<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to -----------
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1145429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TERRA CENTRE
P.O. BOX 6000
600 FOURTH STREET 51102-6000
SIOUX CITY, IOWA (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (712) 277-1340
---------------
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 [ ]
As of March 31, 1994, the following shares of the registrant's
stock were outstanding:
Common Shares, without par value 70,327,345 shares
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<PAGE> 2
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1994 1993 1993
--------- ------------ ---------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 34,520 $ 65,102 $ 92,735
Accounts receivable, less allowance for
doubtful accounts of $7,663, $5,788
and $7,634 176,390 122,774 120,559
Inventories 389,649 244,995 332,284
Deferred tax asset -- current 30,088 26,011 22,660
Other current assets 12,945 10,586 8,818
- - ---------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 643,592 469,468 577,056
- - ---------------------------------------------------------------------------------------
Property, plant and equipment, net 116,583 110,670 95,386
Deferred tax asset -- non-current 24,742 24,742 26,372
Net assets of discontinued operations 3,722 3,488 20,888
Other assets 26,910 26,114 11,407
- - ---------------------------------------------------------------------------------------
TOTAL ASSETS $815,549 $634,482 $731,109
=======================================================================================
LIABILITIES
Debt due within one year $ 79,396 $ 9,636 $ 32,251
Accounts payable 251,280 99,886 173,351
Accrued and other liabilities 165,079 128,659 162,945
- - ---------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 495,755 238,181 368,547
- - ---------------------------------------------------------------------------------------
Long-term debt 45,981 119,061 120,111
Deferred tax liability -- non-current 442 451 ---
Other liabilities 33,137 33,809 29,706
- - ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 575,315 391,502 518,364
- - ---------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 114,375 shares;
outstanding 70,327, 69,455 and 65,430
shares 123,320 122,257 84,601
Trust Shares, authorized 16,500 shares;
outstanding none, none and 3,940 shares --- --- 21,922
Paid-in capital 523,064 516,128 531,334
Cumulative translation adjustment (942) (488) ---
Accumulated deficit (405,208) (394,917) (425,112)
- - ---------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 240,234 242,980 212,745
- - ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $815,549 $634,482 $731,109
=======================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 2
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TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1994 1993
--------- -----------
<S> <C> <C>
REVENUES
Net sales $255,264 $163,624
Other income, net 4,240 3,486
- - ----------------------------------------------------------------------------------
259,504 167,110
- - ----------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 221,974 140,183
Depreciation and amortization 4,456 3,901
Selling, general and administrative expense 40,306 33,495
Equity in loss of unconsolidated affiliates 554 ---
Interest income (856) (1,066)
Interest expense 2,935 3,077
- - ----------------------------------------------------------------------------------
269,369 179,590
- - ----------------------------------------------------------------------------------
Loss from operations before income taxes (9,865) (12,480)
Income tax credit 3,580 3,744
- - ----------------------------------------------------------------------------------
Loss before extraordinary item (6,285) (8,736)
Extraordinary loss on early retirement of debt (2,614) ---
- - ----------------------------------------------------------------------------------
NET LOSS $ (8,899) $ (8,736)
==================================================================================
LOSS PER SHARE:
Loss before extraordinary item $ (0.09) $ (0.13)
Extraordinary loss on early retirement of debt (0.04) ---
- - ----------------------------------------------------------------------------------
NET LOSS $ (0.13) $ (0.13)
==================================================================================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 69,961 69,055
==================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.02 $ ---
==================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 3
<PAGE> 4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Trust Paid-In Translation Accumulated
Shares Shares Capital Adjustment Deficit Total
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $83,931 $22,312 $531,609 $ --- $(416,376) $221,476
Exchange of HBMS
Special Shares 668 (390) (278) --- --- ---
Stock Incentive Plan 2 --- 3 --- --- 5
Net loss --- --- --- --- (8,736) (8,736)
- - -------------------------------------------------------------------------------------------------
Balance at March 31, 1993 $84,601 $21,922 $531,334 $ --- $(425,112) $212,745
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Common Trust Paid-In Translation Accumulated
