, a
total increase of 17%. This projected capacity increase excludes
Chinese plants as any new volumes in China are not expected to
reach global markets. There are a number of new capacity
projects expected or underway in gas advantaged regions;
however, increased construction costs and changes in market
dynamics have delayed a number of such projects.
World trade in ammonia is expected to increase by
1.8 million tons or 8% in the period to 2015, according to
Fertecon, representing more modest growth than seen from 2000 to
2005. Fertecon projects that higher gas costs for Russian and
Ukrainian exporters and the lower relative gas price outlook for
the U.S. would appear to support continued operating rates
at the remaining U.S. ammonia capacity, limiting the
near-term growth in ammonia imports.
Global grain inventories are currently at levels significantly
below the ten-year average, and corn prices, which have been
volatile in recent months, stand at $3.40 per bushel as of
February 20, 2009
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versus $4.98 per bushel one year prior. Both of these factors
influence the outlook for demand for our products.
The emergence of ethanol as an alternative energy source has the
potential to drive incremental fertilizer demand. Corn, the
primary feedstock for U.S. ethanol production, represents
approximately 40% of fertilizer demand in North America. New
ethanol capacity is increasing demand for corn and, according to
Fertecon, is expected to contribute to a forecasted
21 million hectare increase in planted corn area in the
world by 2030. The amount of corn used in the U.S. for
ethanol production has more than doubled in the last five years.
In
2007-2008,
approximately 3.0 billion bushels of corn were used for
ethanol production. According to the USDA, a 22% increase is
forecast for the current
2008-2009
crop year, bringing the total bushels used for ethanol to
3.7 billion. This number is projected to rise to almost
4.0 billion bushels by
2009-2010,
equivalent to approximately 30% of the U.S. corn crop.
The 1990 Amendments to the Clean Air Act increasingly require
companies that combust fossil fuels to reduce their emissions.
Reduction of oxides of both nitrogen and sulfur are accomplished
with Selective Catalytic Reduction (SCR) and wet scrubbing
technologies. Environmental control devices using ammonia or
ammonia based compounds, across a broad range of applications
from coal based generation to diesel engines, are very effective
in meeting emissions targets. Further, TET is establishing an
infrastructure to serve the diesel engine transportation market.
We believe these new and emerging markets may increase North
American demand for ammonia by up to 1.0 million tons by
2010.
Seasonality and
Volatility
The fertilizer business is highly seasonal, based upon the
planting, growing and harvesting cycles. Nitrogen fertilizer
inventories must be accumulated to permit uninterrupted customer
deliveries, and require significant storage capacity. This
seasonality generally results in higher fertilizer prices during
peak consumption periods, with prices normally reaching their
highest point in the spring, decreasing in the summer, and
increasing again in the late fall/early winter period as
depleted inventories are restored.
Nitrogen fertilizer prices can also be volatile as a result of a
number of other factors. The most important of these factors are:
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Weather patterns and field conditions (particularly during
periods of high fertilizer consumption);
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Quantities of fertilizers imported to primary markets;
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Current and projected grain inventories and prices, which are
heavily influenced by U.S. exports, worldwide grain
markets, and domestic demand (food, feed, biofuel); and
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Price fluctuations in natural gas, the principal raw material
used to produce nitrogen fertilizer.
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Governmental policies may directly or indirectly influence the
number of acres planted, the level of grain inventories, the mix
of crops planted and crop prices, as well as environmental
demands.
8
Raw
Materials
The principal raw material used to produce manufactured nitrogen
products is natural gas.
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How Natural Gas Gets to Terras Facilities
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2008 Average Basis
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Facility
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Mode of Transportation
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Difference From Henry Hub
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Courtright, Ontario
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Purchased from local utility distribution company, through open
access
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0.26
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Donaldsonville, Louisiana
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Four intrastate pipelines
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Port Neal, Iowa
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Interstate, open-access pipelines
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(1.31
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Verdigris, Oklahoma*
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Intrastate pipelines
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(1.70
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Woodward, Oklahoma*
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Interstate and intrastate pipelines
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(1.70
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Yazoo City, Mississippi
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Three interstate pipelines and one intrastate pipeline
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0.04
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* |
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The intrastate pipelines serving Woodward and Verdigris are not
open-access carriers, but are nonetheless part of a regional
system which allows receipt from other major Oklahoma sources.
We also have limited access to out-of-state natural gas supplies
for these facilities. |
Natural gas costs in 2008 accounted for approximately 50% of our
total costs and expenses. Significant increases in natural gas
costs that are not hedged or recovered through increased prices
to customers would have an adverse impact on our business,
financial condition and results. We believe there will be a
sufficient supply of natural gas for the foreseeable future and
we will, as opportunities present themselves, enter into firm
transportation contracts to minimize the risk of interruption or
curtailment of natural gas supplies during the peak-demand
season. We use a combination of spot and term purchases of
varied duration from a variety of suppliers to obtain natural
gas supply.
We use derivative instruments to hedge a portion of our natural
gas purchases. Our policy is designed to hedge exposure to
natural gas price fluctuations for production required for
estimated forward product sales commitments. We hedge natural
gas prices through the use of supply contracts, financial
derivatives and other instruments.
The settlement dates of forward-pricing contracts coincide with
gas purchase dates as well as shipment periods on forward
committed sales. Forward-pricing contracts are based on a
specified price referenced to spot market prices or appropriate
New York Mercantile Exchange (NYMEX) futures contract prices.
Point Lisas has a contract through 2018 to purchase natural gas
from the National Gas Company of Trinidad and Tobago. The joint
ventures cost of natural gas has historically been
significantly lower than U.S. natural gas costs, which
historically has resulted in the joint venture being
substantially more profitable than comparable North American
ammonia only facilities.
Competition
The markets in which we operate are highly competitive.
Competition in agricultural input markets takes place largely on
the basis of price, supply reliability, delivery time and
quality of service. Feedstock availability to production
facilities and the cost and efficiency of production,
transportation and storage facilities are also important
competitive factors.
9
Government intervention in international trade can distort the
competitive environment. The relative cost and availability of
natural gas are also important competitive factors. Significant
determinants of the competitive position of our plants are the
natural gas acquisition and transportation contracts negotiated
with our major suppliers as well as proximity to natural gas
sources
and/or
end-users.
Our domestic competitors in the nitrogen fertilizer markets are
primarily other independent fertilizer companies. Nitrogen
fertilizers imported into the U.S. compete with
domestically produced nitrogen fertilizers, including those we
produce. Imports of nitrogen products represent approximately
56% of nitrogen used in North America. Some foreign competitors
in countries with inexpensive sources of natural gas (whether as
a result of government regulation or otherwise) can produce
nitrogen fertilizers at a low cost. A substantial amount of new
ammonia capacity is expected to be added abroad in the
foreseeable future in countries with favored natural gas costs.
Credit
Our credit terms are generally
15-30 days,
but may be extended for longer periods during certain sales
seasons, consistent with industry practices.
Environmental and
Other Regulatory Matters
Our U.S. operations are subject to various federal, state
and local environmental, health and safety laws and regulations,
including laws relating to air quality, hazardous or solid
wastes and water quality. Our operations in Canada are subject
to various federal and provincial regulations regarding such
matters, including the Canadian Environmental Protection Act
administered by Environment Canada, and the Ontario
Environmental Protection Act administered by the Ontario
Ministry of the Environment. All of our facilities require
operating permits that are subject to review by governmental
agencies. We are also involved in the manufacturing, handling,
transportation, storage and disposal of materials that are or
may be classified as hazardous or toxic by federal, state,
provincial or other regulatory agencies. We take precautions to
reduce the likelihood of accidents involving these materials. If
such materials have been or are disposed of at sites that are
targeted for investigation
and/or
remediation by federal or state regulatory agencies, we may be
responsible under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) or analogous
laws for all or part of the costs of such investigation and
remediation, and damages to natural resources.
The State of Arizona designated Inspiration Consolidated Copper
Company (ICCCo), one of our subsidiaries that disposed of its
assets in a 1988 asset sale agreement (1988 Asset Sale
Agreement) and no longer operates a business, as one of several
potentially responsible parties (PRP) under the state Superfund
law at the Pinal Creek Drainage Basin Site (Pinal Site) in
Globe/Miami, Arizona. The Pinal Site generally consists of two
separate properties, each a copper mining and production
facility, one of which had been owned by ICCCo. The PRP
designation was based upon ICCCos prior ownership and
operation of one of the Pinal Site properties. Under state and
federal Superfund laws, all PRPs may be jointly and severally
liable for the costs of investigation
and/or
remediation of an environmentally impaired site regardless of
fault or the legality of original disposals. The Pinal Site is
the subject of ongoing investigation and cleanup to address
groundwater releases of acidic metal-bearing solutions from past
copper mining and production facilities. The remedial actions
are governed by a 1997 consent decree (1997 Consent Decree)
between the Arizona Department of Environmental Quality and the
two current owners/operators of the copper mining and production
facilities (one of whom is the successor to ICCCos buyer),
both of whom the State also designated as PRPs, and ICCCo
(collectively, the Group).
10
The two current owners/operators of the copper mining and
production facilities have been jointly financing and performing
the investigation and remediation work since the late
1980s. ICCCo has been and will be indemnified by its buyer
and the buyers successor for its share of the common costs
under the terms of the 1988 Asset Sale Agreement and a
subsequent April 2005 settlement agreement. The April 2005
settlement agreement further confirmed and documented that the
buyers successor will indemnify ICCCo for its share of all
past and future costs arising out of the 1997 Consent Decree,
judicially determined claims against ICCCo arising out of the
cost recovery suit discussed below, and ICCCos share of
common counsel legal fees in conjunction with all these matters,
as well as other matters described in the 1988 Asset Sale
Agreement.
In 1991, the Group filed a cost recovery action against other
former owners and operators of the two properties constituting
the Pinal Site. A substantial portion of this litigation has
been settled and resolved. The one principal unresolved issue is
the allocation of liability between the two current
owners/operators of the two copper mining and production
facilities. As noted above, ICCCo is no longer actively involved
in the cost recovery litigation since it is fully indemnified by
the buyers successor under the terms of the April 2005
settlement agreement. More than a decade ago, residents in an
area of the Pinal Site brought a class action lawsuit against
the Group seeking property damages and medical monitoring for
potential personal injuries allegedly related to the acidic,
metal-bearing groundwater. The class action lawsuit was settled
in September 2000, although plaintiffs reserved the right to
assert personal injury claims individually. Pursuant to the
terms of certain environmental indemnity provisions of the 1988
Asset Sale Agreement, ICCCo paid 50% of the September 2000
settlement agreement costs allocated to the former ICCCo copper
mining and production facility. After consideration of such
factors as the number of PRPs and the levels of financial
responsibility, including the ongoing litigation and contractual
indemnities, we believe our liability with respect to these
matters will not be material.
We retained a small number (less than 10%) of our retail
locations after the sale of our distribution business in 1999.
Some of these locations are now, or are expected in the future
to be, the subject of environmental
clean-up
activities for which we have retained liability. We do not
believe that those environmental costs and liabilities will have
a material effect on our results of operations, financial
position or net cash flows. As of December 31, 2008, there
were four remaining retail locations with which we were engaged
in some level of environmental
clean-up
activities
and/or
monitoring. The total net cost associated with the former retail
locations in 2009 and beyond (including environmental
expenditures and proceeds from voluntary
clean-up
reimbursements and sale of properties) is not expected to exceed
$0.5 million.
With respect to the Verdigris, Oklahoma facility,
Freeport-McMoRan Resource Partners, Limited Partnership (a
former owner and operator of the facility) retains liability for
certain environmental matters. We retained certain liability for
the pre-closing environmental condition of the Billingham and
Severnside, England facilities in conjunction with the
establishment of GrowHow joint venture in 2007. After ceasing
production at the Severnside England facility on
January 31, 2008, we commenced dismantling the facility and
remediation of the site. Pursuant to the agreement with Kemira
GrowHow Oyj (Kemira), our GrowHow partner, we are responsible
for any remediation costs required to prepare the Severnside
site for disposal. We anticipate remediation costs to be
approximately $5.0 million to $10.0 million. We have
an option to purchase the Severnside land for a nominal amount
at any time prior to sale. If we elect not to exercise this
option, we are still entitled to receive the sales proceeds. We
anticipate that the proceeds related to the sale of the
Severnside land would exceed the total cost of reclamation of
the site.
11
We may be required to install additional air and water quality
control equipment, such as low nitrous oxide burners, scrubbers,
ammonia sensors and continuous emission monitors, at certain
facilities, such as our nitric acid facilities, to comply with
applicable environmental requirements. Our capital expenditures
related to environmental control in 2008, 2007 and 2006 were
approximately $5.3 million, $2.5 million and
$1.2 million, respectively. Projected environmental capital
expenditures are $19.2 million for 2009, $7.7 million
for 2010 and $3.9 million for 2011.
We endeavor to comply in all material respects with applicable
environmental, health and safety regulations and we have
incurred substantial costs in connection with this compliance.
Because these laws and regulations are expected to continue to
change and generally to be more restrictive than current
requirements, the costs of compliance will likely increase. We
do not expect our compliance with these laws and regulations to
have a material adverse effect on our results of operations,
financial position or net cash flows. However, there can be no
guarantee that new regulations will not result in material costs.
We believe that our policies and procedures now in effect are in
compliance with applicable environmental laws and with the
permits relating to the facilities in all material respects.
However, in the normal course of our business, we are exposed to
risks relating to possible releases of hazardous substances into
the environment. Such releases could cause substantial damages
or injuries. Although environmental expenditures have not been
material during the past year, it is impossible to predict or
quantify the impact of future environmental liabilities
associated with releases of hazardous substances from our
facilities. Such liabilities could have a material adverse
impact on our results of operations, financial position or net
cash flows.
Employees
We had 938 full-time employees at December 31, 2008.
Available
Information
Terra was incorporated in Maryland in 1978 and is subject to the
reporting requirements of the Securities Exchange Act of 1934
(the Exchange Act) and its rules and regulations. The Exchange
Act requires us to file reports, proxy statements and other
information with the U.S. Securities and Exchange
Commission (SEC). Copies of these reports, proxy statements and
other information can be obtained from the SEC through the
following site:
Office of Public Reference
100 F Street, NE
Room 1580
Washington, D.C.
20549-0102
Phone: (800) SEC-0330
Fax:
(202) 777-1027
E-mail:
publicinfo@sec.gov
The SEC maintains a Web site that contains reports, proxy
statements and other information regarding issuers that file
electronically with the SEC. These materials may be obtained
electronically by accessing the SECs Web site at
http://www.sec.gov.
We make available, free of charge on our Web site, our Annual
Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable
12
after we electronically file these documents with, or furnish
them to, the SEC. These documents are posted on our Web site at
www.terraindustries.com.
We also make available, free of charge on our Web site, the
charters of the Audit Committee, the Compensation Committee, and
the Nominating and Corporate Governance Committee, as well as
the Corporate Governance Guidelines of our Board of Directors
(the Board) and our Code of Ethics and Standards of Business
Conduct (including any amendment to, or waiver from, a provision
of our Code of Ethics and Standards of Business Conduct) adopted
by our Board. These documents are posted on our Web site at
www.terraindustries.com.
Copies of any of these documents will also be made available,
free of charge, upon written request to:
Terra Industries Inc.
Attention: Investor Relations
600 Fourth Street
P.O. Box 6000
Sioux City, Iowa
51102-6000
Phone:
(712) 277-1340
13
Item 1A. Risk
Factors
In addition to the other information contained in this
Form 10-K,
the following risk factors should be considered carefully in
evaluating our business. Our business, financial condition, or
results of operations could be materially adversely affected by
any of these risks. Please note that additional risks not
presently known to us or that our management currently deems
immaterial may also impair our business and operations.
A substantial portion of Terras operating expense is
related to the cost of natural gas, and an increase in such cost
that is either unexpected or not accompanied by increases in
selling prices of products could result in reduced profit
margins and lower product production.
The principal raw material used to produce nitrogen products is
natural gas. Natural gas costs in 2008 comprised about 50% of
total costs and expenses. A significant increase in the price of
natural gas (which can be driven by, among other things, supply
disruptions, governmental or regulatory actions, cold weather
and oil price spikes) that is not hedged or recovered through an
increase in the price of related nitrogen products could result
in reduced profit margins and lower product production. We have
previously idled one or more of our plants in response to high
natural gas prices and may do so again in the future. A
significant portion of our competitors global nitrogen
production occurs at facilities with access to fixed-priced
and/or
product related natural gas supplies, similar to our gas supply
contract in Trinidad. The natural gas costs for these
competitors facilities have been and likely will continue
to be substantially lower than our costs.
Declines in the prices of our products may reduce profit
margins.
Prices for nitrogen products are influenced by the global supply
and demand conditions for ammonia and other nitrogen-based
products. Long-term demand is affected by population growth and
rising living standards that determine food consumption.
Short-term demand is affected by world economic conditions and
international trade decisions. Supply is affected by increasing
worldwide capacity and the increasing availability of nitrogen
product exports from major producing regions such as the former
Soviet Union, Canada, the Middle East, Trinidad and Venezuela.
New global ammonia capacity is expected abroad in the
foreseeable future. If this anticipated growth in new capacity
exceeds the growth in demand, the price at which we sell our
nitrogen products may decline, resulting in reduced profit
margins, lower production of products and potential plant
closures. Supply in the U.S. and Europe is also affected by
trade regulatory measures, which restrict import supply into
those markets. Changes in those measures would likely adversely
impact available supply and pricing.
Our products are subject to price volatility resulting from
periodic imbalances of supply and demand, which may cause the
results of operations to fluctuate.
Historically, the prices for our products have reflected
frequent changes in supply and demand conditions. Changes in
supply result from capacity additions or reductions and from
changes in inventory levels. Demand for products is dependent on
demand for crop nutrients by the global agricultural industry
and on the level of industrial production. Periods of high
demand, high capacity utilization and increasing operating
margins tend to result in new plant investment and increased
production until supply exceeds demand, followed by periods of
declining prices and declining capacity utilization until the
cycle is repeated. In addition, markets for our products are
affected by general economic conditions. As a result of periodic
imbalances of supply and demand, product prices have been
volatile, with frequent and significant price changes. During
periods of oversupply, the price at
14
which we sell our products may be depressed and this could have
a material adverse effect on our business, financial condition
and results of operations.
Our products are global commodities and we face intense
competition from other producers.
Our products are global commodities and can be subject to
intense price competition from both domestic and foreign
sources. Customers, including end-users, dealers and other
crop-nutrient producers and distributors, base their purchasing
decisions principally on the delivered price and availability of
the product. We compete with a number of U.S. producers and
producers in other countries, including state-owned and
government-subsidized entities. The U.S. and the European
Commission each have implemented trade regulatory measures which
are designed to address this type of unfair trade. Changes in
these measures could have an adverse impact on our sales and
profitability of the particular products involved. Some of our
principal competitors have greater total resources and are less
dependent on earnings from nitrogen fertilizer sales. In
addition, a portion of global production benefits from natural
gas contracts that have been, and could continue to be,
substantially lower priced than our natural gas. Our inability
to compete successfully could result in the loss of customers,
which could adversely affect sales and profitability.
Our business is subject to risks related to weather
conditions.
Adverse weather conditions may have a significant effect on
demand for the Companys nitrogen products. Weather
conditions that delay or intermittently disrupt field work
during the planting and growing season may cause agricultural
customers to use less or different forms of nitrogen fertilizer,
which may adversely affect demand for the product that we sell.
Weather conditions following harvest may delay or eliminate
opportunities to apply fertilizer in the fall. Weather can also
have an adverse effect on crop yields, which lowers the income
of growers and could impair their ability to pay our customers.
Weather
and/or
weather forecasts can dramatically affect the price of natural
gas, our main raw material. Colder than normal winters as well
as warmer than normal summers increase the natural gas demand
for residential use. Also, hurricanes affecting the gulf coastal
states can severely impact the supply of natural gas and cause
prices to rise sharply.
Our risk measurement and hedging activities might not prevent
losses.
We manage commodity price risk for our businesses as a whole.
Although we implemented risk measurement systems that use
various methodologies to quantify the risk, these systems might
not always be followed or might not always work as planned.
Further, such risk measurement systems do not in themselves
manage risk, and adverse changes involving volatility, adverse
correlation of commodity prices and the liquidity of markets
might still adversely affect earnings and cash flows, as well as
the balance sheet under applicable accounting rules, even if
risks have been identified. The ability to manage exposure to
commodity price risk in the purchase of natural gas through the
use of financial derivatives may be affected by limitations
imposed by our bank agreement covenants.
In an effort to manage financial exposure related to commodity
price and market fluctuations, we have entered into contracts to
hedge certain risks associated with our business, its assets and
operations. In these hedging activities, we have used
fixed-price, forward, physical purchase and sales contracts,
futures, financial swaps and option contracts traded in the
over-the-counter markets or on exchanges. Nevertheless, no
single hedging arrangement can adequately address all risks
present in a given contract or industry. Therefore, unhedged
risks will always continue to exist. We may not be able to
15
successfully manage all credit risk and as such, future cash
flows could be impacted by counterparty default.
We are substantially dependent on our manufacturing
facilities, and any operational disruption could result in a
reduction of sales volumes and could cause us to incur
substantial expenditures.
Our manufacturing operations may be subject to significant
interruption if one or more of our facilities were to experience
a major accident, equipment failure or were damaged by severe
weather or other natural disaster. In addition, our operations
are subject to hazards inherent in chemical manufacturing. Some
of those hazards may cause personal injury and loss of life,
severe damage to or destruction of property and equipment and
environmental damage, and may result in suspension of operations
and the imposition of civil or criminal penalties. For example,
an explosion at our Port Neal, Iowa facility in 1994 required us
to rebuild nearly the entire facility, and a June 1, 2006
explosion shut down the ammonia production plant in Billingham,
England until repairs were completed in August 2006. In
addition, approximately four weeks of unplanned outages at our
Point Lisas Nitrogen facility during the 2006 third quarter to
repair failing heat exchangers were only partly successful and
the plant operated at about 80% of capacity until replacement
exchangers were installed during a scheduled turnaround in early
2007. Also, a mechanical outage at the Courtright, Ontario
facility in April 2001 required us to shut down that facility
for approximately two months. We currently maintain property
insurance, including business interruption insurance, but we may
not have sufficient coverage, or may be unable in the future to
obtain sufficient coverage at reasonable costs.
We may be adversely affected by environmental laws or
regulations to which we may be subject.
Our U.S., Canadian and U.K. operations and properties are
subject to various federal, state and local environmental,
safety and health laws and regulations, including laws relating
to air quality, hazardous and solid materials and wastes, water
quality, investigation and remediation of contamination,
transportation and worker health and safety. We could incur
substantial costs, including capital expenditures for equipment
upgrades, fines and penalties and third-party claims for
damages, as a result of compliance with, violations of or
liabilities under environmental laws and regulations. We are
also involved in the manufacturing, handling, transportation,
storage and disposal of materials that are or may be classified
as hazardous or toxic by federal, state, provincial or other
regulatory agencies. If such materials have been or are disposed
of or released at sites that require investigation
and/or
remediation, Terra may be responsible under CERCLA, or analogous
laws for all or part of the costs of such investigation
and/or
remediation, and for damages to natural resources. Under some of
these laws, responsible parties may be held jointly and
severally liable for such costs, regardless of fault or the
legality of the original disposal or release.
We have liability as a potentially responsible party
at certain sites under certain environmental remediation laws,
and have also been subject to related claims by private parties
alleging property damage and possible personal injury arising
from contamination relating to active as well as discontinued
operations. We may be subject to additional liability or
additional claims in the future. Some of these matters may
require expenditure of significant amounts for investigation
and/or
cleanup or other costs.
We may be required to install additional pollution control
equipment at certain facilities in order to maintain compliance
with applicable environmental requirements.
Continued government and public emphasis on environmental issues
can be expected to result in increased future investments for
environmental controls at ongoing operations. We may be required
to install additional air and water quality control equipment,
such as low emission burners, scrubbers,
16
ammonia sensors and continuous emission monitors, at certain of
our facilities in order to comply with applicable environmental
requirements. Such investments would reduce income from future
operations. Present and future environmental laws and
regulations applicable to operations, more vigorous enforcement
policies and discovery of unknown conditions may require
substantial expenditures and may have a material adverse effect
on results of operations, financial position or net cash flows.
Government regulation and agricultural policy may reduce the
demand for our products.
Existing and future government regulations and laws may reduce
the demand for our products. Existing and future agricultural
and/or
environmental laws and regulations may impact the amounts and
locations of fertilizer application and may lead to decreases in
the quantity of nitrogen fertilizer applied to crops. Changes in
U.S. energy policies may affect the demand for our nitrogen
products. Any such decrease in the demand for fertilizer
products could result in lower unit sales and lower selling
prices for nitrogen fertilizer products. U.S. and E.U.
governmental policies affecting the number of acres planted, the
level of grain inventories, the mix of crops planted and crop
prices could also affect the demand and selling prices of our
products. In addition, we manufacture and sell ammonium nitrate
(AN) in the U.S., and in the U.K. through our GrowHow joint
venture. Ammonium nitrate can be used as an explosive and was
used in the Oklahoma City bombing in April 1995. It is possible
that either the U.S. or U.K. governments could impose
limitations on the use, sale or distribution of AN, thereby
limiting our ability to manufacture or sell this product.
We are subject to risks associated with international
operations.
Our international business operations are subject to numerous
risks and uncertainties, including difficulties and costs
associated with complying with a wide variety of complex laws,
treaties and regulations; unexpected changes in regulatory
environments; currency fluctuations; tax rates that may exceed
those in the U.S.; earnings that may be subject to withholding
requirements; and the imposition of tariffs, exchange controls
or other restrictions. During 2008, we derived approximately 19%
of our net sales from outside of the U.S. Terras
business operations include a 50% interest in an ammonia
production joint venture in the Republic of Trinidad and Tobago
and a 50% interest in a U.K. joint venture for the
production of ammonia, and a 50% interest in an ammonia shipping
joint venture that provides transportation of ammonia from the
Trinidad facility to the U.S. and other world markets.
Our business may be adversely impacted by our leverage, which
may require the use of a substantial portion of excess cash flow
to service debt and may limit our access to additional
capital.
Our debt could have important consequences on our business. For
example, it could (i) increase our vulnerability to adverse
economic and industry conditions by limiting flexibility in
reacting to changes in the business industry, (ii) reduce
our cash flow available to fund working capital, capital
expenditures and other general corporate purposes,
(iii) place us at a competitive disadvantage compared to
competitors that have less leverage and (iv) limit our
ability to borrow additional funds and increase the cost of
funds that we can borrow. We may not be able to reduce financial
leverage when we choose to do so, and may not be able to raise
capital to fund growth opportunities.
We may be unable to refinance our debt upon a change of
control.
In the event that we experience a change of control
(as defined in our bond indenture and the instruments governing
our Series A Cumulative Convertible Perpetual Preferred
Shares (Series A Preferred Shares)), we may need to
refinance large amounts of debt. If a change of control occurs,
we must offer to buy back the notes under our indenture
governing the 7% senior notes due 2017 and the
Series A Preferred Shares for a price equal to 101% of the
notes principal amount or 100% of the
17
liquidation value of the Series A Preferred Shares, as
applicable, plus any interest or dividends which have accrued
and remain unpaid as of the repurchase date. There can be no
assurance that there will be sufficient funds available for any
repurchases that could be required by a change of control.
Additionally, under our revolving credit facilities, a change of
control will occur if, among other such things, an individual or
group acquires more than 35% of the outstanding voting shares of
Terra. Such a change of control would constitute an event of
default under the credit facilities. If such change of control
was to occur, we may not have the ability to replace our current
revolving credit facility on terms equal to or more favorable
than current terms.
CFs exchange offer to purchase all of our outstanding
common stock may be disruptive to our business and threatens to
adversely affect the Companys operations and results.
On February 23, 2009, CF Industries Holdings, Inc.
commenced an exchange offer to purchase all of our outstanding
common stock (the CF Offer). The CF Offer expires on
May 15, 2009. The uncertainty regarding the outcome of the
CF Offer may disrupt our business which could result in an
adverse effect on our operating results.
Responding to the CF Offer has been, and may continue to
be, a distraction for our management and employees and has
required and may continue to require us to incur significant
costs. Management and employee distraction related to the
CF Offer also may adversely impact our ability to optimally
conduct our business and pursue our strategic objectives.
18
Item 1B. Unresolved
Staff Comments
None.
Item 2. Properties
Terras North American manufacturing facilities and its
joint venture manufacturing facilities, in which Terra owns a
50% interest, are designed to operate continuously, except for
planned shutdowns (usually biennial) for maintenance and
efficiency improvements. Capacity utilization (gross tons
produced divided by capacity tons at expected operating rates
and on-stream factors) of the nitrogen products manufacturing
facilities was approximately 100%, 98% and 83% in 2008, 2007 and
2006, respectively.
Terra owns all of its manufacturing facilities, unless otherwise
indicated below.
Our facilities have the following production capacities:
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Capacity1
|
|
Location
|
|
Ammonia2
|
|
|
UAN3
|
|
|
AN4
|
|
|
Urea5
|
|
|
Methanol6
|
|
|
|
|
Donaldsonville,
Louisiana7
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Port Neal, Iowa
|
|
|
370,000
|
|
|
|
735,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
Verdigris, Oklahoma
|
|
|
1,050,000
|
|
|
|
1,925,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodward,
Oklahoma8
|
|
|
440,000
|
|
|
|
297,500
|
|
|
|
|
|
|
|
25,000
|
|
|
|
40,000,000
|
|
Yazoo City,
Mississippi9
|
|
|
500,000
|
|
|
|
525,000
|
|
|
|
775,000
|
10
|
|
|
20,000
|
|
|
|
|
|
Courtright, Ontario
|
|
|
480,000
|
|
|
|
350,000
|
|
|
|
|
|
|
|
175,000
|
|
|
|
|
|
|
|
Total
|
|
|
3,340,000
|
|
|
|
3,832,500
|
|
|
|
775,000
|
|
|
|
280,000
|
|
|
|
40,000,000
|
|
|
|
|
|
|
|
1.
|
Annual capacity
includes an allowance for planned maintenance shutdowns.
|
|
2.
|
Measured in gross
tons of ammonia produced; net tons available for sale will vary
with upgrading requirements.
|
|
3.
|
Measured in tons of
UAN containing 32% nitrogen by weight.
|
|
4.
|
Measured in tons.
|
|
5.
|
Urea is sold as urea
liquor from the Port Neal, Woodward and Yazoo City facilities
and as either granular urea or urea liquor from the Courtright
facility. Production capacities shown are for urea sold
in tons.
|
|
6.
|
Measured in gallons.
|
|
|
|
|
7.
|
The Donaldsonville
facilitys manufacturing capacity consists of a single
ammonia plant. This plant was mothballed in January 2005, and
was restarted September 2008.
|
|
|
|
|
8.
|
Woodwards
plant capacity depends on product mix (ammonia/methanol).
|
|
9.
|
The Yazoo City
facility also produces merchant nitric acid; sales for the
twelve months ended December 31, 2008 were 20,700 product
tons.
|
|
10.
|
Terras full AN
capacity at Yazoo City is 835,000 tons, however such production
would limit Yazoo Citys UAN production to approximately
450,000 tons and increase urea production to 45,000 tons. The
plant has the ability to produce both agricultural grade AN and
industrial grade AN (IGAN).
|
Donaldsonville, Louisiana. The Donaldsonville
facility is located on approximately 766 acres fronting the
Mississippi River and, in 2004, included two ammonia plants, a
urea plant and two melamine crystal production plants. During
2006 all of these plants, except for one ammonia plant, were
19
decommissioned and sold for parts or scrap. The remaining
ammonia plant which had been idled was restarted in the third
quarter of 2008. The facility contains a deep-water port
facility on the Mississippi River, allowing for barge
transportation and making Donaldsonville one of the northernmost
points on the river capable of receiving economical ocean-going
vessels.
Port Neal, Iowa. The Port Neal facility is located
on approximately 120 acres 12 miles south of Sioux
City, Iowa on the Missouri River. The facility consists of an
ammonia plant, two urea plants, two nitric acid plants and a UAN
plant.
Verdigris, Oklahoma. The Verdigris facility is
located on 650 acres northeast of Tulsa, Oklahoma, near the
Verdigris River. It is the second largest UAN production
facility in North America. The facility comprises two ammonia
plants, two nitric acid plants, two UAN plants and a port
terminal. Terra owns the plants and leases the port terminal
from the Tulsa-Rogers County Port Authority.
Woodward, Oklahoma. The Woodward facility is
located on approximately 450 acres in rural northwest
Oklahoma and consists of an integrated ammonia/methanol plant, a
nitric acid plant, a urea plant and a UAN plant.
Yazoo City, Mississippi. The Yazoo City facility
is located on approximately 2,240 acres in Yazoo County,
Mississippi with approximately 60 acres of such land
subject to a long-term lease with Yazoo County. The facility
includes one ammonia plant, four nitric acid plants, an AN
plant, two urea plants, a UAN plant and a dinitrogen tetroxide
production and storage facility.
Courtright, Ontario, Canada. The Courtright
facility is located on 700 acres south of Sarnia, Ontario
near the St. Clair River. The facility consists of one ammonia
plant, a UAN plant, a nitric acid plant and one urea plant.
Joint
Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Capacity1
|
|
Location
|
|
|
|
|
|
|
|
Fertilizer
|
|
|
|
Ammonia2
|
|
|
AN3
|
|
|
Compounds
|
|
|
|
|
Ince,
U.K.3
|
|
|
201,000
|
|
|
|
343,000
|
|
|
|
340,000
|
|
Billingham,
U.K.3
|
|
|
225,000
|
|
|
|
260,000
|
|
|
|
|
|
Point Lisas, Trinidad and
Tobago4
|
|
|
360,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
786,000
|
|
|
|
603,000
|
|
|
|
340,000
|
|
|
|
|
|
|
|
1.
|
Annual capacity
includes an allowance for planned maintenance shutdowns.
|
|
2.
|
Measured in gross
tons of ammonia produced; net tons available for sale will vary
with upgrading requirements.
|
|
3.
|
Represents
Terras 50% interest in capacity of facilities owned by
GrowHow, a
50/50 joint
venture between Terra and Kemira GrowHow Oyj established in
September 2007.
|
|
4.
|
Represents
Terras 50% interest in the Point Lisas plant capacity.
|
Billingham, U.K. The Billingham facility, located
in the Teesside chemical area, is geographically split among
three separate areas: the main site contains an ammonia plant,
three nitric acid plants and a carbon dioxide plant; the
Portrack site approximately two miles away contains an AN
fertilizer plant; and the north Tees site approximately five
miles away has ammonia storage which GrowHow operates under a
99-year
lease with a third-party and import/export facility that GrowHow
uses under license from the Crown and under an agreement with a
third-party operator. The Billingham facility is owned by
GrowHow.
20
Ince, U.K. The Ince facility is located in
northwestern England and is owned by GrowHow. The facility
consists of one ammonia plant, three nitric acid plants, an AN
plant and three fertilizer compound plants.
Point Lisas, Trinidad. The Point Lisas Nitrogen
facility in the Republic of Trinidad and Tobago is owned by a
50/50 joint
venture with KNC Trinidad Limited. This facility has the
capacity to produce annually 720,000 tons of ammonia from
natural gas supplied under contract with the National Gas
Company of Trinidad and Tobago.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in claims, disputes,
administrative proceedings and litigation, arising in the
ordinary course of business. We do not believe that the matters
in which we are currently involved, either individually or in
the aggregate, will have a material adverse effect on our
business, results of operations, financial position or net cash
flows.
Item 4. Submission
of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders
during the fourth quarter of 2008.
21
Executive
Officers of Terra
The following sets forth the name, age and offices of each
present executive officer of Terra, the period during which each
executive officer has served as such and each executive
officers business experience during the past five years:
|
|
|
|
|
Present positions
and offices with the Company
|
Name
|
|
and
principal occupations during the past five years
|
|
|
Michael L. Bennett
|
|
President and Chief Executive Officer of Terra since April 2001;
President of Terra Nitrogen GP Inc. (TNGP) (or its predecessor),
the General Partner of TNCLP, since June 1998; Chairman of the
Board of TNGP (or its predecessor) since 2002. Age 55
|
Daniel D. Greenwell
|
|
Senior Vice President and Chief Financial Officer of Terra since
July 2007; Vice President, Controller of Terra from April 2005
to July 2007; Director of TNGP, the General Partner of TNCLP,
since March 2008; Vice President and Chief Financial Officer of
TNGP since February 2008; Vice President and Chief Accounting
Officer of TNGP from April 2006 to February 2008; Corporate
Controller for Belden CDT Inc. from 2002 to 2005; and Chief
Financial Officer of Zoltek Companies Inc. from 1996 to 2002.
