<PAGE>
================================================================================
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 September 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 September 30, 1994, the following shares of the registrant's stock
were outstanding:
Common Shares, without par value 70,889,246 shares
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 21,681 $ 65,102 $ 64,167
Accounts receivable, less allowance for
doubtful accounts of $6,470, $5,788 and $8,777 264,485 122,774 213,361
Inventories 244,918 244,995 208,711
Deferred tax asset -- current 27,338 26,011 22,645
Other current assets 30,379 10,586 7,821
- - ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 588,801 469,468 516,705
- - ------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 124,828 110,670 97,811
Deferred tax asset -- non-current 7,917 24,742 19,513
Net assets of discontinued operations --- 3,488 23,123
Other assets 48,726 26,114 8,740
- - ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $770,272 $634,482 $665,892
==================================================================================================================
LIABILITIES
Debt due within one year $141,754 $ 9,636 $ 13,058
Accounts payable 156,325 99,886 142,412
Accrued and other liabilities 99,058 128,659 111,830
- - ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 397,137 238,181 267,300
- - ------------------------------------------------------------------------------------------------------------------
Long-term debt 44,755 119,061 119,119
Deferred tax liability -- non-current 3,989 451 1,043
Other liabilities 33,283 33,809 29,205
- - ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 479,164 391,502 416,667
- - ------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 114,375 shares;
outstanding 70,889, 69,455 and 69,250 shares 124,056 122,257 122,060
Trust Shares, authorized 16,500 shares;
outstanding none, none and 3,890 shares --- --- ---
Paid-in capital 526,729 516,128 515,399
Cumulative translation adjustment (244) (488) (229)
Accumulated deficit (359,433) (394,917) (388,005)
- - ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 291,108 242,980 249,225
- - ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $770,272 $634,482 $665,892
==================================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 2
</TABLE>
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ----------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Net sales $281,431 $244,416 $1,340,906 $1,051,569
Other income, net 6,474 6,048 24,755 19,236
- - --------------------------------------------------------------------------------------
287,905 250,464 1,365,661 1,070,805
- - --------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 239,518 211,189 1,137,203 892,800
Depreciation and amortization 4,797 3,899 13,857 11,656
Selling, general and administrative
expense 44,147 38,537 144,319 122,674
Equity in (earnings) of
unconsolidated affiliates (2,792) (2,054) (2,828) (2,994)
Interest income (1,249) (724) (3,232) (2,592)
Interest expense 2,485 3,238 8,326 9,890
- - --------------------------------------------------------------------------------------
286,906 254,085 1,297,645 1,031,434
- - --------------------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item 999 (3,621) 68,016 39,371
Income tax (provision) benefit (300) 1,155 (25,700) (11,000)
- - --------------------------------------------------------------------------------------
Income (loss) before extraordinary
item 699 (2,466) 42,316 28,371
Extraordinary loss on early
retirement of debt -- -- (2,614) --
- - --------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 699 $ (2,466) $ 39,702 $ 28,371
======================================================================================
EARNINGS PER SHARE:
Income (loss) before
extraordinary item $ 0.01 $ (0.04) $ 0.60 $ 0.41
Extraordinary loss on early
retirement of debt -- -- (0.04) --
- - --------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 0.01 $ (0.04) $ 0.56 $ 0.41
======================================================================================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 71,339 69,067 70,671 69,046
======================================================================================
CASH DIVIDENDS DECLARED
PER SHARE $ 0.02 $ -- $ 0.06 $ --
======================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 38,214 (22,312) (15,902) --- --- ---
Exercise of stock options 17 --- 41 --- --- 58
Stock repurchase (107) --- (360) --- --- (467)
Translation adjustment --- --- --- (229) --- (229)
Stock Incentive Plan 5 --- 11 --- --- 16
Net income --- --- --- --- 28,371 28,371
- - -----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1993 $122,060 $ --- $515,399 $(229) $(388,005) $249,225
=================================================================================================================
