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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1993
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-8520 52-1145429
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or oganization Number) Identification No.)
TERRA CENTRE
600 FOURTH STREET
P.O. BOX 6000
SIOUX CITY, IOWA 51102-6000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 277-1340
________________________
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ITEM 2. Acquisition or Disposition of Assets
On December 31, 1993, pursuant to an Asset Purchase Agreement
("Agreement") among Asgrow Florida Company (AFC), the Upjohn Company ("Upjohn")
and Terra International, Inc. ("Terra International"), Terra International
acquired most of the assets of AFC, including real property, machinery,
vehicles, accounts receivable and inventory. AFC is a wholly owned subsidiary
of Asgrow Seed company, which in turn is a wholly owned subsidiary of Upjohn.
Terra International is a wholly owned subsidiary of Terra Industries Inc. AFC
and Terra International are engaged in the business of marketing, selling and
distributing fertilizers, seeds, herbicides, pesticides and other agricultural
products through outlets in Florida. Terra International will assimilate the
12 retail locations in Florida formely owned by AFC into its existing network
of Florida sales locations, and will initially operate its Florida business
under the name Terra Asgrow Florida. Terra International paid Upjohn
approximately $31 million cash for the purchased assets at closing, which
amount is subject to adjustment based on final determination of net working
capital values.
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired . . . . . . . F-1
Report of Deloitte & Touche . . . . . . . . . . . . . F-2
Balance Sheet . . . . . . . . . . . . . . . . . . . . F-3
Statement of Income and Retained Earnings . . . . . . F-4
Statement of Cash Flows . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . F-6
(b) Pro Forma Financial Statement . . . . . . . . . . . . . . F-11
Pro Forma Statement of Income
For the Year Ended December 31, 1993 . . . . . . F-12
Notes to Pro Forma Statement of Income . . . . . . . . . F-13
(c) Exhibits.
24.1 Consent of Deloitte & Touche
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ASGROW FLORIDA COMPANY
(A wholly-owned subsidiary of The Upjohn Company)
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
F-1
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Terra Industries Inc.
Sioux City, Iowa
We have audited the accompanying balance sheet of Asgrow Florida Company
(the "Company") (a wholly-owned subsidiary of The Upjohn Company) as of
December 31, 1993, and the related statements of income and retained earnings
and of cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1993, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, the Company is involved in
certain environmental cleanup matters. The ultimate outcome of these matters
cannot presently be determined. Accordingly, no provision for loss, if any,
that may result from these matters has been made in the accompanying financial
statements.
Deloitte & Touche
Tampa, Florida
February 26, 1994
F-2
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ASGROW FLORIDA COMPANY
(A wholly-owned subsidiary of The Upjohn Company)
BALANCE SHEET
AS OF DECEMBER 31, 1993
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ASSETS
CURRENT ASSETS:
Cash $ 3,201,741
Inventories 13,042,183
Accounts and notes receivable, less allowance
for doubtful accounts of approximately $1,300,000 12,789,256
Other receivables 1,747,183
Prepaid expenses and other assets 18,418
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Total current assets 30,798,781
PROPERTY, PLANT AND EQUIPMENT, NET 5,116,485
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Total $ 35,915,266
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LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 8,819,751
Accrued expenses and other liabilities 2,072,024
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Total current liabilities 10,891,775
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STOCKHOLDER'S EQUITY:
Common stock - $50 par value; 9,900
shares authorized, 9,900 issued
and outstanding 495,000
Paid in capital 21,790
Retained earnings 66,344,065
Less: Receivable from Parent Company/affiliates - net (41,837,364)
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Total stockholder's equity 25,023,491
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Total $ 35,915,266
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See notes to financial statements.
F-3
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ASGROW FLORIDA COMPANY
(A wholly-owned subsidiary of The Upjohn Company)
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
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Net Sales $90,607,128
Costs and expenses:
Cost of goods sold 74,107,846
Selling expenses 1,384,561
General and administrative expenses 9,003,561
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Operating income 6,111,160
Interest income (1,390,218)
Interest expense 14,896
Other income (245,808)
Other losses - net 166,663
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Income before income taxes 7,565,627
Provision for income taxes 2,924,000
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Net Income 4,641,627
Retained earnings at beginning of year 61,702,438
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Retained earnings at end of year $66,344,065
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See notes to financial statements.