Age 46
|
Joseph D. Giesler
|
|
Senior Vice President, Commercial Operations of Terra since
December 2004; Vice President of Industrial Sales and Operations
of Terra from December 2002 to December 2004; Global Director,
Industrial Sales of Terra from September 2001 to December 2002;
Vice President of TNGP, the General Partner of TNCLP, since
April 2006. Age 50
|
Douglas M. Stone
|
|
Senior Vice President, Sales and Marketing since September 2007;
Vice President, Corporate Development and Strategic Planning
from 2006 to September 2007; Director, Industrial Sales from
2003 to 2006; Manager, Methanol and Industrial Nitrogen from
2000 to 2003. Age 43
|
Edward J. Dillon
|
|
Vice President and Controller of Terra since November 2008. In
1998, he joined the General Electric Company and served in
numerous roles including Finance Manager for the National
Broadcasting Company in New York City, progressing to Global
Controller for the Consumer & Industrial segment in
Louisville, Kentucky. He joined INVISTA, a subsidiary of Koch
Industries, Inc. (KII) in 2005 in Wichita as Director of
Corporate Finance and in 2007, moved to KII Corporation as
Finance Director. Age 41
|
Joe A. Ewing
|
|
Vice President, Investor Relations and Human Resources of Terra
since December 2004; Vice President, Human Resources of
Mississippi Chemical Corporation from April 2003 to December
2004; Vice President, Marketing and Distribution of Mississippi
Chemical Corporation from 1999 to April 2003. Age 58
|
22
|
|
|
|
|
Present positions
and offices with the Company
|
Name
|
|
and
principal occupations during the past five years
|
|
|
John W. Huey
|
|
Vice President, General Counsel and Corporate Secretary of Terra
since October 2006; Vice President, General Counsel and
Corporate Secretary of TNGP, the General Partner of TNCLP, since
October 2006; Counsel with Shughart Thomson &
Kilroy, P.C. from
2005-2006;
Attorney with Butler Manufacturing Company from 1978 to 2004,
Vice President of Administration from 1993 to 1998, Vice
President, General Counsel and Corporate Secretary from 1998 to
2004. Age 61
|
Geoffrey J. Obeney
|
|
Vice President, Information Technology of Terra since February
of 2008. Interim CEO of Spirit Computing Ltd from November 2005
to January 2008; CIO of SEI LLC, a
start-up
company from October 2004 to October 2005. Age 51
|
Richard S. Sanders Jr.
|
|
Vice President, Manufacturing of Terra since August 2003; Vice
President, Manufacturing of TNGP (or its predecessor), the
General Partner of TNCLP, since October 2003; Plant Manager,
Verdigris, Oklahoma manufacturing facility from 1995 to August
2003. Age 51
|
Earl B. Smith
|
|
Vice President, Business Development of Terra since March 2008;
Registered Financial Advisor with UBS from 2006 to 2008. Various
positions with Vulcan Materials Company from 1982 to 2005,
serving last a Global Business Manager from 2003 to 2005.
Age 48
|
Except for any employment described above with TNGP (or its
predecessor), the General Partner of TNCLP, which is an indirect
subsidiary of Terra, no occupation carried on by any executive
officer of Terra during the past five years as described above
was carried on with any corporation or organization that is a
parent, subsidiary or other affiliate of Terra. There are no
family relationships among the executive officers and directors
of Terra or arrangements or understandings between any executive
officer and any other person pursuant to which any executive
officer was selected as such. Officers of Terra are elected
annually to serve until their respective successors are elected
and qualified.
23
Part II
|
|
Item 5.
|
Market
for Terras Common Equity and Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Terras common shares are traded on the New York Stock
Exchange (NYSE) under the symbol TRA. Set forth
below are the high and low sales prices of Terras common
shares during each quarter specified as reported on the NYSE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(per-share data and stock prices)
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
53.48
|
|
|
$
|
56.25
|
|
|
$
|
57.64
|
|
|
$
|
30.00
|
|
Low
|
|
|
33.80
|
|
|
|
33.85
|
|
|
|
25.85
|
|
|
|
11.21
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Share Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
18.93
|
|
|
$
|
25.90
|
|
|
$
|
32.25
|
|
|
$
|
51.15
|
|
Low
|
|
|
11.08
|
|
|
|
17.01
|
|
|
|
17.69
|
|
|
|
27.13
|
|
As of February 27, 2009 there were approximately
5,683 record holders of Terras common stock.
On May 6, 2008 Terras Board of Directors declared a
dividend of $0.10 per share for every share of the
Companys common stock outstanding on May 19, 2008,
payable on June 3, 2008. Subsequent dividends of $0.10 per
share for each share of the Companys common stock were
declared on July 16, 2008 for shares of the Companys
common stock outstanding on August 25, 2008, payable on
September 12, 2008, and declared on October 15, 2008
for shares of the Companys common stock outstanding on
November 24, 2008, payable on December 12, 2008, and
declared on February 10, 2009, for shares of the
Companys common stock outstanding on March 18, 2009,
payable on April 7, 2009. No dividends were declared or
paid during 2007. Future dividends are necessarily dependent
upon future earnings, capital requirements, general financial
condition, general business conditions, approval from our Board
of Directors and other factors.
24
Performance
Graph
A comparative performance graph is to be included with our
annual report to security holders that accompanies or precedes a
proxy or information statement relating to an annual meeting of
security holders at which directors are to be elected. A
line-graph presentation is required, comparing cumulative,
indexed, five-year stockholder returns on specified,
hypothetical investments. These investments must include the
S&P 500 Stock Index and either a nationally recognized
industry standard or an index of peer companies selected by
Terra.
The Annual Return Percentage table below illustrates
the annual returns realized in each of the years from 2004
through 2008 on hypothetical investments in Terra, the S&P
500 Stock Index and Terras industry peer group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Return Percentage
|
|
|
|
|
|
|
Year Ending
December 31,
|
|
|
|
Company
Name/Index
|
|
|
2004
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
|
Terra Industries Inc.
|
|
|
|
168.28
|
%
|
|
|
|
(36.94
|
)%
|
|
|
|
113.93
|
%
|
|
|
|
298.66
|
%
|
|
|
|
(64.71
|
)%
|
|
|
|
S&P 500 Stock Index
|
|
|
|
10.88
|
%
|
|
|
|
4.91
|
%
|
|
|
|
15.79
|
%
|
|
|
|
5.49
|
%
|
|
|
|
(37.00
|
)%
|
|
|
|
Industry Peer Group
|
|
|
|
64.94
|
%
|
|
|
|
(3.98
|
)%
|
|
|
|
44.53
|
%
|
|
|
|
167.19
|
%
|
|
|
|
(56.89
|
)
|
|
|
|
The Indexed Annual Returns table assumes three
investments of $100 at the close of the last trading day in
2003, and follows these investments through the subsequent five
years. The three investments are in Terra common shares, the
S&P 500 Stock Index, and Terras industry peer group.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed
Annual Returns on Hypothetical $100 Investment
|
|
|
|
|
|
Year Ending
December 31,
|
|
|
Company
Name/Index
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
Terra Industries Inc.
|
|
|
$
|
268.28
|
|
|
|
$
|
169.18
|
|
|
|
$
|
361.93
|
|
|
|
$
|
1,442.90
|
|
|
|
$
|
509.22
|
|
|
|
|
S&P 500 Stock Index
|
|
|
$
|
110.88
|
|
|
|
$
|
116.33
|
|
|
|
$
|
134.70
|
|
|
|
$
|
142.10
|
|
|
|
$
|
89.52
|
|
|
|
|
Industry Peer Group
|
|
|
$
|
164.94
|
|
|
|
$
|
158.37
|
|
|
|
$
|
228.88
|
|
|
|
$
|
611.55
|
|
|
|
$
|
263.63
|
|
|
|
|
Terra has for some years chosen to use a self-selected industry
peer group. In the graph and table above, companies in
Terras self-selected industry peer group manufacture
commodity chemicals (including chemicals other than nitrogen
products and methanol) and have market caps similar to
Terras. The current peer group consists of the following
companies: Agrium, Inc., Celanese AG, CF Industries Holdings,
Inc., Cytec Industries, Inc., Georgia Gulf Corporation, Huntsman
Chemical, Methanex Corporation, Millennium Chemicals Inc.,
Mosaic, NOVA Chemicals Corp., Potash Corporation of Saskatchewan
Inc., TNCLP, and Yara International ASA.
Company
Purchases of Equity Securities
On May 6, 2008, the Board of Directors authorized us to
repurchase a maximum of 12,841,717 shares of our
outstanding common stock. The stock buyback program has been and
will be conducted on the open market, in private transactions or
otherwise at such times prior to June 30, 2010, and at such
prices as determined appropriate by us. During 2008, we
repurchased 5,393,055 common shares at an average per share
price of $29.20. The remaining number of common shares that we
are authorized to repurchase is 7,448,662 at December 31,
2008.
The calculation of the average price paid per share does not
include the effect for any fees, commissions or other costs
associated with the repurchase of such shares.
The following table provides information about share repurchases
by us during 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
Total
|
|
|
|
Shares Purchased as
|
|
Maximum Number of
|
Month of
|
|
Number of
|
|
Average
|
|
Part of Publicly
|
|
Shares that May Yet Be
|
Share
|
|
Shares
|
|
Price Paid
|
|
Announced Plans or
|
|
Purchased Under the
|
Purchases
|
|
Purchased
|
|
per Share
|
|
Programs
|
|
Plans or Programs
|
|
|
May 2008
|
|
|
189,150
|
|
|
$
|
39.65
|
|
|
|
189,150
|
|
|
|
12,652,567
|
|
August 2008
|
|
|
772,180
|
|
|
|
45.91
|
|
|
|
961,330
|
|
|
|
11,880,387
|
|
September 2008
|
|
|
1,626,355
|
|
|
|
39.69
|
|
|
|
2,587,685
|
|
|
|
10,254,032
|
|
October 2008
|
|
|
200,000
|
|
|
|
21.90
|
|
|
|
2,787,685
|
|
|
|
10,054,032
|
|
November 2008
|
|
|
2,605,370
|
|
|
|
17.51
|
|
|
|
5,393,055
|
|
|
|
7,448,662
|
|
The calculation of the average price paid per share does not
include the effect for any fees, commissions or other costs
associated with the repurchase of such shares.
On August 20, 2008, our Board of Directors authorized us to
make cash payments to holders of our 4.25% Series A
Cumulative Convertible Perpetual Preferred Shares (Series A
Preferred Shares), a total of which 120,000 shares were
then outstanding, in order to induce such holders of
Series A Preferred Shares to convert such Series A
Preferred Shares to common stock of the Company. As a result of
such action, a total of 118,400 Series A Preferred Shares
were converted into 11,887,550 shares of the Companys
common stock at a cash premium of $5.3 million.
26
|
|
Item 6.
|
Selected
Financial Data
|
The following table presents our selected financial data. The
table should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations, and Item 8, Financial
Statements and Supplementary Data, of this Annual Report on
Form 10-K.
Certain prior-year amounts have been reclassified to conform to
the current-year presentation. In 2008, we declared our Beaumont
methanol plant as discontinued operations. All fiscal years
present reflect the classification of Beaumonts financial
results as discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share
data)
|
|
2008(1)
|
|
2007(2)
|
|
2006
|
|
2005(3)
|
|
2004(4)
|
|
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,891,479
|
|
|
$
|
2,342,929
|
|
|
$
|
1,819,696
|
|
|
$
|
1,935,237
|
|
|
$
|
1,295,032
|
|
|
|
Gross profit
|
|
|
863,227
|
|
|
|
527,508
|
|
|
|
118,517
|
|
|
|
168,274
|
|
|
|
171,079
|
|
|
|
Income from continuing operations
|
|
|
632,772
|
|
|
|
220,757
|
|
|
|
4,729
|
|
|
|
31,618
|
|
|
|
65,714
|
|
|
|
Income (loss) from discontinued operations
|
|
|
8,269
|
|
|
|
(18,861
|
)
|
|
|
(516
|
)
|
|
|
(9,531
|
)
|
|
|
1,882
|
|
|
|
Net income
|
|
|
641,041
|
|
|
|
201,896
|
|
|
|
4,213
|
|
|
|
22,087
|
|
|
|
67,596
|
|
|
|
Preferred share dividends
|
|
|
(3,876
|
)
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
(5,134
|
)
|
|
|
(1,029
|
)
|
|
|
Cash dividends declared per common share
|
|
$
|
0.30
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
6.65
|
|
|
$
|
2.38
|
|
|
$
|
|
|
|
$
|
0.28
|
|
|
$
|
0.85
|
|
|
|
Income (loss) from discontinued operations
|
|
|
0.09
|
|
|
|
(0.21
|
)
|
|
|
(0.01
|
)
|
|
|
(0.10
|
)
|
|
|
0.02
|
|
|
|
|
|
Earnings per sharebasic
|
|
$
|
6.74
|
|
|
$
|
2.17
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.18
|
|
|
$
|
0.87
|
|
|
|
|
|
Earnings (loss) per sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
6.12
|
|
|
$
|
2.07
|
|
|
$
|
|
|
|
$
|
0.28
|
|
|
$
|
0.83
|
|
|
|
Income (loss) from discontinued operations
|
|
|
0.08
|
|
|
|
(0.17
|
)
|
|
|
(0.01
|
)
|
|
|
(0.10
|
)
|
|
|
0.02
|
|
|
|
|
|
Earnings per sharediluted
|
|
$
|
6.20
|
|
|
$
|
1.90
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.18
|
|
|
$
|
0.85
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,113,017
|
|
|
$
|
1,888,327
|
|
|
$
|
1,572,713
|
|
|
$
|
1,523,625
|
|
|
$
|
1,685,508
|
|
|
|
Long-term debt and capital leases
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
$
|
331,300
|
|
|
$
|
331,300
|
|
|
$
|
435,238
|
|
|
|
Preferred stock
|
|
$
|
1,544
|
|
|
$
|
115,800
|
|
|
$
|
115,800
|
|
|
$
|
115,800
|
|
|
$
|
133,069
|
|
|
|
|
|
|
|
(1)
|
The 2008 selected financial data includes (i) the effects
of the Series A Preferred Shares inducement converting a
total of 118,400 shares to 11,887,550 shares of Terra
Industries common stock; (ii) the effects of instituting a
cash dividend per common share of $0.10 per
|
27
|
|
|
|
|
quarter starting in May 2008; (iii) and the full year
equity earnings effect of the GrowHow joint venture of
$95.6 million.
|
|
|
|
|
(2)
|
The 2007 selected financial data includes (i) the effects
of contributing our Terra Nitrogen U.K. operations into the
GrowHow joint venture on September 14, 2007 (ii) a
$39.0 million impairment charge for our Beaumont, Texas
assets and (iii) a $38.8 million loss on the early
retirement of debt associated with the debt refinancing that we
completed during 2007.
|
|
|
(3)
|
The 2005 selected financial data includes the full year income
statement effects of the December 21, 2004 acquisition of
Mississippi Chemical Corporation.
|
|
|
(4)
|
The 2004 selected financial data includes the effects of the
December 21, 2004 acquisition of Mississippi Chemical
Corporation and the issuance of preferred shares during the 2004
fourth quarter.
|
28
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
As you read this managements discussion and analysis of
financial condition and results of operations, you should refer
to our Consolidated Financial Statements and related Notes
included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on
Form 10-K.
Introduction
In this discussion and analysis, we explain our business in the
following areas:
|
|
|
|
|
Business Strategy
|
|
|
Recent Business Environment
|
|
|
Strategy Effectiveness
|
|
|
Results of Operations
|
|
|
Liquidity and Capital Resources
|
|
|
Various Quantitative and Qualitative Disclosures
|
Business
Strategy
We are a leading North American producer and marketer of
nitrogen products made from natural gas. Terra is the largest
producer of ammonia in the United States and the second largest
producer in North America. We also operate production assets in
Trinidad and Tobago, and the United Kingdom, through joint
venture agreements. Our six North American and two international
production locations, along with a robust distribution
capability, provide us with the ability to effectively serve key
agricultural, industrial and environmental markets. Terra has an
extensive history of operating as a public entity and managing
complex corporate structures including master limited
partnerships, joint ventures and corporate alliances. In fact,
since the 1980s, Terra has successfully integrated
numerous large-scale value-enhancing acquisitions that have
contributed to our track record of strong cash flows over the
business cycle.
Regarding the business cycle, the nitrogen products industry in
which Terra operates has periods of oversupply during industry
downturns that lead to capacity shutdowns or curtailments at the
least cost-effective plants. These shutdowns may be followed by
supply shortages that result in higher selling prices and higher
industry-wide production rates during any subsequent industry
upturns. Higher selling prices can encourage capacity additions
that ultimately lead to an oversupply of product, and the cycle
repeats.
Successful companies in cyclical businesses, like nitrogen
products, pursue conservative capital management and investments
strategies. This enables them to weather industry downturns and
continue to effectively serve their target markets
cost-effectively throughout the business cycle.
Our business strategy seeks to pursue profitable growth in the
core, nitrogen-based agricultural products business as a scale
operator in North America. We also seek to leverage our current
business and manufacturing strength outside the core business in
closely-adjacent market segments that help to
29
assure long-term cash flow growth and tend to reduce volatility
in earnings. Elements of this strategy include:
|
|
|
|
|
Development of products and markets for upgraded products made
from ammonia such as UAN, our primary nitrogen fertilizer
product, and
TerraCair®,
a liquid product for the treatment of diesel exhaust in
automotive applications;
|
|
|
Seeking of opportunities to expand our existing asset base to
take advantage of logistical or feedstock advantages both
domestically and internationally;
|
|
|
Management of our North American and international assets to
realize a rate of return that meets or exceeds our cost of
capital throughout the business cycle;
|
|
|
Maintenance of our facilities to be safe, reliable and
environmentally compliant, cultivation of relationships with
natural customers who, due to their physical location, can
receive our product most economically, and close management of
the supply chain to keep storage, transportation and other costs
at an appropriate level; and
|
|
|
Continued evaluation of business opportunities in nitrogen
markets and businesses that leverage Terras core
competencies in chemical manufacturing, distribution and product
application.
|
Recent
Business Environment
The following factors are the key drivers of our profitability:
nitrogen products selling prices, as determined primarily by the
global nitrogen demand/supply balance; and natural gas costs,
particularly in North American markets.
Demand
Nitrogen products demand is driven by a growing global
population, its desire for a higher-protein diet and to a lesser
degree, by the rise of corn-consuming biofuels in North America.
Current market conditions highlighted by very strong commodity
grain prices are making yields realized at harvestrather
than dollars spent on inputs per acre of cropthe
growers primary concern. Since nitrogen products can
sometimes substitute for one another, a grower in these
circumstances appreciates the greater application flexibility of
upgraded products since it gives him a larger window of
opportunity to get nitrogen on his crops and encourages a higher
yield. While upgraded products contain less nitrogen by weight,
they are generally easier to ship, store and apply than ammonia.
In todays market environment, upgraded products, and UAN
in particular, are realizing significant premiums over ammonia
as a nitrogen source. This should remain the case for as long as
commodity grain prices hold strong.
Supply
Imports are a major factor in the nitrogen products supply
picture, as they account for over half of the total North
American nitrogen supply, with the levels varying among the
various products. Products containing the highest percentage of
nitrogen by weight are the most economical to ship, thus make up
the greatest share of those imports. Most producers exporting
nitrogen products into North America can afford to do so because
they are manufacturing product with cheaper gas than that which
is available to North American producers. European and
Commonwealth of Independent States (CIS) producers have their
own variable gas cost dynamics and we do not expect these
producers will be able to consistently export nitrogen products
at lower costs than North American producers.
Natural Gas
Costs
North American natural gas markets have been volatile for a
number of years. From 2000 to 2005, European and CIS countries
had lower natural gas costs than North America. During the
industry
30
downturn of those years, North American producershaving
the highest cost basiswere the marginal producers, and
many North American producers shut down capacity or went out of
business altogether. North American volatility returned in 2008,
with natural gas prices rising significantly in the first and
second quarters while declining dramatically in the third and
fourth quarters. Based on projected net increases in natural gas
supply for most of 2009, we expect moderate North American
natural gas prices, enabling us to remain competitive with
global producers. We also believe our geographic plant positions
in Oklahoma and Iowa provide us with a favorable delivered gas
cost basis as compared to our Gulf Coast competitors.
The following is the average NYMEX forward natural gas price for
the succeeding twelve month period noted for the respective
dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
(in $ per MMBtu)
|
|
2007
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
|
|
|
$
|
7.81
|
|
|
$
|
10.50
|
|
|
$
|
13.22
|
|
|
$
|
7.90
|
|
|
$
|
6.09
|
|
As shown in the table above, the forward natural gas price for
the succeeding twelve month periods have been volatile in 2008.
The first half of 2008 experienced a 69% increase in the forward
natural gas price from $7.81 per million British thermal units
(MMBtu) at December 31, 2007 to $13.22 per MMBtu at
June 30, 2008. The second half of 2008 experienced a 54%
decline in the forward natural gas price from $13.22 per MMBtu
at June 30, 2008 to $6.09 per MMBtu on December 2008.
Strategy
Effectiveness
By executing the business strategies discussed above through
2008, we were able to:
|
|
|
|
|
Achieve record production, earnings and cash flows for Terra and
our stockholders;
|
|
|
Provide returns to shareholders in the form of dividends and
stock buybacks of $186 million;
|
|
|
Initiate construction on the Woodward, Oklahoma upgrade project
that will convert merchant ammonia into higher margin upgraded
UAN;
|
|
|
Grow the environmental business through Terra Environmental
Technologies and complete a national distribution agreement to
supply diesel emission fluid (DEF) to a fast-growing market;
|
|
|
Receive cash consideration from joint venture operations of
$161 million;
|
|
|
Finalize the sale of the Beaumont, Texas methanol facility and
receive consideration of $47 million;
|
|
|
Maintain substantially funded pension plans during the recent
market turmoil; and
|
|
|
End the year with cash balances of $967 million, which
included customer prepayments of $112 million.
|
31
Results
of Operations
Consolidated
Results
We reported 2008 net income of $641.0 million on
revenues of $2.9 billion compared with 2007 net income
of $201.9 million on revenues of $2.3 billion. The
increase in net income and revenue is due to higher sales
prices. The 2007 net income includes a $38.8 million
early retirement of debt charge and a $39.0 million
impairment charge. Diluted income per share for 2008 was $6.20
compared with $1.90 for 2007.
The following table shows the results of operation for the three
years ended December 31, 2008, 2007 and 2006 (certain
percentages that are not considered to be meaningful are
represented by NM):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2008-2007
|
|
2007-2006
|
(in millions, except per share data)
|
|
2008
|
|
2007
|
|
2006
|
|
Change
|
|
Percent
|
|
Change
|
|
Percent
|
|
|
Net sales
|
|
$
|
2,891.5
|
|
|
$
|
2,342.9
|
|
|
$
|
1,819.7
|
|
|
|
548.6
|
|
|
|
23
|
%
|
|
|
523.2
|
|
|
|
29
|
%
|
Cost of goods sold
|
|
|
2,028.3
|
|
|
|
1,815.4
|
|
|
|
1,701.2
|
|
|
|
212.8
|
|
|
|
12
|
%
|
|
|
114.2
|
|
|
|
7
|
%
|
|
|
Gross margin
|
|
|
863.2
|
|
|
|
527.5
|
|
|
|
118.5
|
|
|
|
335.7
|
|
|
|
64
|
%
|
|
|
409.0
|
|
|
|
345
|
%
|
Gross margin percentage
|
|
|
29.9
|
%
|
|
|
22.5
|
%
|
|
|
6.5
|
%
|
|
|
7.3
|
%
|
|
|
NM
|
|
|
|
16.0
|
%
|
|
|
NM
|
|
Selling, general and administrative expenses
|
|
|
70.7
|
|
|
|
92.0
|
|
|
|
68.4
|
|
|
|
(21.2
|
)
|
|
|
(23
|
)%
|
|
|
23.6
|
|
|
|
34
|
%
|
Equity in earnings of unconsolidated affiliates
|
|
|
(56.2
|
)
|
|
|
(16.2
|
)
|
|
|
(17.0
|
)
|
|
|
(40.0
|
)
|
|
|
247
|
%
|
|
|
0.8
|
|
|
|
(5
|
)%
|
|
|
Operating earnings
|
|
|
848.7
|
|
|
|
451.7
|
|
|
|
67.1
|
|
|
|
397.0
|
|
|
|
88
|
%
|
|
|
384.6
|
|
|
|
573
|
%
|
Interest expense, net
|
|
|
(4.0
|
)
|
|
|
(11.8
|
)
|
|
|
(41.5
|
)
|
|
|
7.8
|
|
|
|
(66
|
)%
|
|
|
29.7
|
|
|
|
(71
|
)%
|
Loss on early retirement of debt
|
|
|
|
|
|
|
(38.8
|
)
|
|
|
|
|
|
|
38.8
|
|
|
|
NM
|
|
|
|
(38.8
|
)
|
|
|
NM
|
|
|
|
Income before income taxes and minority interest
|
|
|
844.7
|
|
|
|
401.1
|
|
|
|
25.6
|
|
|
|
443.7
|
|
|
|
111
|
%
|
|
|
375.5
|
|
|
|
1,466
|
%
|
Income tax provision
|
|
|
(239.9
|
)
|
|
|
(127.3
|
)
|
|
|
(9.6
|
)
|
|
|
(112.5
|
)
|
|
|
88
|
%
|
|
|
(117.7
|
)
|
|
|
1,228
|
%
|
Minority interest
|
|
|
(67.7
|
)
|
|
|
(50.3
|
)
|
|
|
(11.3
|
)
|
|
|
(17.4
|
)
|
|
|
35
|
%
|
|
|
(39.0
|
)
|
|
|
346
|
%
|
Equity earnings of unconsolidated affiliates
|
|
|
95.6
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
98.3
|
|
|
|
NM
|
|
|
|
(2.7
|
)
|
|
|
NM
|
|
|
|
Income from continuing operations
|
|
|
632.8
|
|
|
|
220.8
|
|
|
|
4.7
|
|
|
|
412.0
|
|
|
|
187
|
%
|
|
|
216.0
|
|
|
|
NM
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
8.3
|
|
|
|
(18.9
|
)
|
|
|
(0.5
|
)
|
|
|
27.1
|
|
|
|
(144
|
)%
|
|
|
(18.3
|
)
|
|
|
NM
|
|
|
|
Net Income
|
|
|
641.0
|
|
|
|
201.9
|
|
|
|
4.2
|
|
|
|
439.1
|
|
|
|
218
|
%
|
|
|
197.7
|
|
|
|
NM
|
|
|
|
Diluted earnings per share
|
|
$
|
6.20
|
|
|
$
|
1.90
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding (in thousands)
|
|
|
103,359
|
|
|
|
106,454
|
|
|
|
92,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
The following table shows North American volumes and prices for
the three years ended 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
(quantities in
|
|
Sales
|
|
Average
|
|
Sales
|
|
Average
|
|
Sales
|
|
Average
|
thousands of tons)
|
|
Volumes
|
|
Unit
Price(1)
|
|
Volumes
|
|
Unit
Price(1)
|
|
Volumes
|
|
Unit
Price(1)
|
|
|
Ammonia(2)
|
|
|
1,670
|
|
|
$
|
552
|
|
|
|
1,765
|
|
|
$
|
337
|
|
|
|
1,628
|
|
|
$
|
313
|
|
UAN32% basis
|
|
|
3,917
|
|
|
$
|
335
|
|
|
|
4,072
|
|
|
$
|
226
|
|
|
|
3,408
|
|
|
$
|
160
|
|
Urea(3)
|
|
|
249
|
|
|
$
|
467
|
|
|
|
247
|
|
|
$
|
333
|
|
|
|
244
|
|
|
$
|
269
|
|
Ammonium
nitrate(2)(4)
|
|
|
990
|
|
|
$
|
309
|
|
|
|
968
|
|
|
$
|
224
|
|
|
|
769
|
|
|
$
|
203
|
|
|
|
|
|
|
|
(1)
|
After deducting $159.0 million, $137.3 million and
$118.6 million outbound freight costs for 2008, 2007 and
2006, respectively.
|
|
(2)
|
Ammonia and ammonium nitrate (AN) sales volumes and prices have
been adjusted to exclude Terras U.K. operations for
comparability to 2008 volumes and pricing.
|
|
(3)
|
Urea sales volumes and prices include granular urea and urea
solutions data.
|
|
(4)
|
Ammonium nitrate sales volumes and prices include agricultural
grade AN, industrial grade AN (IGAN) and ammonium nitrate
solution (ANS).
|
33
Results
of Operations2008 Compared with 2007
Our net sales for 2008 increased by 23% to $2.9 billion
from $2.3 billion in 2007. The increase in net sales was
primarily attributable to higher sales prices across all
products resulting from strong nitrogen demand driven by high
commodity grain prices. Specifically, 2008 ammonia, UAN and AN
pricing were 64%, 48% and 38%, respectively, above 2007 price
levels. Volumes for ammonia and UAN were down 5% and 4%,
respectively, compared to 2007 due to light nitrogen demand in
the fourth quarter, while AN volumes were unchanged. Net sales
in 2007 included $319.1 million from U.K. operations which
were contributed into the GrowHow UK Limited joint venture
(GrowHow) during the 2007 third quarter and its 2008 results are
classified as non-operating equity earnings.
Our gross margin was $863.2 million in 2008 compared to
$527.5 in 2007 and increased as a percentage of sales to 29.9%
from 22.5%. The gross margin percentage improvement for 2008
reflects price increases more than offsetting our increase in
natural gas costs. For the year, natural gas unit costs, net of
forward pricing gains and losses, increased by 32% from $7.08
per MMBtu in 2007 to $9.33 per MMBtu in 2008. We enter into
forward sales commitments by utilizing forward pricing and
prepayment programs with customers. We use derivative
instruments to hedge a portion of our natural gas requirements.
The use of these derivative instruments is designed to hedge
exposure to natural gas price fluctuations for production
required for forward sales estimates. As a result of forward
price contracts, 2008 natural gas costs were $134.0 million
higher than spot prices, as compared to 2007 natural gas costs
which were $53.3 million higher than spot prices.
Primarily due to market price declines, we recorded an inventory
valuation charge to cost of sales of $17.4 million for the
fourth quarter 2008. For additional information regarding our
accounting policy on inventory valuation, see Note 1,
Summary of Significant Accounting Policies, of the Notes
to the Consolidated Financial Statements, included in
Item 8, Financial Statements and Supplementary Data,
of this Annual Report on
Form 10-K.
Due to a significant decline in fertilizer demand during late
2008, we decided to temporarily halt production at our
Donaldsonville, Louisiana and Woodward, Oklahoma facilities. We
recorded a charge of $16.5 million to cost of sales
representing the fair value carried in accumulated other
comprehensive income (loss) of related derivative contracts
because these contracts no longer qualify under hedge
accounting. In addition, we recorded a $16.0 million charge
to cost of sales representing a portion of fair value carried in
accumulated other comprehensive income for those contracts that
we determined would not result in production costs that would
support reasonably profitable operations.
Discontinued
Operations
We have reported our Beaumont, Texas methanol operations as
discontinued operations for the years ending December 31,
2008 and 2007. The Beaumont operations were included in our
methanol segment in prior years. In connection with reporting
discontinued operations, we have determined that our methanol
segment no longer meets the requirements of a reporting segment.
During the third quarter of 2007 we recorded an asset impairment
charge of $39.0 million related to the Beaumont asset. We
also recorded revenue of $12.0 million pursuant to a
contractual agreement with the Methanex Corporation for each of
the years ending December 31, 2008 and 2007.
Selling, General
and Administrative Costs
Selling, general and administrative costs decreased
$21.2 million primarily due to lower share-based
compensation expense and U.K. operations included within 2007
results, offset by increases in salary and wages due to
headcount increases in 2008 and professional services.
34
Equity Earnings
of Unconsolidated AffiliatesNorth America
We recorded income of $56.2 million from our North American
equity investments in 2008 as compared to $16.2 million in
2007. In addition, we also received cash distributions of
$72.8 million from our North American equity investments in
2008 as compared to $29.5 in 2007. Our North American joint
ventures benefited from strong market demand in 2008 which drove
pricing increases.
Equity Earnings
of Unconsolidated AffiliatesGrowHow
We recorded income of $95.6 million from GrowHow in 2008 as
compared to a loss of $2.7 million in 2007. We received a
contribution settlement payment and a balancing consideration
payment from GrowHow of $27.4 million and
$61.3 million, respectively, in 2008. Our U.K. operations
were contributed into GrowHow on September 14, 2007,
therefore 2007 results only include the period from formation
through December 31, 2007. The joint venture benefited from
strong market demand in 2008 which drove pricing increases.
Additionally, the continued relative strength of the British
pound provided favorable foreign exchange translation.
Minority
Interest
Minority interest represents third-party interests in the
earnings of the publicly held common units of Terra Nitrogen
Company, L.P. (TNCLP). The 2008 and 2007 amounts are directly
related to TNCLP earnings and losses. During 2008, the
cumulative shortfall of the Minimum Quarterly Distribution was
satisfied which entitled us to increased income allocations as
provided for in the TNCLP Partnership Agreement. The 2008
minority interest balance reflects the impact of these adjusted
income allocations. Our increased income allocation attributed
to our General Partner interest was $36.6 million in the
year ended December 31, 2008. Minority interest expense was
$67.7 million in 2008 and $50.3 million in 2007.
Income
Taxes
Our income tax expense in 2008 and 2007 was $239.9 million
and $127.3 million, respectively. The 2008 effective rate
was 27.5%, compared to 36.6% in 2007. Our effective tax rate
reflects tax benefits derived from operations outside the U.S.
which are generally taxed at rates lower than the
U.S. federal statutory rate of 35%.
The tax provision rate for 2008 includes a benefit of
approximately $33.3 million related to a fourth quarter
2008 intercompany restructuring of our foreign operations into a
global holding company structure. Terras effective tax
rate also reflects tax credits primarily related to the
Woodward, Oklahoma UAN upgrade project. The 2008 benefit
recorded from current tax credit usage is approximately
$19.5 million. Also during 2008, Terra completed its
evaluation of the domestic manufacturers deduction
provision of the American Jobs Creation Act of 2004 and recorded
a benefit of approximately $13.3 million as a result of
qualifying production activity income derived in the U.S.
For a full reconciliation of our effective tax rate to the
U.S. federal and state statutory rates and further
explanation of our provision for income taxes, see Note 20,
Income Taxes, of the Notes to the Consolidated Financial
Statements, included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on
Form 10-K.
Results
of Operations2007 Compared with 2006
Our net sales increased by $523.2 million to
$2.3 billion for 2007 compared to $1.8 billion for
2006. The increase was primarily due to increased nitrogen
prices and increased sales quantities for ammonia,
35
UAN and AN. Demand for nitrogen products increased due to higher
production of key commodities, including corn and wheat, in
response to higher prices.
Our gross margin increased by $409.0 million to
$527.5 million for 2007, compared to $118.5 million
for 2006. The increase in gross margin was primarily due to a
$285.3 million increase in sales prices, a
$75.3 million increase in sales volumes and lower natural
gas unit costs.
Natural gas unit costs, net of forward pricing gains and losses,
were $7.08 per MMBtu during 2007, compared to $7.03 per MMBtu
during 2006. We enter into forward sales commitments by
utilizing forward pricing and prepayment programs with
customers. We use derivative instruments to hedge a portion of
our natural gas requirements. The use of these derivative
instruments is designed to hedge exposure to natural gas price
fluctuations for production required for forward sales
estimates. As a result of forward price contracts, 2007 natural
gas costs for the nitrogen products segment were
$53.3 million higher than spot prices, as compared to 2006
natural gas costs which were $50.3 million higher than spot
prices.
Selling, General
and Administrative Costs
Selling, general and administrative costs increased
$23.6 million primarily due to higher share-based
compensation expense due to the increases in our financial
performance and stock price during 2007.
Equity Earnings
of Unconsolidated AffiliatesNorth America
We recorded income of $16.2 million from our North American
equity investments in 2007 as compared to $17.0 million in
2006. In addition, we also received cash distributions of
$29.5 million from our North American equity investments in
2008 as compared to $35.9 million in 2007.
Equity Earnings
of Unconsolidated AffiliatesGrowHow
We recorded a loss of $2.7 million from GrowHow during
2007. We did not receive any cash consideration from GrowHow in
2007. The equity earnings are classified as non-operating and
excluded from income from operation as the investees
operations do not provide additional capacity nor are the joint
ventures operations integrated with our North American
supply chain. Included in the loss is approximately
$13.0 million related to severance and other charges from
the announced closure of the Severnside production facility and
administrative operations.