Cumulative
Common Trust Paid-In Translation Accumulated
Shares Shares Capital Adjustment Deficit Total
- - -----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $122,257 $ --- $516,128 $(488) $(394,917) $242,980
Stock Incentive Plan 234 --- 1,684 --- --- 1,918
Exercise of stock options 834 --- 3,741 --- --- 4,575
Conversion of Convertible
Debentures 731 --- 5,176 --- --- 5,907
Translation Adjustment --- --- --- 244 --- 244
Dividends --- --- --- --- (4,218) (4,218)
Net income --- --- --- --- 39,702 39,702
- - -----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 $124,056 $ --- $526,729 $(244) $(359,433) $291,108
=================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 4
<PAGE>
<TABLE>
<CAPTION>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 39,702 $ 28,371
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 13,857 11,656
Deferred income taxes 21,251 5,129
Extraordinary loss on early retirement of debt 2,614 504
Equity in earnings of unconsolidated affiliates (2,828) (2,994)
Stock compensation 941 79
Other 841 19
Changes in current assets and liabilities,
excluding working capital purchased/sold:
Accounts receivable (150,917) (131,673)
Inventories 1,407 15,553
Other current assets (8,333) 20
Accounts payable 56,406 41,740
Accrued and other liabilities (23,736) 255
Other (1,472) (2,337)
- - -----------------------------------------------------------------------------------
Net cash used in operating activities (50,267) (33,678)
- - -----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Discontinued operations (2,456) (6,360)
Purchase of property, plant and equipment (25,553) (16,295)
Acquisitions (27,505) (19,905)
Proceeds from investments 573 516
Sale of assets --- 20,241
- - -----------------------------------------------------------------------------------
Net cash used in investing activities (54,941) (21,803)
- - -----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term borrowings -- net 132,118 5,738
Premium paid on retirement of convertible debentures (2,533) ---
Proceeds from issuance of long-term debt --- 250
Principal payments on long-term debt (68,399) (7,490)
Dividends (4,218) ---
Stock repurchase --- (467)
Exercise of stock options 4,575 57
- - -----------------------------------------------------------------------------------
Net cash provided (used) by financing activities 61,543 (1,912)
- - -----------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term investments 244 (229)
- - -----------------------------------------------------------------------------------
Decrease in cash and short-term investments (43,421) (57,622)
Cash and short-term investments at beginning of period 65,102 121,789
- - -----------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 21,681 $ 64,167
===================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 5
<PAGE>
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>
September 30, December 31, September 30,
(in thousands) 1994 1993 1993
-----------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 25,214 $ 22,983 $ 23,468
Finished goods 219,704 222,012 185,243
-----------------------------------------------------------------
Total $244,918 $244,995 $208,711
=================================================================
</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. The Corporation has added to its operating capacity through acquisitions
during 1994 and 1993. The significant acquisitions are summarized below.
Operating results of the acquired businesses subsequent to the respective
dates of the acquisitions are included in the Consolidated Statements of
Operations.
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 in 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.
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.
On October 20, 1994, the Corporation acquired Agricultural Minerals and
Chemicals, Inc. ("AMCI") for $400 million plus an estimated working capital
adjustment of $102.4 million. AMCI, through its subsidiaries manufactured
nitrogen-based fertilizers and industrial use products, and methanol. The
6
<PAGE>
subsidiaries controlled by the Corporation as a result of the AMCI acquisition
include Terra Nitrogen Corporation ("TNC") and Beaumont Methanol Corporation
("BMC"). TNC has a 60.2 percent ownership interest in Terra Nitrogen Company,
L.P. ("TNCLP"), formerly Agricultural Minerals Company, L.P., which operates
nitrogen products manufacturing facilities in Verdigris, Oklahoma and
Blytheville, Arkansas through an investment in an operating partnership, Terra
Nitrogen, Limited Partnership ("TNLP"), formerly Agricultural Minerals, Limited
Partnership. BMC operates a methanol production facility in Beaumont, Texas.
The excess of purchase price over the fair value of net assets acquired will be
amortized on a straight-line basis over 18.5 years which is estimated to be the
average remaining useful life of the manufacturing plants acquired.
