<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, 1995
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 October 31, 1995, the following shares of the registrant's stock were
outstanding:
Common Shares, without par value 81,178,202 shares
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 93,447 $ 158,384 $ 21,681
Accounts receivable, less allowance for doubtful
accounts of $11,481, $8,224 and $6,470 407,113 157,026 264,485
Inventories 344,587 332,952 244,918
Deferred tax asset -- current 43,992 43,992 27,338
Other current assets 59,421 31,069 30,379
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 948,560 723,423 588,801
- -------------------------------------------------------------------------------------------------
Equity and other investments 17,575 14,181 16,415
Property, plant and equipment, net 667,180 552,843 124,828
Deferred tax asset -- non-current --- --- 5,770
Excess of cost over net assets of acquired businesses 313,050 320,559 14,374
Partnership distribution reserve fund 18,480 18,480 ---
Other assets 55,491 58,484 22,039
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,020,336 $1,687,970 $ 772,227
=================================================================================================
LIABILITIES
Debt due within one year $ 107,172 $ 67,658 $ 141,754
Accounts payable 248,789 181,050 156,325
Accrued and other liabilities 164,354 200,774 96,277
- -------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 520,315 449,482 394,356
- -------------------------------------------------------------------------------------------------
Long-term debt 503,925 511,706 44,755
Deferred tax liability -- non-current 117,583 84,246 3,989
Other liabilities 135,786 53,477 34,643
Minority interest 184,329 170,630 ---
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,461,938 1,269,541 477,743
- -------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 81,178, 80,965 and 70,889 shares 133,969 133,770 124,056
Paid-in capital 631,192 630,111 526,729
Cumulative translation adjustment 191 (1,259) (244)
Accumulated deficit (206,954) (344,193) (356,057)
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 558,398 418,429 294,484
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,020,336 $1,687,970 $ 772,227
=================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 2
<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,
------------------------ ------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Net sales $483,318 $281,431 $1,889,148 $1,340,906
Other income, net 8,947 6,474 50,126 24,755
- -------------------------------------------------------------------------------------------------------------------
492,265 287,905 1,939,274 1,365,661
- -------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 357,143 240,968 1,419,252 1,141,267
Selling, general and administrative expense 64,956 47,494 196,737 154,112
Equity in earnings of unconsolidated affiliates (2,602) (2,792) (3,860) (2,828)
Interest income (4,824) (1,249) (10,887) (3,232)
Interest expense 17,797 2,485 48,240 8,326
Minority interest 10,660 --- 38,869 ---
- -------------------------------------------------------------------------------------------------------------------
443,130 286,906 1,688,351 1,297,645
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary items 49,135 999 250,923 68,016
Income tax provision 19,900 300 103,670 25,700
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 29,235 699 147,253 42,316
Extraordinary loss on early retirement of debt (4,338) --- (4,338) (2,614)
Cumulative effect of accounting changes --- --- --- 3,376
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 24,897 $ 699 $ 142,915 $ 43,078
===================================================================================================================
EARNINGS PER SHARE:
Income before extraordinary items $ 0.36 $ 0.01 $ 1.81 $ 0.60
Extraordinary loss on early retirement of debt (0.05) --- (0.05) (0.04)
Cumulative effect of accounting changes --- --- --- 0.05
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 0.31 $ 0.01 $ 1.76 $ 0.61
===================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 81,443 71,339 81,297 70,671
===================================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.03 $ 0.02 $ 0.07 $ 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, 1995 AND 1994
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Paid-In Translation Accumulated
Shares Capital Adjustment Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 --- --- --- 43,078 43,078
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 124,056 $526,729 $ (244) $(356,057) $294,484
========================================================================================================================
Cumulative
Common Paid-In Translation Accumulated
Shares Capital Adjustment Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $133,770 $630,111 $(1,259) $(344,193) $418,429
Exercise of stock options 194 1,071 --- --- 1,265
Translation adjustment --- --- 1,450 --- 1,450
Stock incentive plan 5 10 --- --- 15
Dividends --- --- --- (5,676) (5,676)
Net income --- --- --- 142,915 142,915
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 $133,969 $631,192 $ 191 $(206,954) $558,398
========================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1995 1994
----------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 142,915 $ 43,078
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 49,263 13,857
Income taxes 33,337 21,251
Cumulative effect of accounting changes --- (3,376)
Equity in earnings of unconsolidated affiliates (3,860) (2,828)
Minority interest in earnings 38,869 ---
Other non-cash items 4,486 4,396
Changes in current assets and liabilities,
excluding working capital purchased/sold:
Accounts receivable (252,685) (150,917)
Inventories (7,853) 1,407
Other current assets (18,029) (8,333)
Accounts payable 67,739 56,406
Accrued and other liabilities (29,406) (23,736)
Other (36,664) (1,472)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (11,888) (50,267)
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (12,185) (27,505)
Purchase of property, plant and equipment (125,763) (25,553)
Discontinued operations 5,242 (2,456)
Purchase of minority interest (28,837) ---
Insurance proceeds from plant casualty 92,637 ---
Proceeds from investments 577 573
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (68,329) (54,941)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings 53,175 132,118
Proceeds from issuance of long-term debt 200,000 ---
Principal payments on long-term debt (225,111) (68,399)
Stock issuance/repurchase net 1,187 4,575
Distribution to minority interests (26,957) ---
Sale of subsidiary preferred stock to minority interests 24,950 ---
Debt issuance costs (7,738) ---
Loss on redemption of long-term debt --- (2,533)
Dividends (5,676) (4,218)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 13,830 61,543
- ------------------------------------------------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term investments 1,450 244
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments (64,937) (43,421)
Cash and short-term investments at beginning of period 158,384 65,102
- ------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 93,447 $ 21,681
========================================================================================================================
</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. 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 1994 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 exercise of
outstanding stock options.
