Terra Industries Inc. Reports First Quarter Results

Terra Industries Inc. (NYSE:TRA) announced today net income available to common shareholders for the 2008 first quarter of $100.2 million ($.97 per diluted share), up from $5.9 million ($.06 per diluted share) for the same period in 2007. The 2007 results include a one-time loss on early retirement of debt of $38.7 million ($24.3 million, net of tax or $.26 per diluted share). Terra reported 2008 first quarter operating income of $168.3 million, compared to operating income of $67.2 million for the 2007 first quarter. The 2008 improvement was mostly due to higher nitrogen products selling prices. Analysis of first quarter results Revenues for the 2008 first quarter totaled $574.7 million compared to $500.9 million for the 2007 first quarter. The 2007 revenues included $89.9 million from Terra’s UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $163.7 million from the 2007 to the 2008 first quarter, primarily due to higher nitrogen selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 40, 55 and 37 percent, respectively, over those of the same period last year. The improved selling prices reflect continued strong nitrogen products demand resulting from good commodity grain prices and Terra customers’ efforts to secure supplies for the 2008 spring planting season. North American sales volumes for ammonia increased by 3 percent, while sales volumes for UAN and AN decreased by 2 and 8 percent respectively. Sales volumes were affected by delayed product movement due to cool, wet conditions. First quarter equity earnings of affiliates of $9.3 million reflect Terra’s interest in earnings from the GrowHow UK joint venture. Selling, general and administrative (SG&A) expense for the 2008 first quarter decreased by $4.4 million from the 2007 first quarter. The decline was due to lower expenses for share-based compensation and the elimination of SG&A costs for Terra’s UK operations. Forward natural gas position Terra’s forward purchase contracts at March 31, 2008, fixed prices for about 18 percent of our next 12 months’ natural gas needs at about $26.6 million below the published forward market prices at that date. These forward positions hedge production costs associated with product that Terra has sold and plans to ship primarily in the second and third quarters of 2008. Cash balances, customer prepayments and share buybacks Cash balances, including about $282 million in customer prepayments, totaled $817 million at March 31, 2008. Terra expects to ship products under the prepay agreements during the 2008 second and third quarters. During the 2008 first quarter, Terra did not repurchase any of its common shares under its share repurchase program. Since announcing its authorization to repurchase up to 9.5 million of its outstanding common shares by June 30, 2008, Terra has repurchased 6.7 million shares. Donaldsonville ammonia plant restart Terra announced in February its intention to restart its idled Donaldsonville, Louisiana ammonia plant to replace about 400,000 tons per year of purchased imported ammonia at more favorable gross margins. Terra is progressing toward the planned restart in the 2008 third quarter. CEO’s remarks "Terra benefited in the first quarter from the continuing positive relationship between strong commodity grain prices and nitrogen demand, which supported healthy nitrogen products selling prices,” said Terra President and CEO Michael Bennett. "We capitalized on these positive conditions by running our plants reliably and efficiently throughout the quarter. "We were pleased with our newly-formed UK joint venture’s contribution to our first quarter results. Like our North American operations, the UK operations’ strong nitrogen products selling prices more than offset the increase in natural gas costs. Despite this, energy price volatility in both North America and the U.K. continues to be a concern.” Bennett continued, "Since the application season was delayed due to cool, wet weather, we expect vigorous activity in the remainder of the second quarter. This is likely to continue through the balance of the year, as corn inventories are likely to remain tight, encouraging strong future plantings.” Reporting changes This announcement includes changes in the way Terra presents its results: 1.   