Terra Industries Inc. Reports Record Second Quarter Results, Declares Dividend

Terra Industries Inc. (NYSE: TRA) announced today record net income available to common shareholders for the 2008 second quarter of $202.2 million ($1.94 per diluted share), up from $69.4 million ($.66 per diluted share) for the same period in 2007. For the 2008 first half, Terra reported net income available to common shareholders of $302.3 million ($2.91 per diluted share), up from $75.3 million ($.73 per diluted share) in the 2007 first half. Terra also declared a dividend of $.10 per common share, payable Sept. 12, 2008, to holders of record as of Aug. 25, 2008. Analysis of second quarter results Revenues for the 2008 second quarter totaled $843.1 million compared to $692.5 million for the 2007 second quarter. The 2007 revenues included $121.2 million from Terra’s UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $271.8 million from the 2007 to the 2008 second quarter, primarily due to higher nitrogen products selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 48, 48 and 25 percent, respectively, over those of the same period last year. The improved selling prices reflect continued strong nitrogen products demand resulting from low grain inventories and strong commodity grain prices. North American sales volumes for ammonia and AN increased by 13 and 8 percent, respectively, while sales volumes for UAN decreased 4 percent. Sales volumes were affected by delayed product movement due to cool, wet conditions and flooding throughout much of the Midwest. UAN sales volumes were also reduced by planted corn acres that were approximately 6 percent lower than those of 2007. Second quarter equity earnings of affiliates of $37.6 million reflect Terra’s interest in earnings from the GrowHow UK joint venture. Second quarter earnings from continuing operations were positively affected by an aggregate pretax amount of $14.2 million ($9.2 million or $0.07 per share, after tax) related to the sale of assets. Results of discontinued operations included $12.0 million in revenues realized under the Beaumont facility's methanol production contract, which are payable when methanol margins achieve specified levels. In 2007, these revenues were recognized in the third quarter. Analysis of first half results Revenues for the 2008 first half totaled $ 1.4 billion compared to $1.2 billion for the 2007 first half. The 2007 revenues included $211.0 million from Terra’s UK operations that were later contributed to a joint venture. Excluding the 2007 UK results, revenues increased $435.4 million from the 2007 to the 2008 first half, mostly due to higher nitrogen products selling prices. Ammonia, UAN and ammonium nitrate (AN) selling prices increased 45, 51 and 31 percent, respectively, over those of the same period last year. Selling prices for the first half improved for substantially the same reasons as they did for the second quarter. North American sales volumes for ammonia increased by 9 percent, while sales volumes for UAN decreased 3 percent and AN sales volumes remained stable. Sales volumes for the first half were generally affected by the same factors affecting those of the second quarter. First half equity earnings of affiliates of $46.9 million reflect Terra’s interest in earnings from the GrowHow UK joint venture. Forward natural gas position Terra’s forward purchase contracts at June 30, 2008, fixed prices for about 31 percent of its next 12 months’ natural gas needs at about $68 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 third and fourth quarters of 2008. Cash balances, customer prepayments and share buybacks Cash balances, including about $92 million in customer prepayments, totaled $752 million at June 30, 2008. Terra expects to ship products under the prepay agreements during the 2008 third and fourth quarters. During the 2008 second quarter, Terra repurchased 189,150 of its common shares under its share buyback program at an average price of $39.65 per share and a total cost of $7.5 million. The program authorizes Terra to repurchase approximately 12.8 million shares (14 percent of its current outstanding shares) and extends through June 30, 2010. At June 30, 2008, approximately 12.7 