<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 June 30, 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 June 30, 1994, the following shares of the registrant's stock
were outstanding:
Common Shares, without par value 70,553,045 shares
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<PAGE> 2
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 40,520 $ 65,102 $101,013
Accounts receivable, less allowance for
doubtful accounts of $7,348, $5,788 and $8,226 352,464 122,774 305,151
Inventories 268,357 244,995 204,104
Deferred tax asset -- current 27,338 26,011 21,381
Other current assets 25,459 10,586 5,600
- - ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 714,138 469,468 637,249
- - ------------------------------------------------------------------------------------------
Property, plant and equipment, net 124,786 110,670 97,643
Deferred tax asset -- non-current 5,772 24,742 19,384
Net assets of discontinued operations 3,522 3,488 34,892
Other assets 28,677 26,114 6,419
- - ------------------------------------------------------------------------------------------
TOTAL ASSETS $876,895 $634,482 $795,587
==========================================================================================
LIABILITIES
Debt due within one year $109,671 $ 9,636 $ 49,896
Accounts payable 293,361 99,886 235,245
Accrued and other liabilities 105,270 128,659 108,661
- - ------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 508,302 238,181 393,802
- - ------------------------------------------------------------------------------------------
Long-term debt 45,782 119,061 119,943
Deferred tax liability -- non-current 2,383 451 ---
Other liabilities 32,472 33,809 29,530
- - ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 588,939 391,502 543,275
- - ------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 114,375 shares;
outstanding 70,553, 69,455 and 65,466 shares 123,550 122,257 85,096
Trust Shares, authorized 16,500 shares;
outstanding none, none and 3,890 shares --- --- 21,644
Paid-in capital 523,915 516,128 531,177
Cumulative translation adjustment (795) (488) (66)
Accumulated deficit (358,714) (394,917) (385,539)
- - ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 287,956 242,980 252,312
- - ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $876,895 $634,482 $795,587
==========================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 2
<PAGE> 3
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 804,211 $ 643,529 $1,059,475 $ 807,153
Other income, net 14,041 9,702 18,281 13,188
- - ------------------------------------------------------------------------------------------------
818,252 653,231 1,077,756 820,341
- - ------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 675,711 541,428 897,685 681,611
Depreciation and amortization 4,604 3,856 9,060 7,757
Selling, general and administrative expense 59,866 50,642 100,172 84,137
Equity in (earnings) of unconsolidated
affiliates (590) (940) (36) (940)
Interest income (1,127) (802) (1,983) (1,868)
Interest expense 2,906 3,575 5,841 6,652
- - ------------------------------------------------------------------------------------------------
741,370 597,759 1,010,739 777,349
- - ------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary
item 76,882 55,472 67,017 42,992
Income tax provision 28,980 15,899 25,400 12,155
- - ------------------------------------------------------------------------------------------------
Income before extraordinary item 47,902 39,573 41,617 30,837
Extraordinary loss on early retirement
of debt --- --- 2,614 ---
- - ------------------------------------------------------------------------------------------------
NET INCOME $ 47,902 $ 39,573 $ 39,003 $ 30,837
================================================================================================
EARNINGS PER SHARE:
Income before extraordinary item $ 0.68 $ 0.57 $ 0.59 $ 0.45
Extraordinary loss on early retirement
of debt --- --- (0.04) ---
- - ------------------------------------------------------------------------------------------------
NET INCOME $ 0.68 $ 0.57 $ 0.55 $ 0.45
================================================================================================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 70,712 69,022 70,336 69,033
================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.02 $ --- $ 0.04 $ ---
================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 3
<PAGE> 4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 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 1,145 (668) (477) --- --- ---
Exercise of stock options 16 --- 38 --- --- 54
Translation adjustment --- --- --- (66) --- (66)
Stock Incentive Plan 4 --- 7 --- --- 11
Net income --- --- --- --- 30,837 30,837
- - -----------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 $85,096 $21,644 $531,177 $ (66) $(385,539) $252,312
===========================================================================================================