To finance the acquisition of AMCI, the Corporation issued 9.7 million Common
Shares for aggregate net proceeds of approximately $112.7 million, entered into
credit arrangements to issue $310 million of long-term debt, and refinanced
certain bank debt and credit lines of the Corporation, AMCI and AMCI's
subsidiaries aggregating $260 million of which $152 million in borrowings were
outstanding. The Corporation used $40 million of the new debt issue to
refinance short-term bank debt. As a result of the acquisition of AMCI, the
Corporation also assumed AMCI's obligations under its $175 million in aggregate
principal of 10.75% Senior Notes due 2003 (the "Senior Notes"). Under terms of
the indenture related to the Senior Notes, the acquisition transactions
constituted a change of control providing holders of the Senior Notes the right
to require the Corporation to repurchase such Senior Notes at a cash price of
101% of principal plus accrued interest. Under the new credit arrangements, the
Corporation has adequate credit lines to fund any required repurchase. The
credit agreement provides for a $175 million revolving line of credit for use by
Terra International, Inc. and BMC and a $50 million revolving line of credit for
TNLP.
Concurrent with the closing, BMC sold for $4 million a methanol call option at
$0.65 per gallon, plus natural gas cost, covering 130-140 million gallons of
methanol annually for the period from closing through December 31, 1997. Under
terms of an agreement related to the call option, BMC is obligated to make
payments when methanol average annual selling prices exceed contractual
thresholds over average natural gas costs. The call option will approximate 50%
of annual methanol production at BMC. The Corporation expects that BMC will be
required to make payments under the methanol call option only if methanol prices
increase relative to natural gas prices as compared with historical price
levels.
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 the acquisitions of
Terra Canada, Asgrow Florida and AMCI had occurred at the beginning of 1993:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
(in thousands, except per-share data) September 30, 1994 September 30, 1993
- - -------------------------------------------------------------------------------
<S> <C> <C>
Revenues $1,740,507 $1,426,658
Income before extraordinary item $ 80,823 $ 18,694
Net income $ 78,209 $ 18,694
Net income per share $ 0.97 $ 0.24
- - -------------------------------------------------------------------------------
</TABLE>
The pro forma operating results were adjusted to include lease expense rather
than depreciation for the Terra Canada nitrogen plant, increased costs of seed
sales, depreciation of the fair value of capital assets acquired based on
estimated useful lives at respective acquisition dates, amortization of
intangibles, reduction of
7
<PAGE>
incentive compensation expense for plans terminated at acquisition, 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.
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 up to $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 September 30, 1994, $50.0 million in proceeds
had been received under this agreement.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED SEPTEMBER 30, 1994, COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 1993
Net income totaled $0.7 million for the third quarter 1994 and was $3.2 million
favorable to the $2.5 million net loss in the 1993 third quarter. The
Corporation's operations are seasonal, coincident with crop plantings, which
generally results in high second quarter earnings, and reduced earnings or
losses in other 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 September 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 $237,720 $210,314 $(1,580) $ 252
Manufactured Fertilizer 52,552 41,453 6,100 81
Other--net of intercompany eliminations (2,367) (1,303) (2,285) (1,440)
- - -------------------------------------------------------------------------------------
Operating income 2,235 (1,107)
Net interest expense (1,236) (2,514)
- - -------------------------------------------------------------------------------------
Totals $287,905 $250,464 $ 999 $ (3,621)
=====================================================================================
</TABLE>
Distribution third quarter 1994 revenues of $237.7 million increased $27.4
million from 1993 levels due principally to additional farm service centers
added since 1993 which include twelve Florida locations purchased in December
1993. Distribution third quarter operating results were $1.8 million
unfavorable to 1993 due to an earlier 1994 planting season compared with 1993
which resulted in increased sales earlier in the year, comparatively strong 1993
third quarter demand as the result of flood related planting delays and higher
1994 selling and administrative expenses. Selling and administrative expenses
increased $8.0 million due principally to new locations, normal wage increases,
and sales force additions.
Manufactured Fertilizer revenues of $52.6 million during the 1994 third quarter
increased $11.1 million from 1993 due to increased selling prices for anhydrous
ammonia and higher nitrogen fertilizer volumes as the result of increased crop
acreage. Anhydrous ammonia selling prices increased 26% over 1993 third quarter
prices due to increased demand and tight industry supplies. Third quarter 1994
operating income for the Manufactured Fertilizer business was $6.0 million more
than operating income for the comparable 1993 period as the result of higher
selling prices and volumes as well as the introduction of methanol production at
the Corporation's Woodward facility during the first half of 1994. Gross
profits from methanol production contributed $3.9 million to third quarter
operating income. These earnings contributions were partially offset by higher
manufacturing costs resulting from plant turnarounds and unscheduled repairs at
the Corporation's Woodward and Courtright production facilities.