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(in thousands) 1995 1994 1994
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 36,013 $ 38,988 $ 25,214
Finished goods 308,574 293,964 219,704
------------------------------------------------------------------------------------------------------
Total $344,587 $332,952 $244,918
======================================================================================================
</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 results
of operations, financial position or cash flows of the Corporation.
5. On October 20, 1994, the Corporation acquired Agricultural Minerals and
Chemicals Inc. ("AMCI") for $400 million plus a working capital adjustment
of $108 million. The Consolidated Statements of Operations include the
operating results of AMCI subsequent to the acquisition. AMCI, through its
subsidiaries, manufactured nitrogen-based fertilizers and industrial-use
products and methanol. The subsidiaries controlled by the Corporation as a
result of the AMCI acquisition include Terra Nitrogen Corporation ("TNC")
and Beaumont Methanol, Limited Partnership ("BMLP"). As a result of the
acquisition and subsequent open market purchases (see Note 9 to the
Consolidated Financial Statements), the Corporation and its subsidiaries
have an approximate 65% 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. BMLP operates a methanol production facility in Beaumont,
Texas. The excess of purchase price over the fair value of net assets
acquired is being amortized on a straight-line basis over 18 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 $113 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. The credit agreement
initially provided for a $175 million revolving line of credit for use by
Terra International, Inc. and BMLP and a $50 million revolving line of
credit for TNLP. As a result of the acquisition of
6
<PAGE>
AMCI, the Corporation also assumed AMCI's obligations under what is
currently $158.8 million in aggregate principal of 10.75% Senior Notes due
2003.
The following table represents unaudited pro forma summary results of
operations as if the acquisition of AMCI had occurred at the beginning of
1994:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(in thousands, except per-share data) September 30, 1994 September 30, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $431,147 $1,741,437
Income before extraordinary items $ 28,244 $ 84,643
Net income $ 28,244 $ 85,405
Net income per share $ 0.35 $ 1.06
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma operating results were adjusted to include depreciation of
the fair value of capital assets acquired, based on estimated useful lives
at the acquisition date, amortization of intangibles, reduction of
incentive compensation expense for plans terminated at acquisition,
interest expense on the acquisition borrowings, the issuance of common
stock 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.
On September 15, 1994, the Corporation acquired an approximate one-third
interest in Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a
100-location distributor of crop input and protection products in the mid-
Atlantic region. The Corporation accounts for its investment under the
equity method, and its share of Royster-Clark's results of operations is
included in equity in earnings of unconsolidated affiliates.
6. BMLP entered into a methanol hedging agreement (the "Methanol Hedging
Agreement") effective October 1994. Pursuant to the agreement, BMLP
received $4 million in cash and agreed to make payments to the extent that
average methanol prices exceed the sum of $0.65 per gallon plus 0.113 times
the average spot price index, in cents per MMBtu for natural gas during the
periods October 20, 1994 to December 31, 1995, calendar year 1996, and
calendar year 1997. Payments are due five days after the end of each
period. The quantities subject to the agreement for each of these periods
are 155.5 million, 140 million and 130 million gallons, respectively.
BMLP's methanol production facility has a capacity of 280 million gallons
of methanol per year.
The $4 million received pursuant to the Methanol Hedging Agreement is being
recognized as income over the term of the agreement. Accruals for payments
are recorded as a reduction of revenue. As of September 30, 1995, $8.4
million has been recorded as payable under the Methanol Hedging Agreement
based on average prices, for the period October 20, 1994 through September
30, 1995. The actual amount that will be paid is dependent upon average
methanol and natural gas prices during each of the periods.