</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 120 --- 847 --- --- 967
Exercise of stock options 442 --- 1,764 --- --- 2,206
Conversion of Convertible
Debentures 731 --- 5,176 --- --- 5,907
Translation Adjustment --- --- --- (307) --- (307)
Dividends --- --- --- --- (2,800) (2,800)
Net income --- --- --- --- 39,003 39,003
- - -----------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 $123,550 $ --- $523,915 $ (795) $(358,714) $287,956
===========================================================================================================
</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>
Six Months Ended
June 30,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 39,003 $ 30,837
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 9,060 7,757
Deferred income taxes 20,902 5,494
Extraordinary loss on early retirement of debt 2,614 ---
Equity in earnings of unconsolidated affiliates (36) ---
Other 533 508
Changes in current assets and liabilities,
excluding working capital purchased/sold:
Accounts receivable (241,589) (223,463)
Inventories (22,032) 20,160
Other current assets (1,214) 2,241
Accounts payable 193,442 134,573
Accrued and other liabilities (16,945) (5,887)
Other (1,526) (1,001)
- - -----------------------------------------------------------------------------------------
Net cash used in operating activities (17,788) (28,781)
- - -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Discontinued operations (1,794) (3,337)
Purchase of property, plant and equipment (20,978) (13,431)
Acquisitions (13,833) (17,160)
Proceeds from investments 582 ---
Sale of assets --- 5,773
- - -----------------------------------------------------------------------------------------
Net cash used in investing activities (36,023) (28,155)
- - -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term borrowings -- net 100,007 42,628
Premium paid on retirement of convertible debentures (2,533) ---
Principal payments on long-term debt (67,344) (6,468)
Dividends (2,800) ---
Exercise of stock options 2,206 ---
- - -----------------------------------------------------------------------------------------
Net cash provided by financing activities 29,536 36,160
- - -----------------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term investments (307) ---
- - -----------------------------------------------------------------------------------------
Decrease in cash and short-term investments (24,582) (20,776)
Cash and short-term investments at beginning of period 65,102 121,789
- - -----------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 40,520 $101,013
=========================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 5
<PAGE> 6
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>
June 30, December 31, June 30,
(in thousands) 1994 1993 1993
---------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 28,751 $ 22,983 $ 20,621
Finished goods 239,606 222,012 183,483
---------------------------------------------------------------
Total $268,357 $244,995 $204,104
===============================================================
</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 for the six
months ended June 30, 1993.
On December 31, 1993, Terra International, Inc. purchased net assets
of certain operations of Asgrow Florida Company, Inc. (Asgrow
Florida), a distributor of fertilizer, chemicals and seed. Asgrow
Florida operated 12 distribution centers and was a supplier to the
vegetable and ornamental markets, mostly in Florida.
6
<PAGE> 7
Terra Canada's and 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>
Three Months Ended Six Months Ended
(in thousands, except per-share data) June 30, 1993 June 30, 1993
------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 674,100 $887,700
Net income $ 39,615 $ 31,847
Net income per share $ 0.57 $ 0.46
------------------------------------------------------------------------------
</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 $72.1 million of 8.5%
Convertible Subordinated Debentures due 2012 at the required
redemption price of 103.4% 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 per
Common Share. 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 would exceed the debt redeemed.
7. During March 1994, the Corporation entered into an agreement to sell
its receivables. 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 is included in selling, general and administrative
expenses in the Consolidated Statement of Operations. As of June 30,
1994, $50 million in proceeds had been received under this agreement.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1994, COMPARED WITH
QUARTER ENDED JUNE 30, 1993
Second quarter 1994 net income of $47.9 million was $8.3 million favorable to
the $39.6 million net income in the second quarter of 1993. The Corporation's
operations are seasonal, coincident with crop plantings, which generally
results in high second quarter earnings, and losses or low earnings in the
other three quarters.