Interest
Income
Our interest income increased by $10.8 million in 2007 as
compared to 2006. The increase is due to higher levels of cash
throughout 2007.
Interest Expense
and Loss on Early Retirement of Debt
Our interest expense decreased $18.9 million in 2007 to
$29.1 million as compared to $48.0 million in 2006.
The decrease in interest expense is due to the debt refinancing
that we completed in February 2007. As a result of the debt
refinancing, we recorded a $38.8 million charge for the
early retirement of our bonds due in 2008 and 2010.
Income
Taxes
Our income tax expense in 2007 and 2006 was $127.3 million
and $9.6 million, respectively. The 2007 effective tax rate
was 36.6%, compared to 76.1% in 2006. The 2006 effective tax
rate differed from the statutory rate due primarily to the
effect of currency fluctuations and disallowed interest expense
on intercompany loans to
non-U.S. subsidiaries.
36
Liquidity
and Capital Resources
Summary
Our primary uses of cash and cash equivalents were to fund our
working capital requirements, make payments for plant
turnarounds and capital expenditures, repurchase our common
stock under the share repurchase program, make distributions to
minority interests, and fund a common stock dividend. The
principal sources of funds were cash flows from operations and
funds received from GrowHow, our 50% owned joint venture, and
proceeds from the sale of the Beaumont, Texas facility. Cash and
cash equivalent balances at December 31, 2008 were
$966.7 million. During 2008, cash and cash equivalents
increased $268.5 million.
Our cash equivalents included $755.5 million invested in
money market mutual funds, all of which participate in the
U.S. Treasury Money Markey Fund Guarantee Program,
which was extended to April 30, 2009. There are no
withdrawal restrictions on any of these funds. The remaining
cash equivalents were invested in obligations of highly-rated
financial institutions with an average weighted maturity of
approximately 11 days.
Cash
Flows
The following table summarizes our cash flows from operating,
investing and financing activities for each of the past three
fiscal years ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Operating activities
|
|
$
|
483.1
|
|
|
$
|
747.9
|
|
|
$
|
159.3
|
|
Investing activities
|
|
|
51.6
|
|
|
|
(94.5
|
)
|
|
|
(48.8
|
)
|
Financing activities
|
|
|
(262.2
|
)
|
|
|
(133.6
|
)
|
|
|
(19.7
|
)
|
Effect of exchange rate changes on cash
|
|
|
(4.0
|
)
|
|
|
(0.6
|
)
|
|
|
1.9
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
268.5
|
|
|
$
|
519.2
|
|
|
$
|
92.7
|
|
|
|
Operating
Activities
Our cash flows from operating activities were
$483.1 million during 2008. The $483.1 million is
comprised of $743.9 million from operations offset by
$260.8 million from changes in our working capital
accounts. The $743.9 million includes $641.0 million
of net income, adjusted for non-cash expenses. The significant
non-cash expenses that we incurred include $78.9 million of
depreciation of property, plant and equipment and amortization
of deferred plant turnaround costs; $67.7 million of
minority interest; and $39.8 million of loss on
derivatives; offset by $95.6 million of equity earnings
from GrowHow and $15.2 million of deferred income taxes.
Included in the December 31, 2008 cash and cash equivalents
balance of $966.7 million is $111.6 million of
customer prepayments for the selling price and delivery costs of
products that we expect to ship during the first half of 2009,
as compared to the December 31, 2007 cash and cash
equivalents balance of $698.2 which included $299.4 million
in customer prepayments.
Investing
Activities
Our cash flows from investing activities were $51.6 million
during 2008. The primary sources of cash were related to the
balancing consideration payment and contribution settlement from
GrowHow of $61.3 million and $27.4 million,
respectively. We also received $41.9 million from
discontinued operations for the completed sale of the Beaumont,
Texas facility to Eastman Chemical Company on
37
December 31, 2008. The primary uses were related to
$79.2 million of property, plant and equipment purchases
for our operations and $10.1 million for turnaround
activities.
Financing
Activities
Our financing activities used cash of $262.2 million during
2008. The primary uses were $157.5 million to repurchase
our common stock under our stock repurchase plan;
$69.6 million of distributions to the minority interest
holders of TNCLP; and $28.3 million for dividends paid to
the holders of common stock.
Long-term Debt
and Revolving Credit Facilities
During 2007, we completed a debt refinancing whereby we issued
$330 million of 7% unsecured senior notes due 2017. These
proceeds were used to redeem $200.0 million of
127/8% senior
secured notes and $131.3 million of
111/2%
second priority senior secured notes due 2010.
In connection with the debt refinancing, we extended the term of
our revolving credit facilities (facilities) through 2012.
Borrowing availability under the facilities is generally based
on eligible cash balances, 85% of eligible accounts receivable
and 60% of eligible inventory, less outstanding letters of
credit. These facilities include $50 million solely
dedicated for the use of TNCLP, one of our consolidated
subsidiaries.
At December 31, 2008, there were no outstanding revolving
credit borrowings and there were $6.6 million in
outstanding letters of credit, resulting in remaining borrowing
availability of approximately $193.4 million under the
facilities. We are required to maintain a combined minimum
unused borrowing availability of $30 million. The
facilities also require that we adhere to certain limitations on
additional debt, capital expenditures, acquisitions, liens,
asset sales, investments, prepayments of subordinated
indebtedness, changes in lines of business and transactions with
affiliates. In addition, if our borrowing availability falls
below a combined $60 million, we are required to have
generated $60 million of operating cash flows, or earnings
before interest, income taxes, depreciation, amortization and
other non-cash items (as defined in the facilities) for the
preceding four quarters. The facilities also require that there
be no change of control related to Terra, such that no
individual or group acquires more than 35% of the outstanding
voting shares of Terra. Such change of control would constitute
an event of default under the facilities.
Our ability to meet facilities covenants will depend on future
operating cash flows, working capital needs, receipt of customer
prepayments and trade credit terms. Failure to meet these
covenants could result in additional costs and fees to amend the
facilities or could result in termination of the facilities.
Access to adequate bank facilities may be required to fund our
need to build inventories during the second half of the year in
order the ensure product availability during the peak sales
season. We believe that our facilities are adequate for expected
2009 sales levels.
In addition, our ability to manage our exposure to commodity
price risk in the purchase of natural gas through the use of
financial derivatives may be affected by our ability to obtain
sufficient credit terms. For additional information regarding
commodity price risk, see Item 7A, Quantitative and
Qualitative Disclosures about Market Risk.
Based on our December 31, 2008 financial position and the
current market conditions for our finished products and for
natural gas, we anticipate that we will be able to comply with
our covenants through 2009.
38
Preferred Shares
and Common Stock
We have 4.25% Cumulative Convertible Perpetual Series A
Preferred Shares (Series A Preferred Shares) with a
liquidation value of $1.6 million outstanding at
December 31, 2008. The Series A Preferred Shares are
not redeemable, but are convertible into common stock at a
conversion price of $9.96 per common share at the option of the
holder. These Series A Preferred Shares may, at our option,
be automatically converted to common shares after
December 20, 2009 if the closing price for common shares
exceeds 140% of the conversion price for any twenty days within
a consecutive thirty day period prior to such a conversion. Upon
the occurrence of a fundamental change to our capital structure,
including a change of control, merger, or sale of Terra, holders
of the Series A Preferred Shares may require us to purchase
any or all of their shares at a price equal to their liquidation
value plus any accumulated, but unpaid, dividends. We also have
the right, under certain conditions, to require holders of the
Series A Preferred Shares to exchange their shares for
convertible subordinated debentures with similar terms.
On August 20, 2008, our Board of Directors authorized us to
make cash payments to holders of our Series A Preferred
Shares, a total of which 120,000 shares were then
outstanding, in order to induce such holders of Series A
Preferred Shares to convert such Series A Preferred Shares
to common stock of the Company. As a result of such action, a
total of 118,400 Series A Preferred Shares were converted
into 11,887,550 shares of the Companys common stock
during 2008 at a cash premium of $5.3 million.
During 2008, 2007 and 2006 we paid $3.9 million,
$5.1 million and $5.1 million, respectively, for
preferred share dividends. We paid $28.3 million in common
share dividends in 2008. There were no common share dividends
paid in 2007 or 2006.
Share
Repurchases
In May 2008, the Board authorized the repurchase of
10 million shares and carries over the balance of
2.8 million unpurchased shares from the prior program, for
a total authorization of approximately
12.8 million shares, representing approximately 14% of
our then outstanding common stock, on the open market in private
transactions or otherwise. During 2008, the repurchases under
the stock buyback programs were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Shares Purchased as
|
|
|
Maximum Number of
|
|
Month of
|
|
Number of
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Shares that May Yet Be
|
|
Share
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
Purchased Under the
|
|
Purchases
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Plans or Programs
|
|
|
|
May 2008
|
|
|
189,150
|
|
|
$
|
39.65
|
|
|
|
189,150
|
|
|
|
12,652,567
|
|
August 2008
|
|
|
772,180
|
|
|
|
45.91
|
|
|
|
961,330
|
|
|
|
11,880,387
|
|
September 2008
|
|
|
1,626,355
|
|
|
|
39.69
|
|
|
|
2,587,685
|
|
|
|
10,254,032
|
|
October 2008
|
|
|
200,000
|
|
|
|
21.90
|
|
|
|
2,787,685
|
|
|
|
10,054,032
|
|
November 2008
|
|
|
2,605,370
|
|
|
|
17.51
|
|
|
|
5,393,055
|
|
|
|
7,448,662
|
|
Capital
Expenditures
During 2008 and 2007, we funded plant and equipment purchases of
$79.2 million and $31.7 million, respectively. Our
2008 capital expenditures were primarily for replacement or
sustaining capital needs. The 2008 capital expenditures included
$18.6 million related to the restart of the Donaldsonville,
Louisiana facility. In April of 2008, we announced plans to
expand the upgrading capacity at our
39
Woodward, Oklahoma nitrogen manufacturing facility. We expect
the project to cost $180.0 million and to be completed by
the end of 2010. During 2008, capital expenditures related to
the expansion were $13.0 million.
We expect 2009 plant and equipment purchases to approximate
$170-175 million consisting primarily of
$65-70 million in expenditures for replacement of equipment
or to improve operating results at our manufacturing facilities
and approximately $105 million for the expansion of our
Woodward, Oklahoma facility.
Plant turnaround costs represent cash used for the periodic
scheduled major maintenance of our continuous process production
facilities that is performed at each plant, generally every two
years. We funded $10.1 million and $50.7 million of
plant turnaround costs in 2008 and 2007, respectively. We
estimate 2009 plant turnaround costs will approximate
$20-25 million.
Off-Balance
Sheet Transactions
We have leases for equipment, railcars and production, office
and storage facilities. These leases are accounted for as
operating leases. The assets and liabilities associated with the
operating leases are not recorded on our balance sheet.
In conjunction with the formation of GrowHow, we commenced the
closure of our Severnside, U.K. facility. Pursuant to the
agreement with Kemira, we are responsible for any remediation
costs required to prepare the Severnside site for disposal. We
have an option to purchase the Severnside land for a nominal
amount at any time prior to sale. If we elect not to exercise
this option, we are still entitled to receive the sales
proceeds. We anticipate that the proceeds related to the sale of
the Severnside land would exceed the total cost of reclamation
of the site.
Contractual
Obligations
Contractual obligations and commitments to make future payments
at December 31, 2008 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Payments Due In
|
|
|
|
|
|
Total
|
|
2009
|
|
2010-2011
|
|
2012-2013
|
|
Thereafter
|
|
Long-term debt
|
|
$
|
330.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
330.0
|
|
Interest expense on long-term debt
|
|
|
184.8
|
|
|
|
23.1
|
|
|
|
46.2
|
|
|
|
46.2
|
|
|
|
69.3
|
|
Operating leases
|
|
|
141.1
|
|
|
|
40.0
|
|
|
|
65.9
|
|
|
|
28.4
|
|
|
|
6.8
|
|
Ammonia purchase
obligations(1)
|
|
|
1,470.8
|
|
|
|
147.1
|
|
|
|
294.2
|
|
|
|
294.2
|
|
|
|
735.3
|
|
Natural gas and other purchase obligations
|
|
|
357.6
|
|
|
|
307.0
|
|
|
|
38.9
|
|
|
|
11.7
|
|
|
|
|
|
|
|
Total(2)
|
|
$
|
2,484.3
|
|
|
$
|
517.2
|
|
|
$
|
445.2
|
|
|
$
|
380.5
|
|
|
$
|
1,141.4
|
|
|
|
|
|
|
|
1.
|
We have a contractual obligation to purchase one-half of the
ammonia produced by Point Lisas. The purchase price is based on
the average market price of ammonia, F.O.B. Caribbean, less a
discount. Obligations in the above table are based on purchasing
360,000 short tons per year at the December 2008 average price
paid. This contract expires in October 2018.
|
|
2.
|
The total contractual obligations and commitments do not include
a FIN 48 liability of $35.9 million. (See
Note 21, Unrecognized Tax Benefit, to our
Consolidated Financial Statements included in Item 8,
Financial Statements and Supplemental Data, of this
Annual Report on
Form 10-K.)
|
40
Pension Assets
and Liabilities
We have three pension plansan employees retirement
plan (U.S. Employees Plan) and an excess benefit plan
(U.S. Excess Plan) in the United States and a pension plan
for employees of Terra International (Canada) Inc. (Canadian
Employees Plan) in Canada. Our U.S. Employees
Plan and Canada Employees Plan are fully funded with
combined plan assets exceeding projected benefit obligations by
$3.2 million. Our U.S. Excess Plan is unfunded and had
a projected benefit obligation of $9.9 million at
December 31, 2008. The pension projected benefit
obligations were computed based on a 6.7% discount rate, which
was based on yields for high-quality corporate bonds
(Moodys Investor Service AA rated or
equivalent) with a maturity approximating the duration of our
pension obligation. Future declines in comparable bond yields
would increase our pension obligation and future increases in
bond yields would decrease our pension obligation. Our pension
obligation, net of plan assets, could increase or decrease
depending on the extent that returns on pension plan assets is
lower or higher than the discount rate.
Our cash contributions to pension plans were $2.6 million
in 2008. Future contributions depend on our funding decisions,
actual returns for plan assets, and legislative changes to
pension funding requirements
and/or plan
amendments. See Note 17, Retirement Benefit Plans,
of the Notes to our Consolidated Financial Statements included
in Item 8, Financial Statements and Supplementary Data,
of this Annual Report on
Form 10-K
for further information on our retirement benefits plans.
Environmental,
Health and Safety
Expenditures related to environmental, health and safety
regulation compliance are primarily composed of operating costs
that totaled $11.6 million in 2008. Because environmental
health and safety regulations are expected to continue to change
and generally to become more restrictive than current
requirements, the cost of compliance likely will increase. We do
not expect compliance with such regulations to have a material
adverse effect on the results of operations, financial position
or net cash flows.
We incurred $7.3 million of 2008 capital expenditures to
ensure compliance with environmental, health and safety
regulations. We may be required to install additional air and
water quality control equipment, such as low nitrous oxide
burners, scrubbers, ammonia sensors and continuous emission
monitors to continue to achieve compliance with the Clean Air
Act and similar requirements. These equipment requirements
typically apply to competitors as well. We estimate that the
cost of complying with these existing requirements in 2009,
2010, 2011 and beyond will be approximately $30.8 million
in the aggregate.
Minority
Interest
Minority interest represents the third party interest in the
earnings of the publicly held common units of Terra Nitrogen
Company, L.P. We own 75.3% of the outstanding units. TNCLP makes
cash distributions to the General and Limited Partners based
upon formulas defined in the Agreement of Limited Partnership.
Available Cash for distribution 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. Cash distributions
to the Limited Partner and General Partner vary depending on
when the cumulative distributions exceed the Minimum Quarterly
Distribution (MQD) target levels set forth in the Agreement of
Limited Partnership.
41
During 2008, the cumulative shortfall of the MQD was satisfied
which entitled the General Partner to increased income
allocations as provided for in the Agreement of Limited
Partnership. The increased income allocation attributed to our
General Partner interest was $36.6 million for 2008.
During 2008, 2007 and 2006, TNCLP distributed
$69.6 million, $35.2 million and $8.9 million,
respectively, to the minority TNCLP common unitholders.
On February 10, 2009, TNCLP announced a $2.97 per unit
distribution to be paid during the first quarter of 2009.
Application
of Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures
in conformity with accounting principles generally accepted in
the United States requires management to make judgments,
assumptions and estimates that affect the amounts reported in
our Consolidated Financial Statements and accompanying notes.
Note 1, Summary of Significant Accounting Policies,
of the Notes to the Consolidated Financial Statements, included
in Item 8, Financial Statements and Supplemental
Data, of this Annual Report on
Form 10-K
describes the significant accounting policies and methods used
in preparing the Consolidated Financial Statements. Management
considers the accounting policies described below to be our most
critical accounting policies because they are impacted
significantly by estimates that management makes. Management
bases its estimates on historical experience or various
assumptions that they believe to be reasonable under the
circumstances, and the results form the basis for making
judgments about the reported values of assets, liabilities,
revenues and expenses. Management has discussed the development
and selection of our critical accounting estimates, and the
disclosure regarding them, with the audit committee of our Board
of Directors, and does so on a regular basis. Actual results may
differ materially from these estimates.
Derivative and
Financial Instruments
We enter into derivative financial instruments, including swaps,
basis swaps and put and call options, to manage the effect of
changes in natural gas costs and the prices of our nitrogen
products. We evaluate each derivative transaction and make an
election of whether to designate the derivative as a fair-value
or cash flow hedge or not to elect hedge designation for the
derivative. Upon election of hedge designation, and to the
extent such hedge is determined to be effective, changes in fair
value are either (a) offset by the change in fair value of
the hedged asset or liability or (b) reported as a
component of accumulated other comprehensive income (loss) in
the period of change, and subsequently recognized in the
determination of net income in the period that the offsetting
hedged transaction occurs. For derivatives that are not
designated as hedges, or to the extent a hedge-designated
derivative is determined to be ineffective, changes in fair
value are recognized in earnings in the period of change.
Until our derivatives settle, we test the derivatives for
ineffectiveness. This includes assessing the correlation of
NYMEX pricing, which is commonly used as an index in natural gas
derivatives, to the natural gas pipelines pricing at our
manufacturing facilities. This assessment requires management
judgment to determine the statistically- and
industry-appropriate analysis of prior operating relationships
between the NYMEX prices and the natural gas pipelines
prices at our facilities.
To the extent possible, we base our market value calculations on
third party data. Due to multiple types of settlement methods
available, not all settlement methods for future period trades
are available from third party sources. In the event that a
derivative is measured for fair value based on a settlement
method that is not readily available, we estimate the fair value
based on forward pricing information for similar types of
settlement methods.
42
Revenue
Recognition
Revenue is recognized when persuasive evidence of a transaction
exists, delivery has occurred, the price is fixed or
determinable, no obligations remain and collectability is
probable. Revenue from sales is generally recognized upon
shipment of product to the customer in accordance with the terms
of the sales agreement. As part of the revenue recognition
process, we determine whether collection of trade receivables
are reasonably assured based on various factors, including
evaluation of whether there has been deterioration in the credit
quality of our customers that could result in the inability to
collect the receivable balance. In situations where it is
unclear whether we will be able to collect the receivable,
revenue and related costs are deferred. Related costs are
recognized when it has been determined that the collection of
the receivable is unlikely.
Inventory
Valuation
Inventories are stated at the lower of cost or market. Market is
defined as current replacement cost, except that market should
not exceed the net realizable value and should not be less than
net realizable value reduced by an allowance for an
approximately normal profit margin. The cost of inventories is
determined by using the
first-in,
first-out method. We perform a monthly analysis of our inventory
balances to determine if the carrying amount of inventories
exceeds their net realizable value. Our determination of
estimated net realizable value is based on customer orders,
market trends and historical pricing. If the carrying amount
exceeds the estimated net realizable value, the carrying amount
is reduced to the estimated net realizable value. We estimate a
reserve for obsolescence and excess of our materials and
supplies inventory. Inventory is stated net of the reserve.
Pension Assets
and Liabilities
Pension assets and liabilities are affected by the estimated
market value of plan assets, estimates of the expected return on
plan assets and discount rates. Actual changes in the fair
market value of plan assets and differences between the actual
return on plan assets and the expected return on plan assets
will affect the amount of pension expense ultimately recognized.
Our pension plans for U.S. and Canada employees are fully
funded. We have a pension plan for certain employees that is
unfunded. The December 31, 2008 pension obligation was
computed based on an average 6.7% discount rate, which was based
on yields for high-quality corporate bonds with a maturity
approximating the duration of our pension liability. The
long-term return on plan assets is determined based on
historical portfolio results and managements expectations
of the future economic environment. Declines in comparable bond
yields would decrease our net pension asset. Our net pension
asset could increase or decrease depending on the extent to
which returns on pension plan assets are lower or higher than
the discount rate.
Deferred Income
Taxes
Terra accounts for income taxes using the asset and liability
method described in Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. Under
the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and tax credits and loss carry-forwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences and carry-forwards are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A
valuation allowance is established when necessary to reduce
deferred tax assets to amounts expected to be realized.
43
Additionally, undistributed earnings of a subsidiary are
accounted for as a temporary difference, except that
undistributed earnings of Terras foreign subsidiaries and
affiliated corporate joint ventures accounted for on the equity
method are considered to be permanently reinvested, and
accordingly, no provision for U.S. income taxes has been
provided thereon. If we were to receive distributions from any
of these foreign subsidiaries or affiliates or determine the
undistributed earnings of these foreign subsidiaries or
affiliates to not be permanently reinvested, we could be subject
to U.S. tax liabilities which have not been provided for in
the consolidated financial statements.
Significant judgment is required in determining the worldwide
provision for income taxes and there are many transactions for
which the ultimate tax outcome is uncertain. It is our policy to
establish provisions for taxes that may become payable in future
years as a result of an examination by tax authorities. We
establish the provisions based upon managements assessment
of exposure associated with permanent tax differences, tax
credits and other filing positions. The provisions are analyzed
periodically and adjustments are made as events occur that
warrant adjustments to those provisions.
Plant Turnaround
Costs
Plant turnarounds are periodically performed to extend the
useful life, increase output
and/or
efficiency and ensure the long-term reliability and safety of
integrated plant machinery at our continuous process production
facilities. The nature of a turnaround is such that it occurs on
less than annual basis and requires a multi-week shutdown of
plant operations. Specific procedures performed during the
turnaround include the disassembly, inspection and replacement
or overhaul of plant machinery (boilers, pressure vessels,
piping, heat exchangers, etc.) and rotating equipment
(compressors, pumps, turbines, etc.), equipment recalibration
and internal equipment efficiency assessments.
Preceding a turnaround, plants experience decreased efficiency
in resource conversion to finished products. Replacement or
overhaul of equipment and items such as compressors, turbines,
pumps, motors, valves, piping and other parts that have an
estimated useful life of at least two years, the internal
assessment of production equipment, replacement of aged
catalysts, and new installation/recalibration of measurement and
control devices result in increased production output
and/or
improved plant efficiency after the turnaround. Turnaround
activities are betterments that meet at least one of the
following criteria: 1) extend the equipment useful life, or
2) increase the output
and/or
efficiency of the equipment. As a result, we follow the deferral
method of accounting for these turnaround costs and thus they
are capitalized and amortized over the period benefited, which
is generally the two-year period until the next turnaround.
Turnaround activities may extend the useful life of the assets
since the overhaul of heat exchangers, pressure vessels,
compressors, turbines, pumps, motors, etc. allow the continued
use beyond the original design. If criteria for betterment or
useful life extension are not met, we expense the turnaround
expenditures as repair and maintenance activities in the period
performed.
Impairment of
Long-Lived Assets
Management assesses the recoverability of long-lived assets when
indicators of impairment exist. The assessment of the
recoverability of long-lived assets reflects managements
assumptions and estimates. Factors that management must estimate
when performing impairment tests include sales demand,
production levels, prices and costs, inflation, discount rates,
currency exchange rates and capital spending. Significant
management judgment is involved in estimating these factors, and
they include inherent uncertainties. All assumptions utilized in
the impairment analysis are consistent with managements
internal planning.
44
During 2007, we entered into an option agreement to sell our
Beaumont, Texas facility. In connection with this option
agreement, we evaluated the Beaumont facility for impairment and
determined that the assets were impaired. We recorded a
$39 million impairment charge for these assets.
Recently Issued
Accounting Standards
In December 2007, the Financial Accounting Standards Board
(FASB) issued SFAS 141R, Business Combinations
(SFAS 141R), which changes the way we account for
business acquisitions. SFAS 141R requires the acquiring
entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction and
establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed in a
business combination. Certain provisions of this standard will,
among other things, impact the determination of acquisition-date
fair value of consideration paid in a business combination
(including contingent consideration); exclude transaction costs
from acquisition accounting; and change accounting practices for
acquired contingencies, acquisition-related restructuring costs,
in-process research and development, indemnification assets, and
tax benefits. SFAS 141R is effective for business
combinations and adjustments to an acquired entitys
deferred tax asset and liability balances occurring after
December 31, 2008. We are currently evaluating the future
impacts and disclosures of SFAS 141R.
In December 2007, the FASB issued SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements, an
amendment of ARB No. 51 (SFAS 160). SFAS 160
improves the comparability and transparency of financial
statements when reporting minority interest. Entities with a
noncontrolling interest will be required to clearly identify and
present the ownership interest in the consolidated statement of
financial position within equity, but separate from the
parents equity. The amount of consolidated net income
attributable to the parent and to the noncontrolling interest
will be identified and presented on the face of the consolidated
statement of income. The statement offers further guidance on
changes in ownership interest, deconsolidation, and required
disclosures. The statement is effective for fiscal years and
interim periods within those fiscal years beginning
January 1, 2009. Upon adoption, we will recharacterize the
minority interest as noncontrolling interests and reclassify as
a component of equity.
In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities
(SFAS 161). SFAS 161 is an amendment of
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). To address concerns that the
existing disclosure requirements of SFAS 133 do not provide
adequate information, SFAS 161 requires enhanced
disclosures about an entitys derivative and hedging
activities and thereby improves the transparency of financial
reporting. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. We are currently evaluating the future
impacts and disclosures of SFAS 161.
In June 2008, the FASB issued FASB Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
EITF 03-6-1).
The FASB decided that unvested share-based payout awards that
contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of EPS
pursuant to the two-class method under SFAS 128,
Earnings per Share. This guidance is effective for fiscal
years beginning after December 15, 2008 and interim periods
within those years and prior periods must be adjusted
retrospectively. We are currently assessing the impact FSP
EITF 03-6-1
will have on our financial statements.
In December 2008, the FASB issued FSP FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets, which amends Statement 132(R) to require more
detailed disclosures about
45
employers pension plan assets. New disclosures will
include more information on investment strategies, major
categories of plan assets, concentrations of risk within plan
assets and valuation techniques used to measure the fair value
of plan assets. This new standard requires new disclosures only,
and will have no impact on our consolidated financial position,
results of operations or cash flows. These new disclosures will
be required for us beginning in our
Form 10-K
for the 2009 fiscal year.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About
Market Risk
|
Risk
Management and Financial Instruments
Market risk represents the risk of loss that may impact our
financial position, results of operations or cash flows due to
adverse changes in financial and commodity market prices and
rates. We manage risk using derivative financial instruments for
changes in natural gas supply prices and changes in nitrogen
prices. Derivative financial instruments have credit risk and
market risk. See Note 5, Derivative Financial
Instruments, of the Notes to the Consolidated Financial
Statements included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on
Form 10-K
for additional information on the use of derivative financial
instruments.
Our policy is to avoid unnecessary risk and to limit, to the
extent practical, risks associated with operating activities.
Our management may not engage in activities that expose us to
speculative or non-operating risks and is expected to limit
risks to acceptable levels. The use of derivative financial
instruments is consistent with our overall business objectives.
Derivatives are used to manage operating risk within the limits
established by our Board of Directors, and in response to
identified exposures, provided they qualify as hedge activities.
As such, derivative financial instruments are used to manage
exposure to interest rate fluctuations, to hedge specific assets
and liabilities denominated in foreign currency, to hedge firm
commitments and forecasted natural gas purchase transactions, to
set a floor for nitrogen selling prices and to protect against
foreign exchange rate movements between different currencies
that impact revenue and earnings expressed in U.S. dollars.
The use of derivative financial instruments subjects us to some
inherent risks associated with future contractual commitments,
including market and operational risks, credit risk associated
with counterparties, product location (basis) differentials and
market liquidity. We continuously monitor the valuation of
identified risks and adjust the portfolio based on current
market conditions.
Foreign Currency
Fluctuations
Our policy is to manage risk associated with foreign currency
fluctuations by entering into forward exchange and option
contracts covering specific currency obligations or net foreign
currency operating requirements, as deemed necessary and
appropriate in each individual circumstance. Such hedging is
limited to the amounts and duration of the specific obligations
being hedged and, in the case of operating requirements, no more
than 75% of the forecasted requirements. The primary currencies
to which we are exposed are the Canadian dollar and the British
pound. At December 31, 2008, we had no open forward
currency positions.
Natural Gas
PricesNorth American Operations
Natural gas is the principal raw material used to manufacture
nitrogen and methanol. Natural gas prices are volatile and we
mitigate some of this volatility through the use of derivative
commodity instruments. Our current policy is to hedge natural
gas provided that such arrangements would not
46
result in costs greater than expected selling prices for our
finished products. Estimated North American natural gas
requirements for 2009 are approximately 113 billion cubic
feet (BCF). We have hedged 29% of our expected 2009 North
American requirements and none of our requirements beyond
December 31, 2009. The fair value of these instruments is
estimated based, in part, on quoted market prices from brokers,
realized gains or losses and our computations. These instruments
and other natural gas positions fixed natural gas prices at
$105.6 million (includes $65.3 million related to
accumulated other comprehensive loss) more than published prices
for December 31, 2008 forward markets. Market risk is
estimated as the potential loss in fair value resulting from a
hypothetical price change. Changes in the market value of these
derivative instruments have a high correlation to changes in the
spot price of natural gas. Based on our derivatives outstanding
at December 31, 2008 and 2007, which included swaps, basis
swaps and call options, a $1 per MMBtu increase in NYMEX would
result in a $2.4 million and $12.6 million,
respectively change or fluctuation in our natural gas cost.
Natural Gas
PricesTrinidad Operation
The natural gas requirements of Point Lisas Nitrogen Limited are
supplied under contract until 2018 with the Natural Gas Company
of Trinidad and Tobago. The cost of natural gas to the joint
venture fluctuates based on changes in the market price of
ammonia.
Nitrogen
Prices
The prices for nitrogen products can be volatile and from time
to time we mitigate some of this volatility through the use of
derivative commodity instruments. We have not hedged any of our
2009 North American sales.
Interest Rate
Fluctuations
The table below provides information about our financial
instruments that are sensitive to changes in interest rates. For
debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity
dates. We had no interest rate financial derivatives outstanding
at December 31, 2008.
Interest
Rate Sensitivity
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(in millions)
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Expected Maturity Date
|
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|
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2009
|
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2010
|
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2011
|
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2012
|
|
2013
|
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Thereafter
|
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Total
|
|
Fair Value
|
|
|
|
|
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
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Senior Unsecured Notes
fixed rate of 7% ($US)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
330.0
|
|
|
$
|
330.0
|
|
|
$
|
241.3
|
|
|
|
Short-Term Borrowings
|
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|
|
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|
|
|
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|
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|
|
|
|
|
|
|
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|
Revolving credit facility notional amount ($US)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
150.0
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|
Variable interest rate, LIBOR based
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNLP revolving credit facility, notional amount ($US)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
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50.0
|
|
Variable interest rate, LIBOR based
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47
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Item 8.
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Financial
Statements and Supplementary Data
|
Our management is responsible for the preparation, integrity and
objectivity of the accompanying consolidated financial
statements and the related financial information. The
consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America and necessarily include certain amounts
that are based on estimates and informed judgments. Our
management also prepared the related financial information
included in this Annual Report on
Form 10-K
and is responsible for its accuracy and consistency with the
consolidated financial statements.
The accompanying consolidated financial statements have been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, who conducted its audits in
accordance with the standards of the Public Accounting Oversight
Board. The independent registered public accounting firms
responsibility is to express an opinion as to the fairness with
which such financial statements present our financial position,
results of operations and cash flows in accordance with
accounting principles generally accepted in the United States.
