<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of
incorporation or organization)
52-1145429
(I.R.S. Employer
Identification No.)
TERRA CENTRE
600 FOURTH STREET
P. O. BOX 6000
SIOUX CITY, IOWA
(Address of principal executive offices)
51102-6000
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (712) 277-1340
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
TORONTO STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
-----------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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[ ]
<PAGE>
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 Registrant's 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. [ ]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at January 31, 1994, was approximately $244,500,000.
On January 31, 1994, Registrant's outstanding voting stock consisted of
69,594,773 Common Shares, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders of Registrant for the fiscal year ended December
31, 1993. Certain information therein is incorporated by reference into Part I,
Part II and Part IV hereof.
Proxy Statement for the Annual Meeting of Stockholders of Registrant to be held
on May 3, 1994. Certain information therein is incorporated by reference into
Part III hereof.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
------
<S> <C> <C>
Items 1 and 2. BUSINESS AND PROPERTIES................................. 1
Item 3. LEGAL PROCEEDINGS....................................... 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 8
EXECUTIVE OFFICERS OF TERRA INDUSTRIES.................. 9
PART II
-------
Item 5. MARKET FOR TERRA INDUSTRIES' COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................. 10
Item 6. SELECTED FINANCIAL DATA................................. 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 10
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............. 17
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.... 17
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TERRA INDUSTRIES.... 17
Item 11. EXECUTIVE COMPENSATION.................................. 17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................... 18
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 18
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K................................................ 19
SIGNATURES................................................................ 24
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS............. S-1
</TABLE>
<PAGE>
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The Corporation's 1993 income from continuing operations was $22.8 million, or
$0.33 per share, compared with 1992 income from continuing operations of $10.4
million, or $0.15 per share, and 1991 income from continuing operations of $12.0
million, or $0.18 per share. The Corporation's 1993 net income was $22.8
million, or $0.33 per share, compared with 1992 net income of $31.0 million, or
$0.45 per share, and a 1991 net loss of $151.7 million, or $2.26 per share. Net
income for 1992 included a credit of $22.3 million, or $0.32 per share, to
recognize the combined effect of changes in accounting for income taxes and
retiree medical benefits. Losses from discontinued businesses were $1.7 million
and $168.8 million in 1992 and 1991, respectively. The 1991 results included an
extraordinary gain of $5.1 million related to the retirement of Convertible
Subordinated Debentures.
FINANCIAL COMPARABILITY AND OVERVIEW
During 1993, the Corporation expanded its operations through the acquisition of
manufacturing and distribution businesses in Canada. Properties acquired in
Canada were comprised of the lease of an anhydrous ammonia production and
upgrading facility located near Sarnia, Ontario and ownership interests in 32
farm service centers in Ontario, New Brunswick and Nova Scotia. Two of the farm
service centers are owned by the Corporation and 30 are operated by companies in
which the Corporation has a 50% ownership interest. The Canadian properties,
acquired as of March 31, 1993, contributed $98.3 million in revenues and $8.9
million in net income to the Corporation's 1993 results.
The Corporation also purchased assets associated with 12 farm service centers in
Florida (Terra Asgrow) on December 31, 1993. This acquisition had no effect on
1993 results of operations.
During 1992, the Corporation adopted Statement of Financial Accounting Standards
(SFAS) 106, "Employers' Accounting for Post-Retirement Benefits Other than
Pensions" and SFAS 109, "Accounting for Income Taxes." The cumulative prior
years' effect of these accounting changes as of January 1, 1992 was a credit of
$22.3 million, or $0.32 per share. The credit resulted principally from the
recognition of income tax benefits expected to be realized by the Corporation
from its net operating loss (NOL) and tax credit carryforwards. The effect on
1992 income from continuing operations for these changes versus the methods used
in 1991 was a reduction of $7.2 million, or $0.10 per share.
As a result of the decision to focus on agribusiness as its sole operating
segment and a gain on the sale of remaining coal properties discontinued in
1990, the Corporation realized a $2.4 million gain on disposition of
discontinued operations in 1992. During 1991, the Corporation realized a loss
of $170 million on the sale of its base metals segment for $87 million.