The Corporation's operations are classified into two major categories --
Distribution and Manufactured Fertilizer. Total revenues and pretax income for
the three months ended June 30, 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 $743,160 $574,982 $63,087 $45,142
Manufactured Fertilizer 83,310 87,725 17,817 16,443
Other -- net of intercompany eliminations (8,218) (9,476) 396 (652)
- - -----------------------------------------------------------------------------------------
Operating income 81,300 60,933
Non-operating expenses and net
interest expense (4,418) (5,461)
- - -----------------------------------------------------------------------------------------
Totals $818,252 $653,231 $76,882 $55,472
=========================================================================================
</TABLE>
Distribution second quarter 1994 revenues of $743.2 million increased $168.2
million from 1993 levels due to increased agricultural chemicals and
fertilizers sales volumes and a $17.1 million sales increase in Florida due
principally to the Asgrow acquisition completed in December 1993. Sales
volumes were higher than the 1993 second quarter due to increased planted
acreage and favorable weather conditions in the current period 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 second quarter pretax income of $63.1 million was
$17.9 million higher than in 1993 due to the increased sales levels, partially
offset by higher selling and administrative expenses. Selling and
administrative expenses increased $9.4 million due principally to new
locations, normal wage increases, and sales force additions.
Manufactured Fertilizer revenues of $83.3 million during the 1994 second
quarter decreased $4.4 million from 1993 due to favorable weather enabling
early field work during the first quarter of 1994 compared with later field
work in 1993. Second quarter 1994 operating income for the Manufactured
Fertilizer business was $1.4 million more than the same period in 1993
principally as the result of higher selling prices which increased an average
4% over 1993 levels. Pricing gains were partially offset by sales volumes 11%
under the prior year and increased production costs.
For the three months ended June 30, 1994, interest expense totaled $2.9 million
compared with $3.6 million for the same period in 1993. The $0.7 million
decrease in interest expense was primarily due to the redemption of the
convertible subordinated debentures during the first quarter.
8
<PAGE> 9
Second quarter 1994 income taxes were provided at an estimated annual effective
rate of 37.2% versus 28.0% in the 1993 second quarter. The lower rate in 1993
resulted from the utilization of previously unrecognized capital loss
carryforwards.
SIX MONTHS ENDED JUNE 30, 1994, COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1993
The Corporation recorded income before extraordinary item of $41.6 million,
$0.59 per share, on revenues of $1,077.8 million for the first half of 1994,
compared with income before extraordinary item of $30.8 million, $0.45 per
share, on revenues of $820.3 million for the same period in 1993.
The net income after extraordinary loss on early retirement of debt was $39.0
million, or $0.55 per share for the first half of 1994, compared with net
income of $30.8 million, or $0.45 per share for the same period in 1993. An
extraordinary loss of $2.6 million, net of federal income taxes, was realized
on the redemption of outstanding 8.5% convertible debentures and included a
3.4% redemption premium and unamortized issue costs.
Total revenues and pretax income for the six months ended June 30, 1994 and
1993 by major operating category were as follows:
<TABLE>
<CAPTION>
Pretax Income (Loss)
Revenues Before Extraordinary Item
- - ----------------------------------------------------------------------------------------------------
(in thousands) 1994 1993 1994 1993
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution $ 949,638 $710,135 $50,188 $31,082
Manufactured Fertilizer 137,466 120,512 24,805 21,364
Other -- net of intercompany eliminations (9,348) (10,306) (130) (693)
- - ----------------------------------------------------------------------------------------------------
Operating income 74,863 51,753
Non-operating expenses and net
interest expense (7,846) (8,761)
- - ----------------------------------------------------------------------------------------------------
Totals $1,077,756 $820,341 $67,017 $42,992
====================================================================================================
</TABLE>
Distribution first half 1994 revenues of $949.6 million increased $239.5
million from the 1993 comparable period primarily due to increased selling
prices for products and higher sales volumes and a $40.2 million sales increase
in Florida resulting primarily from the Asgrow acquisition completed in
December 1993. Gross profits increased $35.7 million reflecting higher sales
volumes of distributed fertilizers and improved chemical volumes and margins.