million shares remained available for repurchase under the program. CEO’s remarks Said Terra President and CEO Mike Bennett, "Terra realized record earnings for the second quarter, reflecting not only a very positive nitrogen industry environment, but also excellent performance in all areas of the company, including our joint ventures in Trinidad and the UK. While our costs increased due to higher natural gas prices, continued strong product demand allowed nitrogen selling prices to keep pace. "Looking ahead,” Bennett continued, "we expect this strong demand to continue for the remainder of 2008 as customers fill their storage capacity in anticipation of a robust spring 2009 planting and application season. The tight global supply/demand balance for nitrogen products has continued to put upward pressure on selling prices. "We also look forward to restarting our Donaldsonville, Louisiana ammonia plant in the 2008 third quarter. Once completed, this startup will allow us to replace approximately 400,000 tons per year of imported ammonia with our own manufactured product, thereby realizing higher margins.” Conference call details Terra management will conduct a conference call to discuss these second 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: 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), product mix, the seasonality of demand patterns, weather conditions, environmental and other government regulation, and 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 Six Months Ended June 30, June 30, (in thousands except per-unit amounts) 2008 2007 2008 2007   Revenues Product revenues $ 836,924 $ 690,995 $ 1,410,126 $ 1,190,461 Other   6,173     1,540     7,675     2,998   Total revenues $ 843,097 $ 692,535 $ 1,417,801 $ 1,193,459   Costs and expenses Cost of sales 547,070 532,353 954,059 954,617 SG&A 27,233 28,194 39,937 45,251 Equity earnings of unconsolidated affiliates--Operating (16,518 ) 804 (29,808 ) (4,813 )         Total costs and expenses 557,785 561,351 964,188 995,055   Operating income 285,312 131,184 453,613 198,404   Interest income 5,513 3,482 13,921 6,369 Interest expense (6,756 ) (6,871 ) (13,814 ) (15,780 ) Loss on early retirement of debt   --     (174 )   --     (38,836 )   Income before taxes and minority interest 284,069 127,621 453,720 150,157   Income tax provision (107,069 ) (41,579 ) (166,573 ) (46,736 ) Minority interest (18,495 ) (13,939 ) (36,621 ) (22,576 ) Equity earnings of affiliates   37,611     --     46,895     --     Income from continuing operations 196,116 72,103 297,421 80,845   Income (loss) from discontinued operations   7,319     (1,448 )   7,471     (2,981 )   Net income 203,435 70,655 304,892 77,864   Preferred stock dividends   (1,275 )   (1,275 )   (2,550 )   (2,550 )   Income available to common shareholders $ 202,160   $ 69,380   $ 302,342   $ 75,314     Income per common share: Basic--continuing operations $ 2.14 $ 0.77 $ 3.26 $ 0.85 Basic--discontinued operations   0.08     (0.01 )   0.08     (0.03 ) Net income $ 2.22   $ 0.76   $ 3.34   $ 0.82     Diluted--continuing operations $ 1.87 $ 0.67 $ 2.84 $ 0.76 Diluted--discontinued operations   0.07     (0.01 )   0.07     (0.03 ) Net income $ 1.94   $ 0.66   $ 2.91   $ 0.73     Weighted average shares outstanding: Basic 91,011 91,496 90,588 91,677 Diluted 104,678 107,294 104,652 107,311 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)         June 30, 2008 2007 Assets Cash and cash equivalents $ 752,008 $ 286,950 Accounts receivable, net 236,112 242,349 Inventories 168,950 167,471 Other current assets 112,000 23,298 Current assets held for sale--discontinued operations   45,785   2,313 Total current assets 1,314,855 722,381   Property, plant and equipment, net 386,800 616,031 Equity method investments 360,805 165,201 Deferred plant turnaround costs--net 37,116 41,375 Other assets 30,109 27,186 Noncurrent assets held for sale--discontinued operations   --   86,892 Total assets $ 2,129,685 $ 1,659,066   Liabilities and Stockholders' Equity Accounts payable $ 146,846 $ 144,054 Customer prepayments 91,605 25,166 Accrued and other current liabilities 130,145 93,608 Current liabilities held for sale--discontinued operations   3,773   16,632 Total current liabilities   