Shares Shares Capital Adjustment Deficit Total
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 $122,257 $--- $516,128 $ (488) $(394,917) $242,980
Stock Incentive Plan 332 --- 1,760 --- --- 2,092
Conversion of Convertible
Debentures 731 --- 5,176 --- --- 5,907
Translation Adjustment --- --- --- (454) --- (454)
Dividends --- --- --- --- (1,392) (1,392)
Net loss --- --- --- --- (8,899) (8,899)
- - -------------------------------------------------------------------------------------------
Balance at March 31, 1994 $123,320 $--- $523,064 $ (942) $(405,208) $240,234
===========================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 4
<PAGE> 5
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (8,899) $ (8,736)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 4,456 3,901
Deferred income taxes (2,759) (2,773)
Extraordinary loss on redemption 2,614 ---
Equity in loss of unconsolidated affiliates 554 ---
Other 597 246
Changes in current assets and liabilities,
excluding working capital purchased/sold:
Accounts receivable (53,478) (29,488)
Inventories (143,609) (108,020)
Other current assets (955) (977)
Accounts payable 151,361 72,679
Accrued and other liabilities 42,870 31,237
Other (489) (1,619)
- - -------------------------------------------------------------------------------------
Net cash used in operating activities (7,737) (43,550)
- - -------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Discontinued operations (988) 2,098
Purchase of property, plant and equipment (10,463) (6,285)
Acquisitions (11,306) ---
Proceeds from investments 573 ---
- - -------------------------------------------------------------------------------------
Net cash used in investing activities (22,184) (4,187)
- - -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term borrowings -- net 69,758 25,000
Premium paid on retirement of convertible
debentures (2,533) ---
Principal payments on long-term debt (67,171) (6,317)
Dividends (1,392) ---
Stock issuance 1,131 ---
- - -------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (207) 18,683
- - -------------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term
investments (454) ---
- - -------------------------------------------------------------------------------------
Decrease in cash and short-term investments (30,582) (29,054)
Cash and short-term investments at beginning
of period 65,102 121,789
- - -------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 34,520 $ 92,735
=====================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 5
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TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying unaudited consolidated financial statements and
notes thereto contain all adjustments necessary to summarize fairly
the financial position of Terra Industries Inc. and all
majority-owned subsidiaries (the Corporation) and the results of
the Corporation's operations for the periods presented. All such
adjustments are of a normal recurring nature. Because of the
seasonal nature of the Corporation's operations and effects of
weather-related conditions in several of its marketing areas,
earnings of any single reporting period should not be considered as
indicative of results for a full year. These statements should be
read in conjunction with the Corporation's 1993 Annual Report to
Stockholders.
2. Per-share data are based on the weighted average number of Common
Shares that would become outstanding after allowing for the full
exchange of Hudson Bay Mining and Smelting Co., Limited Special
Shares held by the public and exercise of outstanding stock
options. All previously unexchanged Special Shares were
automatically exchanged for Common Shares of the Corporation on
July 6, 1993.
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(in thousands) 1994 1993 1993
----------------------------------------------------------------
<S> <C> <C> <C>
Agribusiness
-- raw materials $ 21,952 $ 22,983 $ 23,651
-- finished goods 367,697 222,012 308,633
----------------------------------------------------------------
Total $389,649 $244,995 $332,284
================================================================
</TABLE>
4. The Corporation and certain of its subsidiaries are involved in
various legal actions and claims, including environmental matters,
arising during 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 Corporation.
5. On April 8, 1993, a wholly owned subsidiary of the Corporation,
Terra International (Canada) Inc. (Terra Canada) purchased working
capital and acquired rights to an anhydrous ammonia production and
related upgrading facilities located at Courtright, Ontario (the
nitrogen plant) effective as of March 31, 1993. In addition, Terra
Canada purchased interests in 32 farm service centers. Thirty of
the service centers are owned by corporations in which Terra Canada
has a 50% interest; the remaining two centers are wholly owned by
Terra Canada. The assets and liabilities as of March 31, 1993 are
reflected in the Consolidated Statements of Financial Position.
Operating results for the first quarter of 1993, prior to the date
of acquisition, are not included in the Consolidated Statements of
Operations.