7. On December 13, 1994 the Corporation's Port Neal facility in Iowa was
extensively damaged by an explosion. As of the date of loss, insurance was
in force to cover damage to the Corporation's property, business
interruption and third party liability claims. The Corporation recognized a
$7 million pre-tax charge against 1994 earnings to cover its aggregate
expected unrecoverable expenses associated with the incident, including
deductibles and uninsured costs. In September 1995, the Corporation
transferred the Port Neal facility (including improvements as then in
progress) and $1.3 million in cash to Port Neal Holdings Corp. ("PNH"). As
a result, the Corporation indirectly owns 100% of the common stock of PNH
(representing 75% of the voting rights of PNH). PNH was structured to
finance and complete the
7
<PAGE>
reconstruction of the Port Neal facility through its wholly owned
subsidiary, Port Neal Corporation ("PNC"). PNH issued to unrelated third
parties $25 million of non-convertible preferred stock. The preferred stock
represents 25% of the voting rights of PNH and accrues dividends at a
floating rate commensurate with market interest rates. The Corporation
accounts for the preferred stock as a minority interest. Various agreements
between the Corporation and certain subsidiaries were entered into with PNH
and/or PNC in connection with this series of transactions, including
intercompany debt obligations and lease arrangements. The Corporation has
received $125 million of insurance progress payments to cover property
damage and business interruption to date.
8. The Corporation's natural gas procurement policy is to fix or cap the price
of approximately 40-80% of its natural gas requirements for a 12-month
period through various forward pricing techniques. Depending on market
conditions, the Corporation may also fix or cap the price of natural gas
for longer periods of time. The Corporation has entered into forward
pricing positions for the purchase of natural gas amounting to
approximately 72% of natural gas volumes for the next 12 months,
approximately 44% of natural gas volumes for the 12-month period ending
September 30, 1997 and approximately 19% of natural gas volumes for the 12-
month period ending September 30, 1998. As a result of its policies, the
Corporation has limited the potential adverse financial impact of natural
gas price increases during the forward pricing period, but conversely, if
natural gas prices were to fall, the Corporation will incur higher costs.
Unrealized losses from forward pricing positions totaled $13.8 million as
of September 30, 1995.
9. In June 1995, the Corporation issued $200 million of 10.5% Senior Notes due
June 15, 2005. Net proceeds of $29 million were used to acquire 974,900, or
12.8%, of the outstanding Senior Preference Units ("SPUs") of TNCLP.
Remaining proceeds of $165.4 million were used in the 1995 third quarter to
repay long-term bank debt. In connection with the early retirement of this
debt, deferred financing costs have been written off and reported as an
extraordinary loss of $4.3 million (net of $2.5 million income tax
benefits).
In 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.
10. In 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, 1995, $50.0
million in proceeds had been received under this agreement.
11. The Corporation expects to recognize a substantial non-recurring gain,
representing the difference between the property insurance settlement on
the Port Neal facility with the Corporation's insurers and the carrying
value of the facility at the time of the explosion. The non-recurring gain
will be recorded when the amount of the property insurance settlement is
finalized. The Corporation anticipates an insurance settlement during 1996.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED SEPTEMBER 30, 1995 COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 1994
CONSOLIDATED RESULTS
The Corporation reported net income of $24.9 million, or $0.31 per share, on
revenues of $492.3 million for the third quarter of 1995 compared with net
income of $0.7 million, or $0.01 per share, on revenues of $287.9 million in the
third quarter of 1994. The third quarter results include an extraordinary loss
of $4.3 million, or $0.05 per share, on early retirement of debt. The 1995
results include the operations formerly owned by Agricultural Minerals and
Chemicals Inc. ("AMCI"), which was acquired by the Corporation on October 20,
1994. The AMCI acquisition added approximately $114.5 million to revenues and
$36.7 million to income before taxes and extraordinary items during the 1995
third quarter. Excluding the impact of the acquisition, revenues increased $89.8
million, or 31%, and income before taxes and extraordinary items increased $11.4
million over the comparable quarter in 1994 primarily resulting from continued
strength in nitrogen fertilizer prices and a carryover of second quarter sales
into the third quarter due to wet weather and a delayed planting season.
The Corporation operates in three business segments: Distribution, Nitrogen
Products and Methanol. The Distribution segment includes sales of products
purchased from manufacturers, including the Corporation. Distribution revenues
are derived primarily from grower and dealer customers through sales of
chemicals, fertilizers, seed and related services. The Nitrogen Products
segment represents only those operations directly related to the wholesale sales
of nitrogen products produced at the Corporation's five ammonia manufacturing
and upgrading facilities. The Methanol segment represents wholesale sales of
methanol produced at the Corporation's two methanol manufacturing facilities.
Total revenues and operating income for the Corporation's three business
segments for the three-month periods ended September 30, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
Pro Forma
(in thousands) (unaudited) 1995 1994 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Distribution $323,189 $237,720 $237,720
Nitrogen Products 137,272 116,236 46,067
Methanol 40,200 79,634 6,485
Other - net (8,396) (2,443) (2,367)
- ------------------------------------------------------------------------------------------
$492,265 $431,147 $287,905
==========================================================================================
OPERATING INCOME:
Distribution $ 3,757 $ (1,580) $ (1,580)
Nitrogen Products 53,007 22,112 2,242
Methanol 16,461 47,199 3,858
Other expense - net (457) (2,407) (2,285)
- ------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 72,768 65,324 2,235
Interest expense - net (12,973) (10,784) (1,236)
Minority interest (10,660) (7,739) ---
- ------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEMS $ 49,135 $ 46,801 $ 999
==========================================================================================
</TABLE>
9
<PAGE>
The pro forma results of operations have been prepared to give effect to the
Corporation's (i) acquisition of AMCI, (ii) issuance of 9.7 million Common
Shares, and (iii) borrowing under a new credit agreement entered into in
connection with the acquisition, assuming that all such transactions had
occurred on January 1, 1994. The pro forma financial data are presented for
informational purposes only and are not necessarily indicative of the results
that actually would have been obtained if the transactions had occurred on
January 1, 1994. In addition, the pro forma results are not intended to be a
projection of future operating results or trends.