372,369   279,460   Long-term debt 330,000 330,000 Deferred taxes 153,754 66,186 Pension liability 9,251 119,407 Other liabilities 82,550 88,656 Minority interest 106,451 105,549 Noncurrent liabilities held for sale--discontinued operations   --   2,959 Total liabilities and minority interest   1,054,375   992,217   Series A preferred shares 115,800 115,800   Stockholders' equity   959,510   551,049 Total liabilities and stockholders' equity $ 2,129,685 $ 1,659,066 Terra Industries Inc. Summarized Cash Flows (in thousands) (unaudited)         Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007   Net income $ 203,435 $ 70,655 $ 304,892 $ 77,864 Income from (loss on) discontinued operations   7,319     (1,448 )   7,471     (2,981 ) Income from continuing operations 196,116 72,103 297,421 80,845 Non-cash charges and credits: Depreciation and amortization 19,596 24,702 39,449 48,328 Sale of property, plant and equipment 250 -- 727 -- Deferred income taxes 11,039 28,670 48,940 36,960 Minority interest 18,495 13,940 36,621 22,576 Distributions in excess of (less than) equity earnings 4,213 1,804 3,881 (3,813 ) Equity earnings GrowHow UK Limited (37,611 ) -- (46,895 ) -- Non-cash loss (gain) on derivatives (4,293 ) 3,456 (4,954 ) 624 Share-based compensation 8,508 10,813 9,772 13,681 Amortization of intangible and other assets 2,132 2,144 4,070 4,485 Non-cash loss on early retirement of debt -- -- -- 4,662   Change in operating assets and liabilities: Accounts receivable (76,565 ) (55,434 ) (65,675 ) (40,494 ) Inventories 48,606 66,664 (36,478 ) 48,192 Accounts payable and customer prepayments (204,209 ) (98,470 ) (171,404 ) (65,559 ) Other assets and liabilities, net   16,087     21,212     (14,574 )   21,832   Net cash flows from operating activities-- continuing operations 2,364 91,604 100,901 172,319 Net cash flows from operating activities-- discontinued operations   (986 )   11,649     10,051     10,522   Net cash flows from operating activities   1,378     103,253     110,952     182,841     Investing Activities Purchase of property, plant and equipment (19,219 ) (6,760 ) (25,691 ) (13,496 ) Plant turnaround costs (9,598 ) (11,478 ) (10,225 ) (20,320 ) Proceeds from sales of property, plant and equipment 18 -- 1,632 -- Distributions received from unconsolidated affiliates 269 -- 7,196 -- Contributions received from GrowHow UK Limited   165     --     28,055     --   Net cash flow from investing activities   (28,365 )   (18,238 )   967     (33,816 )   Financing Activities Debt issuance -- -- -- 330,000 Payments under borrowing arrangements -- (2,500 ) -- (331,300 ) Payments for debt issuance costs -- (969 ) -- (6,398 ) Preferred share dividends paid (1,275 ) (1,275 ) (2,550 ) (2,550 ) Common stock dividends paid (9,202 ) -- (9,202 ) -- Common stock issuances and vestings (969 ) 130 (6,842 ) 406 Excess tax benefits from equity compensation plans 122 -- 7,817 -- Payments under share repurchase program (7,500 ) (19,211 ) (7,500 ) (19,211 ) Distributions to minority interests   (19,373 )   (7,240 )   (39,899 )   (11,714 ) Net cash flows from financing activities   (38,197 )   (31,065 )   (58,176 )   (40,767 ) Effect of exchange rate changes on cash   (5 )   (310 )   27     (325 ) Increase (decrease) to cash and cash equivalents (65,189 ) 53,640 53,770 107,933 Cash and cash equivalents at beginning of period   817,197     233,310     698,238     179,017   Cash and short-term investments at end of period   752,008     286,950     752,008     286,950   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 June 30, 2008 2007 Sales Average Sales Average Volumes Unit Price(1) Volumes Unit Price(1) Ammonia (tons)(2)   547 $ 530   482 $ 357 UAN (tons) 1,099 338 1,146 229 Urea (tons) 30 417 32 317 Ammonium nitrate (tons)(2) 194 328 179 262 Methanol (gallons) 5,886 1.26 8,523 1.12   Natural gas cost(3) $ 8.77 $ 7.03     Six Months Ended June 30, 2008 2007 Sales Average Sales Average Volumes Unit Price(1) Volumes Unit Price(1) Ammonia (tons)(2) 911 $ 503 834 $ 347 UAN (tons) 2,016 314 2,086 209 Urea (tons) 55 418 65 308 Ammonium nitrate (tons)(2) 367 316 367 241 Methanol (gallons) 14,586 1.51 18,560 1.11   Natural gas cost(3) $ 8.16 $ 6.89 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.