Selling expenses increased $15.9 million and were primarily attributable to
normal wage increases and higher employment levels from locations added in the
prior year.
Manufactured Fertilizer revenues of $137.5 million for the 1994 first half
increased $17.0 million from the comparable period in 1993 due principally to
acquisition of the Courtright nitrogen plant at the end of March 1993 and
higher selling prices and sales volumes. The Courtright nitrogen plant
contributed $57.9 million to 1994 first half revenues compared with $42.7
million in the 1993 first half. Pretax income increased $3.4 million
principally due to selling prices which increased an average 6% over prior
years levels. Price increases were partially offset by higher manufacturing
costs resulting from a 12% increase to natural gas costs.
Net non-operating expenses, comprised of corporate administrative expenses and
interest expense net of interest income, decreased $0.9 million to $7.8 million
in 1994 due to the redemption of the 8.5% convertible subordinated debentures.
The estimated annual effective tax rate increased from 28.0% during 1993 to
37.2% in 1994 due to utilization of previously unrecognized capital loss
carryforwards in 1993.
9
<PAGE> 10
CHANGES IN FINANCIAL CONDITION SINCE YEAR-END
The Corporation used $17.8 million in cash to fund operations during the first
half of 1994 primarily due to seasonal increases in accounts receivable.
Short-term borrowings increased $100.0 million to fund seasonal working capital
requirements and retirement of long-term debt. The redemption of the 8.5%
Convertible Subordinated Debentures utilized $68.7 million of cash, which
management may replenish through a new securities offering.
Capital expenditures of $21.0 million in the first six months of 1994 compare
to $13.4 million for the same period in 1993. The 1994 capital expenditures
include $8.6 million for the completion of the methanol manufacturing plant at
the Woodward, Oklahoma manufacturing facility. Completion of the project with
the start-up of production and sales of methanol occurred during the second
quarter.
Cash used for acquisitions includes an $8.1 million payment on working capital
acquired with the Asgrow Florida purchase and $5.7 million represents payments
made on six acquisitions of additional service centers.
During June 1994, the Corporation announced it had signed a letter of intent to
acquire a one-third interest in Royster-Clark, Inc., which has annual sales of
approximately $200 million and operates over 100 farm service centers on the
east coast. The Corporation will have the right under certain circumstances to
increase its ownership to a majority holder within five years. Subject to due
diligence and execution of definitive agreements, the Corporation may fund the
payment from available cash and unused credit lines.
Proceeds of $50 million were received from the agreement to sell receivables
that the Corporation entered into during March 1994. The funds were used to
reduce seasonal borrowings and for general corporate purposes. The cash
proceeds were reported as operating cash flows in the Consolidated Statements
of Cash Flows.
The $19.0 million decrease in non-current deferred tax assets represents the
estimated utilization of NOL carryforwards that are available to offset a
portion of current year federal income taxes.
The Corporation had unused domestic credit lines of $74.0 million and unused
Canadian credit lines of $14.0 million at June 30, 1994. The Corporation
believes its cash balances and credit lines are sufficient to provide for its
ongoing working capital requirements. The Corporation intends to continue to
evaluate attractive acquisition opportunities. In the event any major
acquisition is made, the Corporation may seek to obtain additional funds from
future debt financings or offerings of equity securities.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
None
(B) REPORTS ON FORM 8-K
None
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: July 29, 1994 /s/ Francis G. Meyer
--------------------------
Francis G. Meyer
Vice President and
Chief Financial Officer
and a duly authorized signatory
11