48
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Terra Industries
Inc.:
We have audited the accompanying consolidated balance sheets of
Terra Industries Inc. and subsidiaries (the Company) as of
December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2008. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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, such consolidated financial statements present
fairly, in all material respects, the financial position of
Terra Industries Inc. and subsidiaries at December 31, 2008
and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in note 17 to the consolidated financial
statements, in 2006 the Company adopted Statement of Financial
Accounting Standard No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans,
relating to the recognition and related disclosure provisions
effective December 31, 2006.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on the criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 27, 2009, expressed an
unqualified opinion on the Companys internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 27, 2009
49
Consolidated
Statements of Financial Position
|
|
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At December 31,
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
966,700
|
|
|
$
|
698,238
|
|
|
|
Accounts receivable, less allowance for
doubtful accounts of $290 and $264
|
|
|
130,390
|
|
|
|
171,183
|
|
|
|
Inventories
|
|
|
197,091
|
|
|
|
129,321
|
|
|
|
Margin deposits with derivative counterparties
|
|
|
36,945
|
|
|
|
638
|
|
|
|
Other current assets
|
|
|
61,338
|
|
|
|
28,195
|
|
|
|
Current assets of discontinued operations (Note 2)
|
|
|
|
|
|
|
2,335
|
|
|
|
|
|
Total current assets
|
|
|
1,392,464
|
|
|
|
1,029,910
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
403,313
|
|
|
|
389,728
|
|
|
|
Equity method investments
|
|
|
270,915
|
|
|
|
351,986
|
|
|
|
Deferred plant turnaround costs, net
|
|
|
23,467
|
|
|
|
42,190
|
|
|
|
Other assets
|
|
|
22,858
|
|
|
|
31,484
|
|
|
|
Noncurrent assets of discontinued operations (Note 2)
|
|
|
|
|
|
|
43,029
|
|
|
|
|
|
Total assets
|
|
$
|
2,113,017
|
|
|
$
|
1,888,327
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
99,893
|
|
|
$
|
110,687
|
|
|
|
Customer prepayments
|
|
|
111,592
|
|
|
|
299,351
|
|
|
|
Derivative hedge liabilities
|
|
|
125,925
|
|
|
|
14,733
|
|
|
|
Accrued and other current liabilities
|
|
|
127,770
|
|
|
|
87,922
|
|
|
|
Current liabilities of discontinued operations (Note 2)
|
|
|
|
|
|
|
4,993
|
|
|
|
|
|
Total current liabilities
|
|
|
465,180
|
|
|
|
517,686
|
|
|
|
|
|
Long-term debt
|
|
|
330,000
|
|
|
|
330,000
|
|
|
|
Deferred taxes
|
|
|
61,443
|
|
|
|
99,854
|
|
|
|
Pension liabilities
|
|
|
9,170
|
|
|
|
9,268
|
|
|
|
Other liabilities
|
|
|
78,553
|
|
|
|
84,876
|
|
|
|
Minority interest
|
|
|
107,856
|
|
|
|
109,729
|
|
|
|
Noncurrent liabilities of discontinued operations (Note 2)
|
|
|
|
|
|
|
739
|
|
|
|
|
|
Total liabilities and minority interest
|
|
|
1,052,202
|
|
|
|
1,152,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Sharesliquidation value of
$1,600 and $120,000 (Note 14)
|
|
|
1,544
|
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
|
|
|
|
|
|
|
|
Common Shares, authorized 133,500 shares;
99,330 and 89,587 shares outstanding
|
|
|
152,111
|
|
|
|
142,170
|
|
|
|
Paid-in capital
|
|
|
579,164
|
|
|
|
618,874
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(179,303
|
)
|
|
|
(45,328
|
)
|
|
|
Retained earnings (accumulated deficit)
|
|
|
507,299
|
|
|
|
(95,341
|
)
|
|
|
|
|
Total stockholders equity
|
|
|
1,059,271
|
|
|
|
620,375
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,113,017
|
|
|
$
|
1,888,327
|
|
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
50
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands, except per-share
amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Product revenues
|
|
$
|
2,880,255
|
|
|
$
|
2,335,874
|
|
|
$
|
1,816,045
|
|
|
|
Other income
|
|
|
11,224
|
|
|
|
7,055
|
|
|
|
3,651
|
|
|
|
|
|
Total Revenue
|
|
|
2,891,479
|
|
|
|
2,342,929
|
|
|
|
1,819,696
|
|
|
|
|
|
Cost and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
2,028,252
|
|
|
|
1,815,421
|
|
|
|
1,701,179
|
|
|
|
Selling, general and administrative expense
|
|
|
70,736
|
|
|
|
91,971
|
|
|
|
68,391
|
|
|
|
Equity in earnings of unconsolidated affiliates (Note 8)
|
|
|
(56,237
|
)
|
|
|
(16,209
|
)
|
|
|
(17,013
|
)
|
|
|
|
|
|
|
|
2,042,751
|
|
|
|
1,891,183
|
|
|
|
1,752,557
|
|
|
|
|
|
Income from operations
|
|
|
848,728
|
|
|
|
451,746
|
|
|
|
67,139
|
|
|
|
Interest income
|
|
|
23,370
|
|
|
|
17,262
|
|
|
|
6,457
|
|
|
|
Interest expense
|
|
|
(27,369
|
)
|
|
|
(29,100
|
)
|
|
|
(47,991
|
)
|
|
|
Loss on early retirement of debt
|
|
|
|
|
|
|
(38,836
|
)
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
844,729
|
|
|
|
401,072
|
|
|
|
25,605
|
|
|
|
Income tax provision
|
|
|
(239,851
|
)
|
|
|
(127,316
|
)
|
|
|
(9,590
|
)
|
|
|
Minority interest
|
|
|
(67,684
|
)
|
|
|
(50,281
|
)
|
|
|
(11,286
|
)
|
|
|
Equity earnings of unconsolidated affiliates (Note 8)
|
|
|
95,578
|
|
|
|
(2,718
|
)
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
632,772
|
|
|
|
220,757
|
|
|
|
4,729
|
|
|
|
Income (loss) from discontinued operations,
net of tax (Note 2)
|
|
|
8,269
|
|
|
|
(18,861
|
)
|
|
|
(516
|
)
|
|
|
|
|
Net income
|
|
|
641,041
|
|
|
|
201,896
|
|
|
|
4,213
|
|
|
|
Inducement payment of preferred stock conversion
|
|
|
(5,266
|
)
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends
|
|
|
(3,876
|
)
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
|
|
Income (Loss) Available to Common Stockholders
|
|
$
|
631,899
|
|
|
$
|
196,796
|
|
|
$
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
6.65
|
|
|
$
|
2.38
|
|
|
$
|
|
|
|
|
Income (loss) from discontinued operations (Note 2)
|
|
|
0.09
|
|
|
|
(0.21
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
Earnings per share
|
|
$
|
6.74
|
|
|
$
|
2.17
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
6.12
|
|
|
$
|
2.07
|
|
|
$
|
|
|
|
|
Income (loss) from discontinued operations (Note 2)
|
|
|
0.08
|
|
|
|
(0.17
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
Earnings per share
|
|
$
|
6.20
|
|
|
$
|
1.90
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
93,827
|
|
|
|
90,575
|
|
|
|
92,676
|
|
|
|
Diluted
|
|
|
103,359
|
|
|
|
106,454
|
|
|
|
92,676
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
51
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
641,041
|
|
|
$
|
201,896
|
|
|
$
|
4,213
|
|
|
|
Income (loss) from discontinued operations
|
|
|
8,269
|
|
|
|
(18,861
|
)
|
|
|
(516
|
)
|
|
|
|
|
Income from continuing operations
|
|
|
632,772
|
|
|
|
220,757
|
|
|
|
4,729
|
|
|
|
Adjustments to reconcile income from continuing operations to
net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment and amortization
of deferred plant turnaround costs
|
|
|
78,854
|
|
|
|
94,784
|
|
|
|
108,069
|
|
|
|
Loss on sale of property, plant and equipment
|
|
|
2,321
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(15,180
|
)
|
|
|
103,400
|
|
|
|
3,777
|
|
|
|
Minority interest in earnings
|
|
|
67,684
|
|
|
|
50,281
|
|
|
|
11,286
|
|
|
|
Distributions in excess of equity earnings
|
|
|
8,343
|
|
|
|
8,536
|
|
|
|
9,202
|
|
|
|
Equity earnings of GrowHow UK Limited
|
|
|
(95,578
|
)
|
|
|
2,718
|
|
|
|
|
|
|
|
Non-cash loss on derivatives
|
|
|
39,779
|
|
|
|
1,300
|
|
|
|
933
|
|
|
|
Share-based compensation
|
|
|
8,104
|
|
|
|
28,102
|
|
|
|
7,010
|
|
|
|
Amortization of intangible and other assets
|
|
|
8,705
|
|
|
|
6,954
|
|
|
|
6,878
|
|
|
|
Non-cash loss on early retirement of debt
|
|
|
|
|
|
|
4,662
|
|
|
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
36,310
|
|
|
|
(38,180
|
)
|
|
|
16,128
|
|
|
|
Inventories
|
|
|
(71,422
|
)
|
|
|
45,772
|
|
|
|
(14,097
|
)
|
|
|
Accounts payable and customer prepayments
|
|
|
(197,452
|
)
|
|
|
218,081
|
|
|
|
38,173
|
|
|
|
Margin deposits with derivative counterparties
|
|
|
(36,307
|
)
|
|
|
(601
|
)
|
|
|
7,111
|
|
|
|
Other assets and liabilities, net
|
|
|
8,050
|
|
|
|
(12,782
|
)
|
|
|
(44,234
|
)
|
|
|
|
|
Net cash flows from operating activitiescontinuing
operations
|
|
|
474,983
|
|
|
|
733,784
|
|
|
|
154,965
|
|
|
|
Net cash flows from operating activitiesdiscontinued
operations
|
|
|
8,161
|
|
|
|
14,081
|
|
|
|
4,295
|
|
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
483,144
|
|
|
|
747,865
|
|
|
|
159,260
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures
|
|
|
(89,307
|
)
|
|
|
(82,376
|
)
|
|
|
(86,137
|
)
|
|
|
Changes in restricted cash
|
|
|
|
|
|
|
|
|
|
|
8,595
|
|
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
2,073
|
|
|
|
24
|
|
|
|
19,100
|
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
8,180
|
|
|
|
4,705
|
|
|
|
9,660
|
|
|
|
Cash retained by GrowHow UK Limited
|
|
|
|
|
|
|
(16,788
|
)
|
|
|
|
|
|
|
Contribution settlement received from GrowHow UK Limited
|
|
|
27,427
|
|
|
|
|
|
|
|
|
|
|
|
Balancing consideration payment from GrowHow UK Limited
|
|
|
61,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activitiescontinued
operations
|
|
|
9,645
|
|
|
|
(94,435
|
)
|
|
|
(48,782
|
)
|
|
|
Net cash flows from investing activitiesdiscontinued
operations
|
|
|
41,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Investing Activities
|
|
|
51,524
|
|
|
|
(94,435
|
)
|
|
|
(48,782
|
)
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debt
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
Payments under borrowing arrangements
|
|
|
|
|
|
|
(331,300
|
)
|
|
|
(37
|
)
|
|
|
Payments for debt issuance costs
|
|
|
|
|
|
|
(6,444
|
)
|
|
|
|
|
|
|
Preferred share dividends paid
|
|
|
(3,876
|
)
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
Inducement payment to preferred stockholders
|
|
|
(5,266
|
)
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends paid
|
|
|
(28,274
|
)
|
|
|
|
|
|
|
|
|
|
|
Common stock issuances and vestings
|
|
|
(9,839
|
)
|
|
|
(1,424
|
)
|
|
|
363
|
|
|
|
Excess tax benefits from equity compensation plans
|
|
|
12,122
|
|
|
|
3,317
|
|
|
|
1,255
|
|
|
|
|
|
52
Consolidated
Statements of Cash Flows (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Payments under share repurchase program
|
|
|
(157,500
|
)
|
|
|
(87,426
|
)
|
|
|
(18,796
|
)
|
|
|
Distribution to minority interests
|
|
|
(69,557
|
)
|
|
|
(35,239
|
)
|
|
|
(8,861
|
)
|
|
|
Changes in overdraft protection arrangements
|
|
|
|
|
|
|
|
|
|
|
11,443
|
|
|
|
|
|
Net cash flows from financing activitiescontinued
operations
|
|
|
(262,190
|
)
|
|
|
(133,616
|
)
|
|
|
(19,733
|
)
|
|
|
Net cash flows from financing activitiesdiscontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Financing Activities
|
|
|
(262,190
|
)
|
|
|
(133,616
|
)
|
|
|
(19,733
|
)
|
|
|
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(4,016
|
)
|
|
|
(593
|
)
|
|
|
1,906
|
|
|
|
|
|
Increase in Cash and Cash Equivalents
|
|
|
268,462
|
|
|
|
519,221
|
|
|
|
92,651
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
698,238
|
|
|
|
179,017
|
|
|
|
86,366
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
966,700
|
|
|
$
|
698,238
|
|
|
$
|
179,017
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
24,256
|
|
|
$
|
23,200
|
|
|
$
|
42,150
|
|
|
|
Income tax refunds received
|
|
|
1,455
|
|
|
|
558
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
200,528
|
|
|
|
22,697
|
|
|
|
1,930
|
|
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of warrants to common stock
|
|
$
|
2,496
|
|
|
$
|
568
|
|
|
$
|
|
|
|
|
Conversion of preferred shares to common stock
|
|
|
114,256
|
|
|
|
|
|
|
|
|
|
|
|
Terra Nitrogen U.K. contributed for equity investment
|
|
|
|
|
|
|
213,235
|
|
|
|
|
|
|
|
Stock incentive plan
|
|
|
|
|
|
|
|
|
|
|
4,218
|
|
|
|
Supplemental schedule of unconsolidated affiliate
distributions received from GrowHow UK Limited:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution settlement and balancing consideration payments
received
|
|
|
88,699
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of unconsolidated affiliates
distributions received from North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
$
|
56,237
|
|
|
$
|
16,209
|
|
|
$
|
17,013
|
|
|
|
Distributions in excess of equity earnings
|
|
|
8,343
|
|
|
|
8,536
|
|
|
|
9,202
|
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
8,180
|
|
|
|
4,705
|
|
|
|
9,660
|
|
|
|
|
|
Total cash distributions from North American unconsolidated
affiliates
|
|
$
|
72,760
|
|
|
$
|
29,450
|
|
|
$
|
35,875
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
53
Consolidated
Statements of Changes in Common Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Deficit)
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Unearned
|
|
|
Retained
|
|
|
|
|
|
Comprehensive
|
|
(in thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Total
|
|
|
Income
|
|
|
|
January 1, 2006
|
|
|
95,171
|
|
|
$
|
146,994
|
|
|
$
|
712,671
|
|
|
$
|
(70,143
|
)
|
|
$
|
(5,369
|
)
|
|
$
|
(291,250
|
)
|
|
$
|
492,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,213
|
|
|
|
4,213
|
|
|
$
|
4,213
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,618
|
|
|
|
|
|
|
|
|
|
|
|
33,618
|
|
|
|
33,618
|
|
Change in fair value of derivatives, net of taxes of $3,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,727
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,727
|
)
|
|
|
(6,727
|
)
|
Pension and post-retirement benefit liabilities, net of taxes of
$4,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,850
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,850
|
)
|
|
|
(11,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS 158, net of taxes of $4,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
|
|
|
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
|
|
Exercise of stock options
|
|
|
95
|
|
|
|
95
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
Net vested stock
|
|
|
39
|
|
|
|
562
|
|
|
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
Shares purchased and retired under share repurchase program
|
|
|
(2,675
|
)
|
|
|
(2,675
|
)
|
|
|
(16,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,796
|
)
|
|
|
|
|
Reclassification for adoption of SFAS 123 R
|
|
|
|
|
|
|
|
|
|
|
(5,369
|
)
|
|
|
|
|
|
|
5,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
92,630
|
|
|
|
144,976
|
|
|
|
693,896
|
|
|
|
(63,739
|
)
|
|
|
|
|
|
|
(292,137
|
)
|
|
|
482,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,896
|
|
|
|
201,896
|
|
|
$
|
201,896
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,882
|
)
|
|
|
|
|
|
|
|
|
|
|
(46,882
|
)
|
|
|
(46,882
|
)
|
Change in fair value of derivatives, net of taxes of $3,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,224
|
|
|
|
|
|
|
|
|
|
|
|
6,224
|
|
|
|
6,224
|
|
Pension and post-retirement benefit liabilities, net of taxes of
$8,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,797
|
|
|
|
|
|
|
|
|
|
|
|
15,797
|
|
|
|
15,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of U.K. pension plan to GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,272
|
|
|
|
|
|
|
|
|
|
|
|
43,272
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
177,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
|
|
|
|
Exercise of stock options
|
|
|
336
|
|
|
|
336
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,122
|
|
|
|
|
|
Net vested stock
|
|
|
53
|
|
|
|
290
|
|
|
|
(2,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,546
|
)
|
|
|
|
|
Net conversion of warrants
|
|
|
568
|
|
|
|
568
|
|
|
|
(568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares purchased and retired under share repurchase program
|
|
|
(4,000
|
)
|
|
|
(4,000
|
)
|
|
|
(83,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,426
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
11,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
89,587
|
|
|
$
|
142,170
|
|
|
$
|
618,874
|
|
|
$
|
(45,328
|
)
|
|
$
|
|
|
|
$
|
(95,341
|
)
|
|
$
|
620,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
Consolidated
Statements of Changes in Common Stockholders Equity
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Comprehensive
|
|
Retained
|
|
|
|
Comprehensive
|
(in thousands)
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Loss
|
|
Earnings
|
|
Total
|
|
Income
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
641,041
|
|
|
$
|
641,041
|
|
|
$
|
641,041
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,308
|
)
|
|
|
|
|
|
|
(98,308
|
)
|
|
|
(98,308
|
)
|
Change in fair value of derivatives, net of taxes of ($22,157)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,487
|
)
|
|
|
|
|
|
|
(34,487
|
)
|
|
|
(34,487
|
)
|
Pension and post-retirement benefit liabilities, net of taxes of
($1,947)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
(1,180
|
)
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
507,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,876
|
)
|
|
|
(3,876
|
)
|
|
|
|
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,274
|
)
|
|
|
(28,274
|
)
|
|
|
|
|
Excess tax benefit
|
|
|
|
|
|
|
|
|
|
|
14,603
|
|
|
|
|
|
|
|
|
|
|
|
14,603
|
|
|
|
|
|
Exercise of stock options
|
|
|
11
|
|
|
|
11
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
Net vested stock
|
|
|
277
|
|
|
|
475
|
|
|
|
(12,897
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,422
|
)
|
|
|
|
|
Net conversion of warrants
|
|
|
2,961
|
|
|
|
2,961
|
|
|
|
(413
|
)
|
|
|
|
|
|
|
|
|
|
|
2,548
|
|
|
|
|
|
Inducement of preferred stock
|
|
|
11,887
|
|
|
|
11,887
|
|
|
|
102,368
|
|
|
|
|
|
|
|
(5,266
|
)
|
|
|
108,989
|
|
|
|
|
|
Shares purchased and retired under the share repurchase program
|
|
|
(5,393
|
)
|
|
|
(5,393
|
)
|
|
|
(152,107
|
)
|
|
|
|
|
|
|
|
|
|
|
(157,500
|
)
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
8,713
|
|
|
|
|
|
|
|
|
|
|
|
8,713
|
|
|
|
|
|
Adoption of SFAS 158 measurement to date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(985
|
)
|
|
|
(985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
99,330
|
|
|
$
|
152,111
|
|
|
$
|
579,164
|
|
|
$
|
(179,303
|
)
|
|
$
|
507,299
|
|
|
$
|
1,059,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to the
Consolidated Financial Statements
55
Notes to the
Consolidated Financial Statements
1. Summary of
Significant Accounting Policies
Basis of presentation: The Consolidated
Financial Statements include the accounts of Terra Industries
Inc. and all majority owned subsidiaries (Terra, we, our, or
us). All intercompany accounts and transactions have been
eliminated. Minority interest in earnings and ownership has been
recorded for the percentage of limited partnership common units
not owned by us for each respective period presented.
Description of business: We produce nitrogen products for
agricultural dealers and industrial users, and methanol for
industrial users.
Foreign exchange: Results of operations for the foreign
subsidiaries are translated using average currency exchange
rates during the period; assets and liabilities are translated
using period-end rates. Resulting translation adjustments are
recorded as foreign currency translation adjustments in
accumulated other comprehensive income (loss) in
stockholders equity.
Cash and cash equivalents: Cash and cash equivalents
consist of all cash balances and all highly liquid investments
purchased with an original maturity of three months or less.
Inventories: Production costs include the cost of direct
labor and materials, depreciation and amortization, and overhead
costs related to manufacturing activities. We allocate fixed
production overhead costs based on the normal capacity of our
production facilities and unallocated overhead costs are
recognized as expense in the period incurred. We determine the
cost of inventories using the
first-in,
first-out method.
Inventories are stated at the lower of cost or market. Market is
defined as current replacement cost, except that market should
not exceed the net realizable value and should not be less than
net realizable value reduced by an allowance for an
approximately normal profit margin. The cost of inventories is
determined using the
first-in,
first-out method. We perform a monthly analysis of our inventory
balances to determine if the carrying amount of inventories
exceeds our net realizable value. Our determination of estimated
net realizable value is based on customer orders, market trends
and historical pricing. If the carrying amount exceeds the
estimated net realizable value, the carrying amount is reduced
to the estimated net realizable value. Primarily due to market
price declines, we recorded an inventory valuation charge to
cost of sales of $17.4 million for the fourth quarter 2008.
We estimate a reserve for obsolescence and excess of our
materials and supplies inventory. Inventory is stated net of the
reserve.
Property, plant and equipment: Expenditures for plant and
equipment additions, replacements and major improvements are
capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives ranging from 15
to 22 years for buildings and 2 to 18 years for plants
and equipment. Equipment under capital leases is recorded in
property with the corresponding obligations in long-term debt.
The amount capitalized is the present value at the beginning of
the lease term of the aggregate future minimum lease payments.
Maintenance and repair costs are expensed as incurred.
Plant turnaround costs: Plant turnarounds are
periodically performed to extend the useful life, increase
output
and/or
efficiency and ensure the long-term reliability and safety of
integrated plant machinery at our continuous process production
facilities. The nature of a turnaround is such that it occurs on
less than an annual basis and requires a multi-week shutdown of
plant operations. Specific procedures performed during the
turnaround include the disassembly, inspection and replacement
or
56
overhaul of plant machinery (boilers, pressure vessels, piping,
heat exchangers, etc.) and rotating equipment (compressors,
pumps, turbines, etc.), equipment recalibration and internal
equipment efficiency assessments.
Preceding a turnaround, plants experience decreased efficiency
in resource conversion to finished products. Replacement or
overhaul of equipment and items such as compressors, turbines,
pumps, motors, valves, piping and other parts that have an
estimated useful life of at least two years, the internal
assessment of production equipment, replacement of aged
catalysts, and new installation/recalibration of measurement and
control devices result in increased production output
and/or
improved plant efficiency after the turnaround. Turnaround
activities are betterments that meet at least one of the
following criteria: 1) extend the equipment useful life, or
2) increase the output
and/or
efficiency of the equipment. As a result, we follow the deferral
method of accounting for these turnaround costs and thus they
are capitalized and amortized over the period benefited, which
is generally the two-year period until the next turnaround.
Turnaround activities may extend the useful life of the assets
since the overhaul of heat exchangers, pressure vessels,
compressors, turbines, pumps, motors, etc. allow the continued
use beyond the original design. If criteria for betterment or
useful life extension are not met, we expense the turnaround
expenditures as repair and maintenance activities in the period
performed.
In addition, state and certain other regulatory agencies require
a scheduled biennial safety inspection of plant components, such
as steam boilers and registered pressure vessels and piping,
which can only be performed during the period of shut down. A
full shutdown and dismantling of components of the plant is
generally mandatory to facilitate the inspection and
certification. We defer costs associated with regulatory safety
inspection mandates that are incurred during the turnaround.
These costs are amortized over the period benefited, which is
generally the two-year period until the next turnaround.
During a turnaround event, there will also be routine repairs
and maintenance activities performed for normal operating
purposes. The routine repairs and maintenance costs are expensed
as incurred. We do not classify routine repair and maintenance
activities as part of the turnaround cost capitalization since
they are not considered asset betterments.
The installation of major equipment items can occur at any time,
but frequently occur during scheduled plant outages, such as a
turnaround. During a plant turnaround, expenditures for
replacing major equipment items are capitalized as separate
fixed assets.
We classify capitalized turnaround costs as an investing
activity under the caption Capital expenditures and plant
turnaround expenditures in the Statement of Cash Flows,
since this cash outflow relates to expenditures related to
productive assets. Repair, maintenance costs, and gas costs are
expensed as incurred and are included in the operating cash flow.
There are three acceptable methods of accounting for turnaround
costs: 1) direct expensing method, 2) built-in
overhaul method and 3) deferral method. We utilize the
deferral method and recognize turnaround expense over the period
benefited since these expenditures are asset betterments. If the
direct expense method was utilized, all turnaround expenditures
would be recognized in the income statement as a period cost
when incurred and reflected in cash flows from operating
activities in the statement of cash flows.
Equity investments: Equity investments are carried at
original cost adjusted for the proportionate share of the
investees income, losses and distributions. We have a
basis difference between carrying value and the affiliates
book value primarily due to the
step-up in
basis for fixed asset values, which is being depreciated over a
period of 12 to 15 years. We assess the carrying value of
our equity investments
57
when an indicator of a loss in value is present and record a
loss in value of the investment when the assessment indicates
that an other-than-temporary decline in the investment exists.
We classify our equity in earnings of unconsolidated affiliates
for our North America and Trinidad equity investments as a
component of income from operations because these investments
provide additional nitrogen capacity and are integrated with our
supply chain and sales activities in our nitrogen segment. We
classify our equity earnings of unconsolidated affiliates for
our U.K. equity investment as a component of net income, but not
income from operations, because this investment does not provide
additional nitrogen capacity nor is it integrated with any
sales, supply chain or administrative activities.
Intangible asset customer relationships: Our
customer relationships have a finite useful life and are
amortized using the straight-line method over the estimated
useful life of five years. We monitor our intangible asset and
record an impairment loss on the intangible asset when
circumstances indicate that the carrying amount is not
recoverable and that the carrying amount exceeds its fair value.
The customer relationships were recorded at $9.4 million in
connection with the acquisition of Mississippi Chemical
Corporation in December 2004. During 2008, 2007 and 2006, we
recorded $1.9 million of amortization expense each year.
The estimated remaining amortization expense related to the
customer relationships is $1.9 million for 2009.
Debt issuance costs: Costs associated with the issuance
of debt are included in other noncurrent assets and are
amortized over the term of the related debt using the
straight-line method.
Impairment of long-lived assets: We review and evaluate
our long-lived assets for impairment when events and changes in
circumstances indicate that the carrying amount of the assets
may not be recoverable. Impairment is considered to exist if the
total estimated future cash flows on an undiscounted basis are
less than the carrying value of the asset. Future cash flows
include estimates of production levels, pricing of our products,
costs of natural gas and capital expenditures. If the assets are
impaired, a calculation of fair value is performed; if the fair
value is less than the carrying value of the assets, the assets
are reduced to their fair value.
On September 28, 2007, Eastman Chemical Company exercised
its option to purchase our Beaumont, Texas assets, including the
methanol and ammonia production facilities. In connection with
entering into this agreement, we determined that the value of
our Beaumont property was impaired. We recorded a
$39.0 million impairment charge for the quarter ended
September 30, 2007. We closed the sale on December 31,
2008. For additional information regarding the sale of our
Beaumont facility, see Note 2, Discontinued
Operations, of the Notes to the Consolidated Financial
Statements.
Derivatives and financial instruments: We enter into
derivative financial instruments, including swaps, basis swaps,
purchased put and call options and sold call options, to manage
the effect of changes in natural gas costs and the prices of our
nitrogen products. We report the fair value of the derivatives
on our balance sheet. If the derivative is not designated as a
hedging instrument, changes in fair value are recognized in
earnings in the period of change. If the derivative is
designated as a hedge, and to the extent such hedge is
determined to be effective, changes in fair value are either
(a) offset by the change in fair value of the hedged asset
or liability or (b) reported as a component of accumulated
other comprehensive income (loss) in the period of change, and
subsequently recognized in our statement of operations in the
period the offsetting hedged transaction occurs. If an
instrument or the hedged item is settled early, we evaluate
whether the hedged forecasted transaction is still probable of
occurring when determining whether to reclass any gains or
losses immediately in cost of sales or wait until the forecasted
transaction occurs.
58
Until our derivatives settle, we test the derivatives for
ineffectiveness. This includes assessing the correlation of
NYMEX pricing, which is commonly used as an index in natural gas
derivatives, to the natural gas pipelines pricing at our
manufacturing facilities. This assessment requires management
judgment to determine the statistically- and
industry-appropriate analysis of prior operating relationships
between the NYMEX prices and the natural gas pipelines
prices at our facilities.
To the extent possible, we base our market value calculations on
third party data. Due to multiple types of settlement methods
available, not all settlement methods for future period trades
are available from third party sources. In the event that a
derivative is measured for fair value based on a settlement
method that is not readily available, we estimate the fair value
based on forward pricing information for similar types of
settlement methods.
Revenue recognition: Revenue is recognized when
persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, no obligations
remain and collectability is probable.
Revenues are primarily comprised of sales of our products,
including any realized hedging gains or losses related to
nitrogen product derivatives, and are reduced by estimated
discounts and trade allowances. We classify amounts directly or
indirectly billed to our customers for shipping and handling as
revenue.
Profit sharing revenue pertaining to a contractual agreement
with the Methanex Corporation is recognized when the estimated
margin on an annualized basis is probable. For the years ending
December 31, 2008 and 2007, we recorded profit sharing
revenue of $12.0 million each year. We include the profit
sharing revenue under this contract within our discontinued
operations.
Cost of sales and hedging transactions: Costs of sales
are primarily related to manufacturing and purchased costs
related to our products, including any realized hedging gains or
losses related to natural gas derivatives. We classify amounts
directly or indirectly billed for delivery of products to our
customers or our terminals as cost of sales.
Share-based compensation: During the 2006 first quarter,
we adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment,
(SFAS 123 R) which requires the measurement and
recognition of compensation expense for all share-based payment
awards made to employees and directors based on estimated fair
values. SFAS 123 R supersedes our previous accounting under
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
25) for periods beginning in 2006. In March 2005, the SEC
issued Staff Accounting Bulletin No. 107
(SAB 107) relating to SFAS 123 R. We have applied
the provision of SAB 107 in our adoption of SFAS 123
R. We adopted SFAS 123 R using the modified prospective
transition method, which requires the application of the
accounting standard as of January 1, 2006, see
Note 16, Share-Based Compensation, of the Notes to
the Consolidated Financial Statements.
Per share results: Basic earnings per share data are
based on the weighted-average number of common shares
outstanding during the period. Diluted earnings per share data
are based on the weighted-average number of common shares
outstanding and the effect of all dilutive potential common
shares including convertible preferred shares, common stock
options, nonvested stock and common stock warrants.
Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting
59
period. The significant areas requiring the use of
managements estimates relate to assumptions used to
calculate pension and other post-retirement benefits costs,
future cash flows from long-lived assets, estimates of market
for lower of cost or market analysis and the useful lives
utilized for depreciation, amortization and accretion
calculations. Actual results could differ from those estimates.
Recently issued accounting standards: In December 2007,
the Financial Accounting Standards Board (FASB) issued
SFAS 141R, Business Combinations (SFAS 141R),
which changes the way we account for business acquisitions.
SFAS 141R requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction and establishes the
acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed in a business
combination. Certain provisions of this standard will, among
other things, impact the determination of acquisition-date fair
value of consideration paid in a business combination (including
contingent consideration); exclude transaction costs from
acquisition accounting; and change accounting practices for
acquired contingencies, acquisition-related restructuring costs,
in-process research and development, indemnification assets, and
tax benefits. SFAS 141R is effective for business
combinations and adjustments to an acquired entitys
deferred tax asset and liability balances occurring after
December 31, 2008. We are currently evaluating the future
impacts and disclosures of SFAS 141R.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51 (SFAS 160).
SFAS 160 improves the comparability and transparency of
financial statements when reporting minority interest. Entities
with a noncontrolling interest will be required to clearly
identify and present the ownership interest in the consolidated
statement of financial position within equity, but separate from
the parents equity. The amount of consolidated net income
attributable to the parent and to the noncontrolling interest
will be identified and presented on the face of the consolidated
statement of income. The statement offers further guidance on
changes in ownership interest, deconsolidation, and required
disclosures. The statement is effective for fiscal years and
interim periods within those fiscal years beginning
January 1, 2009. Upon adoption, we will recharacterize the
minority interest as noncontrolling interests and reclassify as
a component of equity.
In March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities
(SFAS 161). SFAS 161 is an amendment of
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). To address concerns that the
existing disclosure requirements of SFAS 133 do not provide
adequate information, SFAS 161 requires enhanced
disclosures about an entitys derivative and hedging
activities and thereby improves the transparency of financial
reporting. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. We are currently evaluating the future
impacts and disclosures of SFAS 161.
In June 2008, the FASB issued FASB Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share Based
Payment Transactions Are Participating Securities (FSP
EITF 03-6-1).
The FASB decided that unvested share-based payout awards that
contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of EPS
pursuant to the two-class method under SFAS 128,
Earnings per Share. This guidance is effective for fiscal
years beginning after December 15, 2008 and interim periods
within those years and prior periods must be adjusted
retrospectively. We are currently assessing the impact FSP
EITF 03-6-1
will have on our financial statements.
In December 2008, the FASB issued FSP FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets, which amends Statement 132(R) to require more
detailed disclosures about
60
employers pension plan assets. New disclosures will
include more information on investment strategies, major
categories of plan assets, concentrations of risk within plan
assets and valuation techniques used to measure the fair value
of plan assets. This new standard requires new disclosures only,
and will have no impact on our consolidated financial position,
results of operations or cash flows. These new disclosures will
be required for us beginning in our
Form 10-K
for the 2009 fiscal year.
2. Discontinued
Operations
On December 31, 2008, pursuant to a 2007 agreement, we sold
our Beaumont, Texas assets, including the methanol and ammonia
production facilities, to Eastman Chemical Company (Eastman).
Consideration received, including cash and a Promissory Note
from Eastman of $5.2 million, approximated this
facilitys carrying value. The Promissory Note is due on
December 31, 2009 bearing interest at a rate of 3.0% per
annum.
Pursuant to the requirements of FASB Statement No. 144
(SFAS 144), Accounting for the Impairment or Disposal of
Long-Lived Assets, we classified and accounted for the
Beaumont assets and liabilities as held for sale in the
statements of financial position and the results of operations
on a net of tax basis in the statement of operations.
SFAS 144 requires that assets held for sale are valued on
an
asset-by-asset
basis at the lower of carrying amount or fair value less costs
to sell. In applying those provisions, we considered cash flow
analyses, and offers related to those assets. In accordance with
the provisions of SFAS 144, assets held for sale are not
depreciated. In fiscal 2007, we recorded an impairment charge of
$39.0 million related to the Beaumont facility.
Summarized
Financial Results of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Operating revenue
|
|
$
|
18,333
|
|
|
$
|
17,137
|
|
|
$
|
17,026
|
|
Operating and other expenses
|
|
|
(4,574
|
)
|
|
|
(48,519
|
)
|
|
|
(17,885
|
)
|
|
|
Pretax income (loss) from operations of discontinued components
|
|
|
13,759
|
|
|
|
(31,382
|
)
|
|
|
(859
|
)
|
Income tax (expense) benefit
|
|
|
(5,490
|
)
|
|
|
12,521
|
|
|
|
343
|
|
|
|
Income (loss) from discontinued operations
|
|
$
|
8,269
|
|
|
$
|
(18,861
|
)
|
|
$
|
(516
|
)
|
|
|
61
The major classes of assets and liabilities held for sale and
related to discontinued operations as of December 31, 2008
and 2007 are as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
Trade receivables
|
|
$
|
|
|
$
|
45
|
Inventory
|
|
|
|
|
|
2,203
|
Other current assets
|
|
|
|
|
|
87
|
|
|
Current assets
|
|
$
|
|
|
$
|
2,335
|
|
|
Property, plant and equipmentnet
|
|
$
|
|
|
$
|
42,212
|
Other non-current assets
|
|
|
|
|
|
817
|
|
|
Noncurrent assets
|
|
$
|
|
|
$
|
43,029
|
|
|
Accounts payable
|
|
$
|
|
|
$
|
18
|
Other current liabilities
|
|
|
|
|
|
4,975
|
|
|
Current liabilities
|
|
$
|
|
|
$
|
4,993
|
|
|
Other noncurrent liabilities
|
|
|
|
|
$
|
739
|
|
|
Noncurrent liabilities
|
|
$
|
|
|
$
|
739
|
|
|
3. Earnings Per
Share
Basic income per share data is based on the weighted-average
number of common shares outstanding during the period. Diluted
income per share data is based on the weighted average number of
common shares outstanding and the effect of all dilutive
potential common shares including stock options, nonvested
stock, convertible preferred shares and common stock warrants.
Nonvested stock carries dividend and voting rights, but is not
involved in the weighted average number of common shares
outstanding used to compute basic income per share.
The following table provides a reconciliation between basic and
diluted income per share for the years ended December 31,
2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share
data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Basic income per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
632,772
|
|
|
$
|
220,757
|
|
|
$
|
4,729
|
|
Less: Preferred share dividends
|
|
|
(3,876
|
)
|
|
|
(5,100
|
)
|
|
|
(5,100
|
)
|
Inducement of preferred shares
|
|
|
(5,266
|
)
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
stockholders
|
|
|
623,630
|
|
|
|
215,657
|
|
|
|
(371
|
)
|
Income (loss) from discontinued operations available to common
stockholders
|
|
|
8,269
|
|
|
|
(18,861
|
)
|
|
|
(516
|
)
|
|
|
Income (loss) available to common stockholders
|
|
$
|
631,899
|
|
|
$
|
196,796
|
|
|
$
|
(887
|
)
|
|
|
Weighted average shares outstanding
|
|
|
93,827
|
|
|
|
90,575
|
|
|
|
92,676
|
|
|
|
Income per sharecontinuing operations
|
|
$
|
6.65
|
|
|
$
|
2.38
|
|
|
$
|
|
|
Income (loss) per sharediscontinued operations
|
|
|
0.09
|
|
|
|
(0.21
|
)
|
|
|
(0.01
|
)
|
|
|
Net income (loss) per share
|
|
$
|
6.74
|
|
|
$
|
2.17
|
|
|
$
|
(0.01
|
)
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share
data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Diluted income (loss) per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
stockholders
|
|
$
|
623,630
|
|
|
$
|
215,657
|
|
|
$
|
(371
|
)
|
Add: Preferred share dividends
|
|
|
3,876
|
|
|
|
5,100
|
|
|
|
|
|
Inducement of preferred shares
|
|
|
5,266
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common stockholders and assumed
conversions
|
|
$
|
632,772
|
|
|
$
|
220,757
|
|
|
$
|
(371
|
)
|
|
|
Weighted average shares outstanding
|
|
|
93,827
|
|
|
|
90,575
|
|
|
|
92,676
|
|
Add incremental shares from assumed conversions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
|
8,090
|
|
|
|
12,048
|
|
|
|
|
|
Nonvested stock
|
|
|
619
|
|
|
|
823
|
|
|
|
|
|
Common stock options
|
|
|
1
|
|
|
|
111
|
|
|
|
|
|
Common stock warrants
|
|
|
822
|
|
|
|
2,897
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
103,359
|
|
|
|
106,454
|
|
|
|
92,676
|
|
|
|
Income per sharecontinuing operations
|
|
$
|
6.12
|
|
|
$
|
2.07
|
|
|
$
|
|
|
Income (loss) per sharediscontinued operations
|
|
|
0.08
|
|
|
|
(0.17
|
)
|
|
|
(0.01
|
)
|
|
|
Net income (loss) per share
|
|
$
|
6.20
|
|
|
$
|
1.90
|
|
|
$
|
(0.01
|
)
|
|
|
Common stock options totaling 0.1 million for the year
ended December 31, 2006 were excluded from the computation
of diluted earnings per share because the exercise prices of
those options exceeded the average market price of Terras
stock for the respective periods, and the effect of their
inclusion would be antidilutive.
All dilutive instruments were excluded from computation of
diluted earnings per share due to the loss available to common
stockholders at December 31, 2006.