DISTRIBUTION
Distribution revenues of $323.2 million during the 1995 third quarter increased
$85.5 million, or 36%, over 1994 revenues of the comparable quarter. The
revenue increase relates primarily to higher selling prices for nitrogen
fertilizers and a carryover of second quarter sales into the third quarter due
to wet weather and a delayed planting season. Distributed fertilizer revenues
were $7.2 million higher than in the third quarter of 1994. Higher wholesale
fertilizer prices accounted for a $1.5 million increase in revenues, and higher
retail fertilizer prices accounted for a $3.5 million increase in revenues.
Chemical revenues were $71.2 million higher (a 38% increase) than in the same
1994 period due, in part, to a carryover of sales due to the delayed planting
season and expansion of the distribution network. Seed and other sales and
services increased $7.1 million as a result of expansion of the distribution
network.
Operating income for the Distribution business totaled $3.8 million in the third
quarter of 1995 compared with an operating loss of $1.6 million for the prior
year quarter. Increased chemical margins accounted for a $3.1 million increase
in gross profits and higher chemical sales revenue contributed a $10.5 million
increase in gross profits. Income from fertilizer sales was $1.1 million higher
in 1995 than for the same period in 1994. The increase was due to higher
fertilizer selling prices as noted above and increased volumes. The operating
income improvements were partially offset by an $11.9 million increase in
selling and administrative expenses. The increase in expenses included $5.6
million for compensation costs resulting from additional personnel due to
expansion of the distribution network. Equipment leasing increased $1.2
million, insurance expense increased $1.1 million and bad debt expense increased
$1.7 million over the comparative 1994 quarter.
NITROGEN PRODUCTS
Revenues of the Nitrogen Products business increased $91.2 million for the third
quarter of 1995 compared with the same period of 1994. The acquisition of AMCI
contributed $85.5 million to the revenue increase. Excluding the effect of the
acquisition, revenues increased $5.7 million, or 12%, from the prior year
period. Average selling prices increased 14.7%, 26.5% and 10.4%, respectively,
for ammonia, UAN solutions and urea products compared with the 1994 third
quarter. Nitrogen Products revenues were reduced approximately $13.3 million
due to the loss of production at the Port Neal nitrogen manufacturing plant
from the December 1994 explosion. The plant's ammonia production facilities
are expected to be operational in the fourth quarter of 1995, and upgrade
production facilities are expected to be fully operational in the first half
of 1996.
Operating income for Nitrogen Products was $53.0 million in the third quarter of
1995 compared with $2.2 million in the 1994 third quarter. The AMCI acquisition
accounted for $32.3 million of the increase. Excluding the acquisition,
operating earnings increased $18.5 million due primarily to higher nitrogen
selling prices and lower manufacturing costs. Higher prices contributed $7.1
million to operating income improvement and reduced manufacturing costs added
$8.6 million to operating income. The favorable manufacturing cost variance is
due primarily to plant turnarounds and unscheduled repairs in the 1994 third
quarter. The increased operating income was partially offset by increased costs
for salaries and wages, and for operating and maintenance expenses. Income
which would have been generated by the idled Port Neal nitrogen manufacturing
plant is covered by business interruption insurance and is included in Nitrogen
Products operating income.
10
<PAGE>
METHANOL
The Corporation's Methanol business revenues were $40.2 million in the third
quarter of 1995 compared with $6.5 million in the third quarter of 1994. The
acquisition of AMCI added $35.9 million to revenues. Excluding the effect of the
acquisition, revenues declined $2.2 million as lower sales prices more than
offset increased sales volumes. Average realized prices, including the effect of
the Methanol Hedging Agreement (see Note 6 to the Consolidated Financial
Statements), were $0.62 per gallon compared with $1.09 per gallon in 1994.
Operating income for the segment was $16.5 million in the third quarter of 1995
compared with $3.9 million in the third quarter of 1994. The AMCI acquisition
contributed $15.3 million of the increase. Increased sales volumes from the
Woodward plant and lower natural gas costs were more than offset by the sharp
decline in methanol selling prices.
OTHER OPERATING EXPENSE - NET
Other operating expense was $0.5 million in the 1995 third quarter compared with
$2.3 million in the comparable 1994 period due partially to incentive
compensation costs tied to the market value of the Corporation's stock recorded
in the 1994 third quarter. Other expense includes expenses not directly related
to individual business segments, including certain insurance coverages,
corporate finance fees and other costs.
