Terra Industries Inc. Reports First Quarter Results

Q1/08 vs. Q1/07:
-- Operating income up $101 million, or 150%.
-- North American revenues up $164 million, or 40%.
-- Ammonia, UAN and AN selling prices up 40%, 55% and 37%.
Outlook:
-- UAN product demand should remain strong as the ammonia application window narrows due to delays caused by cool, wet weather.
-- Nitrogen applications to wheat are expected to increase, partially offsetting a decrease in corn acreage.
-- Natural gas price volatility will continue to affect Terra's manufacturing costs.

SIOUX CITY, Iowa--(BUSINESS WIRE)--Terra Industries Inc. (NYSE:TRA - News) 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