In September 2008 we commenced individual offers (the inducement
offer) to pay a cash premium to holders of our 4.25% Cumulative
Convertible Perpetual Series A Preferred Shares
(Series A Preferred Shares) who elected to convert their
Series A Preferred Shares into shares of Terra common
stock, see Note 15, Common Stockholders
Equity, of the Notes to the Consolidated Financial
Statements. A total of 118,400 shares, or 99%, of the
outstanding shares of Series A Preferred Shares were
surrendered and converted as part of the inducement offer. The
former holders of the Series A Preferred Shares received,
in the aggregate, the following:
|
|
|
|
|
11,887,550 shares of Terra common stock; and
|
|
|
A cash premium of approximately $5.3 million
|
When convertible preferred stock is converted pursuant to an
inducement offer, the excess of the fair value of the
consideration transferred in the transaction to the holders of
the convertible preferred stock over the fair value of the
securities issuable pursuant to the original conversion terms
should be subtracted from net income to arrive at net income
available to common stockholders in the calculation of earnings
per share. As such, the inducement payments and offering costs
paid in connection with the inducement offer resulted in a
reduction of net income available to common stockholders.
For purposes of our computation of diluted net income per share
for the year ended December 31, 2008, the portion of our
Series A Preferred Shares that was converted was considered
separately from the
63
portion of Series A Preferred Shares that was not
converted. The inducement payment was attributed to the portion
of the Series A Preferred Shares that was converted. As a
result, conversion of the portion of the Series A Preferred
Shares that was converted into 11,887,550 weighted average
common shares outstanding for the year ended December 31,
2008 was also not assumed because the resulting impact on the
calculation of diluted net income per common share would have
been anti-dilutive. The portion of our Series A Preferred
Shares that was not converted was also not assumed because the
resulting impact on the calculation of diluted net income per
common share would have been anti-dilutive.
4.
Inventories
Inventories consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
Raw materials
|
|
$
|
17,805
|
|
|
$
|
17,765
|
|
Supplies
|
|
|
33,825
|
|
|
|
35,909
|
|
Finished goods
|
|
|
145,461
|
|
|
|
75,647
|
|
|
|
Total
|
|
$
|
197,091
|
|
|
$
|
129,321
|
|
|
|
5. Derivative
Financial Instruments
We manage risk using derivative financial instruments for
changes in natural gas supply prices and changes in nitrogen
prices. Derivative financial instruments have credit risk and
market risk.
To manage credit risk, we enter into derivative transactions
only with counter-parties who are currently rated as BBB or
better or equivalent as recognized by a national rating agency.
We will not enter into transactions with a counter-party if the
additional transaction will result in credit exposure exceeding
$20 million. The credit rating of counter-parties may be
modified through guarantees, letters of credit or other credit
enhancement vehicles.
We classify a derivative financial instrument as a hedge if all
of the following conditions are met:
|
|
|
|
1.
|
The item to be hedged must expose us to currency, interest or
price risk;
|
|
2.
|
It must be probable that the results of the hedge position
substantially offset the effects of currency, interest or price
changes on the hedged item (i.e., there is a high correlation
between the hedge position and changes in market value of the
hedge item); and
|
|
3.
|
The derivative financial instrument must be designated as a
hedge of the item at the inception of the hedge.
|
Natural gas supplies to meet production requirements at our
North American production facilities are purchased at market
prices. Natural gas market prices are volatile and we
effectively fix prices for a portion of our natural gas
production requirements and inventory through the use of futures
contracts, swaps and options. The North American contracts
reference physical natural gas prices or appropriate NYMEX
futures contract prices. Contract physical prices for North
America are frequently based on prices at the Henry Hub in
Louisiana, the most common and financially liquid location of
reference for financial derivatives related to natural gas.
However, natural gas supplies for Terras North American
production facilities are purchased at locations other than
Henry Hub, 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. Natural
gas derivatives are designated as cash flow hedges, provided
that the derivatives meet the conditions discussed above. The
contracts are traded in months forward and settlement dates are
scheduled to coincide with gas purchases during that future
period.
64
A swap is a contract between us and a third party to exchange
cash based on a designated price. Option contracts give the
holder the right to either own or sell a futures or swap
contract. The futures contracts require maintenance of cash
balances generally 10% to 20% of the contract value and option
contracts require initial premium payments ranging from 2% to 5%
of contract value. Basis swap contracts require payments to or
from us for the amount, if any, that monthly published gas
prices from the source specified in the contract differ from
prices of NYMEX natural gas futures during a specified period.
There are no initial cash requirements related to the swap and
basis swap agreements.
We may use a collar structure where we will enter into a swap,
sell a call at a higher price and buy a put. The collar
structure allows for greater participation in a decrease to
natural gas prices and protects against moderate price
increases. However, the collar exposes us to large price
increases.
The following summarizes values and balance sheet effects of
open natural gas derivatives at December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Current
|
|
|
Deferred
|
|
|
Net Asset
|
|
(in thousands)
|
|
Assets
|
|
|
Liabilities
|
|
|
Taxes
|
|
|
(Liability)
|
|
|
|
|
December 31, 2008
|
|
$
|
25,773
|
|
|
$
|
(125,925
|
)
|
|
$
|
25,181
|
|
|
$
|
(74,971
|
)
|
December 31, 2007
|
|
|
4,798
|
|
|
|
(14,733
|
)
|
|
|
3,022
|
|
|
|
(6,913
|
)
|
Certain derivatives outstanding at December 31, 2008 and
2007, which settled during January 2009 and January 2008,
respectively, are included in the position of open natural gas
derivatives in the table above. The January 2009 derivatives
settled for an approximate $39.4 million loss compared to
the January 2008 derivatives which settled for an approximate
$6.8 million loss. All open derivatives at
December 31, 2008 will settle during the next
12 months.
We are required to maintain certain margin deposits on account
with derivative counterparties. At December 31, 2008 and
2007, we had margin deposits with derivative counterparties of
$36.9 million and $0.1 million, which are reported as
Margin deposits with derivative counterparties on
the Consolidated Statements of Financial Position.
At December 31, 2008 and 2007, we determined that a portion
of certain derivative contracts were ineffective for accounting
purposes and, as a result, recorded a $3.0 million and
$1.3 million charge to cost of sales, respectively. At
December 31, 2008, we excluded a portion of the loss on
certain derivative contracts from the effectiveness assessment
and, as a result, recorded a $4.3 million charge to cost of
sales.
Certain derivative contracts were entered into to mitigate the
risk of changes in prices of natural gas purchases associated
with fixed-priced sales orders from customers. Due to a
significant decline in fertilizer demand during late 2008, we
decided to temporarily halt production at our Donaldsonville,
Louisiana and Woodward, Oklahoma facilities. We recorded a
charge of $16.5 million to cost of sales representing the
fair value carried in accumulated other comprehensive income
(loss) of related derivative contracts because we no longer
anticipate purchasing the natural gas due to the production
curtailments. Additionally, we recorded a charge of
$16.0 million to cost of sales representing a portion of
fair value carried in accumulated other comprehensive income
(loss) for those contracts that we determined would not result
in production costs that would support reasonably profitable
operations.
The effective portion of gains and losses on derivative
contracts that qualify for hedge treatment are carried as
accumulated other comprehensive income (loss) and credited or
charged to cost of sales in the month in which the hedged
transaction settles. Gains and losses on the contracts that do
not qualify
65
for hedge treatment are credited or charged to cost of sales
based on the positions fair value. The risk and reward of
outstanding natural gas positions are directly related to
increases or decreases in natural gas prices in relation to the
underlying NYMEX natural gas contract prices.
The activity to accumulated other comprehensive loss, net of
income taxes, relating to current period hedging transactions
for the years ended December 31, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(in thousands)
|
|
Gross
|
|
|
Net of tax
|
|
|
Gross
|
|
|
Net of tax
|
|
|
|
|
Beginning accumulated loss
|
|
$
|
(8,635
|
)
|
|
$
|
(5,612
|
)
|
|
$
|
(18,210
|
)
|
|
$
|
(11,836
|
)
|
Reclassification into earnings
|
|
|
172,521
|
|
|
|
105,002
|
|
|
|
53,665
|
|
|
|
34,882
|
|
Net increase (decrease) in market value
|
|
|
(229,165
|
)
|
|
|
(139,489
|
)
|
|
|
(44,090
|
)
|
|
|
(28,658
|
)
|
|
|
Ending accumulated loss
|
|
$
|
(65,279
|
)
|
|
$
|
(40,099
|
)
|
|
$
|
(8,635
|
)
|
|
$
|
(5,612
|
)
|
|
|
At times, we also use forward derivative instruments to fix or
set floor prices for a portion of our nitrogen products sales
volumes. At December 31, 2008, we did not have any open
nitrogen swap contracts. When outstanding, the nitrogen solution
contracts do not qualify for hedge treatment due to inadequate
trading history to demonstrate effectiveness. Consequently these
contracts are marked-to-market and unrealized gains or losses
are reflected in revenue in the statement of operations. There
were no recognized gains or losses related to these derivative
instruments for the year ending December 31, 2008, as
compared to losses of $3.4 million and $0.6 million
for the years ending December 31, 2007 and 2006,
respectively.
|
|
6.
|
Fair Value
Measurements, Financial Instruments and Concentrations of
Credit Risk
|
On January 1, 2008, we adopted SFAS 157, Fair Value
Measurements (SFAS 157), which, among other things,
requires enhanced disclosures of assets and liabilities measured
and reported at fair value. In February 2008, the Financial
Accounting Standards Board (FASB) issued FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, which
delayed for one year the applicability of SFAS 157s
fair-value measurements to certain nonfinancial assets and
liabilities. We adopted SFAS 157 in 2008, except as it
applies to those nonfinancial assets and liabilities as affected
by the one-year delay. The adoption of SFAS 157 required
additional disclosures as noted below.
SFAS 157 establishes a three level hierarchal disclosure
framework that prioritizes and ranks the level of market price
observability used in measuring assets and liabilities at fair
value. Market price observability is impacted by a number of
factors, including the type of asset or liability and its
characteristics. Assets and liabilities with readily available
active quoted prices or for which fair value can be measured
from actively quoted prices generally will have a higher degree
of market price observability and a lesser degree of judgment
used in measuring fair value.
The three levels are defined as follows:
|
|
|
|
|
Level 1inputs to the valuation methodology are
unadjusted quoted prices for identical assets or liabilities in
active markets.
|
|
|
Level 2inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
|
66
|
|
|
|
|
Level 3inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
We evaluated our assets and liabilities to determine which items
should be disclosed according to SFAS 157. We currently
measure our derivative contracts on a recurring basis at fair
value. The inputs included in the fair value measurement of our
derivative contract use adjusted quoted prices from an active
market which are classified at level 2 as a significant
other observable input in the disclosure hierarchy framework as
defined by SFAS 157.
The following table summarizes the valuation of our assets and
liabilities in accordance with SFAS 157 fair value
hierarchy levels of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Market
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Prices in
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Active Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
(in thousands)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
|
|
|
$
|
25,773
|
|
|
$
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
25,773
|
|
|
$
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
|
|
|
$
|
(125,925
|
)
|
|
$
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
(125,925
|
)
|
|
$
|
|
|
|
|
The following table represents the carrying amounts and
estimated fair values of Terras financial instruments at
December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
(in millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
966.7
|
|
|
$
|
966.7
|
|
|
$
|
698.2
|
|
|
$
|
698.2
|
|
Margin deposits with derivative counterparties
|
|
|
36.9
|
|
|
|
36.9
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
330.0
|
|
|
|
241.3
|
|
|
|
330.0
|
|
|
|
325.1
|
|
Preferred shares
|
|
|
1.5
|
|
|
|
2.7
|
|
|
|
115.8
|
|
|
|
580.9
|
|
|
|
The following methods and assumptions were used to estimate the
fair value of each class of financial instrument:
|
|
|
|
|
Cash and receivables: The carrying amounts approximate
fair value because of the short maturity of those instruments.
|
|
|
Long-term debt: The fair value of our long-term debt is
estimated by discounting expected cash flows at the rates
currently offered for debt of the same remaining maturities.
|
|
|
Preferred shares: Preferred shares are valued on the
basis of market quotes, when available and management estimates
based on comparisons with similar instruments that are publicly
traded.
|
Concentration of Credit Risk: We are subject to credit
risk through trade receivables and short-term investments.
Although a substantial portion of our debtors ability to
pay depends upon the agribusiness
67
economic sector, credit risk with respect to trade receivables
generally is minimized due to its geographic dispersion.
Short-term cash investments are placed in short duration
corporate and government debt securities funds with
well-capitalized, high quality financial institutions.
Financial Instruments: At December 31, 2008, we had
letters of credit outstanding totaling $6.6 million,
guaranteeing various insurance and financing activities.
7. Property,
Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at
December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
Land
|
|
$
|
8,416
|
|
|
$
|
8,561
|
|
Buildings and improvements
|
|
|
57,352
|
|
|
|
54,083
|
|
Plant and equipment
|
|
|
862,057
|
|
|
|
860,652
|
|
Construction in progress
|
|
|
46,383
|
|
|
|
7,734
|
|
|
|
|
|
|
974,208
|
|
|
|
931,030
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(570,895
|
)
|
|
|
(541,302
|
)
|
|
|
Total
|
|
$
|
403,313
|
|
|
$
|
389,728
|
|
|
|
Depreciation expense for property, plant and equipment for the
years ending December 31, 2008, 2007 and 2006 was
$51.8 million, $70.6 million and $78.9 million,
respectively.
8. Equity
Investments
Trinidad and
United States
Our investments in Trinidad and U.S. companies that are
accounted for on the equity method of accounting consist of the
following: (1) 50% ownership interest in Point Lisas
Nitrogen Limited (PLNL), which operates an ammonia production
plant in Trinidad, (2) 50% interest in an ammonia storage
joint venture located in Houston, Texas and (3) 50%
interest in a joint venture in Oklahoma
CO2,
located in Verdigris, Oklahoma, which produces
CO2
at our Verdigris nitrogen plant. These investments were
$131.6 million at December 31, 2008. We include the
net earnings of these investments as equity in earnings of
unconsolidated affiliates as an element of income from
operations because the investees operations provide
additional capacity to our operations.
The combined results of operations and financial position of our
equity method investments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
Condensed income statement information:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
380,540
|
|
|
$
|
151,723
|
|
|
$
|
171,906
|
|
|
|
Net income
|
|
$
|
123,019
|
|
|
$
|
38,411
|
|
|
$
|
44,751
|
|
|
|
Terras equity in earnings
of unconsolidated affiliates
|
|
$
|
56,237
|
|
|
$
|
16,209
|
|
|
$
|
17,013
|
|
|
|
68
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
Condensed balance sheet information:
|
|
|
|
|
Current assets
|
|
$
|
50,582
|
|
|
$
|
45,110
|
|
Long-lived assets
|
|
|
173,631
|
|
|
|
191,394
|
|
|
|
Total assets
|
|
$
|
224,213
|
|
|
$
|
236,504
|
|
|
|
Current liabilities
|
|
$
|
20,212
|
|
|
$
|
25,905
|
|
Long-term liabilities
|
|
|
19,380
|
|
|
|
9,511
|
|
Equity
|
|
|
184,621
|
|
|
|
201,088
|
|
|
|
Total liabilities and equity
|
|
$
|
224,213
|
|
|
$
|
236,504
|
|
|
|
The carrying value of these investments at December 31,
2008 was $39.3 million more than our share of the
affiliates book value. The excess is attributable
primarily to the
step-up in
basis for fixed asset values, which is being depreciated over a
period of approximately 15 years. Our equity in earnings of
unconsolidated subsidiaries is different than our ownership
interest in income reported by the unconsolidated subsidiaries
due to deferred profits on intergroup transactions and
amortization of basis differences.
We have transactions in the normal course of business with PLNL,
whereby we are obliged to purchase 50 percent of the
ammonia produced by PLNL at current market prices. During the
year ended December 31, 2008, we purchased approximately
$182.4 million of ammonia from PLNL. During the year ended
December 31, 2007, we purchased approximately
$77.1 million of ammonia from PLNL.
The total cash distributions from our Trinidad and North America
equity method investments were $72.8 million,
$29.5 million, and $35.9 million at December 31,
2008, 2007 and 2006, respectively.
United
Kingdom
On September 14, 2007, we completed the formation of
GrowHow UK Limited (GrowHow), a joint venture between Terra and
Kemira GrowHow Oyj (Kemira). Pursuant to the joint venture
agreement, we contributed our United Kingdom subsidiary Terra
Nitrogen (UK) Limited to the joint venture for a 50% interest.
Subsequent to the formation, we have accounted for our
investment in GrowHow as an equity method investment. Pursuant
to agreements with Kemira, we received minimum balancing
consideration payments totaling £38.0 million
($61.3 million). The Joint Venture Contribution Agreement
specifies that we are entitled to receive a minimum balancing
consideration payment of up to £60 million based on
GrowHows operating results for fiscal 2008 to 2010. In
addition, we received $27.4 million from GrowHow during
2008 for the refund of working capital contributions in excess
of amounts specified in the Joint Venture Contribution
Agreement. The carrying value of this equity method investment
was $139.3 million at December 31, 2008.
Our interest in the joint venture is classified as a
non-operating equity investment. We do not include the net
earnings of this investment as an element of income from
operations since the investees operations do not provide
additional capacity to us, nor are its operations integrated
with our supply chain in North America.
69
The financial position of our equity method investment in
GrowHow at December 31, 2008 and 2007 and the results of
operations for the year ended December 31, 2008 and the
three months ended December 2007 were:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
Condensed income statement information:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,111,272
|
|
|
$
|
233,103
|
|
|
|
Net income
|
|
$
|
191,781
|
|
|
$
|
4,253
|
|
|
|
Terras equity in earnings (losses)
of unconsolidated affiliates
|
|
$
|
95,578
|
|
|
$
|
(2,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Condensed balance sheet information:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
212,992
|
|
|
$
|
281,021
|
|
Long-lived assets
|
|
|
239,589
|
|
|
|
269,116
|
|
|
|
Total assets
|
|
$
|
452,581
|
|
|
$
|
550,137
|
|
|
|
Current liabilities
|
|
$
|
86,471
|
|
|
$
|
190,371
|
|
Long-term liabilities
|
|
|
132,754
|
|
|
|
174,405
|
|
Equity
|
|
|
233,356
|
|
|
|
185,361
|
|
|
|
Total liabilities and equity
|
|
$
|
452,581
|
|
|
$
|
550,137
|
|
|
|
The carrying value of these investments at December 31,
2008 was $22.7 million more than our share of
GrowHows book value. The excess is attributable to basis
differences for fixed asset values, which is being depreciated
over a period of 12 years, and the balancing consideration
payment from GrowHow as previously discussed. Our equity in
earnings of GrowHow is different than our ownership interest in
GrowHows net income due to the amortization of basis
differences.
The GrowHow joint venture includes the Kemira site at Ince and
our former Teeside and Severnside sites. In January 2008 GrowHow
closed the Severnside manufacturing facility. Pursuant to the
agreement with Kemira, we are responsible for any remediation
costs required to prepare the Severnside site for disposal. We
anticipate remediation costs to be approximately
$5.0 million to $10.0 million. We have an option to
purchase the Severnside land for a nominal amount at any time
prior to sale. If we elect not to exercise this option, we are
still entitled to receive the sales proceeds. We anticipate that
the proceeds related to the sale of the Severnside land would
exceed the total cost of reclamation of the site.
9. Revolving
Credit Facility and Long-Term Debt
Long-term debt and capital lease obligations consisted of the
following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
Unsecured Senior Notes, 7.0%
due 2017
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
Less current maturities
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
and and capital lease obligations
|
|
$
|
330,000
|
|
|
$
|
330,000
|
|
|
|
70
In February 2007, Terra Capital, Inc., (TCAPI) a subsidiary of
Terra issued $330 million of 7.0% Unsecured Senior Notes
due in 2017 to refinance our Senior Secured Notes due in 2008
and 2010. The notes are unconditionally guaranteed by Terra and
certain of its U.S. subsidiaries, see Note 24,
Guarantor Subsidiaries, of the Notes to the Consolidated
Financial Statements. These notes and guarantees are unsecured
and will rank equal in right of payment with any existing and
future senior obligations of such guarantors. We recorded a
$38.8 million loss on the early retirement of debt.
The Indenture governing these notes contains covenants that
limit, among other things, our ability to: incur additional
debt, pay dividends on common stock of Terra or repurchase
shares of such common stock, make certain investments, sell any
of our principal production facilities or sell other assets
outside the ordinary course of business, enter into transactions
with affiliates, limit dividends or other payments by our
restricted subsidiaries, enter into sale and leaseback
transactions, engage in other businesses, sell all or
substantially all of our assets or merge with or into other
companies, and reduce our insurance coverage.
We are obligated to offer to repurchase these notes upon a
Change of Control (as defined in the Indenture) at a cash price
equal to 101% of the aggregate principal amount outstanding at
that time, plus accrued interest to the date of purchase. The
Indenture governing these notes contains events of default and
remedies customary for a financing of this type.
In conjunction with the bond refinancing, we amended the
$200 million revolving credit facilities (facilities) to
extend the expiration date to January 31, 2012. The
revolving facilities are secured by substantially all of our
working capital. Borrowing availability is generally based on
100% of eligible cash balances, 85% of eligible accounts
receivable, 60% of eligible finished goods inventory and is
reduced by outstanding letters of credit. These facilities
include $50 million only available for the use of Terra
Nitrogen Company L.P. (TNCLP), one of our consolidated
subsidiaries. Borrowings under the revolving facilities will
bear interest at a floating rate plus an applicable margin,
which can be either a base rate, or, at our option, a London
Interbank Offered Rate (LIBOR). At December 31, 2008, the
LIBOR rate was 0.44%. The base rate is the highest of
(1) Citibank, N.A.s base rate (2) the federal
funds effective rate, plus one-half percent (0.50%) per annum
and (3) the base three month certificate of deposit rate,
plus one-half percent (0.50%) per annum, plus an applicable
margin in each case. LIBOR loans will bear interest at LIBOR
plus an applicable margin. The applicable margins for base rate
loans and LIBOR loans are 0.50% and 1.75%, respectively, at
December 31, 2008. The revolving facilities require an
initial one-half percent (0.50%) commitment fee on the
difference between committed amounts and amounts actually
borrowed.
The facilities also require that there be no change of control
related to Terra, such that no individual or group acquires more
than 35% of the outstanding voting shares of Terra. Such a
change of control would constitute an event of default under the
facilities.
At December 31, 2008, we had no outstanding revolving
credit borrowings and $6.6 million in outstanding letters
of credit. The $6.6 million in outstanding letters of
credit reduced our borrowing availability to $193.4 million
at December 31, 2008. The facilities require that we adhere
to certain limitations on additional debt, capital expenditures,
acquisitions, liens, asset sales, investments, prepayments of
subordinated indebtedness, changes in lines of business and
transactions with affiliates. If our borrowing availability
falls below $60 million, we are required to have achieved
minimum operating cash flows or earnings before interest, income
taxes, depreciation, amortization and other non-cash items of
$60 million during the most recent four quarters.
71
10. Turnaround
Costs
The following represents a summary of the deferred plant
turnaround costs for the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnaround
|
|
|
|
Currency
|
|
|
|
|
Beginning
|
|
Costs
|
|
Turnaround
|
|
Translation
|
|
Ending
|
(in thousands)
|
|
Balance
|
|
Capitalized
|
|
Amortization
|
|
Adjustments
|
|
Balance
|
|
|
Year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
42,190
|
|
|
$
|
10,125
|
|
|
$
|
(27,017
|
)
|
|
$
|
(1,831
|
)
|
|
$
|
23,467
|
|
11. Accrued and
Other Current Liabilities
Accrued and other current liabilities consisted of the following
at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
Income taxes payable
|
|
$
|
63,999
|
|
|
$
|
15,620
|
|
Payroll and benefit costs
|
|
|
27,104
|
|
|
|
24,471
|
|
Accrued interest
|
|
|
9,748
|
|
|
|
9,755
|
|
Current accrued phantom shares
|
|
|
4,341
|
|
|
|
10,074
|
|
Other
|
|
|
22,578
|
|
|
|
28,002
|
|
|
|
Total
|
|
$
|
127,770
|
|
|
$
|
87,922
|
|
|
|
12. Other
Liabilities
Other liabilities consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
Unrecognized tax benefit (See Note 21)
|
|
$
|
35,949
|
|
|
$
|
33,560
|
|
Long-term medical and
closed facilities reserve
|
|
|
23,887
|
|
|
|
24,368
|
|
Accrued phantom shares
|
|
|
2,430
|
|
|
|
9,231
|
|
Long-term deferred revenue
|
|
|
10,488
|
|
|
|
10,885
|
|
Other
|
|
|
5,799
|
|
|
|
6,832
|
|
|
|
Total
|
|
$
|
78,553
|
|
|
$
|
84,876
|
|
|
|
72
13. Commitments
and Contingencies
We are committed to various non-cancelable operating leases for
equipment, railcars and production, office and storage
facilities expiring on various dates through 2017.
Total minimum rental payments are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
2009
|
|
$
|
40,006
|
|
2010
|
|
|
38,184
|
|
2011
|
|
|
27,717
|
|
2012
|
|
|
22,729
|
|
2013
|
|
|
5,703
|
|
2014 and thereafter
|
|
|
6,785
|
|
|
|
Net minimum lease payments
|
|
$
|
141,124
|
|
|
|
Total rental expense under all leases, including short-term
cancelable operating leases, was $23.5 million,
$23.1 million and $18.7 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
We have entered into various contractual agreements that create
an obligation into the future. These agreements expire on
various dates through 2018 and are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
|
2009
|
|
$
|
454,131
|
|
2010
|
|
|
171,289
|
|
2011
|
|
|
161,762
|
|
2012
|
|
|
158,457
|
|
2013
|
|
|
147,353
|
|
2014 and thereafter
|
|
|
735,300
|
|
|
|
Total obligations
|
|
$
|
1,828,292
|
|
|
|
Included above are purchase agreements for various services and
products relating to operations. These commitments include open
purchase orders, inventory purchase commitments and firm utility
and natural gas commitments.
We have a contractual agreement to purchase one-half of the
ammonia produced by PLNL, our joint venture ammonia plant
located in Trinidad. The purchase price is based on the average
market price of ammonia, F.O.B. Caribbean, less a discount. The
agreement is in place until October of 2018. Assuming purchases
of 360,000 short tons per year at the December 2008 average
price paid, the annual purchase obligation would be
$147.1 million.
73
We are liable for retiree medical benefits of employees of coal
mining operations sold in 1993, under the Coal Industry Retiree
Health Benefit Act of 1992, which mandated liability for certain
retiree medical benefits for union coal miners. We have provided
reserves adequate to cover the estimated present-value of these
liabilities at December 31, 2008. Our long-term medical and
closed facilities reserve at December 31, 2008, includes
$23.9 million for expected future payments for the coal
operations retirees and other former employees. We may
recover a portion of these payments through our rights in
bankruptcy against Harman Coal Company (a former coal
subsidiary), and subject to damages received by Harman Coal
Company through its on-going litigation with Massey Energy
Company. No provision for such recoveries has been made in our
financial statements.
FASB Interpretation Number 47, Accounting for
Conditional Asset Retirement Obligations
(FIN 47) requires recognition of a liability for the
fair value of a conditional asset retirement obligation if the
fair value of the liability can be reasonably estimated. We have
certain facilities that contain asbestos insulation around
certain piping and heated surfaces. The asbestos insulation is
in adequate condition to prevent leakage and can remain in place
as long as the facility is operated or remains assembled. We
plan to maintain the facilities in an adequate condition to
prevent leakage through our standard repair and maintenance
activities. We have not recorded a liability relating to the
asbestos insulation, as management believes that it is not
possible to reasonably estimate a settlement date for asbestos
insulation removal because the facilities have an indeterminate
life.
We are involved in various legal actions and claims, including
environmental matters, arising from the normal course of
business. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the
results of our operations, financial position or net cash flows.
74
14. Preferred
Shares
The components of preferred shares outstanding at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
Number
|
|
Carrying
|
|
Number
|
|
Carrying
|
(in thousands)
|
|
of shares
|
|
Value
|
|
of shares
|
|
Value
|
|
|
Series A Preferred Shares
(120,000 shares authorized,
$1,000 per share liquidation value)
|
|
|
1,600
|
|
|
$
|
1,544
|
|
|
|
120,000
|
|
|
$
|
115,800
|
|
We have 1,600 shares of Series A Preferred Shares with
a liquidation value of $1,000 per share outstanding at
December 31, 2008 and 120,000 shares with a
liquidation value of $1,000 per share at December 31, 2007.
Cumulative dividends of $10.625 per share are payable quarterly.
The Series A Preferred Shares are not redeemable, but are
convertible into our common stock at the option of the holder
for a conversion price of $9.96 per common share. The
Series A Preferred Shares may automatically be converted to
common shares after December 20, 2009 if the closing price
for our common shares exceeds 140% of the conversion price for
any twenty days within a consecutive thirty day period prior to
such conversion. Upon the occurrence of a fundamental change to
our capital structure, including a change of control, merger, or
sale of Terra, holders of the Series A Preferred Shares may
require us to purchase any or all of their shares at a price
equal to their liquidation value plus any accumulated, but
unpaid, dividends. We also have the right, under certain
conditions, to require holders of the Series A Preferred
Shares to exchange their shares for convertible subordinated
debentures with similar terms.
In September 2008 we commenced offers (the inducement offer) to
pay a cash premium to holders of the Series A Preferred
Shares who elected to convert their Series A Preferred
Shares into shares of Terra common stock. A total of
118,400 shares, or 99%, of the outstanding Series A
Preferred Shares were surrendered and converted as part of the
inducement offer. The former holders of the Series A
Preferred Shares received, in the aggregate, the following:
|
|
|
|
|
11,887,550 shares of Terra common stock; and
|
|
|
|
A cash premium of approximately $5.3 million.
|
The $5.3 million inducement offer represents the difference
between the fair value of all securities and other consideration
transferred in the transaction to the preferred stockholders and
the fair value of securities issuable pursuant to the original
conversion terms of the Series A Preferred Shares less the
costs related to the inducement offer.
15. Common
Stockholders Equity
Terra allocates $1.00 per share upon the issuance of Common
Shares to the Common Share capital account. The Common Shares
have no par value. At December 31, 2008, 1.4 million
common shares were reserved for issuance upon award of
restricted shares and exercise of employee stock options.
On May 6, 2008, Terras Board of Directors declared a
dividend of $0.10 per share for every share of the
Companys common stock outstanding on May 19, 2008,
payable on June 3, 2008. Subsequent dividends of $0.10 per
share for each share of the Companys common stock were
declared on July 16, 2008 for shares of the Companys
common stock outstanding on August 25, 2008, payable on
September 12, 2008, and declared on October 15, 2008
for shares of the Companys common stock outstanding on
November 24, 2008, payable on December 12, 2008.
Future dividends are necessarily
75
dependent upon future earnings, capital requirements, general
financial condition, general business conditions, approval from
our Board of Directors and other factors.
In connection with the Mississippi Chemical Corporation
(MCC) acquisition, we issued warrants to purchase
4.0 million of our common shares at $5.48 per share. These
warrants were valued at $21.1 million at the MCC closing.
During 2005, shareholders approved the issuance of the
underlying shares and the warrant value was reclassified to
common stockholders equity. During 2008, all of these
warrants were exercised and were redeemed for common shares.
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
|
|
January 1 warrants outstanding
|
|
|
3,288
|
|
|
|
4,000
|
|
Exercised
|
|
|
3,288
|
|
|
|
712
|
|
|
|
December 31 warrants outstanding
|
|
|
|
|
|
|
3,288
|
|
|
|
On May 6, 2008, the Board of Directors adopted a resolution
for the repurchase of 12,841,717 shares representing 14% of
our outstanding common stock. The stock buyback program
commenced on May 7, 2008 and has been and will be conducted
on the open market, in private transactions or otherwise at such
times prior to June 30, 2010, and at such prices we
determine appropriate. Purchases may be commenced or suspended
at any time without notice.
During 2008, our repurchases under the stock buyback programs
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
Average Price
|
|
Total Cost
|
(in thousands, except average
|
|
Shares
|
|
of Shares
|
|
of Shares
|
price of shares repurchased)
|
|
Repurchased
|
|
Repurchased
|
|
Repurchased
|
|
|
May 2008
|
|
|
189
|
|
|
$
|
39.65
|
|
|
$
|
7,500
|
|
August 2008
|
|
|
772
|
|
|
|
45.91
|
|
|
|
35,448
|
|
September 2008
|
|
|
1,626
|
|
|
|
39.69
|
|
|
|
64,552
|
|
October 2008
|
|
|
200
|
|
|
|
21.90
|
|
|
|
4,379
|
|
November 2008
|
|
|
2,606
|
|
|
|
17.51
|
|
|
|
45,621
|
|
|
|
|
|
|
5,393
|
|
|
$
|
29.20
|
|
|
$
|
157,500
|
|
|
|
In September 2008 we commenced individual offers to pay a cash
premium to holders of the Series A Preferred Shares who
elected to convert 118,400 Series A Preferred Shares into
11,887,550 common shares, see Note 14, Preferred
Shares, of the Notes to the Consolidated Financial
Statements.
16. Share-Based
Compensation
We sponsor two share-based compensation plans, the Terra
Industries Inc. Stock Incentive Plan of 2002 (2002 Plan) and the
Terra Industries Inc. 2007 Omnibus Incentive Compensation Plan
(2007 Plan). The Terra Industries Inc. 1997 Stock Incentive Plan
expired and the remaining awards were exercised in 2008. As of
December 31, 2008 there were approximately
7,000,000 shares authorized in the 2002 and 2007 Plans. Of
the total authorized shares, approximately 565,000 and
3,435,000 shares are available in the 2002 Plan and the
2007 Plan, respectively. The 2002 Plan has 1,367,800 shares
reserved and the 2007 Plan has 43,000 shares reserved.
Awards granted under the plans may consist of incentive stock
options (ISOs) or non-qualified stock options (NQSOs), stock
appreciation rights (SARs), nonvested stock awards or other
share-based
76
awards (i.e. performance shares), with the exception that
non-employee directors may not be granted SARs and only
employees of Terra may be granted ISOs.
The Compensation Committee of our Board of Directors administers
the plans and determines the exercise price, exercise period,
vesting period and all other terms of the grant. All share-based
awards to directors, officers and employees expire ten years
after the date of the grant. ISOs and NQSOs, which are not
exercised after vesting, expire ten years after the date of the
award. The vesting period for nonvested stock is determined at
the grant date of the award; the vesting period is usually three
years. The vesting date for other share-based awards is also set
at the time of the award but can vary in length; there is
usually no expiration date for other share-based awards.
On January 1, 2006, we adopted FASB Statement
No. 123(R), Share-Based Payment (SFAS 123(R))
using the modified prospective method. This Statement requires
us to recognize in net income an estimate of expense for stock
awards and options over their vesting periods, typically
determined as of the date of grant. Under the modified
prospective method, this Statement applies to new awards and to
awards modified, repurchased or cancelled after January 1,
2006. Additionally, we recognized compensation cost for the
portion of awards for which the requisite service has not been
rendered that were outstanding on January 1, 2006. The
compensation cost for that portion of awards was based on the
grant-date fair value of those awards as calculated for either
recognition or pro forma disclosures under
SFAS No. 123. Beginning January 1, 2006, the
unearned compensation related to the unvested awards was
reclassified as a component of paid-in capital. The cumulative
effect of the adoption of SFAS 123(R) related to estimating
forfeitures of outstanding awards was not significant.
Compensation cost charged against income and the total income
tax benefit recognized for share-based compensation arrangements
is included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Compensation cost charged to SG&A expense
|
|
$
|
8,104
|
|
|
$
|
31,452
|
|
|
$
|
7,010
|
|
|
|
Total compensation cost charged to income
|
|
$
|
8,104
|
|
|
$
|
31,452
|
|
|
$
|
7,010
|
|
|
|
Income tax benefit
|
|
$
|
2,836
|
|
|
$
|
11,008
|
|
|
$
|
2,454
|
|
|
|
Stock
Options
Our stock options required service conditions. No compensation
cost was recognized for the stock options as these instruments
were fully vested upon adoption of SFAS 123 R.
A summary of stock option activity as of December 31, 2008,
and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
(options in thousands)
|
|
Number
|
|
|
Price
|
|
|
|
|
Outstandingbeginning of period
|
|
|
11
|
|
|
$
|
3.17
|
|
Exercised
|
|
|
(11
|
)
|
|
|
3.17
|
|
|
|
Outstandingend of period
|
|
|
|
|
|
$
|
|
|
|
|
77
There are no outstanding stock options as of December 31,
2008. No options were granted during 2008, 2007 and 2006.
Nonvested Stock
Shares and Phantom Share Awards
We currently have outstanding nonvested shares and phantom share
awards with both service conditions and performance conditions.