Operating results for 1992 and 1991 (there was no effect on operating results
for 1993) for the base metals, leasing, construction materials, beryllium and
gold businesses have been included in discontinued operations for
10
<PAGE>
all periods presented and were as follows:
<TABLE>
<CAPTION>
(in thousands) 1992 1991
- - -------------- ------- ---------
<S> <C> <C>
Revenues:
Base metals $ --- $176,760
Leasing 5,915 8,285
Construction materials 27,809 29,429
------- --------
$33,724 $214,474
======= ========
Net income (loss) from operations:
Base metals $ --- $ (4,827)
Leasing (2,801) 3,760
Construction materials (825) (195)
Other (399) 2,454
------- --------
$(4,025) $ 1,192
======= ========
</TABLE>
FACTORS THAT AFFECT OPERATING RESULTS
Factors that may affect the Corporation's future operating results include: the
number of planted acres; the types of crops planted; the effects general weather
patterns have on the timing and duration of field work for crop planting and
harvesting; the supply of crop inputs; the relative balance of supply and demand
for nitrogen fertilizers; the availability and cost of natural gas; management's
ability to control selling, general and administrative expenses; and the
availability and cost of financing sources to fund seasonal working capital
needs.
The number of planted acres and the types of crops planted are influenced by
government programs designed to manage carryover stocks and commodity prices of
certain crops. Due to the higher cost of crop inputs per acre for corn and
cotton, compared with other major crops, changes in corn and cotton acreages
have a more significant effect on the demand for the Corporation's products and
services than changes in other crops. Significant declines in corn carryover
stocks have lowered 1994 government corn acreage set-asides. As a result, and
assuming more favorable weather conditions than experienced during 1993, the
U.S.D.A. forecasts and the Corporation expects planted corn acreage to increase
from 74 million acres to 80 million acres in 1994.
Weather can have a significant effect on operations. Weather conditions that
delay or intermittently disrupt field work during the planting season may result
in fewer crop inputs being applied than normal and/or shift plantings to crops
with shorter growing seasons. Similar conditions following harvest may delay or
eliminate opportunities to apply fertilizers in the fall of the year. Weather
can also have an adverse effect on crop yields, which lowers the income of the
Corporation's customers and could impair their ability to pay for inputs
purchased from the Corporation. During 1993, excessive moisture through much of
the Midwest resulted in higher-than-normal unplanted acreage and fewer
applications of crop inputs. Soil moisture levels remain high in some Midwest
areas and early spring precipitation could disrupt field work during the 1994
planting season.
Reliable sources for supply of crop inputs at competitive prices are critical to
the distribution portion of the Corporation's business. The Corporation's
sources for fertilizer, agricultural chemicals and seed are typically basic
manufacturers of the products without an internal capability to distribute
products to the North American grower. The Corporation has entered into
purchase agreements which should ensure an adequate supply of products for its
grower and dealer customers through 1994.
Prices for manufactured fertilizers and feed products are influenced by the
world supply and demand balance for ammonia and nitrogen derivatives and may be
temporarily influenced by regional changes in supply and demand levels.
11
<PAGE>
The principal raw material used to produce nitrogen fertilizer is natural gas.
Natural gas costs comprise almost 50 percent of the total costs and expenses
associated with Manufactured Fertilizer operations. The Corporation believes
there is sufficient supply of natural gas to allow stable costs over the long-
term and has entered into firm contracts to minimize the risk of interruption or
curtailment of natural gas supplies during the heating season. At December 31,
1993, the Corporation had fixed prices for approximately 40% of its 1994 natural
gas requirements for its nitrogen fertilizer plants using supply contracts or
financial derivatives. During 1993, most of the natural gas used at the
Corporation's Courtright plant was obtained pursuant to fixed price contracts
that were considerably favorable compared with U.S. contracts. The favorable
gas supply contracts expired during the 1993 fourth quarter. Compared with spot
prices for natural gas, the Corporation estimates the Courtright fixed price
contracts reduced 1993 costs by $7.0 million.
The Corporation's business is highly seasonal with the majority of sales
occurring during the second quarter in conjunction with spring planting
activity. Due to the seasonality of the business and the relatively brief
periods products can be used by customers, the Corporation builds inventories
during the first quarter in order to ensure timely product availability during
the peak sales season. The Corporation's ability to purchase product at off-
season prices and carry inventory until periods of peak demand generally
contributes to gross profits. For its current level of sales, the Corporation
requires lines of credit to fund inventory increases as well as to support
customer credit terms. The Corporation believes that its revolving credit
facilities, approximating $156 million, which expire during 1995 are adequate
for expected 1994 sales levels.
