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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 11, 1995
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland 1-8520 52-1145429
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or organization) Number) Identification No.)
Terra Centre
600 Fourth Street
P.O. Box 6000
Sioux City, Iowa 51102-6000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 277-1340
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ITEM 5. Other Events.
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On May 11, 1995, Terra Industries Inc. issued the press release contained in
Exhibit 1 hereto, which is incorporated by reference herein.
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.
By: /s/ FRANCIS G. MEYER
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Francis G. Meyer
Vice President and Chief
Financial Officer
Date: May 11, 1995
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Exhibit 1
FOR IMMEDIATE RELEASE
Contact: Paula C. Norton
(712) 277-5438
TERRA INDUSTRIES WITHDRAWS
MERGER PROPOSAL; MAY BUY
UNITS ON OPEN MARKET
Sioux City, Iowa (May 11, 1995) - Terra Industries Inc. announced
today that it has withdrawn the proposal it made in late March to acquire for
$30 per unit all of the publicly traded senior preference units of Terra
Nitrogen Company, L.P. (TNCLP). Terra also announced that its Board of Directors
has approved an open market purchase program authorizing Terra to purchase up to
five million TNCLP senior units from time to time at prices and in quantities
management deems reasonable. Terra will finance the purchase with additional
borrowings from its banks and expects to receive the necessary consent for the
repurchases from its senior lenders early next week.
After a number of meetings between the financial advisors of Terra and
the independent committee of the Board of Directors of Terra Nitrogen Company
(TNC) (which is the general partner of TNCLP), the independent committee
advised Terra senior management that there was a substantial difference between
a price the independent committee would consider adequate and Terra's $30 offer.
Terra disagreed and reiterated its analysis to the independent committee and its
advisors and asked them to continue to study the issues. Because the differences
between the independent committee and Terra could not be resolved, Terra decided
to withdraw its merger proposal. Burton M. Joyce, Terra's President and Chief
Executive Officer, said "We and the independent committee put a lot of work into
this, but it became clear that the committee was not going to approve our
proposal. Under the circumstances, it doesn't make sense for us to continue our
discussions."
Terra has been advised that TNCLP will pay a cash distribution of
$1.14 per senior unit on May 30, 1995 to holders of record on May 24, 1995.
TNCLP had previously reported record earnings of $14.7 million for the quarter
ended March 31, 1995 compared to net income of $14.4 million for the first
quarter of 1994. The increase in 1995 has resulted primarily from strong demand
for nitrogen products while supplies remained tight due to reduced industry
production. Terra management expects nitrogen demand to remain strong through
the second quarter and expects the second quarter distribution to be
substantially higher than the first quarter distribution. Terra has also been
advised that TNC has authorized the use of $35 million of TNCLP's March 31, 1995
cash balances to repay a term loan.
Under the terms of TNCLP's partnership agreement, TNC has exclusive
authority to manage the business of TNCLP. As sole stockholder of TNC, Terra has
the power to elect the TNC Board, and therefore effectively controls the
management of TNC. Three of the five members of the TNC Board and various
management personnel of TNC are also employees of Terra. At its March 27, 1995
meeting the TNC Board appointed an independent committee of two directors,
neither of whom is affiliated with Terra or TNC, to consider the fairness of the
proposed merger with Terra. The independent committee retained independent legal
counsel and an independent financial advisor. Terra provided the independent
committee with projections of TNCLP's future operating results, which
projections and assumptions are summarized in Appendix A. Terra cautioned that
any projections of TNCLP's financial performance are inherently unreliable
because actual results will be affected by many factors such as market prices
for products, industry capacity, business cycles, weather and the cost of
natural gas.
In approving the $30 per unit merger proposal on March 27, 1995, the
Terra Board received information and analyses from Terra management and Terra's
financial advisor, Merrill Lynch & Co. The acquisition by Terra of all of the
publicly traded units was considered advantageous because the need to segregate
TNCLP's operations from Terra's wholly owned nitrogen fertilizer business would
be eliminated, as would the costs of separate SEC reports, audits, tax filings
and other functions, and Terra could have applied insurance proceeds received
with respect to the destruction of its Port Neal, Iowa facility in a more tax
efficient manner.