Nonvested stock shares and phantom share awards with service and
performance conditions usually cliff vest in three
years from the grant date. This means that the performance
conditions of the nonvested shares and phantom share awards are
based on a calculated return on capital over a three-year
period. For awards with performance conditions, the grants will
be forfeited if the performance conditions are not achieved.
We recognize compensation expense for nonvested stock share
awards over the vesting periods based on fair value, which is
equal to the market price of our stock on the date of grant.
During 2008, 2007 and 2006, we recorded compensation expense of
$9.9 million, $11.0 million and $4.3 million,
respectively. We recognize compensation expense for the phantom
share awards over the vesting periods based on fair value, which
is equal to the market price of our stock at each reporting
period date. The phantom share awards settle in cash. During
2008 we recognized a stock compensation benefit of
$1.8 million related to phantom stock due to a decline in
the market price of our stock. In 2007 and 2006, we recorded
stock compensation expense of $20.4 million and
$2.7 million, respectively. Compensation costs for
nonvested stock shares and phantom share awards are reduced for
estimated forfeitures and then amortized to expense using the
straight-line method. For awards with performance conditions, we
estimate the expected number of awards to vest at the time of
the award grant. We record the compensation expense for the
awards with performance conditions ratably over the requisite
service period related to the performance condition, taking into
consideration any changes to the expected shares to vest as such
matters arise.
A summary of the status of our nonvested share awards as of
December 31, 2008, and changes during the year then ended,
is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
(in thousands, except fair values)
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Outstanding at January 1, 2008
|
|
|
1,292
|
|
|
$
|
11.57
|
|
Granted
|
|
|
126
|
|
|
|
46.57
|
|
Vested
|
|
|
(516
|
)
|
|
|
10.18
|
|
Terminated
|
|
|
(5
|
)
|
|
|
34.69
|
|
|
|
Outstanding at December 31, 2008
|
|
|
897
|
|
|
$
|
14.49
|
|
|
|
The fair value of the nonvested shares and phantom shares that
vested during 2008 was $38.1 million and $5.1 million,
respectively. The fair value of the nonvested shares and phantom
shares that vested during 2007 was $9.4 million and
$3.3 million, respectively.
At December 31, 2008, the total unrecognized compensation
cost related to all nonvested share awards was
$9.1 million. That cost is expected to be recognized over a
weighted-average period of 0.8 years.
17. Retirement
Benefit Plans
We maintain defined benefit pension plans that cover certain
salaried and hourly employees. Benefits are based on a pay
formula. We adopted the recognition and related disclosure
provisions of FASB
78
Statement No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans
(SFAS 158), at the end of 2006. This resulted in a
$13.3 million increase in the pension liabilities and
increased accumulated other comprehensive income and deferred
tax assets by $8.6 million and $4.7 million,
respectively. In 2008, we adopted the measurement date
provisions of SFAS 158 and converted to a December 31
measurement date. We had previously used a September 30
measurement date in 2007. This adoption resulted in a
$1.0 million decrease in retained earnings related to the
additional pension expense for the period from October 1,
2007 through December 31, 2007.
The defined benefit plans assets consist principally of
equity securities and corporate and government debt securities.
We also have certain non-qualified pension plans covering
executives, which are unfunded. We accrue pension costs based
upon actuarial information we obtain for each plan and fund
these costs in accordance with statutory requirements.
The components of net periodic pension expense are:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost
|
|
$
|
3,665
|
|
|
$
|
3,113
|
|
|
$
|
2,991
|
|
Interest cost
|
|
|
23,239
|
|
|
|
17,648
|
|
|
|
24,926
|
|
Adjustment for measurement date change
|
|
|
(5,380
|
)
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(18,804
|
)
|
|
|
(18,063
|
)
|
|
|
(24,224
|
)
|
Amortization of prior service cost
|
|
|
(37
|
)
|
|
|
(36
|
)
|
|
|
(36
|
)
|
Amortization of actuarial loss
|
|
|
646
|
|
|
|
1,871
|
|
|
|
5,636
|
|
Termination charge
|
|
|
|
|
|
|
|
|
|
|
492
|
|
|
|
Pension expense
|
|
$
|
3,329
|
|
|
$
|
4,533
|
|
|
$
|
9,785
|
|
|
|
We have defined benefit plans in the U.S. and Canada.
During 2007, we contributed our Terra Nitrogen (UK) subsidiary
into a joint venture. The joint venture assumed the pension
liabilities associated with Terra Nitrogen (UK). We administer
our plans to comply with the applicable laws in each country.
79
The following table reconciles, by geographic location, the
plans funded status to amounts included in the
Consolidated Statements of Financial Position at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
U.S.
|
|
Canada
|
|
Total
|
|
Change in Projected Benefit Obligation Present Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year
|
|
$
|
253,446
|
|
|
$
|
52,171
|
|
|
$
|
305,617
|
|
Service cost
|
|
|
2,134
|
|
|
|
1,531
|
|
|
|
3,665
|
|
Interest cost
|
|
|
19,808
|
|
|
|
3,431
|
|
|
|
23,239
|
|
Actuarial gain
|
|
|
(4,118
|
)
|
|
|
(4,501
|
)
|
|
|
(8,619
|
)
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
(10,131
|
)
|
|
|
(10,131
|
)
|
Benefits paid
|
|
|
(19,435
|
)
|
|
|
(2,331
|
)
|
|
|
(21,766
|
)
|
|
|
Projected benefit obligationend of year
|
|
|
251,835
|
|
|
|
40,170
|
|
|
|
292,005
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year
|
|
|
250,319
|
|
|
|
56,000
|
|
|
|
306,319
|
|
Actual return on plan assets
|
|
|
12,137
|
|
|
|
(3,395
|
)
|
|
|
8,742
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
(10,634
|
)
|
|
|
(10,634
|
)
|
Employer contribution
|
|
|
688
|
|
|
|
1,902
|
|
|
|
2,590
|
|
Benefits paid
|
|
|
(19,435
|
)
|
|
|
(2,331
|
)
|
|
|
(21,766
|
)
|
|
|
Fair value plan assetsend of year
|
|
|
243,709
|
|
|
|
41,542
|
|
|
|
285,251
|
|
|
|
Funded Status
|
|
|
(8,126
|
)
|
|
|
1,372
|
|
|
|
(6,754
|
)
|
Unrecognized net actuarial loss
|
|
|
18,394
|
|
|
|
9,147
|
|
|
|
27,541
|
|
Unrecognized prior service cost
|
|
|
(236
|
)
|
|
|
|
|
|
|
(236
|
)
|
|
|
Prepaid benefit cost
|
|
$
|
10,032
|
|
|
$
|
10,519
|
|
|
$
|
20,551
|
|
|
|
80
The following table reconciles, by geographic location, the
plans funded status to amounts included in the
Consolidated Statements of Financial Position at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
U.S.
|
|
Canada
|
|
Total
|
|
Change in Projected Benefit Obligation Present Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year
|
|
$
|
260,597
|
|
|
$
|
44,040
|
|
|
$
|
304,637
|
|
Service cost
|
|
|
1,809
|
|
|
|
1,304
|
|
|
|
3,113
|
|
Interest cost
|
|
|
15,159
|
|
|
|
2,489
|
|
|
|
17,648
|
|
Actuarial (gain) loss
|
|
|
(9,169
|
)
|
|
|
(2,644
|
)
|
|
|
(11,813
|
)
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
8,171
|
|
|
|
8,171
|
|
Benefits paid
|
|
|
(14,950
|
)
|
|
|
(1,189
|
)
|
|
|
(16,139
|
)
|
|
|
Projected benefit obligationend of year
|
|
|
253,446
|
|
|
|
52,171
|
|
|
|
305,617
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year
|
|
|
191,463
|
|
|
|
35,940
|
|
|
|
227,403
|
|
Actual return on plan assets
|
|
|
25,347
|
|
|
|
2,614
|
|
|
|
27,961
|
|
Foreign currency exchange rate changes
|
|
|
|
|
|
|
7,824
|
|
|
|
7,824
|
|
Employer contribution
|
|
|
48,459
|
|
|
|
10,811
|
|
|
|
59,270
|
|
Benefits paid
|
|
|
(14,950
|
)
|
|
|
(1,189
|
)
|
|
|
(16,139
|
)
|
|
|
Fair value plan assetsend of year
|
|
|
250,319
|
|
|
|
56,000
|
|
|
|
306,319
|
|
|
|
Funded Status
|
|
|
(3,127
|
)
|
|
|
3,829
|
|
|
|
702
|
|
Unrecognized net actuarial loss
|
|
|
14,933
|
|
|
|
9,265
|
|
|
|
24,198
|
|
Unrecognized prior service cost
|
|
|
(282
|
)
|
|
|
|
|
|
|
(282
|
)
|
|
|
Prepaid benefit cost
|
|
$
|
11,524
|
|
|
$
|
13,094
|
|
|
$
|
24,618
|
|
|
|
The amounts recognized in the Consolidated Statement of
Financial Position for the plans described above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
Accrued (prepaid) benefit cost
|
|
$
|
(20,551
|
)
|
|
$
|
(24,617
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
17,179
|
|
|
|
15,638
|
|
|
|
|
|
Deferred tax asset
|
|
|
10,126
|
|
|
|
8,277
|
|
|
|
|
|
Funding subsequent to valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized
|
|
|
6,754
|
|
|
|
(702
|
)
|
|
|
|
|
|
|
Pension liability
|
|
|
3,275
|
|
|
|
10,653
|
|
|
|
|
|
Less: current portion
|
|
|
(859
|
)
|
|
|
(683
|
)
|
|
|
|
|
|
|
Pension liabilities
|
|
$
|
9,170
|
|
|
$
|
9,268
|
|
|
|
|
|
|
|
The accumulated benefit obligation for our pension plans was
$282.1 million and $293.9 million at December 31,
2008 and 2007, respectively. The projected benefit obligation
for our pension plans was $292.0 million and
$305.6 million at December 31, 2008 and 2007,
respectively. Pension plan assets were $6.8 million less
than the projected benefit obligation at December 31, 2008
and were $0.7 million more than the projected benefit
obligation at December 31, 2007.
We have two pension plans in the United StatesTerra
Industries Inc. Employees Retirement Plan (Employees
Retirement Plan) and Terra Industries Inc. Excess Benefit Plan
(Excess Benefit Plan). Our
81
Employees Retirement Plan is fully funded and has a
$1.8 million asset balance. Our Excess Benefit Plan is not
funded and has a $9.9 liability balance.
The assumptions used to determine the actuarial present value of
benefit obligations and pension expense during each of the years
ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Weighted average discount rate
|
|
|
6.7%
|
|
|
6.3%
|
|
|
5.5%
|
Long-term per annum compensation increase
|
|
|
4.1%
|
|
|
3.6%
|
|
|
3.3%
|
Long-term return on plan assets
|
|
|
6.6%
|
|
|
5.4%
|
|
|
7.6%
|
|
|
We employ a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the
long-term return of plan assets for a prudent level of risk. The
intent of this strategy is to minimize plan expenses by
outperforming plan liabilities over the long run. Risk tolerance
is established through careful consideration of plan
liabilities, plan funded status, and our corporate financial
condition. The investment portfolio contains a diversified blend
of equity and fixed income investments. Derivatives may be used
to gain market exposure in an efficient and timely manner;
however, derivatives may not be used to leverage the portfolio
beyond the market value of the underlying investments.
Investment risk is measured and monitored on an ongoing basis
through annual liability measurements, periodic asset/liability
studies, and quarterly investment portfolio reviews.
We select a long-term rate of return of each of our plans
individually. We consult with our two actuaries, as well as each
of the funds money managers. The expected long-term rate
of return is based on the portfolio as a whole and not on the
sum of the returns on individual asset categories. While
historical returns are taken into consideration, current market
trends such as inflation and current equity and fixed income
returns are also taken into consideration.
The percentage of the Fair Market Value of the total plan assets
for each major asset category of the plans assets is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Asset Allocation
|
|
|
|
|
|
|
|
|
Equities
|
|
|
11.3%
|
|
|
|
23.4%
|
|
Bonds
|
|
|
81.7%
|
|
|
|
23.9%
|
|
Cash equivalents
|
|
|
7.0%
|
|
|
|
52.7%
|
|
|
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
During the 2008 first quarter, we fully funded our Employees
Retirement Plan and our Canadian Pension Plan. As a result, we
changed our plan asset allocation to 25% and 75% for equities
and bonds, respectively. The expected benefits to be paid from
the pension plan are as follows:
|
|
|
|
|
(in thousands)
|
|
Payments
|
|
Estimated Future Benefit Payments
|
|
|
|
|
2009
|
|
$
|
18,505
|
|
2010
|
|
|
19,226
|
|
2011
|
|
|
19,918
|
|
2012
|
|
|
20,713
|
|
2013
|
|
|
21,577
|
|
2014-2018
|
|
|
119,760
|
|
82
The amounts in accumulated other comprehensive loss that have
not yet been recognized as components of pension expense at
December 31, 2008, and the expected amortization of these
amounts as components of net periodic benefit cost for the year
ended December 31, 2009 are:
Components of accumulated other comprehensive loss:
|
|
|
|
|
(in thousands)
|
|
|
|
Net actuarial loss
|
|
$
|
27,442
|
|
Net prior service cost (credit)
|
|
|
(236
|
)
|
Net transition obligation (asset)
|
|
|
|
|
|
|
|
|
$
|
27,206
|
|
|
|
Expected amortization during 2009:
|
|
|
|
|
(in thousands)
|
|
|
|
Amortization of net transition obligation
|
|
$
|
|
|
Amortization of prior service cost
|
|
|
(38
|
)
|
Amortization of net losses
|
|
|
912
|
|
|
|
|
|
$
|
874
|
|
|
|
We also sponsor defined contribution savings plans covering most
full-time employees. Contributions made by participating
employees are matched based on a specified percentage of
employee contributions. The cost of our contributions to these
plans totaled $4.1 million in 2008, $5.4 million in
2007 and $5.3 million in 2006.
18.
Post-Retirement Benefits
We provide health care benefits for certain North American
employees who retired on or before January 1, 2002.
Participant contributions and co-payments are subject to
escalation. The plan pays a stated percentage of most medical
expenses reduced for any deductible and payments made by
government programs. The plan is unfunded.
83
The following table indicates the components of the
post-retirement medical benefits obligation included in our
Consolidated Statements of Financial Position at December 31:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligationbeginning of year
|
|
$
|
5,235
|
|
|
$
|
5,464
|
|
Service cost
|
|
|
17
|
|
|
|
12
|
|
Interest cost
|
|
|
397
|
|
|
|
311
|
|
Participants contributions
|
|
|
194
|
|
|
|
181
|
|
Actuarial loss
|
|
|
183
|
|
|
|
5
|
|
Foreign currency exchange rate changes
|
|
|
(198
|
)
|
|
|
159
|
|
Benefits paid
|
|
|
(1,126
|
)
|
|
|
(897
|
)
|
|
|
Projected benefit obligationend of year
|
|
|
4,702
|
|
|
|
5,235
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
Fair value plan assetsbeginning of year
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
932
|
|
|
|
716
|
|
Participants contributions
|
|
|
194
|
|
|
|
181
|
|
Benefits paid
|
|
|
(1,126
|
)
|
|
|
(897
|
)
|
|
|
Fair value plan assetsend of year
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
|
(4,702
|
)
|
|
|
(5,235
|
)
|
|
|
Unrecognized net actuarial gain
|
|
|
1,645
|
|
|
|
1,583
|
|
Unrecognized prior service cost
|
|
|
605
|
|
|
|
692
|
|
Employer contribution
|
|
|
|
|
|
|
179
|
|
|
|
Accrued benefit cost
|
|
$
|
(2,452
|
)
|
|
$
|
(2,781
|
)
|
|
|
Net periodic post-retirement medical benefit expense consisted
of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Service cost
|
|
$
|
17
|
|
|
$
|
12
|
|
|
$
|
11
|
|
Interest cost
|
|
|
397
|
|
|
|
311
|
|
|
|
228
|
|
Adjustment for measurement date change
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
69
|
|
|
|
69
|
|
|
|
77
|
|
Amortization of actuarial gain
|
|
|
96
|
|
|
|
89
|
|
|
|
|
|
|
|
Post-retirement medical benefit expense
|
|
$
|
514
|
|
|
$
|
481
|
|
|
$
|
316
|
|
|
|
The projected benefit obligation (PBO) and accumulated benefit
obligation (ABO) at December 31, 2008 was
$4.7 million. The PBO and ABO at December 31, 2007 was
$5.2 million.
We limit our future obligation for post-retirement medical
benefits by capping at 5% the annual rate of increase in the
cost of claims we assume under the plan. The weighted average
discount rate used in determining the accumulated
post-retirement medical benefit obligation was 6.7% in 2008,
6.3% in 2007 and 5.98% in 2006. The assumed annual health care
cost trend rate was 5% in 2008, 2007 and 2006. The impact on the
benefit obligation of a 1% increase in the assumed health care
cost trend rate would be approximately $0.4 million while a
1% decline in the rate would decrease the benefit obligation by
approximately $0.4 million.
84
In December 2003, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (the Act) was signed into law. The
Act introduced a prescription drug benefit under Medicare
Part D and a federal subsidy to sponsors of retirement
health care plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. The subsidy is
based on approximately 28% of an individual beneficiarys
annual prescription drug costs between $250 and $5,000.
Future benefit payments expected to be paid for post-retirement
medical benefits are as follows:
Estimated future benefit payments
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Payments
|
|
|
|
2009
|
|
$
|
482
|
|
|
|
|
|
2010
|
|
|
479
|
|
|
|
|
|
2011
|
|
|
512
|
|
|
|
|
|
2012
|
|
|
548
|
|
|
|
|
|
2013
|
|
|
540
|
|
|
|
|
|
2014-2017
|
|
|
2,783
|
|
|
|
|
|
The amounts in accumulated other comprehensive loss that have
not yet been recognized as components of retiree medical expense
at December 31, 2008, and the expected amortization of
these amounts as components of net periodic benefit cost for the
year ended December 31, 2009 are:
Components of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
1,645
|
|
|
|
|
|
Net prior service cost
|
|
|
605
|
|
|
|
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,250
|
|
|
|
|
|
|
|
Expected amortization during 2008:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Amortization of net transition obligation
|
|
$
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
69
|
|
|
|
|
|
Amortization of net losses
|
|
|
102
|
|
|
|
|
|
|
|
|
|
$
|
171
|
|
|
|
|
|
|
|
19. Accumulated
Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) refers to
revenues, expenses, gains and losses that under accounting
principles generally accepted in the United States are recorded
as an element of shareholders equity but are excluded from
net income. Our accumulated other comprehensive income (loss) is
comprised of (a) adjustments that result from translation
of our foreign entity financial statements from their functional
currencies to United States dollars, (b) adjustments that
result from translation of intercompany foreign currency
transactions that are of a long-term investment nature (that is,
settlement is not planned or anticipated in the foreseeable
future) between entities that are consolidated in our financial
statements, (c) the offset to the fair value of derivative
assets and
85
liabilities (that qualify as hedged relationships) recorded on
the balance sheet, and (d) minimum pension liability
adjustments.
The components of accumulated other comprehensive income (loss),
net of tax, for the years ended December 31, 2008, 2007 and
2006 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
Post-retirement
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Fair Value of
|
|
|
Benefit
|
|
|
|
|
|
|
|
(in thousands)
|
|
Adjustment
|
|
|
Derivatives
|
|
|
Liabilities
|
|
|
Total
|
|
|
|
|
|
|
Balance January 1, 2006
|
|
$
|
(9,100
|
)
|
|
$
|
(5,109
|
)
|
|
$
|
(55,934
|
)
|
|
$
|
(70,143
|
)
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
33,618
|
|
|
|
|
|
|
|
|
|
|
|
33,618
|
|
|
|
|
|
Reclassification to earnings
|
|
|
|
|
|
|
31,693
|
|
|
|
|
|
|
|
31,693
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(38,420
|
)
|
|
|
|
|
|
|
(38,420
|
)
|
|
|
|
|
Change in pension and post-retirement benefit liabilities
|
|
|
|
|
|
|
|
|
|
|
(11,850
|
)
|
|
|
(11,850
|
)
|
|
|
|
|
Adoption of SFAS 158
|
|
|
|
|
|
|
|
|
|
|
(8,637
|
)
|
|
|
(8,637
|
)
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
24,518
|
|
|
|
(11,836
|
)
|
|
|
(76,421
|
)
|
|
|
(63,739
|
)
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
(46,882
|
)
|
|
|
|
|
|
|
|
|
|
|
(46,882
|
)
|
|
|
|
|
Reclassification to earnings
|
|
|
|
|
|
|
34,882
|
|
|
|
|
|
|
|
34,882
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(28,658
|
)
|
|
|
|
|
|
|
(28,658
|
)
|
|
|
|
|
Change in pension and post-retirement benefit liabilities
|
|
|
|
|
|
|
|
|
|
|
15,797
|
|
|
|
15,797
|
|
|
|
|
|
Transfer of U.K. pension plan to GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
43,272
|
|
|
|
43,272
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
(22,364
|
)
|
|
|
(5,612
|
)
|
|
|
(17,352
|
)
|
|
|
(45,328
|
)
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
(98,308
|
)
|
|
|
|
|
|
|
|
|
|
|
(98,308
|
)
|
|
|
|
|
Reclassification to earnings
|
|
|
|
|
|
|
105,002
|
|
|
|
|
|
|
|
105,002
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
(139,489
|
)
|
|
|
|
|
|
|
(139,489
|
)
|
|
|
|
|
Change in pension and post-retirement benefit liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,180
|
)
|
|
|
(1,180
|
)
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
(120,672
|
)
|
|
$
|
(40,099
|
)
|
|
$
|
(18,532
|
)
|
|
$
|
(179,303
|
)
|
|
|
|
|
|
|
86
20. Income
Taxes
Components of the income tax provision applicable to continuing
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
210,635
|
|
|
$
|
3,892
|
|
|
$
|
1,020
|
|
International
|
|
|
24,678
|
|
|
|
6,056
|
|
|
|
4,351
|
|
State
|
|
|
19,718
|
|
|
|
13,968
|
|
|
|
442
|
|
|
|
|
|
|
255,031
|
|
|
|
23,916
|
|
|
|
5,813
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(11,974
|
)
|
|
|
87,209
|
|
|
|
6,417
|
|
International
|
|
|
3,246
|
|
|
|
14,653
|
|
|
|
(2,710
|
)
|
State
|
|
|
(6,452
|
)
|
|
|
1,538
|
|
|
|
70
|
|
|
|
|
|
|
(15,180
|
)
|
|
|
103,400
|
|
|
|
3,777
|
|
|
|
Total income tax provision
|
|
$
|
239,851
|
|
|
$
|
127,316
|
|
|
$
|
9,590
|
|
|
|
The following table reconciles the income tax provision per the
Consolidated Statements of Operations to the federal statutory
provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
687,718
|
|
|
$
|
270,857
|
|
|
$
|
7,429
|
|
|
|
|
|
International
|
|
|
184,905
|
|
|
|
77,216
|
|
|
|
6,890
|
|
|
|
|
|
|
|
|
|
|
872,623
|
|
|
|
348,073
|
|
|
|
14,319
|
|
|
|
|
|
|
|
Statutory income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
270,541
|
|
|
|
108,071
|
|
|
|
2,775
|
|
|
|
|
|
International
|
|
|
29,392
|
|
|
|
24,699
|
|
|
|
2,841
|
|
|
|
|
|
|
|
|
|
|
299,933
|
|
|
|
132,770
|
|
|
|
5,616
|
|
|
|
|
|
|
|
Effects of international restructuring
|
|
|
(33,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
State and federal tax credits
|
|
|
(19,510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic production activity deduction
|
|
|
(13,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction to foreign tax rates
|
|
|
(507
|
)
|
|
|
(4,043
|
)
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
3,553
|
|
|
|
|
|
Valuation allowance
|
|
|
414
|
|
|
|
4,178
|
|
|
|
(367
|
)
|
|
|
|
|
Foreign tax credit
|
|
|
|
|
|
|
(6,765
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
6,095
|
|
|
|
1,176
|
|
|
|
788
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
239,851
|
|
|
$
|
127,316
|
|
|
$
|
9,590
|
|
|
|
|
|
|
|
87
The tax effect of net operating loss (NOL), tax credit
carryforwards and significant temporary differences between
reported and taxable earnings that gave rise to net deferred tax
assets (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
|
Current deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
6,428
|
|
|
$
|
2,736
|
|
|
|
|
|
Inventory valuation
|
|
|
760
|
|
|
|
354
|
|
|
|
|
|
Unsettled derivative losses
|
|
|
|
|
|
|
3,223
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
|
7,188
|
|
|
|
6,313
|
|
|
|
|
|
|
|
Non-current deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(94,467
|
)
|
|
|
(125,183
|
)
|
|
|
|
|
Investments in partnership
|
|
|
(1,195
|
)
|
|
|
(7,301
|
)
|
|
|
|
|
Investment in affiliates
|
|
|
(2,578
|
)
|
|
|
(43,596
|
)
|
|
|
|
|
Intangible asset
|
|
|
(732
|
)
|
|
|
(1,480
|
)
|
|
|
|
|
Unfunded employee benefits
|
|
|
(5,723
|
)
|
|
|
13,992
|
|
|
|
|
|
Discontinued business costs
|
|
|
8,664
|
|
|
|
8,920
|
|
|
|
|
|
Deferred revenueslong-term
|
|
|
4,079
|
|
|
|
|
|
|
|
|
|
NOL, capital loss and tax credit carryforwards
|
|
|
32,633
|
|
|
|
74,283
|
|
|
|
|
|
Valuation allowance
|
|
|
(32,154
|
)
|
|
|
(31,740
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
36,203
|
|
|
|
12,097
|
|
|
|
|
|
Other, net
|
|
|
(6,173
|
)
|
|
|
154
|
|
|
|
|
|
|
|
Net noncurrent deferred tax liability
|
|
|
(61,443
|
)
|
|
|
(99,854
|
)
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(54,255
|
)
|
|
$
|
(93,541
|
)
|
|
|
|
|
|
|
Our remaining NOLs at December 31, 2008 were generated in
tax year 1996. These NOLs, if unused, will begin to expire in
2011. A full valuation allowance has been established against
these NOL credit carryforwards as it is more likely than not
that we will not be able to benefit from these NOLs.
United States income taxes have not been provided on
undistributed earnings of international subsidiaries and
affiliated corporate joint ventures. Those earnings are
considered to be indefinitely reinvested. Upon distribution of
those earnings in the form of dividends or otherwise, Terra may
be subject to both U.S. income taxes (subject to adjustment
for foreign tax credits) and withholding taxes payable to the
various foreign countries.
21. Unrecognized
Tax Benefit
We adopted the provision of FASB Interpretation No. 48,
Accounting for Uncertainty to Income Taxes (FIN 48),
on January 1, 2007. Under FIN 48, tax benefits are
recorded only for tax positions that are more likely than not to
be sustained upon examination by tax authorities. The amount
recognized is measured as the largest amount of benefit that is
greater than 50% likely to be realized upon ultimate settlement.
Unrecognized tax benefits are tax benefits claimed in our tax
returns that do not meet these recognition and measurement
standards.
88
The following table summarizes the activity related to our
unrecognized tax benefits, interest and penalties:
|
|
|
|
|
(in thousands)
|
|
Total
|
|
Unrecognized tax benefits at January 1, 2008
|
|
$
|
33,560
|
|
Gross increases (decreases)tax positions in prior periods
|
|
|
|
|
Gross increases (decreases)tax positions in current period
|
|
|
|
|
Decreases relating to settlements with tax authorities
|
|
|
|
|
Decreases from the lapse of applicable statue of limitations
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31, 2008
|
|
$
|
33,560
|
|
Accrued interest and penalties
|
|
|
2,389
|
|
|
|
Total FIN 48 liability
|
|
$
|
35,949
|
|
|
|
The primary jurisdictions in which we or one of our subsidiaries
files income tax returns are the United States including state
and local jurisdictions, Canada and the United Kingdom, see
Note 8, Equity Investments, of the Notes to the
Consolidated Financial Statements. U.S. tax authorities
have completed their federal income tax examinations for all
years prior to 1998. With respect to state and local
jurisdictions inside the United States, with limited exceptions,
Terra and its subsidiaries are no longer subject to income tax
audits for years before 2001. For jurisdictions in Canada and
the United Kingdom, income tax returns remain subject to
examination by tax authorities for calendar years beginning in
2001 and 2005, respectively. Although the outcome of tax audits
is always uncertain, we believe that adequate amounts of tax,
including interest and penalties, have been provided for any
adjustments that are expected to result from those years.
The adoption of FIN 48 had no impact on our financial
statements other than the reclassification of the unrecognized
tax benefit. Other liabilities include a FIN liability of
$35.9 million at December 31, 2008. There are no
expected changes in the next twelve months. If recognized, the
$35.9 million of the FIN 48 liability would have an
impact on the effective tax rate.
When applicable, we recognize interest accrued and penalties
related to unrecognized tax benefits in income taxes on the
statement of operations. Interest and penalties were recognized
at December 31, 2008 in the amount of $2.4 million.
22. Industry
Segment Data
We operate in one principal industry segmentNitrogen
Products. The Nitrogen Products business produces and
distributes ammonia, urea, UAN, ammonium nitrate and other
nitrogen products to agricultural and industrial users.
The following summarizes geographic information about Terra:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Long-lived Assets
|
|
|
Year Ended December 31,
|
|
December 31,
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2008(1)
|
|
2007(1)
|
|
2006
|
|
|
United States
|
|
$
|
2,785,269
|
|
|
$
|
1,954,060
|
|
|
$
|
1,380,968
|
|
|
$
|
523,968
|
|
|
$
|
572,329
|
|
|
$
|
663,994
|
|
Canada
|
|
|
106,210
|
|
|
|
69,760
|
|
|
|
63,902
|
|
|
|
196,585
|
|
|
|
286,088
|
|
|
|
49,637
|
|
United
Kingdom(1)
|
|
|
|
|
|
|
319,109
|
|
|
|
374,826
|
|
|
|
|
|
|
|
|
|
|
|
238,577
|
|
|
|
|
|
$
|
2,891,479
|
|
|
$
|
2,342,929
|
|
|
$
|
1,819,696
|
|
|
$
|
720,553
|
|
|
$
|
858,417
|
|
|
$
|
952,208
|
|
|
|
|
|
|
|
(1)
|
On September 14, 2007, we completed the formation of
GrowHow UK Limited (GrowHow), a joint venture between Terra and
Kemira GrowHow Oyj. Pursuant to the joint venture
|
89
|
|
|
|
|
agreement, we contributed our United Kingdom subsidiary Terra
Nitrogen (UK) Limited to the joint venture for a 50% interest.
Subsequent to the formation, we have accounted for our
investment in GrowHow as an equity method investment and it is
included in our Canadian long-lived assets for the years 2008
and 2007.
|
23. Minority
interest
We own an aggregate 75.3% of TNCLP through general and limited
partnership interests. Outside investors own 24.7% of the
limited partnership interests. TNCLP has its manufacturing
facility in Verdigris, Oklahoma and is a major
U.S. producer of nitrogen fertilizer products. For
financial reporting purposes, the assets, liabilities and
earnings of the partnership are consolidated into our financial
statements. The outside investors limited partnership interest
in the partnership has been recorded as minority interest on our
consolidated financial statements. The minority interest
represents the minority unitholders interest in the equity
of TNCLP. At December 31, 2008 and 2007, we reported
minority interest in the statement of financial position of
$107.9 million and $109.7 million, respectively. For
the years 2008, 2007 and 2006, we recorded minority
unitholders interest in the statement of operations of
$67.7 million, $50.3 million and $11.3 million,
respectively.
TNCLP makes cash distributions to the General and Limited
Partners based upon formulas defined within the Agreement of
Limited Partnership. Available Cash for distribution 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. Cash distributions to the Limited Partner and General
Partner vary depending on when the cumulative distributions
exceed the Minimum Quarterly Distribution (MQD) target levels
set forth in the Agreement of Limited Partnership.
During 2008 the cumulative shortfall of the MQD was satisfied
which entitled us to increased income allocations as provided
for in the Agreement of Limited Partnership. The increased
income allocation attributed to our General Partner interest was
$36.6 million for 2008.
On February 10, 2009, TNCLP announced a $2.97 per unit
distribution to be paid during the first quarter of 2009.
24. Guarantor
Subsidiaries
Terra Industries Inc, excluding all majority owned subsidiaries,
(Parent) files a consolidated United States federal income tax
return. Beginning in 1995, the Parent adopted the tax sharing
agreements, under which all domestic operating subsidiaries
provide for and remit income taxes to the Parent based on their
pretax accounting income, adjusted for permanent differences
between pretax accounting income and taxable income. The tax
sharing agreements allocated the benefits of operating losses
and temporary differences between financial reporting and tax
basis income to the Parent.
Condensed consolidating financial information regarding the
Parent, Terra Capital, Inc. (TCAPI), the Guarantor Subsidiaries
and subsidiaries of the Parent that are not guarantors of the
Senior Unsecured Notes (see Note 9, Revolving Credit
Facility and Long-Term Debt, of the Notes to the
Consolidated Financial Statements) for December 31, 2008,
2007 and 2006 are presented below for purposes of complying with
the reporting requirements of the Guarantor Subsidiaries. The
guarantees of the Guarantor Subsidiaries are full and
unconditional. The Subsidiary issuer and the Guarantor
Subsidiaries guarantees are joint and several with the Parent.
Guarantor subsidiaries include: subsidiaries that own the
Woodward, Oklahoma; Port Neal, Iowa; Yazoo City, Mississippi;
and Beaumont, Texas plants; Terra Environmental Technologies;
Terra Global
90
Holding Company Inc., Terra Investment Fund LLC I,
Terra Investment Fund LLC II, Terra (U.K.) Holdings Inc.,
and the corporate headquarters facility in Sioux City, Iowa. All
guarantor subsidiaries are wholly owned by the Parent. All other
company facilities are owned by non-guarantor subsidiaries. In
2008, we declared the Beaumont, Texas facility as a discontinued
operation and classified the facility as held for sale pursuant
to SFAS 144. In December 2008, the Beaumont, Texas facility
was sold, see Note 2, Discontinued Operations, of
the Notes to the Consolidated Financial Statements.