HEDGING AND FINANCIAL INSTRUMENTS
The Company uses financial derivatives and futures markets as follows:
1. To fix Canadian - U.S. dollar exchange rates. A significant portion of the
Company's Canadian production is sold in the U.S., or is based on U.S.
prices, but many of the production costs are in Canadian dollars. As a
result, the Company's earnings will decline when the Canadian dollar
increases in value compared with the U.S. dollar. Consequently, the Company
buys Canadian dollars forward, or uses derivatives to fix future exchange
rates, for about 50% of its estimated Canadian dollar requirements over a
twelve-month period. The Company had committed to buy approximately $19
million (CDN) at December 31, 1993. In addition, the Company had converted
its commitments for future payments, totaling $62 million (CDN) at December
31, 1993, under its Canadian nitrogen plant lease to U.S. dollars through
the use of futures contracts. At December 31, 1993, the Company had deferred
gains totaling $0.8 million related to these contracts based on their fair
value. During 1993, the effect of settling foreign exchange futures
contracts were not significant to the Company's results of operation.
2. To fix future natural gas prices. As indicated elsewhere, the Company's
policy is to fix the price for between 40% and 80% of its natural gas
requirements over a twelve-month period. The Corporation manages the risk of
changes in natural gas prices using over-the-counter (OTC) and exchange-
traded instruments. These instruments include NYMEX futures contracts and
options, and OTC options and swap agreements. Natural gas futures contracts
are regulated by NYMEX and are delivery specified for a standard volume of
natural gas. These contracts are traded up to eighteen months forward and
settlement dates are scheduled to coincide with gas purchases during that
future period. Gains or losses on futures contracts, including contracts
terminated prior to expiration, are credited or charged to the cost of
natural gas in the period in which the related natural gas purchase occurs.
NYMEX option contracts are agreements regulated and specified by NYMEX
giving the holder of the contract the right to either own a futures contract
at a designated price or sell a futures contract at a designated price. A
swap agreement is an agreement between the Corporation and a third party to
exchange cash based on a designated price, which price is referenced to
market natural gas prices or appropriate NYMEX futures contract prices. OTC
options are agreements between the Corporation and third parties which give
the Corporation the right to receive cash when gas prices reach a designated
price.
12
<PAGE>
Management has instituted certain reporting procedures to monitor the
Corporation's exposure. These include reporting of trading activity and
gains and losses based on the fair value of outstanding contract positions.
The risk associated with outstanding natural gas positions is directly
related to increases or decreases in natural gas prices and the related
increase and decrease of the underlying NYMEX natural gas contract prices.
The Company's production plants use approximately 45 million MMBtu of
natural gas annually. During 1993, natural gas related hedging activities
resulted in average cost reductions compared with spot prices of
approximately $5.8 million, or 6%, for total natural gas purchases,
including an estimated $7.0 million effect of favorable purchase contracts
for the Courtright plant. At December 31, 1993, the Company had bought
forward 40% of its natural gas requirements for the next twelve months and
had deferred $0.5 million in losses based on the fair value of outstanding
natural gas related financial instruments.
3. To convert fixed rate borrowings to variable rates. The Company has entered
into interest rate swap agreements to convert $15 million of its fixed-rate,
long-term borrowings to variable rates through April 15, 2003. At December
31, 1993, the net interest rate effect of the swap arrangements totaled
2.9%, effectively reducing the interest rate on its $30 million of 8.48%
Senior Notes to 7.0%.
RESULTS OF CONTINUING OPERATIONS
1993 COMPARED WITH 1992
CONSOLIDATED RESULTS
The Corporation reported income from continuing operations of $22.8 million, or
$0.33 per share, on revenues of $1,238.0 million in 1993, compared with income
from continuing operations of $10.4 million, or $0.15 per share, on revenues of
$1,082.2 million in 1992. The 1993 results include nine months of operation of
the Canadian acquisition which added $98.3 million to revenues and $8.9 million
to income from continuing operations.
The Corporation's operations are classified into two major categories--
Distribution and Manufactured Fertilizer. The Distribution category includes
sales of products purchased from manufacturers and resold by the Corporation.
Distribution revenues are derived primarily from grower and dealer customers
through sales of chemicals, fertilizer, seed and related services. The
Manufactured Fertilizer category represents only those operations directly
related to wholesale sales of nitrogen fertilizer and feed ingredients
manufactured at the Corporation's Woodward, Port Neal and Courtright (Canadian)
facilities.