Net other operating expenses are primarily comprised of corporate administrative
expenses and the operating results of a crop protection formulation facility.
Third quarter operating income of the formulation facility was reduced by $0.6
million in 1994 due to fewer third party formulation contracts than in 1993.
9
<PAGE>
For the three months ended September 30, 1994, net interest expense totaled $1.2
million compared with $2.5 million for the same period in 1993 due to the
redemption of the convertible subordinated debentures during the 1994 first
quarter and increased interest income from an expansion of financing services
provided to the Corporation's dealer and grower customers.
NINE MONTHS ENDED SEPTEMBER 30, 1994, COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1993
Income before an extraordinary item totaled $42.3 million, $0.60 per share, on
revenues of $1,365.7 million for the first nine months of 1994, compared with
income before an extraordinary item of $28.4 million, $0.41 per share, on
revenues of $1,070.8 million for the same period in 1993.
An extraordinary loss of $2.6 million, net of federal income taxes, was realized
during the first quarter of 1994 on the redemption of outstanding 8.5%
convertible debentures and included a 3.4% redemption premium and unamortized
issue costs. The net income after extraordinary loss on early retirement of
debt was $39.7 million, or $0.56 per share for the nine months ended September
30, 1994, compared with net income of $28.4 million, or $0.41 per share for the
same period in 1993.
Total revenues and pretax income for the nine months ended September 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 $1,187,358 $ 920,449 $48,608 $31,334
Manufactured Fertilizer 190,018 161,965 30,905 21,445
Other--net of intercompany eliminations (11,715) (11,609) (6,403) (6,110)
- - ---------------------------------------------------------------------------------------
Operating income 73,110 46,669
Net interest expense (5,094) (7,298)
- - ---------------------------------------------------------------------------------------
Totals $1,365,661 $1,070,805 $68,016 $39,371
=======================================================================================
</TABLE>
Distribution revenues of $1,187.4 million for the nine months ended September
30, 1994 increased $266.9 million from the 1993 comparable period primarily due
to higher sales volumes as the result of increased planted acreages and a $60.6
million sales increase in Florida resulting primarily from the Asgrow
acquisition completed in December 1993. Gross profits increased $41.0 million
reflecting higher sales volumes of distributed fertilizers and crop protection
products. Selling expenses increased $23.8 million and were primarily
attributable to normal wage increases and higher employment levels, increased
equipment lease and maintenance expenses, and operating costs from locations
added during the prior year.
Manufactured Fertilizer revenues for the first nine months of 1994 of $190.0
million increased $28.1 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 $66.7 million to 1994 September year-to-date revenues compared with
$51.1 million in the comparable 1993 period. Operating income increased $9.5
million principally due to increased nitrogen fertilizer selling prices and the
production and sale of methanol which began in April 1994. Average 1994
selling prices, for all nitrogen fertilizer products combined, were 6% higher
than in the comparable 1993 period. Price increases were partially offset by
higher manufacturing costs resulting from reduced production volumes and a 4%
increase in natural gas costs during 1994. Production volumes were lower in
1994 as a result of unscheduled repairs at the Corporation's Woodward and
Courtright plants.
10
<PAGE>
Net interest expense decreased $1.2 million to $5.1 million in 1994 due
primarily to the redemption of the 8.5% convertible subordinated debentures.
The estimated annual effective tax rate increased from 28.0% during 1993 to
37.8% in 1994 due to utilization of previously unrecognized capital loss
carryforwards in 1993.
NATURAL GAS FORWARD PRICING
---------------------------
The Corporation's policy is to fix the price of between 40% and 80% of its
natural gas requirements over a twelve-month future period using fixed price
contracts as well as over-the-counter and exchange-traded instruments. As a
result, if natural gas prices increase during the twelve-month period, natural
gas costs will be lower than if purchased at then-current prices. Conversely,
if natural gas prices decrease during the hedge period, natural gas costs will
be higher than if purchased at then-current prices.
The Corporation's production plants use approximately 45,000 MMBtu of natural
gas annually. At September 30, 1994 the Corporation had bought forward
approximately 50% of its natural gas requirements for the next twelve-month
period. Gains or losses resulting from movement in the market value of natural
gas forward positions are deferred and included as manufacturing cost in the
period in which the hedged transaction relates. If outstanding natural gas
forward positions were settled at September 30, 1994, the Corporation's natural
gas costs during the forward period would exceed market prices by $6.7 million.