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The TNCLP senior units are traded on the New York Stock Exchange
(symbol: TNH), which is the principal trading market for such securities. On
May 2, 1995, there were 7,636,364 senior units outstanding, held by
approximately 1,000 holders of record and an estimated 12,500 beneficial
holders. Terra intends to conduct its purchase program so that the units will
continue to be eligible for trading on the NYSE and TNCLP will continue to be
subject to the SEC's reporting requirements. The purchase of senior units by
Terra will, however, reduce the number of senior units that might otherwise
trade publicly and could reduce the number of holders of senior units, which
could adversely affect the liquidity and market value of the remaining senior
units held by the public. On March 24, 1995, the last full trading day prior to
the announcement of Terra's offer, the price of the senior units ranged from
$26.75 to $27.50 per unit and the closing price was $27.50 per unit. For
historical trading prices of the senior units, see Appendix B.
Under the terms of the partnership agreement, TNCLP has the right to
redeem outstanding senior units under certain circumstances. TNCLP would have
this right after December 31, 1995 if Terra has acquired approximately 4.3
million senior units and after March 31, 1997 if Terra has acquired
approximately 2.9 million senior units. Although Terra reserves the right to
reconsider in the future whether to acquire all of the senior units, it does
not have any present plan or intention of doing so.
Mr. Joyce also stated that Terra and TNC, as general partner of TNCLP,
are making no recommendations to public unitholders to sell their units in the
market, to Terra or
2
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otherwise.
3
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APPENDIX A
Attached is a summary of certain projections used by Terra in its valuation
of TNCLP's senior preference units. Neither Terra nor TNCLP as a matter of
course makes any public disclosure of any forecasts or projections as to the
future performance or earnings of Terra or TNCLP or its assumptions as to the
prices for its nitrogen fertilizer products or the cost of natural gas. The
attached data are presented only because such information was given by Terra to
the independent committee of the board of directors of TNC in April 1995.
The attached includes projections as to TNCLP's (i) net revenues, (ii)
gross profit , (iii) earnings before interest, taxes, depreciation and
amortization ("EBITDA"), (iv) Available Cash (as defined in TNCLP's partnership
agreement) and (v) distributions per senior unit for each of the years 1995
through 2004. The attached also sets forth the assumptions of Terra's management
as to the selling prices for TNCLP's nitrogen fertilizer products and the cost
of natural gas for each such year, which are the basis for such projections.
With respect to selling prices, these assumptions are based on Terra
management's then current views as to, among other things, the supply and demand
for nitrogen fertilizer, including the effect of industry capacity constraints,
new capacity and overseas demand. The assumptions as to natural gas costs are
based on prices then available in the market under long-term swaps. Terra
management's views as to prices of nitrogen fertilizer and natural gas differ
from those of some industry consultants, some of whom project higher nitrogen
fertilizer prices and lower natural gas costs than Terra management. The
attached projections also assume (i) annual capital expenditures of
approximately $5 million to $6 million, (ii) repayment as of June 30, 1995 of
TNCLP's outstanding $35 million term loan, (iii) cash balances are decreased by
approximately $36 million during 1995, with such amount paid as distributions
for 1995 (there can be no assurance that such reduction in cash balances or
distribution will be proposed to or approved by the TNC board in 1995 or any
subsequent period), (iv) general and administrative and marketing expense
increases on a relatively constant basis from 1995 through 2004 and (v) all
senior preference units are, as provided in TNCLP's partnership agreement,
either converted into common units (on a one for one basis) or continue to be
entitled to distributions in excess of the minimum preferential distribution of
$0.605 per year. As a partnership, TNCLP does not pay any federal income taxes.