Total revenues and pretax income from continuing operations for the years ended
December 31, 1993 and 1992 by major operating category were as follows:
<TABLE>
<CAPTION>
(in thousands) Revenues Pretax Income
- - -------------- ----------------------------------------------
1993 1992 1993 1992
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Distribution $1,019,438 $ 958,725 $16,903 $16,568
Manufactured Fertilizer 228,910 125,659 28,654 14,841
Other - net of intercompany eliminations (10,347) (2,193) (3,729) (5,690)
- - ---------------------------------------- ---------- --------- ------- -------
Operating income 41,828 25,719
Net interest expense (9,683) (7,533)
- - -------------------- ------- -------
Total from continuing operations $1,238,001 $1,082,191 $32,145 $18,186
================================ ========== ========== ======= =======
</TABLE>
13
<PAGE>
DISTRIBUTION
Distribution revenues of $1.02 billion in 1993 increased $60.7 million from 1992
sales or 6.3%. Approximately $17.7 million of the sales increase reflected a 3%
increase in chemical sales, while the acquisition of the Canadian business added
$20.1 million of the sales increase, or 2.1%. Distributed fertilizer sales
increased $18.3 million and seed revenues approximated 1992 levels. Revenue
increases in 1993 were less than expected due to weather conditions, especially
the flooding and wet conditions in the central United States, which reduced
planted acres and input application rates.
Operating income for the Distribution business was $16.9 million in 1993,
compared with $16.6 million in 1992. The acquisition of the Canadian business
added $4.0 million to Distribution operating income. Domestic operating income
included a $12.1 million increase in gross profits which was more than offset by
$15.8 million of higher direct selling expenses. The increase in gross profits
includes $5.4 million from higher sales volumes of chemicals as well as margin
improvements resulting primarily from the Corporation's increased distribution
of its Riverside proprietary brand products. Gross profits increased $4.3
million due to higher sales volumes for distributed fertilizer; gross profits
related to sales of other products and services increased $2.4 million.
Increases in 1993 direct selling expenses from 1992 were primarily due to an
$8.1 million increase in compensation costs, which related principally to normal
wage increases and additional personnel, and increased equipment leasing,
operating and maintenance expenses of $3.7 million related to the increased
number of locations and excessively wet field conditions. Advertising and
promotional expenditures increased $1.3 million from 1992.
MANUFACTURED FERTILIZER
Domestic Manufactured Fertilizer revenues increased 20% to $150.7 million in
1993 from $125.7 million in 1992. In addition, the acquisition of the Canadian
plant added $78.2 million of manufactured fertilizer sales. Increased domestic
fertilizer sales volumes added 15% to revenues and higher selling prices for
nitrogen fertilizer and feed products increased revenues by 5%. The additional
sales volume and higher selling prices were principally the result of increased
demand for nitrogen solution fertilizers which were heavily used in the
shortened planting season.
Operating income for the Manufactured Fertilizer business in 1993 was $28.7
million, compared with $14.8 million in 1992. The Canadian plant contributed
$9.5 million to the increase in 1993 operating income. Higher domestic sales
volumes contributed $4.0 million to earnings for 1993. Expanded domestic
ammonia production and 1992 maintenance turnarounds on both domestic plants
improved 1993 gas conversion efficiency which added $2.0 million to operating
income while excess 1992 turnaround costs of $3.0 million were not repeated.
Higher selling prices for domestic production increased earnings by $6.6 million
but were more than offset in 1993 by $11.3 million of cost increases caused
mainly by natural gas price increases.
OTHER OPERATIONS
The net cost of other operations was $3.7 million in 1993, compared with $5.7
million in 1992. The $2 million reduction was primarily the result of
reversing $4.2 million of product liability reserves expensed in 1989,
reflecting the settlement of litigation with DuPont over the fungicide, Benlate,
and a $2.4 million increase in corporate and unallocated expenses, including
$1.4 million related to losses on dispositions of short-term investments prior
to maturity and $0.8 million in compensation expense tied to increases in the
market price of the Corporation's stock.
NET INTEREST EXPENSE
Net interest expense totaled $9.7 million in 1993, compared with $7.5 million in
1992. The increase was primarily the result of additional interest expense due
to the November 1992 issuance of $30.0 million of unsecured notes.