INTEREST EXPENSE - NET
Interest expense, net of interest income, totaled $13.0 million in the third
quarter of 1995 compared with $1.2 million in the third quarter of 1994. The
increase is primarily the result of assumption of $158.8 million in long-term
debt and issuance of $270 million of additional debt, both in connection with
the acquisition of AMCI. At the end of the 1995 second quarter, the Corporation
issued $200 million of additional long-term Senior Notes. The net proceeds of
the debt issue were used to finance open market purchases of Senior Preference
Units of TNCLP, a majority-owned subsidiary of the Corporation, and to repay
other long-term debt.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1994
CONSOLIDATED RESULTS
The Corporation reported net income of $142.9 million, or $1.76 per share, on
revenues of $1.94 billion for the first nine months of 1995 compared with net
income of $43.1 million, or $0.61 per share, on revenues of $1.37 billion in the
first nine months of 1994. The 1995 results include an extraordinary loss of
$4.3 million, or $0.05 per share, on early retirement of debt. The AMCI
acquisition added approximately $389.7 million to net revenue and $140.7 million
to income before taxes and extraordinary items during the nine months ended
September 30, 1995. Excluding the impact of the acquisition, revenues increased
$183.9 million, or 13%, and income before taxes and extraordinary items
increased $42.2 million, or 62%, over the comparable period in 1994 primarily
resulting from improved selling prices for nitrogen products. Overall,
operating income improvements are primarily attributable to higher prices for
nitrogen products, combined with lower natural gas costs.
11
<PAGE>
Total revenues and operating income for the Corporation's three business
segments for the nine-month periods ended September 30, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
Pro Forma
(in thousands) (unaudited) 1995 1994 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Distribution $1,336,736 $1,187,358 $1,187,358
Nitrogen Products 476,938 405,131 180,939
Methanol 153,817 160,848 9,079
Other - net (28,217) (11,900) (11,715)
- --------------------------------------------------------------------------------------------------------------
$1,939,274 $1,741,437 $1,365,661
==============================================================================================================
OPERATING INCOME (LOSS):
Distribution $ 60,146 $ 48,608 $ 48,608
Nitrogen Products 200,769 83,453 25,953
Methanol 69,993 73,364 4,952
Other expense - net (3,763) (6,640) (6,403)
- --------------------------------------------------------------------------------------------------------------
TOTAL FROM OPERATIONS 327,145 198,785 73,110
Interest expense - net (37,353) (35,805) (5,094)
Minority interest (38,869) (23,265) ---
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND EXTRAORDINARY ITEMS $ 250,923 $ 139,715 $ 68,016
==============================================================================================================
</TABLE>
The pro forma results of operations have been prepared on a comparable basis as
discussed above for the nine-month period ended September 30, 1994. The pro
forma financial data is presented for informational purposes only and are not
necessarily indicative of the results that actually would have been obtained if
the transactions had occurred on January 1, 1994. In addition, the pro forma
results are not intended to be a projection of future operating results or
trends.
DISTRIBUTION
Revenues for the Distribution business were $1.34 billion for the nine months
ended September 30, 1995, or $149.4 million higher than 1994 revenues for the
comparable period. The revenue increase is related to increased chemical
revenues due to normal price increases and improved 1995 selling prices for
nitrogen fertilizers. Chemical revenues were $92.1 million higher than in
1994. Distributed fertilizer revenues were $39.5 million higher (an increase of
16%) than in the first nine months of 1994. Higher wholesale fertilizer prices
accounted for an $8.7 million increase in revenues, and higher retail fertilizer
prices accounted for a $23.5 million increase in revenues. Seed and other sales
and services increased $17.8 million primarily as a result of expansion of the
distribution network.
Operating income for the Distribution business totaled $60.1 million in the 1995
period compared with $48.6 million for the prior year period. Increased margins
on chemical sales contributed $11.8 million to the increase in gross profits and
higher chemical sales revenue contributed an $11.5 million increase in gross
profits. Gross profit on fertilizer sales was $5.6 million higher due to
increased selling prices. The increase in product gross profits was partially
offset by a $22.4 million increase in selling and administrative expenses. The
increase in expenses included $10.5 million for compensation costs resulting
from additional personnel due to expansion of the distribution network.
Equipment leasing costs increased $3.1 million, maintenance expenses increased
$1.5 million and bad debt expense increased $1.6 million.
NITROGEN PRODUCTS
Nitrogen Products business revenues were $476.9 million in the first nine months
of 1995 compared with $180.9 million in the first nine months of 1994. The
acquisition of AMCI contributed revenues of $279.8 million. Excluding the
acquisition, revenues increased $16.2 million compared with the first nine
months of 1994. The
12
<PAGE>
increase in revenues during 1995 was the result of higher selling prices.