On December 31, 1993, Terra International, Inc. purchased net
assets of certain operations of Asgrow Florida Company, Inc. (Terra
Asgrow Florida), a distributor of fertilizer, chemicals and seed.
Terra Asgrow Florida operates 12 distribution centers and is a
supplier to the vegetable and ornamental markets, mostly in
Florida.
6
<PAGE> 7
Terra Canada's and Terra Asgrow Florida's operating results are
included in the Consolidated Statements of Operations for 1994.
The following table represents unaudited pro forma summary results
of operations as if both acquisitions had occurred at the beginning
of 1993:
<TABLE>
<CAPTION>
Quarter Ended
(in thousands, except per-share data) March 31, 1993
------------------------------------------------------------------
<S> <C>
Revenues $213,600
Net loss $ (7,768)
Net loss per share $ (0.11)
------------------------------------------------------------------
</TABLE>
The pro forma operating results were adjusted to include lease
expense rather than depreciation for the nitrogen plant, increased
costs of seed sales, amortization of intangibles, interest expense
on the acquisition borrowings and the effect of income taxes.
The pro forma information listed above does not purport to be
indicative of the results that would have been obtained if the
operations were combined during the above periods, and is not
intended to be a projection of future operating results or trends.
6. During March 1994, the Corporation redeemed the $72.1 million of
8.5% Convertible Subordinated Debentures due 2012 at the required
redemption price of 103.40% of par value. During the 20-day notice
period, holders of $5.9 million chose to convert their debentures
into Common Stock of the Corporation at the conversion price of
$8.083. The Corporation issued 730,768 Common Shares and paid cash
for fractional shares. The Corporation funded the redemption from
available cash balances and short-term credit lines. The
Corporation may issue, subject to market conditions, new, long-term
convertible debt in an amount which will equal or exceed the debt
redeemed and has filed a registration statement with the Securities
and Exchange Commission with respect thereto.
7. During March 1994, the Corporation entered into a receivables
purchase agreement. Under this agreement, which expires March 31,
1996, the Corporation may sell an undivided interest in a
designated pool of its accounts receivable and receive $50 million
in proceeds. Undivided interests in new receivables may be sold as
collections reduce previously sold interests. The undivided
interests are sold at a discount that will be included as selling,
general and administrative expenses in the Consolidated Statement
of Operations. As of March 31, 1994, no amounts had been sold
under this agreement.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1994, COMPARED WITH
QUARTER ENDED MARCH 31, 1993
The first quarter loss before extraordinary item of $6.3 million was
$2.4 million favorable to the $8.7 million loss in the first quarter
of 1993. The net loss after extraordinary loss on early retirement of
debt was $8.9 million, or $0.13 per share, on revenues of $259.5
million for the first quarter of 1994, compared with a net loss of
$8.7 million, or $0.13 per share, on revenues of $167.1 million for
the same period in 1993. An extraordinary loss of $2.6 million was
realized on the redemption of outstanding 8.5% convertible debentures
and included a 3.4% redemption premium and unamortized issue costs,
net of federal income taxes. The Corporation's operations are
seasonal, coincident with crop plantings, which generally results in
an operating loss for the first quarter.
The Corporation's operations are classified into two major categories
Distribution and Manufactured Fertilizer. Total revenues and pretax
income (loss) for the three months ended March 31, 1994, and 1993 by
major operating category were as follows:
<TABLE>
<CAPTION>
Revenues Pretax Income (Loss)
- - -----------------------------------------------------------------------------------
(in thousands) 1994 1993 1994 1993
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution $206,478 $135,153 $(12,899) $(14,060)
Manufactured Fertilizer 54,156 32,787 6,988 4,921
Other -- net of intercompany
eliminations (1,130) (830) (526) (41)
- - -----------------------------------------------------------------------------------
Operating loss (6,437) (9,180)
Non-operating expenses and net
interest expense (3,428) (3,300)
- - -----------------------------------------------------------------------------------
Total from operations $259,504 $167,110 $(9,865) $(12,480)
===================================================================================
</TABLE>
Distribution first quarter 1994 revenues of $206.5 million increased
$71.3 million from 1993 levels due to increased agricultural
chemicals and fertilizers sales volumes and a $23.0 million sales
increase in Florida due principally to the Asgrow acquisition
completed in December 1993. Excluding the acquired Florida
properties, sales volumes were higher than the 1993 first quarter
partly due to favorable weather conditions enabling early field work
in contrast to the excessive ground moisture and below normal
temperatures in 1993, which delayed field work across most of the
Corporation's market areas. Sales also increased because of the
number of sales people and locations added during the past year.