14
<PAGE>
INCOME TAXES
For 1993, the income tax provision rate was lower than statutory rates due to
the utilization of previously unrecognized capital loss carryforwards. For
federal income tax reporting purposes, the Corporation has remaining NOLs of $55
million and tax credits of $1.7 million to offset taxable income and regular tax
liabilities, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During 1993, cash was provided primarily through operating activities and the
sale of assets discontinued in prior years and was utilized for two major
acquisitions, the continued upgrading of production facilities, funding of sales
growth and repayment of debt.
Cash was used to fund increases in accounts receivable of $50.8 million and
inventory of $46.4 million, including $26.8 million in accounts receivable and
$30.1 million in inventory related to acquisitions. Higher fourth quarter 1993
sales than in 1992 caused the majority of the remaining increase in the accounts
receivable balance. The remaining increases in inventory resulted from off-
season purchases to obtain discounts, increased crop protection chemicals
stocked under the Corporation's Riverside label and higher fertilizer inventory
in anticipation of seasonal price increases.
Asset sales during 1993 generated $24.4 million, including $18.5 million from
the sale of the construction materials business and $5.9 million from the sale
of the remaining leasing business. Asset sales generated $23.1 million of cash
during 1992, which included $12.0 million from the sale of coal properties and
$10.0 million from the sale of a leasing subsidiary.
The 1993 Canadian acquisition was funded through an operating lease for the
production facilities and $19.9 million in cash. A $35 million Canadian dollar
revolving credit facility is available to provide for their working capital
needs. The Terra Asgrow (Florida) purchase was closed December 31, 1993 with
$31.0 million paid from available cash. Payments for the Canadian and Florida
acquisitions included $20.5 million for non-current assets.
Purchases of property, plant and equipment totaled $21.6 million in 1993
compared with $17.6 million in 1992. Except for $6.9 million spent for a
methanol manufacturing plant at the Woodward, Oklahoma facility, the 1993
capital expenditures were for routine replacements of property, plant and
equipment and service center expansions. The Corporation expects 1994 capital
expenditures to approximate $27 million, of which $8 million relates to
completing the methanol manufacturing plant. The remaining $19 million of
capital expenditures will be used for routine replacements of property, plant
and equipment, expansion of service centers, and efficiency improvements at the
fertilizer production plants.
Repayment of long-term debt during 1993 and 1992 was limited to scheduled
repayments. Consolidated debt, including the portion due within one year, as a
percentage of total capital was 35% at December 31, 1993 and 38% as of December
31, 1992. During 1992, the Corporation issued $30 million of long-term debt
through a private placement to be used for general operating purposes.
In July 1993, the Board of Directors authorized a share repurchase program for
up to 2.0 million shares. During 1993, 106,900 shares were repurchased for $0.5
million. In November 1993, the Board of Directors declared a $0.02 per share
regular quarterly dividend. This will represent a 1994 cash outlay of $5.6
million, which will be funded from current operations.
The ratio of current assets to current liabilities at December 31, 1993 was 2.1,
unchanged from December 31, 1992. The Corporation's current ratio will
generally decline through June as seasonal increases in inventories and
receivables are funded by increases in current liabilities.
15
<PAGE>
Current financial resources are expected to be adequate to meet normal
requirements during 1994. Cash balances at December 31, 1993 were $65.1
million, of which $13.0 million is used to collateralize letters of credit
supporting recorded liabilities. The Corporation has a $130 million revolving
credit facility to fund seasonal increases in inventories and receivables. The
facility expires December 31, 1995. Credit agreements outstanding at December
31, 1993 contain certain restrictions, which are described in Notes 8 and 10 to
the Consolidated Financial Statements. In addition, these agreements restrict
the transfer of cash and other assets from certain operating subsidiaries to the
Corporation.
The Corporation plans to grow internally and through acquisitions. Management
believes the present working capital position combined with projected cash flows
and available borrowing capacity will be sufficient to meet anticipated cash
requirements for operating needs, capital expenditures and expansion strategies.
RESULTS OF CONTINUING OPERATIONS
1992 COMPARED WITH 1991
CONSOLIDATED RESULTS
Income from continuing operations was $10.4 million, or $0.15 per share, for
1992 compared with $12.0 million, or $0.18 per share, for 1991. The 1992 income
tax provision was $6.7 million higher than in 1991 primarily as the result of
the Corporation's change in accounting for income taxes. The Corporation
recorded 1992 income from continuing operations before income taxes of $18.2
million compared with $13.1 million in 1991. Total revenues were $1,082.2
million in 1992 compared with $1,022.6 million in 1991.