F-4
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ASGROW FLORIDA COMPANY
(A wholly-owned subsidiary of The Upjohn Company)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
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Cash flows from operating activities:
Net income $ 4,641,627
Reconciling items to adjust net income to net
cash provided by operating activities:
Depreciation expense 572,902
Loss on disposal of property and equipment 82,011
Changes in assets and liabilities:
Decrease in inventories 261,939
Increase in accounts and notes receivable (498,778)
Increase in other current assets (323,569)
Increase in trade accounts payable 1,286,715
Decrease in accrued expenses (1,322,945)
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Net cash provided by operating activities 4,699,902
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Cash flows used in investing activities:
Capital expenditures (589,333)
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Cash flows from financing activities:
Increase in receivable from parent (1,061,259)
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Net increase in cash 3,049,310
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Cash at beginning of year 152,431
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Cash at end of year $ 3,201,741
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SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest expense $ 14,896
See notes to financial statements.
F-5
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ASGROW FLORIDA COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF THE UPJOHN COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Asgrow Florida Company (the "Company"), a wholly-owned subsidiary of
Asgrow Seed Company who is a wholly-owned subsidiary of The Upjohn
Company (the "Parent" or "Upjohn"), distributes agricultural products
(seed, agricultural chemicals, and specialty products) to citrus, vegetable,
and ornamental crop producers in Florida and southern Georgia. Its
operations consist of a central office and warehouse located in Plant City,
Florida, and twelve distribution centers located throughout Florida and
one in southern Georgia.
Certain of the Company's liabilities (for example, income tax liabilities and
accrued pension cost) are determined by the Parent, see Note 5. The Company
records such expenses through intercompany balances.
The accompanying financial statements have been prepared from the
separate records maintained by the Company and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Company had not been operated as a subsidiary of the
Parent.
Inventories
Inventories on a separate company basis are carried at the lower of cost or
market, with cost being determined on the first-in, first-out method. The
Parent adjusts the Company's inventories to the last-in, first-out basis,
upon consolidation, for income tax and SEC reporting purposes.
Property, Plant and Equipment
All expenditures for additions, replacements and major improvements are
charged to the property accounts at cost. Depreciation is provided
principally on the straight line method over the estimated useful lives of
the related assets as determined by the Parent with useful lives ranging
from 3 to 41 years. Normal repair and maintenance expenditures are charged
to operations.
Income Taxes
As described at Note 5, the Company is included in the consolidated income
tax returns of Upjohn. Income taxes are determined using the applicable
statutory federal income tax rates on the Company's reported pretax
financial statement income.
F-6
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2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<S> <C>
Chemical $11,109,016
Specialty Product 1,607,830
Seed 425,337
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13,142,183
Less: obsolescence reserve (100,000)
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Total $13,042,183
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</TABLE>
3. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment is comprised of the following:
<TABLE>
<S> <C>
Land and improvements $1,266,360
Buildings and leasehold improvements 3,095,116
Operating equipment 3,013,079
Transportation equipment 1,370,993
Construction in progress 10,222
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8,755,770
Less accumulated depreciation (3,639,285)
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Net property, plant, and equipment $5,116,485
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</TABLE>
4. LEASE COMMITMENTS
The Company was committed to various non-cancelable operating leases
covering vehicles and various equipment. Aggregate minimum rental
payments pursuant to these leases are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1994 $165,000
1995 153,000
1996 70,000
1997 32,000
1998 2,000
1999 and thereafter 16,000
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Total minimum lease payments $438,000
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</TABLE>
Rent expense under all leases was approximately $180,000 during 1993.
F-7
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5. RELATED PARTY TRANSACTIONS
Upjohn has provided a variety of services to the Company. Additionally, the
Company entered into several transactions in the normal course of business
with Upjohn and Asgrow Seed. The principal transactions between the
Company and its Parent and affiliates are summarized below:
(1) The Company has participated in Upjohn's centralized
cash management system. In addition to funding
working capital and operational requirements, Upjohn
has also funded capital expenditures. Intercompany
transactions do not bear interest and have been
effected through changes in the intercompany
receivable account.
(2) The Company has sold products to and purchased products from
various affiliates. These transactions are settled through the
intercompany accounts.
(3) The Company has been allocated various general and administrative
costs from Upjohn, (e.g., legal, employee benefits, and insurance).
The method used to allocate these costs considers, among other
things, the number of employees and time spent by certain
employees on special functions.
(4) Income taxes are determined using the applicable statutory federal
income tax rates on the Company's reported pretax financial
statement income. The corresponding liability is netted in the
intercompany receivable account.
Amounts payable to Upjohn related to income taxes as of
December 31, 1993 consist of the following:
<TABLE>
<S> <C>
Federal $ 2,546,000
State 378,000
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Total $ 2,924,000
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</TABLE>
(5) The Company participates in Upjohn's life, disability and medical
insurance plans for its employees. Medical insurance coverage is
provided for retirees and family members of retirees who have
fulfilled minimum service requirements. Company employees are also
eligible to participate in Upjohn's defined benefit pension and
tax-deferred savings plans. The Company is apportioned a share of
Upjohn's expense in funding and contributing to these plans based
on the employees participating.