Distribution first quarter operating loss was $1.2 million lower than
in 1993 due to the increased sales levels partially offset by higher
selling and administrative expenses. Selling and administrative
expense increases related principally to new locations, normal wage
increases and sales force additions.
Manufactured Fertilizer revenues of $54.2 million during the 1994
first quarter increased $21.4 million from 1993 due to the inclusion
of the Canadian nitrogen manufacturing results which were acquired in
1993 and a 13% increase to nitrogen fertilizer prices. First quarter
1994 operating income for the Manufactured Fertilizer business was
$2.1 million more than the same period in 1993 principally as the
result of higher sales volumes. Higher costs for natural gas, the
primary raw material used in production of manufactured fertilizer, were
offset by higher 1994 selling prices.
8
<PAGE> 9
For the three months ended March 31, 1994, interest expense totaled
$2.9 million compared with $3.1 million for the same period in 1993.
The $0.2 million decrease in interest expense was primarily due to
lower borrowings.
First quarter 1994 income tax benefits were provided at an estimated
annual effective rate of 37.5% versus 30% in the 1993 first quarter.
The lower rate in 1993 resulted from the utilization of previously
unrecorded capital loss carryforwards.
CHANGES IN FINANCIAL CONDITION SINCE YEAR-END
The Corporation used $7.7 million in cash from operations during the
1994 first quarter, principally due to increased March sales and
seasonal increases in inventories. Short-term borrowings increased
$69.8 million to fund seasonal working capital requirements and the
redemption of the 8.5% debentures.
The redemption of the 8.5% Convertible Subordinated Debentures
utilized $68.7 million of cash, which management may replenish through
a new securities offering.
Cash used for acquisitions includes an $8.1 million payment on working
capital acquired with the Terra Asgrow Florida purchase and $3.2
million represents payments made on the acquisition of four additional
service centers.
The proceeds from the receivables purchase agreement that the
Corporation entered into during March 1994 are expected to be used to
reduce seasonal borrowings and for general corporate purposes. In
April 1994, $50.0 million was received under this agreement.
The Corporation believes its cash balances and credit lines are
sufficient to provide for its ongoing working capital requirements.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1994 Annual Meeting of stockholders was held on May
3, 1994, in Sioux City, Iowa. At the meeting, a total of
61,420,461 votes were cast by stockholders. There were no broker
nonvotes.
The following directors were elected to hold office
until the next Annual Meeting or until their successors are duly
elected and qualified, and received the votes set forth opposite
their respective name:
NAME FOR WITHHELD
Carol L. Brookins 61,044,156 376,305
Edward M. Carson 61,047,000 373,461
David E. Fisher 61,042,381 378,080
Basil T. A. Hone 61,052,074 368,387
Burton M. Joyce 61,049,387 371,074
John R. Norton III 61,045,880 374,581
Reuben F. Richards 61,041,286 379,175
Henry R. Slack 61,037,506 382,955
In addition, the stockholders ratified the selection by
the Corporation's Board of Directors of Deloitte & Touche as
independent accountants for the Corporation for 1994. The number
of votes cast for such proposal was 61,120,927, the number against
was 232,849 and the number of abstentions was 66,685.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
None
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K dated December 31, 1993
reporting the acquisition of assets in the Asset
Purchase Agreement by and between Terra International,
Inc., The Upjohn Company and Asgrow Florida Company.
Current Report on Form 8-K/A-1 dated December 31, 1993
reporting the financial statements of the business
acquired and the pro forma financial statements.
10
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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.
Date: May 12, 1994 /s/ Francis G. Meyer
-------------------------------------------
Francis G. Meyer
Vice President and Chief Financial Officer
and a duly authorized signatory
11