Total revenues and pretax income from continuing operations for the years ended
December 31, 1992 and 1991 by major operating category were as follows:
<TABLE>
<CAPTION>
(in thousands) Revenues Pretax Income
- - -------------- ---------------------------------------------
1992 1991 1992 1991
---------- ---------- ------- --------
<S> <C> <C> <C> <C>
Distribution $ 958,725 $ 899,250 $16,568 $ 9,991
Manufactured Fertilizer 125,659 126,664 14,841 26,703
Other - net of intercompany eliminations (2,193) (3,317) (5,690) (11,025)
---------- ---------- ------- --------
Operating income 25,719 25,669
Net interest expense (7,533) (12,563)
------- --------
Total from continuing operations $1,082,191 $1,022,597 $18,186 $ 13,106
========== ========== ======= ========
</TABLE>
DISTRIBUTION
Distribution revenues of $958.7 million in 1992 increased $59.4 million from
1991 sales of $899.3 million. Chemical sales increased $64.7 million, or 11%,
during 1992 principally as the result of increased sales volumes in the market
area that covers Mississippi, Arkansas, Tennessee, Louisiana and portions of
Missouri. Within this market area, demand for cotton insecticide showed the
largest increase. Retail fertilizer volumes increased $14.1 million, or 7%, in
1992 due to increased application rates and market share growth. Total
distributed fertilizer sales declined, however, due to the expiration of a
dealer supply agreement for phosphate fertilizers and a 4% reduction in selling
prices. Seed sales increased $4.6 million, or 10%, over 1991 levels.
Operating income for the Distribution business was $16.6 million in 1992,
compared with $10.0 million in 1991. The increase in 1992 operating income
reflected a $12.4 million increase in gross profits offset by a 5%, or $5.8
million, increase in direct selling expenses. The higher gross profits resulted
primarily from increased sales volumes as overall gross margins approximated
1991 levels. Increases in 1992 direct selling expenses from 1991 were primarily
due to a $4.7 million increase to compensation costs that reflected normal wage
increases, higher
16
<PAGE>
medical benefit costs and added headcount. Expenses compared with 1991 also
increased by $1.0 million as the result of the accounting change to recognize
retiree medical costs over the employee's service period.
MANUFACTURED FERTILIZER
Manufactured Fertilizer revenues totaled $125.7 million in 1992 compared with
$126.7 million in 1991. Selling prices for fertilizer and feed ingredients
manufactured by the Corporation declined by $2.3 million, or 2%, in 1992 due
primarily to a higher proportion of off-season sales of ammonia, when prices are
generally lower. The pricing reductions were partially offset by increased
ammonia volumes.
Operating income for Manufactured Fertilizer operations declined $11.9 million
to $14.8 million in 1992 from $26.7 million in 1991. Lower selling prices
combined with a 10% increase in natural gas costs reduced 1992 operating income
by $7.5 million. Natural gas costs increased significantly over 1991 levels
during the last six months of 1992 as the result of lower industry-wide
inventories and increased regulatory tariffs. Manufacturing costs for 1992 were
also increased by $3.0 million for higher-than-anticipated costs of maintenance
turnarounds at both nitrogen production facilities. Manufacturing costs for
1991 were reduced $1.3 million by insurance proceeds.
OTHER OPERATIONS
The net cost of other operations was $5.7 million in 1992 compared with $11.0
million in 1991. The decrease was primarily the result of a $4.1 million
reduction in corporate and unallocated expenses due to the August 1991 closing
of the New York corporate office.
NET INTEREST EXPENSE
Interest expense, net of interest income, totaled $7.5 million in 1992 compared
with $12.6 million in 1991. Interest expense was reduced from $14.4 million in
1991 to $10.6 million in 1992 due to lower seasonal borrowings, the retirement
of $31.4 million of Convertible Subordinated Debentures during the last half of
1991, scheduled debt repayments and lower interest rates. Interest income
increased to $3.1 million in 1992 from $1.8 million in 1991 due to higher
average cash balances as the result of 1991 asset sales.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Terra Industries has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
TERRA INDUSTRIES INC.
By: /s/ George H. Valentine
-----------------------
George H. Valentine
Vice President, General Counsel and
Corporate Secretary
Date: October 13, 1994