F-8
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Management believes that the allocation methods described above were
reasonable in the circumstances. The following is a summary of
transactions and balances between the Company and Upjohn and its
affiliates:
<TABLE>
<S> <C>
Sales To $ 47,033
Purchases From 2,614,595
Allocated Expenses From:
Income taxes $ 2,924,000
Employee insurance benefits 596,879
Other post-employment benefits 489,992
Services and other charges 290,707
Employee savings plan and annuity 257,851
Workers' compensation insurance 56,837
Property insurance 14,606
Intercompany Receivable $41,837,364
</TABLE>
6. CONTINGENCIES
The Company is involved in negotiations with the Florida Department of
Environmental Protection ("FDEP") regarding the appropriate nature and
scope of a Preliminary Corrective Action Plan and a Corrective Action
Plan (collectively referred to as "CAP") deemed desirable for the parcels
of the Company's real property located in Plant City, Florida (hereafter
referred to as the "Plant City Real Property"). The purpose of the CAP and
related activity is to define environmental conditions within the scope of
the CAP and identify action, if any, which may be appropriate for protection
of human health or the environment. Upon completion of the CAP, certain
monitoring, risk assessment or remedial action at the Plant City Real
Property may be required. The Company is unable, at present, to determine
the ultimate liability relating to these matters.
The Company is also involved in various other legal actions and claims
arising from the normal course of business. Although it is not possible to
predict with any certainty the outcome of such matters, it is the opinion of
management that these matters will not have a material adverse effect on
the Company.
7. SALE OF THE COMPANY
Effective with the close of business on December 31, 1993, Terra Industries
Inc. ("Terra") purchased the majority of the Company's net assets, through
a new company, Terra Asgrow Florida. Under the purchase agreement with
Upjohn, Terra purchased certain of the Company's real and fixed property,
inventories, accounts receivable, and other assets and assumed certain of
the Company's liabilities, as well as open purchase orders. The Company is
responsible for approximately $289,000 accrued severance benefits payable
to all employees who were not hired by the successor owner, as well as all
taxes and similar expenses incurred prior to January 1, 1994.
F-9
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In connection with the sale of the Company, Upjohn has indemnified Terra
against losses and costs incurred by the Company through December 31, 1993,
including the environmental matters discussed in Note 6. Specifically,
under the agreement, Upjohn has agreed to indemnify Terra against all costs
attributable to hazardous substances discovered in or on the real property
purchased within 7 1/2 years after the closing date to the extent that the
cause of the contamination can be clearly attributed to the Company.
However, if within 5 years after the closing date, hazardous substances are
discovered and the identity of the causing party is not clearly
determinable, the costs attributable to the contamination shall be
allocated between Terra and the Company using a defined allocation schedule
based upon the year of discovery.
F-10
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PRO FORMA FINANCIAL STATEMENT
On December 31, 1993, Terra International, Inc. ("Terra International")
purchased net assets, including real property, machinery, vehicles, accounts
receivable and inventory, of certain operations of Asgrow Florida Company, Inc.
("Asgrow Florida"), a distributor of fertilizer, chemicals and seed to the
vegetable, citrus and ornamental markets mostly in Florida, for approximately
$39 million. Asgrow Florida is a wholly owned subsidiary of Asgrow Seed
Company, which in turn is a wholly owned subsidiary of The Upjohn Company
("Upjohn"). Terra International, a wholly owned subsidiary of Terra Industries
Inc. ("the Corporation"), is engaged in the business of producing, marketing,
selling and distributing fertilizers, seeds, herbicides, pesticides and other
agricultural products through outlets in the 48 contiguous United States and
Canada.
Terra International will assimilate the twelve retail locations formerly owned
by Asgrow Florida into its existing network of Florida sales locations, and
will initially operate its Florida business under the name Terra Asgrow
Florida.
Terra International paid $31 million at closing with the remainder to be
determined based on the value of net assets acquired at the closing date.
Effective March 31, 1993, Terra International, through its wholly owned
subsidiary Terra International (Canada) Inc. ("Terra Canada"), acquired the
rights to an anhydrous ammonia production facility and related upgrading
facilities located near Sarnia, Ontario (the "Courtright Plant"), purchased
working capital associated with the Courtright Plant, and purchased interests
in 32 farm service centers operated under the trademark "Agromart" in Ontario,
New Brunswick and Nova Scotia. Terra Canada's pro forma statement of income
for the 1993 first quarter is based on amounts and adjustments presented in the
Corporation's Form 8-K filed in connection with that acquisition, as amended
on June 9, 1993.