Urea ammonium nitrate solutions (UAN) data were previously reported on a 28% nitrogen basis. Beginning this quarter, all UAN data are expressed on a 32% nitrogen basis, and all 2007 UAN data has been converted for comparison purposes.   2. In September 2007 Terra contributed its UK operations to a joint venture, GrowHow UK Limited. To reflect this change:   A. Terra has excluded UK sales volumes and selling prices from its 2007 statistical totals for a more accurate comparison with 2008 results, and   B. 2008 results from the UK joint venture appear in the financial statements as equity earnings.   3. Due to the pending sale of its Beaumont, Texas methanol production facility, Terra now classifies the Beaumont-related assets, liabilities and results of operations as discontinued operations. Terra continues to produce methanol solely at its Woodward facility. Conference call details Terra management will conduct a conference call to discuss these first quarter results this afternoon at 3:00 ET. A live webcast of the conference call will be available from Terra’s Web site at www.terraindustries.com, and will be archived for playback for three months. About Terra Terra Industries Inc., with 2007 revenues of $2.4 billion, is a leading international producer of nitrogen products. Forward-looking statement Certain statements in this new release may constitute "forward-looking” statements within the meaning of the Private Litigation Reform Act of 1995. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made and Terra undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Words such as "expects,” "intends,” "plans,” "projects,” "believes,” "estimates,” and similar expressions are used to identify these forward-looking statements. These include, among others, statements relating to: changes in financial markets, general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of nitrogen and methanol products and natural gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in weather conditions, changes in environmental and other government regulation, and changes in agricultural regulations. Additional information as to these factors can be found in Terra’s 2007 Annual Report/10-K, in the sections entitled "Business,” "Legal Proceedings,” and "Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Notes to the consolidated financial statements. Note: Terra Industries’ news announcements are also available on its Web site, www.terraindustries.com. Terra Industries Inc. Summarized Results of Operations (unaudited)     Three Months Ended March 31, (in thousands except per-unit amounts) 2008 2007   Revenues Product revenues $ 573,202 $ 499,466 Other   1,502     1,458   $ 574,704 $ 500,924   Costs and expenses Cost of sales 406,989 422,264 Equity earnings of unconsolidated affiliates--operating (13,290 ) (5,617 ) Selling, general and administrative   12,704     17,057   Total costs and expenses 406,403 433,704   Operating income 168,301 67,220   Interest income 8,408 2,887 Interest expense (7,058 ) (8,908 ) Loss on early retirement of debt   --     (38,662 ) Income before income taxes and minority interest 169,651 22,536   Income tax provision (59,504 ) (5,157 ) Minority interest (18,126 ) (8,636 ) Equity earnings of affiliates   9,284     --   Income from continuing operations 101,305 8,743   Income (loss) from discontinued operations   152     (1,533 )   Net income 101,457 7,210   Preferred stock dividends   (1,275 )   (1,275 )   Income available to common shareholders   100,182     5,935     Income (loss) per common share Basic--continuing operations $ 1.11 $ 0.08 Basic--discontinued operations -- (0.02 ) Diluted--continuing operations 0.97 0.08 Diluted--discontinued operations $ -- $ (0.02 )   Basic and diluted weighted average shares outstanding: Basic 90,165 91,860 Diluted 104,429 95,258   Because of the seasonal nature and effects of weather-related conditions in several of Terra’s marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year. Terra Industries Inc. Summarized Financial Position (in thousands) (unaudited)     March 31, 2008 2007 Assets Cash and cash equivalents $ 817,197 $ 233,310 Accounts receivable, net 159,418 184,096 Inventories 210,237 230,651 Other current assets 44,771 26,594 Current assets held for sale--discontinued operations   45,593   14,489 Total current assets 1,277,216 689,140   Property, plant and equipment, net 379,746 619,554 Equity method investments 330,678 166,746 Deferred plant turnaround costs--net 34,753 