The attached projections were not prepared with a view to public disclosure
and are included herein only because such information was provided to the TNC
special committee and its financial advisors. In addition, such projections
were not prepared with a view toward compliance with (i) published guidelines of
the Securities and Exchange Commission (the "SEC") or the American Institute of
Certified Public Accountants regarding projections and forecasts or (ii)
generally accepted accounting principles. Such projections, although presented
with numerical specificity, are based on a number of estimates and assumptions
(including, without limitation, those described above) and are subject to
significant economic and competitive uncertainties and contingencies (including
business cycles, weather, government agricultural policy and other government
regulations), most of which are beyond the control of Terra, TNCLP and TNC. In
addition, the markets for nitrogen fertilizer and natural gas are historically
volatile and cyclical. Accordingly, actual results may be materially higher or
lower than those projected, and the attachment herein should not be regarded as
a
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representation by Terra, TNCLP or TNC or any other person or entity that such
projections or the estimates and assumptions upon which they were based will
prove to be correct. None of Terra, TNCLP or TNC assume any responsibility for
the accuracy of such projections or such estimates or assumptions. No inference
can or should be drawn from such projections as to the likelihood that the
assumptions underlying such projections will be realized or that actual
performance will equal or exceed such projections. Neither Terra's nor TNCLP's
independent certified public accountants have reviewed the projections. Except
for the requirements of TNCLP's partnership agreement, here can be no assurances
as to the amount of distributions that will be paid to holders of senior units
in any period.
Although the projections have been prepared in good faith and on a
reasonable basis and although the significant assumptions underlying the
projections have been included herein, the preparation and disclosure of such
projections may not comply with the SEC's policy on projections since, among
other things, (i) an outside review of the projections has not been obtained as
suggested in the guidelines, (ii) the projections cover a period which is longer
than that suggested in the guidelines, (iii) several sets of projections based
on varying assumptions have not been prepared to the extent contemplated by the
guidelines, and (iv) Terra has not analyzed, and accordingly, has not included
herein , the accuracy or inaccuracy of projections for prior periods as
suggested in the guidelines.
The assumptions and estimates used in the projections were based on the
views of management at the time the projections were prepared and delivered to
the independent committee of TNC's board of directors. Terra has not updated,
and does not intend to update, the projections to reflect later-obtained
information or changes in market and other conditions. Therefore, there can be
no assurance that any of the assumptions or projections included herein are
applicable as of any period subsequent to the delivery thereof to the
independent committee.
The projections should be read in connection with TNCLP's historical
financial results, which are otherwise publicly available.
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TERRA NITROGEN COMPANY, L.P.
<TABLE>
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<CAPTION>
FYE December 31,
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selling Prices and Gas Costs Assumptions
Ammonia (a) $197.02 $165.00 $155.00 $150.00 $150.00 $155.00 $155.00 $150.00 $155.00 $160.00
Urea (a) 178.32 155.00 145.00 145.00 150.00 155.00 150.00 145.00 155.00 165.00
Uan (a) 82.00 84.00 85.00 83.00 86.00 90.00 86.00 83.00 86.00 90.00
Natural Gas Costs $/MMBTU 2.07 2.05 2.06 2.19 2.32 2.46 2.58 2.71 2.84 2.97
Financial Projections
(dollars in million, except per unit distribution)
Net Revenues $402.9 $377.8 $371.7 $368.4 $377.6 $394.0 $383.3 $375.8 $389.5 $408.5
Gross Profit 166.8 149.9 139.3 125.7 125.0 129.0 108.8 89.0 92.5 99.0
EBITDA 161.5 144.6 133.9 120.2 119.5 123.3 103.0 83.6 86.8 92.8
Total Available Cash (b) 162.0 138.5 148.6 116.3 114.6 117.8 100.4 80.8 82.3 87.9
Distribution Per Senior Unit (c) $6.18 $5.56 $5.83 $4.97 $4.92 $5.01 $4.55 $3.94 $4.00 $4.21
</TABLE>
(a) Netback price $/short ton.
(b) As defined in the Partnership Agreement.
(c) Assumes 7.64 million units outstanding.
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APPENDIX B
The high and low sales prices of the senior units for each quarterly period
in 1995, 1994 and 1993, as reported on the New York Stock Exchange Composite
Tape, were as follows:
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1995:
Second quarter (through May 10, 1995).. $32 1/4 $30 1/8
First quarter.......................... 30 1/2 24 1/8
1994:
Fourth quarter......................... $28 3/8 $22 1/8
Third quarter.......................... 29 1/2 24 1/2
Second quarter......................... 30 1/4 26 1/4
First quarter.......................... 31 25
1993:
Fourth quarter......................... $26 3/8 $23 3/8
Third quarter.......................... 27 3/8 23 1/4
Second quarter......................... 27 3/8 21 3/8
First quarter.......................... 23 3/8 21 3/8
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