Average selling prices increased 34.9%, 26.9% and 8.6%, respectively, for
ammonia, UAN solutions and urea products compared with the nine-month period in
1994. Revenues were reduced $38.2 million due to loss of the Port Neal nitrogen
manufacturing plant, idled by the December 1994 explosion.
Operating income for Nitrogen Products was $200.8 million in the current period
compared with $26.0 million in the first nine months of 1994. The AMCI
acquisition accounted for $116.9 million of the increase. Excluding the
acquisition, operating earnings increased $57.9 million due primarily to higher
nitrogen selling prices and lower manufacturing costs. Higher prices
contributed $43.9 million to operating income improvement and reduced
manufacturing costs added $8.3 million to operating income. The favorable
manufacturing cost variance is due primarily to plant turnarounds and
unscheduled repairs in 1994. Lower natural gas costs also added to the increase
in operating income. Average natural gas cost per MMBtu decreased more than 17%
from the nine-month comparative period. Income which would have been generated
by the idled Port Neal nitrogen manufacturing plant is covered by business
interruption insurance and is included in Nitrogen Products operating income.
METHANOL
Methanol revenues were $153.8 million in the first nine months of 1995 compared
with $9.1 million for the first nine months of 1994. The acquisition of AMCI
added $132.3 million to revenues while the remaining $12.4 million increase
resulted primarily from sales of methanol produced at the Corporation's Woodward
manufacturing facilities which began methanol production in April 1994.
Methanol operating income for the nine months ended September 30, 1995 was $70.0
million compared with $5.0 million in the first nine months of 1994. The AMCI
acquisition contributed $58.7 million of the increase. Increased sales volumes
from the Woodward plant and lower natural gas costs were partially offset by
declining methanol selling prices. Average realized prices, including the
effect of the Methanol Hedge Agreement (see Note 6 to the Consolidated Financial
Statements), were $0.71 per gallon compared with $0.80 per gallon in 1994.
OTHER OPERATING EXPENSE - NET
Other operating expense was $3.8 million in the first nine months of 1995
compared with $6.4 million in the first nine months of 1994. Other expense
includes expenses not directly related to individual business segments,
including certain insurance coverages, corporate finance fees and other costs.
INTEREST EXPENSE - NET
Net interest expense was $37.4 million in the first nine months of 1995
compared with $5.1 million in the comparable 1994 period. The higher expense is
primarily the result of additional debt issued and assumed in connection with
the acquisition of AMCI.
INCOME TAXES
Income tax expense was recorded at an effective rate of 41.3% for the first nine
months of 1995 compared with 37.8% for the same period in 1994. The increased
rate results from amortization of goodwill from the AMCI acquisition which is
not deductible for tax purposes.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Corporation's primary uses for cash are to fund its working capital needs,
make payments on its indebtedness and other obligations, make quarterly
distributions to partners in the acquired nitrogen business, make quarterly
dividends to stockholders and make capital expenditures. Its principal sources
of funds are cash flow from operations and borrowings. The Corporation believes
that cash from operations and available financing sources will be sufficient to
meet anticipated cash requirements for seasonal operating needs, minority
distributions, debt repayments, capital expenditures and expansion strategies.
On March 27, 1995 the Corporation announced its offer to purchase the Senior
Preference Units ("SPUs") representing a 39.8% partnership interest in the
Corporation's acquired nitrogen business. On May 11, 1995, the Board of
Directors of the Corporation withdrew its offer and approved an open market
purchase program pursuant to which the Corporation may purchase up to five
million SPUs from time to time at prices and in quantities determined by the
Corporation's management. As of September 30, 1995, 974,900 units were acquired
by the Corporation for $28.8 million. The Corporation issued $200 million of
10.5% Senior Notes in June, in part to fund the open market purchases. On
September 1, 1995, the Corporation used the remaining net proceeds to prepay
$165.4 million of outstanding long-term bank debt. The Corporation will finance
any further purchases of SPUs with available cash or debt.
Cash used in operations for the nine months ended September 30, 1995 totaled
$11.9 million after allowing for seasonal increases in accounts receivable
balances and inventory aggregating approximately $260.5 million. Cash and short-
term investments decreased $64.9 million from year-end 1994 due primarily to
investments in property, plant and equipment.
Cash used for acquisitions includes a $6.1 million payment as a final valuation
for working capital balances purchased in connection with the Corporation's
acquisition of AMCI and $6.1 million paid to acquire new locations for the
Corporation's distribution network. Net investments in plant and equipment
totaled $125.8 million, including $93.4 million in connection with the Port Neal
facility rebuild. The Corporation expects 1995 capital expenditures, exclusive
of amounts to be recovered by insurance coverage or funded by lease financing,
to approximate $85 million consisting of the expansion of service centers,
routine replacement of equipment, and efficiency improvements at manufacturing
facilities including expansion and design improvements at the Port Neal facility
and Courtright facility. The Corporation expects 1996 capital expenditures to
include, among other things, additional Port Neal facility improvements.