CHANGES IN FINANCIAL CONDITION SINCE YEAR-END
---------------------------------------------
The Corporation used $50.3 million in cash to fund operations during the first
nine months of 1994 primarily due to increases in accounts receivable resulting
from increased sales and extended terms through grower financing programs.
Short-term borrowings increased $132.1 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 has
been partially replaced with borrowing under new credit arrangements during the
1994 fourth quarter.
Capital expenditures of $25.6 million for the year-to-date through the third
quarter 1994 compare to $16.3 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 1994.
Cash used for acquisitions includes an $8.1 million payment on working capital
acquired with the Asgrow Florida purchase, $12.2 million for a one-third
interest in Royster-Clark, Inc., and payments totaling $5.7 million made for the
purchase of six additional farm service centers. Royster-Clark, Inc. has annual
sales of approximately $200 million and operates over 100 farm service centers
throughout the mid-Atlantic coast states. The Corporation has the right under
certain circumstances to increase its ownership in Royster-Clark, Inc. to a
majority holder within five years.
Proceeds of $50 million were received from the sale of receivables pursuant to
an agreement 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.
As indicated in the notes to financial statements, the Corporation acquired
AMCI on October 20, 1994. To finance this acquisition, the Corporation issued
9.7 million shares for net aggregate proceeds of approximately $112. 7 million,
entered into a credit agreement to issue $310 million of long-term bank debt,
refinanced certain
11
<PAGE>
debt of the Corporation, AMCI and AMCI's subsidiaries, and assumed AMCI's
obligations under $175 million in aggregate principal amount of Senior Notes.
Under terms of the indenture related to the Senior Notes, note holders have the
right to require repurchase due to the change in control. The credit agreement
provides adequate funding for the Corporation to complete any required
repurchase of the Senior Notes.
Subsequent to the acquisition of AMCI and the relating refinancing, the
Corporation had unused domestic credit lines of $58.0 million available for
operating needs of Terra International, Inc. and BMC and unused Canadian credit
lines of $13.7 million at September 30, 1994. In addition, TNLP has $50 million
of unused credit lines available. The Corporation believes its cash balances
and credit lines are sufficient to provide for its ongoing working capital
requirements.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
EXHIBIT 27. Financial Data Schedule.
(B) REPORTS ON FORM 8-K
(1) On August 10, 1994, the Corporation filed a report on Form
8-K, dated August 9, 1994, covering a press release announcing
the agreement to acquire AMCI.
(2) On November 3, 1994, the Corporation filed an amended report
on Form 8-K/A relating to, among other things, the
consummation of the AMCI acquisition.
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: November 11, 1994 /s/ Francis G. Meyer
------------------------------------------
Francis G. Meyer
Vice President and Chief Financial Officer
and a duly authorized signatory
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF TERRA INDUSTRIES
INC. AND ITS SUBSIDIARIES AS OF SEPTEMBER 30, 1994 AND THE RELATED UNAUDITED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 21,681
<SECURITIES> 0
<RECEIVABLES> 270,955
<ALLOWANCES> 6,470
<INVENTORY> 244,918
<CURRENT-ASSETS> 588,801
<PP&E> 280,170
<DEPRECIATION> 155,342
<TOTAL-ASSETS> 770,272
<CURRENT-LIABILITIES> 397,137
<BONDS> 44,755
<COMMON> 124,056
0
0
<OTHER-SE> 167,052
<TOTAL-LIABILITY-AND-EQUITY> 770,272
<SALES> 1,340,906
<TOTAL-REVENUES> 1,365,661
<CGS> 1,137,203
<TOTAL-COSTS> 1,141,276
<OTHER-EXPENSES> 151,275
<LOSS-PROVISION> 3,695
<INTEREST-EXPENSE> 8,326
<INCOME-PRETAX> 68,016
<INCOME-TAX> 25,700
<INCOME-CONTINUING> 42,316
<DISCONTINUED> 0
<EXTRAORDINARY> (2,614)
<CHANGES> 0
<NET-INCOME> 39,702
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0
</TABLE>