The accompanying pro forma statement of income for the year ended December 31,
1993 presents the pro forma combined results of Terra Industries Inc. assuming
the acquisitions occurred at the beginning of 1993. The pro forma statement of
income includes adjustments to revenues, costs, expenses and income taxes
necessary to reflect the purchase price of net assets acquired. An exchange
rate of $0.80 U.S. to $1.00 Canadian is assumed for the first quarter 1993 pro
forma Terra Canada results of operations. A pro forma statement of financial
position is not presented since the net assets of each acquired business were
included in the Corporation's December 31, 1993 consolidated statement of
financial position.
F-11
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TERRA INDUSTRIES INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PRO FORMA
TERRA TERRA ASGROW PRO FORMA
INDUSTRIES CANADA FLORIDA ADJUSTMENTS PRO FORMA
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(1st Qtr 93)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales $ 1,212,510 $ 24,565 $ 90,607 $ (3,644)(1) $ 1,324,038
Other income, net 25,491 140 1,470 (637)(1) 26,464
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Total 1,238,001 24,705 92,077 (4,281) 1,350,502
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COST AND EXPENSES
Cost of sales 1,021,187 19,775 74,108 (357)(1)(2) 1,114,713
Selling, general and administrative 161,791 1,965 9,815 (2,347)(1)(3) 171,224
Depreciation and amortization 15,470 77 573 782 (1)(4) 16,902
Equity in earnings of affiliates (2,275) 1,242 --- --- (1,033)
Interest income (3,261) --- --- 1,418 (5) (1,843)
Interest expense 12,944 300 15 --- 13,259
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Total 1,205,856 23,359 84,511 (504) 1,313,222
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 32,145 1,346 7,566 (3,777) 37,280
Income provision (credit) 9,300 1,006 2,924 (1,450)(6) 11,780
----------- ---------- ------------ ---------- -----------
INCOME FROM CONTINUING OPERATIONS $ 22,845 $ 340 $ 4,642 $ (2,327) $ 25,500
----------- ---------- ------------ ---------- -----------
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Weighted average shares outstanding 69,064 69,064
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EARNINGS (LOSS) PER SHARE
-- CONTINUING OPERATIONS $ 0.33 $ 0.37
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</TABLE>
F-12
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NOTES TO PRO FORMA STATEMENT OF INCOME
(1) Certain operations of Asgrow Florida, principally a retail location in
southern Georgia and the seed distribution business to vegetable markets
in North Carolina, were not acquired. Revenues, costs of sales, selling
expenses and depreciation are reduced $4.3 million, $2.1 million, $0.5
million and $85,000, respectively to reflect operations not acquired.
(2) Asgrow Florida had purchased proprietary seed from Asgrow Seed Company
("Asgrow Seed") at Asgrow Seed's cost. Terra Asgrow Florida will
purchase seed from Asgrow Seed at prices that represent wholesale market
value. The increase in seed purchase costs is estimated to increase pro
forma cost of sales by $1.9 million.
(3) Asgrow Florida received charges from Upjohn totaling $1.8 million for
allocations of research and development costs and general administrative
services. These expenses are not expected to continue after December 31,
1993.
(4) The acquisition price included approximately $13 million of unassigned
cost which will be charged against operations $867,000 per year for 15
years.
(5) Interest income is reduced to reflect use of available cash to fund the
purchase from Asgrow Florida.
(6) Income taxes are adjusted to reflect statutory rates for the acquired
operations of Asgrow Florida.
F-13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERRA INDUSTRIES INC.
/s/ GEORGE H. VALENTINE
---------------------------------------
GEORGE H. VALENTINE
Date: March 4, 1994 Vice President, General Counsel and
Corporate Secretary
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EXHIBIT 24.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Prospectuses constituting
part of the Registration Statements on Form S-3 (Registration Nos. 33-52493,
2-90808, 2-84876 and 2-84669) and Form S-8 (Registration Nos. 33-33058,
33-4939, 33-46734 and 33-46735) of Terra Industries Inc. of our report dated
February 26, 1994 on our audit of the financial statements of Asgrow Florida
Company (a wholly-owned subsidiary of The Upjohn Company) as of and for the
year ended December 31, 1993, which report is included in Terra Industries Inc.
Current Report on Form 8-K/A-1, dated December 31, 1993.
DELOITTE & TOUCHE
Tampa, Florida
February 26, 1994