During the quarter, the Corporation distributed $13.2 million to minority
unitholders in the acquired nitrogen business and paid the Corporation's
quarterly dividend of $0.03 per share which totaled $2.4 million. Recently, the
Corporation announced its quarterly dividend of $0.03 per share, or $2.4
million, and quarterly distribution to minority unitholders of approximately $10
million, both payable in the 1995 fourth quarter.
Cash balances at September 30, 1995 were $93.4 million of which $8.9 million is
used to collateralize letters of credit supporting recorded liabilities. Cash
balances together with cash generated from operations and unused credit lines
are expected to be adequate to meet normal business requirements and pay down
debt.
The Corporation has a $175 million credit facility that is used to finance
general working capital needs. As of September 30, 1995, $101.0 million of
unused credit was available under the facility. Certain other subsidiaries have
credit lines totaling $50.7 million, $50.4 million of which remained unused at
September 30, 1995.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
4.1 Consent, Waiver and Amendment dated as of July 31, 1995
among Terra Capital, Inc., Terra Nitrogen, Limited
Partnership, certain guarantors, the issuing banks and
lenders named therein and Citibank, N.A., as agent.
(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: November 10, 1995 /s/ Robert E. Thompson
-----------------------------------------
Robert E. Thompson
Vice President and Controller
and a duly authorized signatory
15
<PAGE>
[CONFORMED COPY]
CONSENT, WAIVER AND AMENDMENT
CONSENT, WAIVER AND AMENDMENT dated as of July 31, 1995, among: TERRA
CAPITAL, INC., a Delaware corporation (the "Company"); TERRA NITROGEN, LIMITED
PARTNERSHIP, a Delaware limited partnership ("TNLP" and, together with the
Company, the "Borrowers); each of the entities listed on the signature pages
hereof under the caption "GUARANTORS" (each such entity, and each of the
Borrowers, an "Obligor" and, collectively, the "Obligors"); each of the lenders
(the "Lenders") and issuing banks (the "Issuing Banks") listed on the signature
pages hereof; and CITIBANK, N.A., as agent for the Lenders and Issuing Banks
under the Credit Agreement referred to below (in such capacity, the "Agent").
The Obligors, the Lenders, the Issuing Banks and the Agent are parties
to an Amended and Restated Credit Agreement dated as of May 12, 1995 (as from
time to time amended, the "Credit Agreement"). Terra Industries Inc. ("Terra")
has requested that the Lenders and Issuing Banks consent to the transactions
described in Section 2 hereof in connection with the repair of Terra
International, Inc.'s Port Neal, Iowa, facility, and has requested that the
Credit Agreement be amended as provided in Section 4 hereof. The Lenders and
Issuing Banks are willing to so consent and are willing to so amend the Credit
Agreement, all on the terms and conditions set forth herein. Accordingly, the
parties hereto hereby agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement and
not otherwise defined herein are used herein as therein defined. In addition,
as used herein "Port Neal Land" means the land underlying the Port Neal Facility
and "Port Neal Plant" means the Port Neal Facility (other than the Port Neal
Land).
Section 2. Description of Proposed Transaction. Terra has requested
that the Lenders and the Issuing Banks consent to the following transactions
(collectively, the "Proposed Transaction"):
A. Formation and Capitalization of Holdco. A new corporation
("Holdco") will be formed. The initial common stock of Holdco (the "Initial
Holdco Common") will be issued to a temporary holder ("Temporary Holder")
for nominal consideration; preferred stock of Holdco (the "Holdco
Preferred") will be issued to one or more investors (collectively, the
"Investor") for net proceeds to Holdco in an amount to be determined
(currently estimated to be approximately $25,000,000).
The Holdco Preferred will represent at all times at least 20% of voting
control of Holdco. The certificate of designation relating to the Holdco
Preferred will permit the Investor at all times to elect at least one
member of Holdco's Board of Directors.
Terra contemplates that, in addition to the Proposed Transaction, Holdco
may from time to time purchase Senior Preference Units as part of the SPU
Redemption or make loans to Terra or one or more Subsidiaries of Terra for
such purpose.
<PAGE>
B. Acquisition of Holdco by TI. TI will acquire the Initial Holdco
Common from the Temporary Holder for nominal consideration. Concurrently
therewith, Holdco will issue additional common stock (such additional
common stock, together with the Initial Holdco Common, the "Holdco Common")
to TI for consideration consisting of the Port Neal Plant and cash in an
amount to be determined (currently estimated to be approximately
$9,000,000).
C. Formation and Capitalization of PNC. Holdco will form a new
corporation ("PNC") that will be a direct wholly owned subsidiary of
Holdco. Holdco will capitalize PNC by contributing the Port Neal Plant and
cash in an amount to be determined (currently estimated to be approximately
$35,000,000) to PNC.
D. Contribution Agreement, Etc. The Company and TI will agree, on a
joint and several basis, to contribute to Holdco from time to time such
additional amounts of capital as Holdco and PNC may need to complete the
repair of the Port Neal Plant in a manner reasonably satisfactory to the
Investor (such agreement, the "Contribution Agreement"). Terra, the Company
and TI may also indemnify the Investor, Holdco and PNC for environmental
liabilities that may arise relating to the Port Neal Facility and for
securities law liabilities that may arise relating to the SPU Redemption.