Condensed
Consolidating Statement of Financial Position at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
331,714
|
|
|
$
|
284,658
|
|
|
$
|
350,328
|
|
|
$
|
|
|
|
$
|
966,700
|
|
Accounts receivable, net
|
|
|
9
|
|
|
|
74
|
|
|
|
73,358
|
|
|
|
56,949
|
|
|
|
|
|
|
|
130,390
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
111,295
|
|
|
|
85,796
|
|
|
|
|
|
|
|
197,091
|
|
Margin deposits with derivative counterparties
|
|
|
|
|
|
|
36,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,945
|
|
Other current assets
|
|
|
23,807
|
|
|
|
10,440
|
|
|
|
13,596
|
|
|
|
13,495
|
|
|
|
|
|
|
|
61,338
|
|
Current assets held for salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
23,816
|
|
|
|
379,173
|
|
|
|
482,907
|
|
|
|
506,568
|
|
|
|
|
|
|
|
1,392,464
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
6,037
|
|
|
|
288,449
|
|
|
|
108,827
|
|
|
|
|
|
|
|
403,313
|
|
Equity method investments
|
|
|
|
|
|
|
|
|
|
|
10,117
|
|
|
|
260,798
|
|
|
|
|
|
|
|
270,915
|
|
Deferred plant turnaround costs, intangible and other assets
|
|
|
2,230
|
|
|
|
7,156
|
|
|
|
21,146
|
|
|
|
15,793
|
|
|
|
|
|
|
|
46,325
|
|
Investments in and advances to (from) affiliates
|
|
|
1,248,834
|
|
|
|
95,285
|
|
|
|
3,106,388
|
|
|
|
588,172
|
|
|
|
(5,038,679
|
)
|
|
|
|
|
Noncurrent assets held for salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,274,880
|
|
|
$
|
487,651
|
|
|
$
|
3,909,007
|
|
|
$
|
1,480,158
|
|
|
$
|
(5,038,679
|
)
|
|
$
|
2,113,017
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
205
|
|
|
$
|
62
|
|
|
$
|
70,473
|
|
|
$
|
29,153
|
|
|
$
|
|
|
|
$
|
99,893
|
|
Customer prepayments
|
|
|
|
|
|
|
|
|
|
|
58,922
|
|
|
|
52,670
|
|
|
|
|
|
|
|
111,592
|
|
Derivative hedge liabilities
|
|
|
35,254
|
|
|
|
7,476
|
|
|
|
39,880
|
|
|
|
43,315
|
|
|
|
|
|
|
|
125,925
|
|
Accrued and other liabilities
|
|
|
51,861
|
|
|
|
8,947
|
|
|
|
42,261
|
|
|
|
24,701
|
|
|
|
|
|
|
|
127,770
|
|
Current liabilities held for salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
87,320
|
|
|
|
16,485
|
|
|
|
211,536
|
|
|
|
149,839
|
|
|
|
|
|
|
|
465,180
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Deferred income taxes
|
|
|
51,770
|
|
|
|
|
|
|
|
|
|
|
|
9,673
|
|
|
|
|
|
|
|
61,443
|
|
Pension and other liabilities
|
|
|
74,975
|
|
|
|
|
|
|
|
10,983
|
|
|
|
1,765
|
|
|
|
|
|
|
|
87,723
|
|
Minority interest
|
|
|
|
|
|
|
21,042
|
|
|
|
86,814
|
|
|
|
|
|
|
|
|
|
|
|
107,856
|
|
Noncurrent liabilities held for salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and minority interest
|
|
|
214,065
|
|
|
|
367,527
|
|
|
|
309,333
|
|
|
|
161,277
|
|
|
|
|
|
|
|
1,052,202
|
|
|
|
91
Condensed
Consolidating Statement of Financial Position at
December 31, 2008: (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Preferred stockliquidation value of $1,600
|
|
|
1,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,544
|
|
Common Stockholders Equity Common stock
|
|
|
152,111
|
|
|
|
|
|
|
|
73
|
|
|
|
83,332
|
|
|
|
(83,405
|
)
|
|
|
152,111
|
|
Paid in capital
|
|
|
579,164
|
|
|
|
150,218
|
|
|
|
2,201,646
|
|
|
|
963,435
|
|
|
|
(3,315,299
|
)
|
|
|
579,164
|
|
Accumulated other comprehensive income (loss)
|
|
|
(179,303
|
)
|
|
|
|
|
|
|
|
|
|
|
(170,574
|
)
|
|
|
170,574
|
|
|
|
(179,303
|
)
|
Retained earnings (accumulated deficit)
|
|
|
507,299
|
|
|
|
(30,094
|
)
|
|
|
1,397,955
|
|
|
|
442,688
|
|
|
|
(1,810,549
|
)
|
|
|
507,299
|
|
|
|
Total stockholders equity
|
|
|
1,059,271
|
|
|
|
120,124
|
|
|
|
3,599,674
|
|
|
|
1,318,881
|
|
|
|
(5,038,679
|
)
|
|
|
1,059,271
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,274,880
|
|
|
$
|
487,651
|
|
|
$
|
3,909,007
|
|
|
$
|
1,480,158
|
|
|
$
|
(5,038,679
|
)
|
|
$
|
2,113,017
|
|
|
|
92
Condensed
Consolidating Statement of Operations for the Year Ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,709,509
|
|
|
$
|
1,170,746
|
|
|
$
|
|
|
|
$
|
2,880,255
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
8,064
|
|
|
|
3,160
|
|
|
|
|
|
|
|
11,224
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
1,717,573
|
|
|
|
1,173,906
|
|
|
|
|
|
|
|
2,891,479
|
|
|
|
Cost and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
333
|
|
|
|
1,368,161
|
|
|
|
659,758
|
|
|
|
|
|
|
|
2,028,252
|
|
Selling, general and administrative expenses
|
|
|
2,776
|
|
|
|
(11,595
|
)
|
|
|
47,326
|
|
|
|
32,229
|
|
|
|
|
|
|
|
70,736
|
|
Equity (earnings) loss of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
(58,923
|
)
|
|
|
2,686
|
|
|
|
|
|
|
|
(56,237
|
)
|
|
|
Total cost and expenses
|
|
|
2,776
|
|
|
|
(11,262
|
)
|
|
|
1,356,564
|
|
|
|
694,673
|
|
|
|
|
|
|
|
2,042,751
|
|
|
|
Income (loss) from operations
|
|
|
(2,776
|
)
|
|
|
11,262
|
|
|
|
361,009
|
|
|
|
479,233
|
|
|
|
|
|
|
|
848,728
|
|
Interest income
|
|
|
|
|
|
|
13,044
|
|
|
|
777
|
|
|
|
9,549
|
|
|
|
|
|
|
|
23,370
|
|
Interest expense
|
|
|
(1,860
|
)
|
|
|
(24,840
|
)
|
|
|
8,012
|
|
|
|
(8,681
|
)
|
|
|
|
|
|
|
(27,369
|
)
|
Loss on debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and minority interest
|
|
|
(4,636
|
)
|
|
|
(534
|
)
|
|
|
369,798
|
|
|
|
480,101
|
|
|
|
|
|
|
|
844,729
|
|
Income tax benefit (provision)
|
|
|
1,368
|
|
|
|
(104,556
|
)
|
|
|
(109,165
|
)
|
|
|
(27,498
|
)
|
|
|
|
|
|
|
(239,851
|
)
|
Minority interest
|
|
|
|
|
|
|
(13,063
|
)
|
|
|
(54,621
|
)
|
|
|
|
|
|
|
|
|
|
|
(67,684
|
)
|
Equity (earnings) loss of unconsolidated affiliates
|
|
|
644,309
|
|
|
|
762,462
|
|
|
|
|
|
|
|
95,578
|
|
|
|
(1,406,771
|
)
|
|
|
95,578
|
|
|
|
Income from continuing operationsnet of tax
|
|
|
641,041
|
|
|
|
644,309
|
|
|
|
206,012
|
|
|
|
548,181
|
|
|
|
(1,406,771
|
)
|
|
|
632,772
|
|
Income from discontinued operationsnet of tax
|
|
|
|
|
|
|
|
|
|
|
8,269
|
|
|
|
|
|
|
|
|
|
|
|
8,269
|
|
|
|
Net Income (Loss)
|
|
$
|
641,041
|
|
|
$
|
644,309
|
|
|
$
|
214,281
|
|
|
$
|
548,181
|
|
|
$
|
(1,406,771
|
)
|
|
$
|
641,041
|
|
|
|
93
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
641,041
|
|
|
$
|
644,309
|
|
|
$
|
214,281
|
|
|
$
|
548,181
|
|
|
$
|
(1,406,771
|
)
|
|
$
|
641,041
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
8,269
|
|
|
|
|
|
|
|
|
|
|
|
8,269
|
|
|
|
Income (loss) from continuing operations
|
|
|
641,041
|
|
|
|
644,309
|
|
|
|
206,012
|
|
|
|
548,181
|
|
|
|
(1,406,771
|
)
|
|
|
632,772
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
43,657
|
|
|
|
35,197
|
|
|
|
|
|
|
|
78,854
|
|
Loss on sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
1,146
|
|
|
|
1,175
|
|
|
|
|
|
|
|
2,321
|
|
Deferred income taxes
|
|
|
(15,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,180
|
)
|
Minority interest in earnings
|
|
|
|
|
|
|
(362
|
)
|
|
|
68,046
|
|
|
|
|
|
|
|
|
|
|
|
67,684
|
|
Distributions in excess of (less than) equity earnings
|
|
|
(644,309
|
)
|
|
|
(762,462
|
)
|
|
|
5,657
|
|
|
|
2,686
|
|
|
|
1,406,771
|
|
|
|
8,343
|
|
Equity earningsGrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,578
|
)
|
|
|
|
|
|
|
(95,578
|
)
|
Non-cash loss on derivatives
|
|
|
39,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,779
|
|
Share-based compensation
|
|
|
8,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,104
|
|
Amortization of intangible and other assets
|
|
|
|
|
|
|
|
|
|
|
5,284
|
|
|
|
3,421
|
|
|
|
|
|
|
|
8,705
|
|
Change in operating assets and liabilitiescontinuing
operations
|
|
|
(142,756
|
)
|
|
|
(44,363
|
)
|
|
|
(22,187
|
)
|
|
|
(51,515
|
)
|
|
|
|
|
|
|
(260,821
|
)
|
|
|
Net cash flows from operating activitiescontinuing
operations
|
|
|
(113,321
|
)
|
|
|
(162,878
|
)
|
|
|
307,615
|
|
|
|
443,567
|
|
|
|
|
|
|
|
474,983
|
|
Net cash flows from operating activitiesdiscontinued
operations
|
|
|
|
|
|
|
|
|
|
|
8,161
|
|
|
|
|
|
|
|
|
|
|
|
8,161
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
(113,321
|
)
|
|
|
(162,878
|
)
|
|
|
315,776
|
|
|
|
443,567
|
|
|
|
|
|
|
|
483,144
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures
|
|
|
|
|
|
|
|
|
|
|
(77,109
|
)
|
|
|
(12,198
|
)
|
|
|
|
|
|
|
(89,307
|
)
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
1,666
|
|
|
|
407
|
|
|
|
|
|
|
|
2,073
|
|
Distributions received from unconsolidated affiliate
|
|
|
|
|
|
|
|
|
|
|
8,180
|
|
|
|
|
|
|
|
|
|
|
|
8,180
|
|
Contribution settlement received from GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,427
|
|
|
|
|
|
|
|
27,427
|
|
Balancing consideration payment from GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,272
|
|
|
|
|
|
|
|
61,272
|
|
|
|
Net cash flows from investing activitiescontinuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
(67,263
|
)
|
|
|
76,908
|
|
|
|
|
|
|
|
9,645
|
|
94
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2008: (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Net cash flows from investing activitiesdiscontinued
operations
|
|
|
|
|
|
|
|
|
|
|
41,879
|
|
|
|
|
|
|
|
|
|
|
|
41,879
|
|
|
|
Net Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
(25,384
|
)
|
|
|
76,908
|
|
|
|
|
|
|
|
51,524
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share dividends paid
|
|
|
(3,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,876
|
)
|
Preferred share inducement
|
|
|
(5,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,266
|
)
|
Common stock dividends paid
|
|
|
(28,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,274
|
)
|
Common stock issuances and vestings
|
|
|
(9,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,839
|
)
|
Change in investments and advances from (to) affiliates
|
|
|
305,954
|
|
|
|
438,735
|
|
|
|
(203,322
|
)
|
|
|
(1,072,883
|
)
|
|
|
531,516
|
|
|
|
|
|
Excess tax benefits from equity compensation plans
|
|
|
12,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,122
|
|
Payments under share repurchase program
|
|
|
(157,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157,500
|
)
|
Distributions to minority interests
|
|
|
|
|
|
|
|
|
|
|
(69,557
|
)
|
|
|
|
|
|
|
|
|
|
|
(69,557
|
)
|
|
|
Net cash flows from financing activitiescontinuing
operations
|
|
|
113,321
|
|
|
|
438,735
|
|
|
|
(272,879
|
)
|
|
|
(1,072,883
|
)
|
|
|
531,516
|
|
|
|
(262,190
|
)
|
Net cash flows from financing activitiesdiscontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Financing Activities
|
|
|
113,321
|
|
|
|
438,735
|
|
|
|
(272,879
|
)
|
|
|
(1,072,883
|
)
|
|
|
531,516
|
|
|
|
(262,190
|
)
|
|
|
Effect of Foreign Exchange Rate on Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,016
|
)
|
|
|
|
|
|
|
(4,016
|
)
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
|
|
|
|
275,857
|
|
|
|
17,513
|
|
|
|
(556,424
|
)
|
|
|
531,516
|
|
|
|
268,462
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
|
|
|
|
55,857
|
|
|
|
267,145
|
|
|
|
906,752
|
|
|
|
(531,516
|
)
|
|
|
698,238
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
|
|
|
$
|
331,714
|
|
|
$
|
284,658
|
|
|
$
|
350,328
|
|
|
$
|
|
|
|
$
|
966,700
|
|
|
|
95
Condensed
Consolidating Statement of Financial Position at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
55,857
|
|
|
$
|
267,145
|
|
|
$
|
906,752
|
|
|
$
|
(531,516
|
)
|
|
$
|
698,238
|
|
Accounts receivable, net
|
|
|
1
|
|
|
|
2
|
|
|
|
98,469
|
|
|
|
72,711
|
|
|
|
|
|
|
|
171,183
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
95,781
|
|
|
|
32,104
|
|
|
|
1,436
|
|
|
|
129,321
|
|
Margin deposits with derivative counterparties
|
|
|
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
638
|
|
Other current assets
|
|
|
10,614
|
|
|
|
|
|
|
|
11,127
|
|
|
|
6,454
|
|
|
|
|
|
|
|
28,195
|
|
Current assets held for salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
2,335
|
|
|
|
Total current assets
|
|
|
10,615
|
|
|
|
56,497
|
|
|
|
474,857
|
|
|
|
1,018,021
|
|
|
|
(530,080
|
)
|
|
|
1,029,910
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
264,198
|
|
|
|
125,530
|
|
|
|
|
|
|
|
389,728
|
|
Equity method investments
|
|
|
|
|
|
|
|
|
|
|
10,488
|
|
|
|
341,498
|
|
|
|
|
|
|
|
351,986
|
|
Deferred plant turnaround costs, intangible and other assets
|
|
|
6,732
|
|
|
|
8,333
|
|
|
|
18,984
|
|
|
|
45,174
|
|
|
|
(5,549
|
)
|
|
|
73,674
|
|
Investments in and advances to (from) affiliates
|
|
|
910,478
|
|
|
|
365,762
|
|
|
|
1,848,352
|
|
|
|
57,752
|
|
|
|
(3,182,344
|
)
|
|
|
|
|
Noncurrent assets held for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
43,029
|
|
|
|
|
|
|
|
|
|
|
|
43,029
|
|
|
|
Total Assets
|
|
$
|
927,825
|
|
|
$
|
430,592
|
|
|
$
|
2,659,908
|
|
|
$
|
1,587,975
|
|
|
$
|
(3,717,973
|
)
|
|
$
|
1,888,327
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
128
|
|
|
$
|
|
|
|
$
|
66,945
|
|
|
$
|
43,614
|
|
|
$
|
|
|
|
$
|
110,687
|
|
Customer prepayments
|
|
|
|
|
|
|
|
|
|
|
125,036
|
|
|
|
174,315
|
|
|
|
|
|
|
|
299,351
|
|
Derivative hedge liabilities
|
|
|
5,456
|
|
|
|
|
|
|
|
1,318
|
|
|
|
7,959
|
|
|
|
|
|
|
|
14,733
|
|
Accrued and other liabilities
|
|
|
20,259
|
|
|
|
9,169
|
|
|
|
44,190
|
|
|
|
14,304
|
|
|
|
|
|
|
|
87,922
|
|
Current liabilities held for salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
4,993
|
|
|
|
|
|
|
|
|
|
|
|
4,993
|
|
|
|
Total current liabilities
|
|
|
25,843
|
|
|
|
9,169
|
|
|
|
242,482
|
|
|
|
240,192
|
|
|
|
|
|
|
|
517,686
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Deferred income taxes
|
|
|
86,157
|
|
|
|
|
|
|
|
|
|
|
|
10,113
|
|
|
|
3,584
|
|
|
|
99,854
|
|
Pension and other liabilities
|
|
|
79,650
|
|
|
|
|
|
|
|
11,628
|
|
|
|
2,866
|
|
|
|
|
|
|
|
94,144
|
|
Minority interest
|
|
|
|
|
|
|
21,404
|
|
|
|
88,325
|
|
|
|
|
|
|
|
|
|
|
|
109,729
|
|
Noncurrent liabilities held for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
salediscontinued operations
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
Total liabilities and minority interest
|
|
|
191,650
|
|
|
|
360,573
|
|
|
|
343,174
|
|
|
|
253,171
|
|
|
|
3,584
|
|
|
|
1,152,152
|
|
|
|
Preferred stockliquidation Value of $120,000
|
|
|
115,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,800
|
|
Common Stockholders Equity Common stock
|
|
|
142,170
|
|
|
|
|
|
|
|
73
|
|
|
|
32,458
|
|
|
|
(32,531
|
)
|
|
|
142,170
|
|
Paid in capital
|
|
|
618,874
|
|
|
|
150,218
|
|
|
|
1,910,748
|
|
|
|
1,133,745
|
|
|
|
(3,194,711
|
)
|
|
|
618,874
|
|
Accumulated other comprehensive income (loss)
|
|
|
(45,328
|
)
|
|
|
|
|
|
|
|
|
|
|
281,850
|
|
|
|
(281,850
|
)
|
|
|
(45,328
|
)
|
Retained earnings (accumulated deficit)
|
|
|
(95,341
|
)
|
|
|
(80,199
|
)
|
|
|
405,913
|
|
|
|
(113,249
|
)
|
|
|
(212,465
|
)
|
|
|
(95,341
|
)
|
|
|
Total stockholders equity
|
|
|
620,375
|
|
|
|
70,019
|
|
|
|
2,316,734
|
|
|
|
1,334,804
|
|
|
|
(3,721,557
|
)
|
|
|
620,375
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
927,825
|
|
|
$
|
430,592
|
|
|
$
|
2,659,908
|
|
|
$
|
1,587,975
|
|
|
$
|
(3,717,973
|
)
|
|
$
|
1,888,327
|
|
|
|
96
Condensed
Consolidating Statement of Operations for the Year Ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
Non-Guarantor
|
|
|
|
|
|
|
Parent
|
|
TCAPI
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,181,736
|
|
|
$
|
1,154,138
|
|
|
$
|
|
|
|
$
|
2,335,874
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
5,104
|
|
|
|
1,951
|
|
|
|
|
|
|
|
7,055
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
1,186,840
|
|
|
|
1,156,089
|
|
|
|
|
|
|
|
2,342,929
|
|
|
|
Cost and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
900
|
|
|
|
345
|
|
|
|
982,627
|
|
|
|
831,548
|
|
|
|
1
|
|
|
|
1,815,421
|
|
Selling, general and administrative expenses
|
|
|
2,179
|
|
|
|
(10,611
|
)
|
|
|
32,439
|
|
|
|
67,962
|
|
|
|
2
|
|
|
|
91,971
|
|
Equity earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
(16,209
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,209
|
)
|
|
|
Total cost and expenses
|
|
|
3,079
|
|
|
|
(10,266
|
)
|
|
|
998,857
|
|
|
|
899,510
|
|
|
|
3
|
|
|
|
1,891,183
|
|
|
|
Income (loss) from operations
|
|
|
(3,079
|
)
|
|
|
10,266
|
|
|
|
187,983
|
|
|
|
256,579
|
|
|
|
(3
|
)
|
|
|
451,746
|
|
Interest income
|
|
|
|
|
|
|
6,093
|
|
|
|
5,077
|
|
|
|
6,092
|
|
|
|
|
|
|
|
17,262
|
|
Interest expense
|
|
|
(1,860
|
)
|
|
|
(26,909
|
)
|
|
|
(6
|
)
|
|
|
(325
|
)
|
|
|
|
|
|
|
(29,100
|
)
|
Loss on debt
|
|
|
|
|
|
|
(38,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,836
|
)
|
Foreign currency gain (loss)
|
|
|
|
|
|
|
(1,886
|
)
|
|
|
8
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax and minority interests
|
|
|
(4,939
|
)
|
|
|
(51,272
|
)
|
|
|
193,062
|
|
|
|
264,224
|
|
|
|
(3
|
)
|
|
|
401,072
|
|
Income tax benefit (provision)
|
|
|
1,790
|
|
|
|
(37,582
|
)
|
|
|
(70,815
|
)
|
|
|
(20,709
|
)
|
|
|
|
|
|
|
(127,316
|
)
|
Minority interest
|
|
|
|
|
|
|
(9,704
|
)
|
|
|
(40,577
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,281
|
)
|
Equity (earnings) loss of unconsolidated affiliates
|
|
|
205,045
|
|
|
|
303,602
|
|
|
|
|
|
|
|
(2,718
|
)
|
|
|
(508,647
|
)
|
|
|
(2,718
|
)
|
|
|
Income from continuing operationsnet of tax
|
|
|
201,896
|
|
|
|
205,044
|
|
|
|
81,670
|
|
|
|
240,797
|
|
|
|
(580,650
|
)
|
|
|
220,757
|
|
Income from discontinued operationsnet of tax
|
|
|
|
|
|
|
|
|
|
|
(18,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,861
|
)
|
|
|
Net Income (Loss)
|
|
$
|
201,896
|
|
|
$
|
205,044
|
|
|
$
|
62,809
|
|
|
$
|
240,797
|
|
|
$
|
(508,650
|
)
|
|
$
|
201,896
|
|
|
|
97
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
201,896
|
|
|
$
|
205,044
|
|
|
$
|
62,809
|
|
|
$
|
240,796
|
|
|
$
|
(508,649
|
)
|
|
$
|
201,896
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(18,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,861
|
)
|
|
|
Income (loss) from continuing operations
|
|
|
201,896
|
|
|
|
205,044
|
|
|
|
81,670
|
|
|
|
240,796
|
|
|
|
(508,649
|
)
|
|
|
220,757
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
40,407
|
|
|
|
54,377
|
|
|
|
|
|
|
|
94,784
|
|
Deferred income taxes
|
|
|
90,879
|
|
|
|
|
|
|
|
12,521
|
|
|
|
|
|
|
|
|
|
|
|
103,400
|
|
Minority interest in earnings
|
|
|
|
|
|
|
2,903
|
|
|
|
47,378
|
|
|
|
|
|
|
|
|
|
|
|
50,281
|
|
Distributions in excess of (less than) equity earnings
|
|
|
(205,045
|
)
|
|
|
(303,602
|
)
|
|
|
8,536
|
|
|
|
379,935
|
|
|
|
128,712
|
|
|
|
8,536
|
|
Equity earningsGrowHow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,718
|
|
|
|
|
|
|
|
2,718
|
|
Non-cash loss on derivatives
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
Share-based compensation
|
|
|
28,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
28,102
|
|
Amortization of intangible and other assets
|
|
|
|
|
|
|
|
|
|
|
3,713
|
|
|
|
3,240
|
|
|
|
1
|
|
|
|
6,954
|
|
Non-cash loss on early retirement of debt
|
|
|
|
|
|
|
4,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,662
|
|
Change in operating assets and liabilitiescontinuing
operations
|
|
|
(83,235
|
)
|
|
|
4,952
|
|
|
|
77,745
|
|
|
|
460,091
|
|
|
|
(247,263
|
)
|
|
|
212,290
|
|
|
|
Net cash flows from operating activitiescontinuing
operations
|
|
|
33,898
|
|
|
|
(86,041
|
)
|
|
|
271,970
|
|
|
|
1,141,157
|
|
|
|
(627,200
|
)
|
|
|
733,784
|
|
Net cash flows from operating activitiesdiscontinued
operations
|
|
|
|
|
|
|
|
|
|
|
14,081
|
|
|
|
|
|
|
|
|
|
|
|
14,081
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
33,898
|
|
|
|
(86,041
|
)
|
|
|
286,051
|
|
|
|
1,141,157
|
|
|
|
(627,200
|
)
|
|
|
747,865
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures
|
|
|
|
|
|
|
|
|
|
|
(18,676
|
)
|
|
|
(63,699
|
)
|
|
|
(1
|
)
|
|
|
(82,376
|
)
|
Cash retained by GrowHow UK Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,788
|
)
|
|
|
|
|
|
|
(16,788
|
)
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Distributions received from unconsolidated affiliate
|
|
|
|
|
|
|
|
|
|
|
4,705
|
|
|
|
|
|
|
|
|
|
|
|
4,705
|
|
|
|
Net cash flows from investing activitiescontinuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
(13,947
|
)
|
|
|
(80,487
|
)
|
|
|
(1
|
)
|
|
|
(94,435
|
)
|
|
|
Net Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
(13,947
|
)
|
|
|
(80,487
|
)
|
|
|
(1
|
)
|
|
|
(94,435
|
)
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2007: (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Issuance of debt
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
Payments under borrowing arrangements
|
|
|
|
|
|
|
(331,300
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(331,300
|
)
|
Payments for debt issuance costs
|
|
|
|
|
|
|
(6,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,444
|
)
|
Preferred share dividends paid
|
|
|
(5,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
Common stock issuances and vestings
|
|
|
(1,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,424
|
)
|
Change in investments and advances from (to) affiliates
|
|
|
56,734
|
|
|
|
48,906
|
|
|
|
30,281
|
|
|
|
(231,607
|
)
|
|
|
95,686
|
|
|
|
|
|
Excess tax benefits from equity compensation plans
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,317
|
|
Payments under share repurchase program
|
|
|
(87,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,426
|
)
|
Distributions to minority interests
|
|
|
|
|
|
|
|
|
|
|
(35,239
|
)
|
|
|
|
|
|
|
|
|
|
|
(35,239
|
)
|
|
|
Net cash flows from financing activitiescontinuing
operations
|
|
|
(33,899
|
)
|
|
|
41,162
|
|
|
|
(4,959
|
)
|
|
|
(231,607
|
)
|
|
|
95,687
|
|
|
|
(133,616
|
)
|
|
|
Net Cash Flows from Financing Activities
|
|
|
(33,899
|
)
|
|
|
41,162
|
|
|
|
(4,959
|
)
|
|
|
(231,607
|
)
|
|
|
95,687
|
|
|
|
(133,616
|
)
|
|
|
Effect of Foreign Exchange Rate Changes on Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(593
|
)
|
|
|
|
|
|
|
(593
|
)
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(1
|
)
|
|
|
(44,879
|
)
|
|
|
267,145
|
|
|
|
828,470
|
|
|
|
(531,514
|
)
|
|
|
519,221
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
1
|
|
|
|
100,736
|
|
|
|
|
|
|
|
78,282
|
|
|
|
(2
|
)
|
|
|
179,017
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
|
|
|
$
|
55,857
|
|
|
$
|
267,145
|
|
|
$
|
906,752
|
|
|
$
|
(531,516
|
)
|
|
$
|
698,238
|
|
|
|
99
Condensed
Consolidating Statement of Operations for the Year Ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
846,785
|
|
|
$
|
969,261
|
|
|
$
|
(1
|
)
|
|
$
|
1,816,045
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
1,438
|
|
|
|
2,213
|
|
|
|
|
|
|
|
3,651
|
|
|
|
Total revenues
|
|
|
|
|
|
|
|
|
|
|
848,223
|
|
|
|
971,474
|
|
|
|
(1
|
)
|
|
|
1,819,696
|
|
|
|
Cost and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
851,309
|
|
|
|
901,940
|
|
|
|
(52,070
|
)
|
|
|
1,701,179
|
|
Selling, general and administrative expenses
|
|
|
2,358
|
|
|
|
(8,142
|
)
|
|
|
5,557
|
|
|
|
16,549
|
|
|
|
52,069
|
|
|
|
68,391
|
|
Equity (earnings) loss of Unconsolidated affiliates
|
|
|
29,853
|
|
|
|
(184,740
|
)
|
|
|
(91,993
|
)
|
|
|
(46,002
|
)
|
|
|
275,869
|
|
|
|
(17,013
|
)
|
|
|
Total cost and expenses
|
|
|
32,211
|
|
|
|
(192,882
|
)
|
|
|
764,873
|
|
|
|
872,487
|
|
|
|
275,868
|
|
|
|
1,752,557
|
|
|
|
Income (loss) from operations
|
|
|
(32,211
|
)
|
|
|
192,882
|
|
|
|
83,350
|
|
|
|
98,987
|
|
|
|
(275,869
|
)
|
|
|
67,139
|
|
Interest income
|
|
|
|
|
|
|
(167
|
)
|
|
|
7,004
|
|
|
|
(1,267
|
)
|
|
|
887
|
|
|
|
6,457
|
|
Interest expense
|
|
|
(1,860
|
)
|
|
|
(42,320
|
)
|
|
|
(8
|
)
|
|
|
1,610
|
|
|
|
(5,413
|
)
|
|
|
(47,991
|
)
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
(34,071
|
)
|
|
|
150,395
|
|
|
|
90,346
|
|
|
|
99,330
|
|
|
|
(280,395
|
)
|
|
|
25,605
|
|
Income tax benefit (provision)
|
|
|
(7,607
|
)
|
|
|
|
|
|
|
(343
|
)
|
|
|
(1,642
|
)
|
|
|
2
|
|
|
|
(9,590
|
)
|
Minority interest
|
|
|
|
|
|
|
(2,178
|
)
|
|
|
(9,108
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,286
|
)
|
|
|
Income from continuing operationsnet of tax
|
|
|
(41,678
|
)
|
|
|
148,217
|
|
|
|
80,895
|
|
|
|
97,688
|
|
|
|
(280,393
|
)
|
|
|
4,729
|
|
Income from discontinued operationsnet of tax
|
|
|
|
|
|
|
|
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
(516
|
)
|
|
|
Net Income (Loss)
|
|
$
|
(41,678
|
)
|
|
$
|
148,217
|
|
|
$
|
80,379
|
|
|
$
|
97,688
|
|
|
$
|
(280,393
|
)
|
|
$
|
4,213
|
|
|
|
100
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(41,678
|
)
|
|
$
|
148,217
|
|
|
$
|
80,379
|
|
|
$
|
97,688
|
|
|
$
|
(280,393
|
)
|
|
$
|
4,213
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
(516
|
)
|
|
|
Income (loss) from continuing operations
|
|
|
(41,678
|
)
|
|
|
148,217
|
|
|
|
80,895
|
|
|
|
97,688
|
|
|
|
(280,393
|
)
|
|
|
4,729
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
43,907
|
|
|
|
34,968
|
|
|
|
29,194
|
|
|
|
108,069
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
|
|
|
|
|
|
3,777
|
|
Minority interest in earnings
|
|
|
|
|
|
|
452
|
|
|
|
10,838
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
11,286
|
|
Distributions in excess of (less than) equity earnings
|
|
|
(29,853
|
)
|
|
|
184,740
|
|
|
|
91,993
|
|
|
|
46,002
|
|
|
|
(283,680
|
)
|
|
|
9,202
|
|
Non-cash loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
589
|
|
|
|
344
|
|
|
|
|
|
|
|
933
|
|
Share-based compensation
|
|
|
7,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,010
|
|
Amortization of intangible and other assets
|
|
|
|
|
|
|
2,928
|
|
|
|
1,882
|
|
|
|
186
|
|
|
|
1,882
|
|
|
|
6,878
|
|
Change in operating assets and liabilitiescontinuing
operations
|
|
|
33,137
|
|
|
|
(73,758
|
)
|
|
|
(38,808
|
)
|
|
|
31,657
|
|
|
|
50,853
|
|
|
|
3,081
|
|
|
|
Net cash flows from operating activitiescontinuing
operations
|
|
|
(31,384
|
)
|
|
|
262,579
|
|
|
|
191,296
|
|
|
|
214,622
|
|
|
|
(482,148
|
)
|
|
|
154,965
|
|
Net cash flows from operating activitiesdiscontinued
operations
|
|
|
|
|
|
|
|
|
|
|
4,295
|
|
|
|
|
|
|
|
|
|
|
|
4,295
|
|
|
|
Net Cash Flows from Operating Activities
|
|
|
(31,384
|
)
|
|
|
262,579
|
|
|
|
195,591
|
|
|
|
214,622
|
|
|
|
(482,148
|
)
|
|
|
159,260
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and plant turnaround expenditures
|
|
|
|
|
|
|
|
|
|
|
(42,870
|
)
|
|
|
(43,267
|
)
|
|
|
|
|
|
|
(86,137
|
)
|
Changes in restricted cash
|
|
|
|
|
|
|
|
|
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
8,595
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
16,400
|
|
|
|
2,700
|
|
|
|
|
|
|
|
19,100
|
|
Distributions received from unconsolidated affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,660
|
|
|
|
|
|
|
|
9,660
|
|
|
|
Net cash flows from investing activitiescontinuing
operations
|
|
|
|
|
|
|
|
|
|
|
(17,875
|
)
|
|
|
(30,907
|
)
|
|
|
|
|
|
|
(48,782
|
)
|
|
|
Net Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
(17,875
|
)
|
|
|
(30,907
|
)
|
|
|
|
|
|
|
(48,782
|
)
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments under borrowing arrangements
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
(37
|
)
|
Preferred share dividends paid
|
|
|
(5,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
Common stock issuances and vestings
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
Change in investments and advances from (to) affiliates
|
|
|
53,652
|
|
|
|
(173,351
|
)
|
|
|
(236,202
|
)
|
|
|
(126,256
|
)
|
|
|
482,157
|
|
|
|
|
|
101
Condensed
Consolidating Statement of Cash Flows for the Year Ended
December 31, 2006: (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
TCAPI
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
Excess tax benefits from equity compensation plans
|
|
|
1,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,255
|
|
Payments under share repurchase program
|
|
|
(18,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(18,796
|
)
|
Changes in overdraft protection arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,443
|
|
|
|
|
|
|
|
11,443
|
|
Distributions to minority interests
|
|
|
|
|
|
|
|
|
|
|
(8,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,861
|
)
|
|
|
Net cash flows from financing activitiescontinuing
operations
|
|
|
31,384
|
|
|
|
(173,351
|
)
|
|
|
(245,088
|
)
|
|
|
(114,825
|
)
|
|
|
482,147
|
|
|
|
(19,733
|
)
|
|
|
Net Cash Flows from Financing Activities
|
|
|
31,384
|
|
|
|
(173,351
|
)
|
|
|
(245,088
|
)
|
|
|
(114,825
|
)
|
|
|
482,147
|
|
|
|
(19,733
|
)
|
|
|
Effect of Foreign Exchange Rate on Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,906
|
|
|
|
|
|
|
|
1,906
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
|
|
|
|
89,228
|
|
|
|
(67,372
|
)
|
|
|
70,796
|
|
|
|
(1
|
)
|
|
|
92,651
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
1
|
|
|
|
11,508
|
|
|
|
67,372
|
|
|
|
7,486
|
|
|
|
(1
|
)
|
|
|
86,366
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
1
|
|
|
$
|
100,736
|
|
|
$
|
|
|
|
$
|
78,282
|
|
|
$
|
(2
|
)
|
|
$
|
179,017
|
|
|
|
102
25. Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per-share
data)
|
|
March 31
|
|
June 30
|
|
Sept. 30
|
|
Dec. 31
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
574,704
|
|
|
$
|
843,097
|
|
|
$
|
790,214
|
|
|
$
|
683,464
|
|
Gross profit
|
|
|
167,715
|
|
|
|
296,027
|
|
|
|
211,904
|
|
|
|
187,581
|
|
Income from continuing operations
|
|
|
101,305
|
|
|
|
196,116
|
|
|
|
171,270
|
|
|
|
164,081
|
|
Income from discontinued operations
|
|
|
152
|
|
|
|
7,319
|
|
|
|
141
|
|
|
|
657
|
|
Net income
|
|
|
101,457
|
|
|
|
203,435
|
|
|
|
171,411
|
|
|
|
164,738
|
|
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.11
|
|
|
$
|
2.14
|
|
|
$
|
1.75
|
|
|
$
|
1.65
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.08
|
|
|
|
|
|
|
|
0.01
|
|
|
|
Earnings per sharebasic
|
|
$
|
1.11
|
|
|
$
|
2.22
|
|
|
$
|
1.75
|
|
|
$
|
1.66
|
|
|
|
Earnings per sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.97
|
|
|
$
|
1.87
|
|
|
$
|
1.64
|
|
|
$
|
1.64
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.07
|
|
|
|
|
|
|
|
0.01
|
|
|
|
Earnings per sharediluted
|
|
$
|
0.97
|
|
|
$
|
1.94
|
|
|
$
|
1.64
|
|
|
$
|
1.65
|
|
|
|
2007 Revenues
|
|
$
|
500,924
|
|
|
$
|
692,535
|
|
|
$
|
580,476
|
|
|
$
|
568,994
|
|
Gross profit
|
|
|
78,660
|
|
|
|
160,182
|
|
|
|
138,613
|
|
|
|
150,053
|
|
Income from continuing operations
|
|
|
8,743
|
|
|
|
72,103
|
|
|
|
70,451
|
|
|
|
69,460
|
|
Income (loss) from discontinued operations
|
|
|
(1,533
|
)
|
|
|
(1,448
|
)
|
|
|
(16,071
|
)
|
|
|
191
|
|
Net income
|
|
|
7,210
|
|
|
|
70,655
|
|
|
|
54,380
|
|
|
|
69,651
|
|
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.77
|
|
|
$
|
0.77
|
|
|
$
|
0.76
|
|
Income (loss) from discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
Earnings per sharebasic
|
|
$
|
0.06
|
|
|
$
|
0.76
|
|
|
$
|
0.59
|
|
|
$
|
0.76
|
|
|
|
Earnings (loss) per sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.08
|
|
|
$
|
0.67
|
|
|
$
|
0.66
|
|
|
$
|
0.66
|
|
Income (loss) from discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.15
|
)
|
|
|
0.01
|
|
|
|
Earnings per sharediluted
|
|
$
|
0.06
|
|
|
$
|
0.66
|
|
|
$
|
0.51
|
|
|
$
|
0.67
|
|
|
|
103
26. Subsequent
Event
CF
Industries Proposal
On January 15, 2009, CF Industries Holdings, Inc.