36,615 Other assets 29,528 28,299 Noncurrent assets held for sale--discontinued operations   --   89,908 Total assets $ 2,051,921 $ 1,630,262   Liabilities and Stockholders' Equity Accounts payable $ 160,661 $ 130,567 Customer prepayments 282,397 136,047 Accrued and other current liabilities 79,491 46,353 Current liabilities held for sale--discontinued operations   16,764   16,654 Total current liabilities   539,313   329,621   Long-term debt 330,000 330,000 Deferred taxes 137,837 37,758 Pension liability 9,594 124,667 Other liabilities 80,172 84,236 Minority interest 107,329 98,850 Noncurrent liabilities held for sale--discontinued operations   --   4,069 Total liabilities and minority interest 1,204,245 1,009,201   Series A preferred shares 115,800 115,800   Stockholders' equity   731,876   505,261 Total liabilities and stockholders' equity $ 2,051,921 $ 1,630,262 Terra Industries Inc. Summarized Cash Flows (in thousands) (unaudited)     Three Months Ended March 31, 2008 2007 Operating Activities Net income $ 101,457 $ 7,210 Income from (loss on) discontinued operations   152     (1,533 ) Income from continuing operations 101,305 8,743 Non-cash charges and credits: Depreciation and amortization 19,853 23,626 Loss on sale of property, plant and equipment 477 -- Deferred income taxes 37,901 8,290 Minority interest 18,126 8,636 Distributions less than equity earnings (332 ) (5,617 ) Equity earnings GrowHow UK Limited (9,284 ) -- Non-cash gain on derivatives (661 ) (2,832 ) Share-based compensation 1,264 2,868 Amortization of intangible and other assets 1,938 2,341 Non-cash loss on early retirement of debt -- 4,662   Change in operating assets and liabilities: Accounts receivable 10,890 14,940 Inventories (85,084 ) (18,472 ) Accounts payable and customer prepayments 32,805 32,911 Other assets and liabilities, net   (19,649 )   619   Net cash flows from operating activities--continuing operations 109,549 80,715 Net cash flows from operating activities--discontinued operations   11,037     (1,127 ) Net cash flows from operating activities   120,586     79,588     Investing Activities Purchase of property, plant and equipment (6,472 ) (6,736 ) Plant turnaround costs (627 ) (8,842 ) Proceeds from sales of property, plant and equipment 1,614 -- Distributions received from unconsolidated affiliates 6,927 -- Contributions received from GrowHow UK Limited   27,890     --   Net cash flow from investing activities--continuing operations 29,332 (15,578 ) Net cash flow from investing activities--discontinued operations   --     --   Net cash flows from investing activities   29,332     (15,578 )   Financing Activities Debt issuance -- 330,000 Payments under borrowing arrangements -- (328,800 ) Payments for debt issuance costs -- (5,429 ) Preferred share dividends paid (1,275 ) (1,275 ) Common stock issuances and vestings (9,190 ) 276 Distributions to minority interests   (20,526 )   (4,474 ) Net cash flows from financing activities--continuing operations (30,991 ) (9,702 ) Net cash flows from financing activities--discontinued operations   --     --   Net cash flows from financing activities (30,991 ) (9,702 ) Effect of exchange rate changes on cash   32     (15 ) Increase to cash and cash equivalents 118,959 54,293 Cash and cash equivalents at beginning of period   698,238     179,017   Cash and short-term investments at end of period   817,197     233,310   Terra Industries Inc. Summarized Information (volumes in thousands)         North America Volumes and Prices   Note: All UAN data for 2008 and 2007 are expressed on a 32% nitrogen basis.   Three Months Ended March 31, 2008 2007 Sales Average Sales Average Volumes Unit Price1 Volumes Unit Price1 Ammonia (tons)2 364 $ 462 352 $ 331 Nitrogen solutions (tons) 917 285 940 184 Urea (tons) 24 419 32 298 Ammonium nitrate (tons)2 172 304 187 222 Methanol (gallons) 8,700 1.68 10,037 1.11   Natural gas cost3 $7.57 $6.76 1 After deducting outbound freight costs. 2 2007 ammonia and AN sales volumes and prices have been adjusted to exclude Terra’s UK operations for accurate comparison to 2008 volumes and prices. 3 Per MMBtu. Includes all transportation and other logistical costs and any gains or losses on financial derivatives related to North American natural gas purchases. Because of the seasonal nature and effects of weather-related conditions in several of its marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year.