(CF) presented a letter to our Board of Directors
proposing CFs acquisition of Terra in an all-stock
transaction. Terras Board rejected the proposal on the
grounds that it was not in the best interest of Terra or its
stockholders and substantially undervalued the Company. CF
Industries subsequently announced that they remained committed
to the proposal, and on February 3, 2009, announced that
they would nominate three director candidates to Terras
Board and commence an exchange offer for all of Terras
outstanding common shares.
On February 23, 2009, CF announced that it had commenced an
unsolicited exchange offer to acquire all of the outstanding
common shares of Terra at a fixed exchange ratio of 0.4235 CF
shares for each Terra common share. In response, Terras
Board of Directors announced on February 23, 2009 that it
would review and consider CFs exchange offer and make a
formal recommendation to shareholders within ten business days,
and further advised Terras shareholders to take no action
pending the review of the proposed exchange offer by
Terras Board.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
Item 9A.
Controls and Procedures
(a) Disclosure
Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports we file or submit under the Securities Exchange Act of
1934 (the Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer (principal executive officer) and Chief Financial
Officer (principal financial officer), to allow timely decisions
regarding required disclosure. We have established a Disclosure
Committee, consisting of certain members of management, to
assist in this evaluation. The Disclosure Committee meets on a
quarterly basis and more often if necessary.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act), as of the end of the period covered by
this report. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of
the end of such period, our disclosure controls and procedures
are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act.
(b) Changes
in Internal Control over Financial Reporting
There were no changes in internal control over financial
reporting (as such term is defined in
Rules 13a-15(f)
and 15(a)-15(f) under the Exchange Act) during the fiscal fourth
quarter ended December 31, 2008, that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting. There were no
material weaknesses identified in the review and evaluation, and
therefore no corrective actions were taken.
104
(c)
Managements Report on Internal Control over Financial
Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires that
management document and test the Companys internal control
over financial reporting and include in this Annual Report on
Form 10-K
a report on managements assessment of the effectiveness of
our internal control over financial reporting. See
Managements Report on Internal Control over
Financial Reporting below. Deloitte & Touche
LLPs attestation report on the effectiveness of our
internal control over financial reporting is included in
Item 8, Financial Statements and Supplementary Data,
of this Annual Report on
Form 10-K.
(d) Certifications
The certifications of our Chief Executive Officer and our Chief
Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002 are filed as
Exhibits No. 31.1 and No. 31.2, respectively, to
this Annual Report on
Form 10-K.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
and
15a-15(f)
under the Securities Exchange Act of 1934. Our internal control
over financial reporting is designed by, and under the
supervision of our Chief Executive Officer and Chief Financial
Officer, and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States
and includes those policies and procedures that:
(1) Pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect our transactions
and the dispositions of our assets;
(2) Provide reasonable assurance that our
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our
management and Board of Directors; and
(3) Provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect
on our financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we assessed the effectiveness of
our internal control over financial reporting as of
December 31, 2008, using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
in Internal ControlIntegrated Framework. Based on
its assessment, management has concluded that our internal
control over financial reporting was effective as of
December 31, 2008. During its assessment, management did
not identify any material weaknesses in our internal control
over financial reporting.
105
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Terra Industries
Inc.:
We have audited the internal control over financial reporting of
Terra Industries Inc. and subsidiaries (the Company) as of
December 31, 2008, based on the criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records, that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
106
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2008 of
the Company and our report dated February 27, 2009
expressed an unqualified opinion on those financial statements
and financial statement schedule.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 27, 2009
107
Item 9B.
Other Information
There was no information required to be disclosed in a Current
Report on
Form 8-K
during the fourth quarter of the fiscal year covered by this
Annual Report on
Form 10-K
that was not reported.
108
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information with respect to directors of Terra will be set forth
under the caption Election of Directors in the proxy
statement for the 2009 Annual Meeting of Stockholders of Terra,
and is incorporated herein by reference. Information with
respect to executive officers of Terra is set forth under the
caption Executive Officers of Terra in Part I
hereof and is incorporated herein by reference.
We have a Code of Ethics and Standards of Business Conduct that
applies to Terras principal executive officer and its
principal financial officer. The code also applies to our other
officers, directors and employees. The Code of Ethics and
Standards of Business Conduct is posted on Terras Web
site, www.terraindustries.com, and is available on hard copy
upon request. In addition, the information set forth under
Section 16(a) Beneficial Ownership Reporting
Compliance in the proxy statement for the 2009 Annual
Meeting of Stockholders of Terra is incorporated herein by
reference.
|
|
Item 11.
|
Executive
Compensation
|
Information with respect to executive officer and director
compensation will be set forth under the caption Executive
Compensation and Other Information and Compensation
Committee Interlocks and Insider Participation in the
proxy statement for the 2009 Annual Meeting of Stockholders of
Terra, and is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information with respect to security ownership of certain
beneficial owners and management will be set forth under the
caption Equity Security Ownership in the proxy
statement for the 2009 Annual Meeting of Stockholders of Terra,
and is incorporated herein by reference.
We currently have the ability to make stock-based awards under
our Stock Incentive Plan of 2002 and our 2007 Omnibus Incentive
Compensation Plan, which may consist of incentive stock options,
non-qualified stock options, stock appreciation rights,
nonvested stock awards and other stock-based awards. For more
information on our equity compensation plans, see Note 16,
Share-Based Compensation, of the Notes to the
Consolidated Financial Statements, included in Item 8,
Financial Statements and Supplementary Data, of this
Annual Report on
Form 10-K.
109
|
|
|
|
|
|
|
Equity
Compensation Plan Information
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
Number of securities
to be
|
|
Weighted-average
|
|
Number of securities
remaining available for
|
|
|
issued upon exercise
of
|
|
exercise price of
|
|
future issuance
under equity compensation
|
|
|
outstanding options,
warrants
|
|
outstanding
options,
|
|
plans (excluding
securities reflected in column
|
Plan
category
|
|
and
rights
|
|
warrants
and rights
|
|
(a))
|
|
Equity compensation plans approved by security holders
|
|
-0-
|
|
-0-
|
|
3,999,834
|
|
|
Equity compensation plans not approved by security holders
|
|
-0-
|
|
-0-
|
|
-0-
|
|
|
Total
|
|
-0-
|
|
$-0-
|
|
3,999,834
|
110
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
Information with respect to certain relationships and related
transactions with related persons will be set forth under the
caption Transactions with Related Persons and
Policies and Procedures of the proxy statement, for
the 2009 Annual Meeting of Stockholders of Terra, and is
incorporated herein by reference. Information with regard to
director independence will be set forth under the caption
Corporate Governance and Board of Directors
and Committees of the proxy statement for the 2009 Annual
Meeting of Stockholders of Terra, and is incorporated herein by
reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Principal
Accountant Audit Fees and Services Fees
Information with respect to principal accountant audit fees and
service fees will be set forth under the caption
Proposal 2: Ratification of Selection of Independent
AccountantsPrincipal Accountant Audit Fees and Service
Fees in the proxy statement for the 2009 Annual Meeting of
Stockholders of Terra, and is incorporated herein by reference.
Audit
Committee Pre-Approval Policies and Procedures
Pursuant to its charter, the Audit Committee is responsible for
reviewing and approving, in advance, any audit and any
permissible non-audit engagement or relationship between Terra
and its independent auditors. Deloitte & Touche
LLPs engagement to conduct the audit of Terras
financial statements included herein was approved by the Audit
Committee on February 13, 2008. Additionally, each
permissible non-audit engagement or relationship between Terra
and services performed by Deloitte & Touche LLP since
May 2003 has been reviewed and approved in advance by the Audit
Committee, as provided in its charter.
111
Part IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Documents
Filed as a Part of this Report
|
|
|
|
1.
|
Consolidated Financial Statements of Terra and its subsidiaries
are included in Item 8 herein.
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Consolidated Statements of Financial Position at
December 31, 2008 and 2007
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Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006
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Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006
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Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2008, 2007 and 2006
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Notes to the Consolidated Financial Statements
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Report of Independent Registered Accounting Firm
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2.
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Index to Financial Statement Schedules, Reports and Consents
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See Index to Financial Statement Schedules of Terra and its
subsidiaries at
page S-1
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3.
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Other Financial Statements
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Individual financial statements of the Companys 50% owned
joint venture in Trinidad, Point Lisas Nitrogen Limited (PLNL),
accounted for on the equity method, have been included because
the equity investment constituted a significant subsidiary in
2006. The PLNL financial statements are audited for the year
ended December 31, 2006 and unaudited for the years ended
December 31, 2008 and 2007. Other 50% owned joint
ventures accounted for on the equity basis considered in the
aggregate would not constitute a significant subsidiary.
Therefore, those financial statements have been omitted.
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(b) Exhibits
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2
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.1
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Stock Purchase Agreement dated as of August 6, 2004 among Terra
Industries Inc., MissChem Acquisition Inc. and Mississippi
Chemical Corporation, filed as Exhibit 99.2 to Terra Industries
Inc.s Form 8-K dated August 9, 2004, is incorporated
herein by reference.
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3
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.1
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Articles of Restatement of Terra Industries Inc. filed with the
State Department of Assessments and Taxation of Maryland on
August 3, 2005, restating the Charter of Terra Industries Inc.,
filed as Exhibit 3.3 to Terra Industries Inc.s Form 8-K
dated August 3, 2005, are incorporated herein by reference.
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3
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.2
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Amended and Restated By-Laws of Terra Industries Inc., effective
as of August 3, 2005, filed as Exhibit 3.4 to Terra Industries
Inc.s Form 8-K, dated August 3, 2005, are incorporated
herein by reference.
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112
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3
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.3
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A Certificate of Correction to correct errors and omissions to
the August 3, 2005 Articles of Restatement for Terra Industries
Inc., as filed with the State Department of Assessments and
Taxation of Maryland on April 30, 2008, was included as Exhibit
99.1 to Terra Industries Inc.s Form 8-K dated May 5, 2008,
and is incorporated herein by reference.
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3
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.4
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Certificate of Incorporation of Terra Capital, Inc. filed as
Exhibit 3.i.(a) to Terra Capital, Inc.s Registration
Statement filed on Form S-4 on November 13, 2001, is
incorporated herein by reference.
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3
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.5
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By-Laws of Terra Capital, Inc. filed as Exhibit 3.ii.(a) to
Terra Capital, Inc.s Registration Statement filed on Form
S-4 on November 13, 2001, is incorporated herein by reference.
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3
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.6
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Certificate of Incorporation of Terra Nitrogen GP Inc., filed as
Exhibit 3.2 to Terra Nitrogen Company, L.P.s Form 8-K
dated September 7, 2005, is incorporated herein by reference.
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3
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.7
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By-Laws of Terra Nitrogen GP Inc., filed as Exhibit 3.3 to Terra
Nitrogen Company, L.P.s Form 8-K dated September 7, 2005,
are incorporated herein by reference.
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4
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.1
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Indenture dated as of October 10, 2001 among Terra Capital,
Inc., certain guarantors and U.S. Bank National Association, as
trustee, including the form of note, filed as Exhibit 4.1 to
Terra Industries Inc.s Form 8-K dated October 10,
2001, is incorporated herein by reference.
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4
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.2
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Amendment No. 1 to the Amended and Restated Credit Agreement
dated January 26, 2005, among Terra Capital, Inc., Mississippi
Chemical Corporation and Terra Nitrogen (U.K.) Limited
(collectively, Borrowers), Terra Industries Inc., Terra Capital
Holdings, Inc., the financial institutions from time to time
party thereto as issuing banks (Issuers) and Citicorp USA Inc.,
as administrative agent and collateral agent for Lenders and
Issuers, filed as Exhibit 4.3 to Terra Industries Inc.s
Form 10-Q for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
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4
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.3
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Amendment No. 2 to the Amended and Restated Credit Agreement
dated July 29, 2005, among Terra Capital, Inc., Terra
Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
the Lenders party hereto and Citicorp USA Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.4 to Terra Industries Inc.s Form 10-Q for the
fiscal quarter ended September 30, 2005, is incorporated herein
by reference.
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4
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.4
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Amendment No. 3 to the Amended and Restated Credit Agreement
dated October 30, 2006, among Terra Capital, Inc., Terra
Mississippi Holdings Corp. (f/k/a/ Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
the Lenders party hereto and Citicorp USA Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.1 to Terra Industries Inc.s Form 10-Q for the
fiscal quarter ended September 30, 2006, is incorporated herein
by reference.
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113
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4
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.5
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Amendment No. 4 to the Amended and Restated Credit Agreement
dated February 2, 2007, among Terra Capital, Inc., Terra
Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
Borrowers). Terra Industries Inc., Terra Capital Holdings, Inc.,
the Lenders party hereto and Citicorp USA Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.5 to Terra Industries Inc.s Form 10-K for the
year ended 2007, is incorporated by reference.
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4
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.6
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Amendment No. 5 to the Amended and Restated Credit Agreement
dated July 11, 2007, among Terra Capital, Inc., Terra
Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
the Lenders party hereto and Citicorp USA Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.6 to Terra Industries Inc.s Form 10-K for the
year ended 2007, is incorporated by reference.
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4
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.7
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Amendment No. 6 to the Amended and Restated Credit Agreement
dated August 28, 2007, among Terra Capital, Inc., Terra
Mississippi Holdings Corp. (f/k/a Mississippi Chemical
Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
the Lenders party hereto and Citicorp USA Inc. as administrative
agent and collateral agent for the Lenders and Issuers, filed as
Exhibit 4.7 to Terra Industries Inc.s Form 10-K for the
year ended 2007, is incorporated by reference.
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4
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.8
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Amendment No. 1 to the Credit Agreement dated July 29, 2005
among Terra Nitrogen, Limited Partnership (Borrower), Terra
Nitrogen Company, L.P., the Lenders party hereto and Citicorp
USA Inc. as administrative agent and collateral agent for the
Lenders and Issuers, filed as Exhibit 4.5 to Terra Industries
Inc.s Form 10-Q for the quarter ended September 30, 2005,
is incorporated herein by reference.
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4
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.9
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Amendment No. 2 to the Credit Agreement dated February 2, 2007,
among Terra Nitrogen, Limited Partnership (Borrower), Terra
Nitrogen Company, L.P., the Lenders party hereto, and Citicorp
USA, Inc. as administrative agent and collateral agent for the
Lenders and Issuers, filed as Exhibit 4.8 to Terra Nitrogen
Company, L.P.s Form 10-K for the year ended December 31,
2007.
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4
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.10
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Indenture dated May 21, 2003 between the Company, the guarantors
party hereto, and U.S. National Bank Association as Trustee,
with respect to the
111/2%
Second Priority Senior Secured Notes due 2010 (including the
form of
111/2%
Second Priority Senior Secured Notes), previously filed as
Exhibit 4.i to Amendment No. 1 to the Registrants
Registration Statement of Form S-4 filed on June 12, 2003 and
incorporated by reference herein, filed as Exhibit 4.6 to Terra
Industries Inc.s Form 10-Q for the quarter ended June 30,
2003, is incorporated herein by reference.
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114
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4
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.11
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Articles Supplementary of Terra Industries Inc. relating to the
Retirement of the Companys Trust Shares, filed as Exhibit
3.1 to Terra Industries Inc.s Form 8-K dated August 3,
2005, are incorporated herein by reference.
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4
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.12
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Articles Supplementary of Terra Industries Inc. relating to the
Reclassification of the Companys Series B Cumulative
Redeemable Preferred Shares, filed as Exhibit 3.2 to Terra
Industries Inc.s Form 8-K August 3, 2005, are incorporated
herein by reference.
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4
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.13
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Registration Rights Agreement dated as of October 7, 2004, among
Terra and Citigroup Global Markets Inc., as Representative of
the Initial Purchasers, filed as Exhibit 4.6 to Terras
Form S-3 dated January 4, 2005, is incorporated herein by
reference.
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4
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.14
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Registration Rights Agreement, dated as of August 6, 2004, among
Terra Industries Inc., Taurus Investments S.A. and the other
shareholders named therein, filed as Exhibit 99.1 to
Terras Form 8-K dated August 16, 2004, is incorporated
herein by reference.
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4
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.15
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Registration Rights Agreement, dated as of December 16, 2004,
among Terra Industries Inc. and the initial purchasers named
therein, filed as Exhibit 4.7 to Terras Form S-3/A filed
February 9, 2005, is incorporated by reference.
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4
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.16
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Registration Rights Agreement, dated as of December 21, 2004,
among Terra Industries Inc., Värde Investment Partners,
L.P., Perry Principals Investments LLC, Citigroup Financial
Products, Inc., filed as Exhibit 4.7 to Terras Form S-3
dated March 17, 2005, is incorporated herein by reference.
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4
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.17
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Registration Rights Agreement, dated as of February 2, 2007, by
and among Terra Capital, Inc., the guarantors named therein and
Citigroup Global Markets Inc., relating to the 7% Senior
Notes due 2017, filed as Exhibit 10.1 to Terra Industries
Inc.s Form 8-K dated February 6, 2007, is incorporated
herein by reference.
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4
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.18
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Form of Indenture relating to the 4.25% Convertible
Subordinated Debentures, filed as Exhibit 4.7 to Terras
Form S-3 dated January 4, 2005, is incorporated herein by
reference.
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4
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.19
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Purchase Agreement, dated October 7, 2004, among Terra
Industries Inc. and the initial purchasers named therein
relating to the sale of Terras 4.25% Series A Cumulative
Convertible Perpetual Preferred Shares, filed as Exhibit 1 to
Terras Form S-3 dated January 4, 2005, is incorporated by
reference.
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4
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.20
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Purchase Agreement, dated as of January 25, 2007, by and among
Terra Capital, Inc., the guarantors named therein and Citigroup
Global Markets Inc., relating to the 7% Senior Notes due
2017, filed as Exhibit 10.1 to Terra Industries Inc.s Form
8-K dated January 30, 2007, is incorporated herein by reference.
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115
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4
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.21
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$150,000,000 Amended and Restated Credit Agreement dated as of
December 21, 2004, among Terra Capital, Inc., Terra Nitrogen
(U.K.) Limited, Mississippi Chemical Corporation, as Borrowers;
Terra Industries Inc. and Terra Capital Holdings, Inc., as
Guarantors; and the Lenders and Issuers Party thereto; and
Citicorp USA, Inc., as Administrative Agent and Collateral
Agent, Citigroup Global Markets Inc. as Lead Arranger and Sole
Book Runner, filed as Exhibit 4.18 to Terra Industries
Inc.s Form 10-K for the fiscal year ended December 31,
2004, is incorporated herein by reference.
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4
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.22
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$50,000,000 Credit Agreement dated as of December 21, 2004 among
Terra Nitrogen, Limited Partnership, as Borrower; Terra Nitrogen
Company, L.P., as a Guarantor; and the Lenders and Issuers Party
thereto; and Citicorp USA, Inc., as Administrative Agent and
Collateral Agent; and Citigroup Global Markets Inc., as Lead
Arranger and Sole Book Runner, filed as Exhibit 4.19 to Terra
Industries Inc.s Form 10-K for the fiscal year ended
December 31, 2004, is incorporated herein by reference.
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4
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.23
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Third Supplement to Indenture, dated as of January 29, 2007, by
and among Terra Capital, Inc., the guarantors named therein and
U.S. Bank National Association, as trustee, with respect to the
127/8% Senior
Secured Notes due 2008, filed as Exhibit 4.1 to Terra Industries
Inc.s Form 8-K dated January 30, 2007, is
incorporated herein by reference.
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4
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.24
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Third Supplement to Indenture, dated as of January 29, 2007, by
and among Terra Capital, Inc., the guarantors named therein and
U.S. Bank National Association, as trustee, with respect to the
11
1/2%
Second Priority Senior Secured Notes due 2010, filed as Exhibit
4.2 to Terra Industries Inc.s Form 8-K dated January
30, 2007, is incorporated herein by reference.
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4
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.25
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Indenture, dated February 2, 2007, by and among Terra Capital,
Inc., Terra Industries Inc., the guarantors named therein and
U.S. Bank National Association, as trustee, relating to the
7% Senior Notes due 2017, filed as Exhibit 4.1 to Terra
Industries Inc.s Form 8-K dated February 6, 2007, is
incorporated herein by reference.
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4
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.26
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First Supplemental Indenture, dated January 9, 2008, by and
among Terra Capital, Inc., Terra Industries Inc., Terra
Environmental Technologies, Inc., the existing guarantors named
therein and U.S. Bank National Association, as trustee filed as
Exhibit 4.1 to Terra Industries Inc.s Form 8-K dated
January 10, 2008, is incorporated herein by reference.
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10
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.1.1
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Excess Benefit Plan of Terra Industries Inc., as amended and
restated effective as of January 1, 2008, was included as
Exhibit 10.1 to Terra Industries Inc.s Form 10-Q filed
with the Securities and Exchange Commission on April 29, 2008,
and is incorporated herein by reference.
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10
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.1.2
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Terra Industries Inc. Supplemental Deferred Compensation Plan
effective as of December 20, 1993 filed as Exhibit 10.1.9 to
Terra Industries Inc.s Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
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116
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10
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.1.3
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Amendment No. 1 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, filed as Exhibit 10.1.15 to Terra
Industries Form 10-Q for the quarter ended June 30, 1995,
is incorporated herein by reference.
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10
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.1.4
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Amendment No. 2 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, dated July 26, 2000, filed as
Exhibit 10.1.8.a to the Terra Industries Inc.s Form 10-K
for the year ended December 31, 2000, is incorporated herein by
reference.
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10
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.1.5*
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Amendment No. 3 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, dated March 29, 2002.
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10
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.1.6*
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Amendment No. 4 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, dated December 29, 2004.
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10
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.1.7
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Terra Industries Inc. Stock Incentive Plan of 2002, filed as
Exhibit 10.1.18 to Terra Industries Inc.s Form 10-K for
the year ended December 31, 2001, is incorporated herein by
reference.
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10
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.1.8
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Form of Restricted Stock Award to Non-Employee Directors under
the Terra Industries Inc. Stock Incentive Plan of 2002, filed as
Exhibit 10.1.23 to Terra Industries Inc.s Form 10-K for
the year ended December 31, 2002, is incorporated herein by
reference.
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10
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.1.9
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Form of Restricted Stock Award to Officers and Other Key
Employees under Terra Industries Inc. Stock Incentive Plan of
2002, filed as Exhibit 10.1.24 to Terra Industries Inc.s
Form 10-K for the year ended December 31, 2002, is incorporated
herein by reference.
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10
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.1.10
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Revised Form of Restricted Stock Award of Terra Industries Inc.
under its Stock Incentive Plan of 2002, filed as Exhibit 10.9 to
Terra Industries Inc.s Form 10-Q for the fiscal quarter
ended September 30, 2005, is incorporated herein by reference.
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10
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.1.11
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Form of Long-Term Incentive Award for Time and Performance Based
Shares of Terra Industries Inc. under its Stock Incentive Plan
of 2002, filed as Exhibit 10.10 to Terra Industries Inc.s
10-Q for the fiscal quarter ended September 30, 2005, is
incorporated herein by reference.
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10
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.1.12
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Form of Long-Term Incentive Award for Phantom Time and
Performance Based Shares of Terra Industries Inc. under its
Stock Incentive Plan of 2002, filed as Exhibit 10.11 to Terra
Industries Inc.s Form 10-Q for the fiscal quarter ended
September 30, 2005, is incorporated herein by reference.
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10
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.1.13
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Form of Long-Term Incentive Award for Performance Shares of
Terra Industries Inc. under its Stock Incentive Plan of 2002
filed as Exhibit 10.1.23 to Terra Industries Inc.s Form
10-K for the year ended 2005, is incorporated by reference.
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117
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10
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.1.14
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Form of Long-Term Incentive Award for Phantom Performance Shares
of Terra Industries Inc. under its Stock Incentive Plan of 2002
filed as Exhibit 10.1.24 to Terra Industries Inc.s Form
10-K for the year ended 2005, is incorporated by reference.
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10
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.1.15
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Form of Indemnity Agreement of Terra Industries Inc., filed as
Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated July
7, 2006, is incorporated by reference.
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10
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.1.16
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Form of Unrestricted Annual Share Award to Non-Employee
Directors under the Terra Industries Inc. Stock Incentive Plan
of 2002, filed as Exhibit 99.1 to Terra Industries Inc.s
Form 8-K dated August 10, 2006, is incorporated herein by
reference.
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10
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.1.17
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Employment Severance Agreement between Terra Industries Inc. and
Michael L. Bennett dated October 5, 2006, filed as Exhibit 10.1
to Terra Industries Inc.s Form 8-K dated October 5, 2006,
is incorporated herein by reference.
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10
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.1.18
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Form of Employment Severance Agreement for Section 16(b)
Executive Officers, filed as Exhibit 10.2 to Terra Industries
Inc.s Form 8-K dated October 5, 2006, is incorporated
herein by reference.
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10
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.1.19
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Amendment to Employment Severance Agreement between Terra
Industries Inc. and Mark A. Kalafut dated October 6, 2006, filed
as Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated
October 6, 2006 is incorporated herein by reference.
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10
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.1.20
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2007 Omnibus Incentive Compensation Plan, adopted by the board
of directors of Terra Industries Inc. (Terra) and subsequently
approved by its stockholders at the annual meeting of Terra on
May 8, 2007, reported on Terras Form 8-K filed May 10,
2007 and attached as Appendix A to Terras Proxy Statement
on Schedule 14A filed with the Securities and Exchange
Commission on March 15, 2007, is incorporated herein by
reference.
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10
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.1.21
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Amendment Number One to Employment Severance Agreement, filed as
Exhibit 10.1.31 to Terra Industries Inc.s Form 10-K for
the year ended 2007, is incorporated by reference.
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10
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.1.22
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Amendment to Restricted Share Agreement, filed as Exhibit
10.1.32 to Terra Industries Inc.s Form 10-K for the year
ended 2007, is incorporated by reference.
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10
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.1.23
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Amendment to Performance Share Award Agreement, filed as Exhibit
10.1.33 to Terra Industries Inc.s Form 10-K for the year
ended 2007, is incorporated by reference..
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10
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.1.24
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Amendment to Terra Long Term Incentive Award dated October 23,
2007, for former Terra, now GrowHow UK Limited joint venture
employees, filed as Exhibit 10.1.34 to Terra Industries
Inc.s Form 10-K for the year ended 2007, is incorporated
by reference.
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10
|
.1.25
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|
Form of Phantom Performance Share Award agreement of February
2008, filed as Exhibit 10.1 to Terra Industries Inc.s Form
10-Q dated July 25, 2008, is incorporated herein by reference.
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118
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10
|
.1.26
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|
Form of Performance Share Award agreement as of February 2008,
filed as Exhibit 10.2 to Terra Industries Inc.s Form 10-Q
dated July 25, 2008, is incorporated herein by reference.
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10
|
.2
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First Amended and Restated Agreement of Limited Partnership of
Terra Nitrogen, Limited Partnership dated September 1, 2005,
filed as Exhibit 10.3 to Terra Nitrogen Company, L.P.s
Form 8-K dated September 7, 2005, is incorporated herein by
reference.
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10
|
.3
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General and Administrative Services Agreement regarding Services
by Terra Industries Inc. filed as Exhibit 10.11 to Terra
Industries Inc. Form 10-Q for the quarter ended March 31, 1995,
is incorporated herein by reference.
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10
|
.4
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Amendment No. 1 to the General and Administrative Service
Agreement regarding Services by Terra Industries Inc. dated
September 1, 2005, filed as Exhibit 10.4 to the Terra Nitrogen
Company, L.P.s Form 8-K dated September 7, 2005, is
incorporated herein by reference.
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10
|
.5
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|
Amendment No. 1 to the General and Administrative Services
Agreement regarding Services by Terra Nitrogen Corporation dated
September 1, 2005, filed as Exhibit 10.5 to Terra Nitrogen
Company, L.P.s Form 8-K dated September 7, 2005, is
incorporated herein by reference.
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10
|
.6
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|
Amended and Restated General and Administrative Services
Agreement between Terra Industries Inc., Terra Nitrogen
Corporation, and Terra Nitrogen GP Inc., dated October 23, 2007,
filed as Exhibit 10.1 to Terra Nitrogen Company, L.P.s
Form 10-Q filed on October 29, 2007, is incorporated herein by
reference.
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10
|
.7
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|
Reorganization Agreement among Terra Nitrogen Company, L.P.,
Terra Nitrogen, Limited Partnership and Terra Nitrogen
Corporation dated September 1, 2005, filed as Exhibit 10.1 to
Terra Nitrogen Company, L.P.s Form 8-K dated September 7,
2005, is incorporated herein by reference.
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10
|
.8
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|
Conveyance, Assignment and Assumption Agreement by and between
Terra Nitrogen Corporation and Terra Nitrogen GP Inc. dated
September 1, 2005, filed as Exhibit 10.2 to Terra Nitrogen
Company, L.P.s Form 8-K dated September 7, 2005, is
incorporated herein by reference.
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10
|
.9
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|
Sale of Business Agreement dated November 20, 1997 between
ICI Chemicals & Polymers Limited, Imperial Chemical
Industries PLC, Terra Nitrogen (U.K.) Limited (f/k/a Terra
Industries Limited) and Terra Industries Inc. filed as
Exhibit 2 to Terra Industries Inc.s Form 8-K/A dated
December 31, 1997, is incorporated herein by reference.
|
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10
|
.10
|
|
Ammonium Nitrate Agreement dated December 31, 1997 between Terra
International (Canada) Inc and ICI Chemicals & Polymers
Limited filed as Exhibit 99 to Terra Industries Inc.s Form
8-K/A dated December 31, 1997, is incorporated herein by
reference.
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10
|
.11
|
|
Asset Sale and Purchase Agreement dated as of May 3, 1999 by and
between Terra Industries Inc. and Cenex/Land OLakes
Agronomy Company, filed as Exhibit 10.12 to Terra
Industries Form 8-K dated May 3, 1999, is incorporated
herein by reference.
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119
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10
|
.12
|
|
Asset Purchase and Methanol Exclusivity Agreement among Terra
Industries Inc., BMC Holdings Inc., and Methanex Methanol
Company dated December 15, 2003, filed as Exhibit 10.9 to
Terra Industries Form 10-K for the year ended December 31,
2003, is incorporated herein by reference.
|
|
10
|
.12.1
|
|
Services Agreement among Terra Industries Inc., BMC Holdings
Inc., and Methanex Methanol Company dated December 15, 2003
included as Schedule E to Exhibit 10.2 herein, filed as Exhibit
10.9.1 to Terra Industries Inc.s Form
10-K for the
year ended December 31, 2003, is incorporated herein by
reference.
|
|
10
|
.13
|
|
First Amendment to Asset Purchase and Methanol Exclusivity
Agreement dated February 20, 2004, filed as Exhibit 10.10 to
Terra Industries Inc.s Form 10-K for the year ended
December 31, 2003, is incorporated herein by reference.
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10
|
.14
|
|
Warrant Agreement dated December 21, 2004 among Terra Industries
Inc., Perry Principals Investments LLC, Citigroup Financial
Products Inc. and Värde Investment Partners, L.P., filed as
Exhibit 10.11 to Terra Industries Inc.s Form 10-K for the
year ended December 31, 2004, is incorporated herein by
reference.
|
|
10
|
.15
|
|
Ammonium Nitrate Supply Agreement between Terra Mississippi
Nitrogen, Inc. and Orica USA Inc. dated July 21, 2005, filed as
Exhibit 10.7 to Terra Industries Inc.s Form 10-Q for the
fiscal quarter ended September 30, 2005, is incorporated herein
by reference.
|
|
10
|
.16
|
|
Conversion Agreement by and between Terra Mississippi Nitrogen,
Inc. and Orica USA Inc. dated July 21, 2005, filed as exhibit
10.8 to Terra Industries Inc. Form 10-Q for the fiscal quarter
ended September 30, 2005, is incorporated herein by reference.
|
|
10
|
.17
|
|
Option Agreement, dated as of July 18, 2007, by and between
Terra Industries Inc. and Eastman Chemical Company, filed as
Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated July
23, 2007, is incorporated herein by reference.
|
|
10
|
.18
|
|
Joint Venture Contribution Agreement, dated September 14, 2007,
by and among GrowHow UK Limited, Terra International (Canada),
Inc., Kemira GrowHow Oyj and Terra Industries Inc., filed as
Exhibit 10.1 to Terra Industries Inc.s Form 10-Q dated
October 29, 2007, is incorporated herein for reference.
|
|
10
|
.19
|
|
Shareholders Agreement, dated September 14, 2007, by and
among Kemira GrowHow Oyj, Terra International (Canada), Inc.,
Terra Industries Inc and GrowHow UK Limited filed as Exhibit
10.2 to Terra Industries Inc.s Form 10-Q dated
October 29, 2007, is incorporated herein for reference.
|
|
10
|
.20
|
|
Consulting and Non-Competition Agreement between Terra
Industries Inc. and Francis G. Meyer dated April 1, 2008, filed
as Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated
April 1, 2008, is incorporated herein by reference.
|
|
12
|
.1*
|
|
Ratio of Earnings to Financial Charges
|
|
21
|
.1*
|
|
Subsidiaries of Terra Industries Inc.
|
120
|
|
|
|
|
|
23
|
.1*
|
|
Consent of Deloitte & Touche LLP
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1*
|
|
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
99*
|
|
|
Financial Statements for Point Lisas Nitrogen Limited for the
years ended December 31, 2008, 2007 and 2006.
|
|
|
|
|
|
Confidential treatment has been requested for portions of this
document. |
Exhibits 10.1.1 through 10.1.26 are management contracts or
compensatory plans or arrangements.
121
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.
TERRA INDUSTRIES INC.
|
|
|
|
|
Date: February 27, 2009
|
|
By:
|
|
/s/ DANIEL
D. GREENWELL
Daniel
D. GreenwellSenior Vice President and Chief Financial
Officer
|
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
|
|
|
|
|
/s/ HENRY
R. SLACK
Henry
R. Slack
|
|
Chairman of the Board
|
|
|
|
/s/ MICHAEL
L. BENNETT
Michael
L. Bennett
|
|
Director, President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
/s/ DANIEL
D. GREENWELL
Daniel
D. Greenwell
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
|
|
|
|
/s/ DAVID
E. FISHER
David
E. Fisher
|
|
Director
|
|
|
|
/s/ DOD
A. FRASER
Dod
A. Fraser
|
|
Director
|
|
|
|
/s/ MARTHA
O. HESSE
Martha
O. Hesse
|
|
Director
|
|
|
|
/s/ PETER
S. JANSON
Peter
S. Janson
|
|
Director
|
|
|
|
/s/ JAMES
R. KRONER
James
R. Kroner
|
|
Director
|
|
|
|
/s/ DENNIS
MCGLONE
Dennis
McGlone
|
|
Director
|
Date: February 27, 2009
122
Index to
Financial Statement Schedules
|
|
|
Schedule No.
|
|
I Condensed Financial Information of Registrant, is
included in Item 8 herein, Footnote 24, Column 1,
Parent.
|
|
|
|
|
|
II Valuation and Qualifying Accounts:
Years Ended December 31, 2008, 2007 and 2006
|
|
S-2
|
Financial statement schedules not included in this report have
been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
the notes thereto.
S-1
Schedule II
Terra Industries
Inc.
Valuation
and Qualifying Accounts
Years
Ended December 31, 2008, 2007, and 2006
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Write-
|
|
|
|
|
|
|
Additions
|
|
offs, and
|
|
|
|
|
Balance at
|
|
Charged to
|
|
Transfers,
|
|
Balance
|
|
|
Beginning of
|
|
Costs and
|
|
Net of
|
|
at End
|
Description
|
|
Period
|
|
Expenses
|
|
Recoveries
|
|
of Period
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
264
|
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
290
|
|
Allowance for deferred tax assets
|
|
$
|
31,740
|
|
|
$
|
|
|
|
$
|
414
|
|
|
$
|
32,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
332
|
|
|
$
|
15
|
|
|
$
|
(83
|
)
|
|
$
|
264
|
|
Allowance for deferred tax assets
|
|
$
|
61,361
|
|
|
$
|
3,939
|
|
|
$
|
(33,560
|
)
|
|
$
|
31,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
234
|
|
|
$
|
486
|
|
|
$
|
(388
|
)
|
|
$
|
332
|
|
Allowance for deferred tax assets
|
|
$
|
61,728
|
|
|
$
|
|
|
|
$
|
(367
|
)
|
|
$
|
61,361
|
|
S-2