E. Leases. TI will lease the Port Neal Land to PNC (the "Ground
Lease") under a long-term lease. PNC will lease the Port Neal Plant to TI
under an operating lease having a term not in excess of 36 months. The
Company may Guarantee the obligations of TI under operating lease of the
Port Neal Plant.
F. Intercompany Loans, Etc. TI may from time to time loan funds to the
Company to enable the Company to fund its obligations under the
Contribution Agreement. Holdco and PNC may also make loans from time to
time to Subsidiaries of Terra.
G. Holdco Note; Set-Off Right. The Company will make loans to Holdco
in an aggregate principal amount to be determined (currently estimated to
be approximately $50,000,000). The obligations of Holdco in respect of such
loans will be evidenced by a note (the "Holdco Note") in favor of the
Company. Holdco will contribute the proceeds of borrowings under the Holdco
Note to PNC. TI, the Company and Holdco will agree that amounts owing by TI
and the Company to Holdco under the Contribution Agreement may be offset
against amounts owing to the Company by Holdco under the Holdco Note.
H. Repair. PNC will repair the Port Neal Facility.
I. Transfer of PNC to TI. Upon completion of the repair of the Port
Neal Facility, TI may exercise its option to purchase from Holdco all of
the issued and outstanding capital stock of PNC for a purchase price to be
equal to the fair market value of PNC. Such purchase price would be payable
by TI in a combination of cash and notes to be issued to Holdco. The
purchase price may be funded in part by insurance proceeds received by TI
from the December 13, 1994 Casualty Event at the Port Neal Facility.
<PAGE>
J. Redemption of Holdco Preferred. Following TI's acquisition of the
capital stock of PNC from Holdco, Holdco may redeem the Holdco Preferred.
K. Certain Limitations. Holdco at all times prior to the transfer of
PNC contemplated in paragraph (I) above will own, beneficially and of
record, all of the issued and outstanding capital stock (other than
directors' qualifying shares) of PNC, and will own no other property (other
than (x) cash and other property incidental to its business as a holding
company, (y) the property described in the Proposed Transaction as being
held by Holdco and (z) any Senior Preference Units acquired by Holdco as
part of the SPU Redemption and any loans made to Terra and its
Subsidiaries). PNC will at all times own no property other than the Port
Neal Plant, the Ground Lease and the other property described in the
Proposed Transaction as being held by PNC and other property used in the
repair and operation of the Port Neal Plant.
Section 3. Consent and Waiver. Subject to the satisfaction of the
conditions precedent set forth in Section 5(2) hereof, but effective as of the
date hereof:
(a) each of the Lenders and Issuing Banks hereby consents to the
Proposed Transaction for all purposes of the Credit Agreement and the other
Loan Documents, and agrees that the same may be implemented (and in such
connection consents to the execution, delivery and performance of all
documents, instruments and other undertakings necessary to give effect to
the proposed transaction);
(b) each of the Lenders and Issuing Banks hereby waives all
prepayments under Sections 2.05(b)(ii), (iii) and (iv) of the Credit
Agreement that would otherwise be required as a result of the occurrence of
Dispositions and Equity Issuances, or the use of proceeds of insurance
received in connection with Casualty Events, as part of the Proposed
Transaction; and
(c) each of the Lenders and Issuing Banks hereby waives any Default or
Event of Default that would otherwise occur solely as a result of the
consummation of the Proposed Transaction.
Section 4. Amendments to Credit Agreement. Subject to the
satisfaction of the conditions precedent specified in Section 5(1) hereof, but
effective as of the date hereof, the Credit Agreement shall be amended as
follows:
A. General. References in the Credit Agreement and the other Loan
Documents (including references to the Credit Agreement as amended hereby) to
"this Agreement" (and indirect references such as "hereunder", "hereby",
"herein" and "hereof") shall be deemed to be references to the Credit Agreement
as amended hereby.
B. Definitions.
(1) Section 1.01 of the Credit Agreement shall be amended by deleting
clause (viii) of the definition of "Excess Cash Flow" therein and substituting
the following therefor:
<PAGE>
"(viii) the aggregate amount of all optional prepayments of Term
Advances made pursuant to Section 2.05(a) during such fiscal year (other
than Early Excess Cash Flow Prepayments), provided, that, unless the
Required Lenders otherwise agree, each such optional prepayment is applied
to the Advances in the manner specified in Section 2.05(c), plus"
(2) Section 1.01 of the Credit Agreement shall be further amended by
adding the following new definition:
"Early Excess Cash Flow Prepayment" means an optional prepayment of
Term Advances made pursuant to Section 2.05(a) that is (unless the Required
Lenders otherwise agree) applied to the Advances in the manner specified in
Section 2.05(c), other than any such prepayment made with proceeds of a
Disposition, Equity Issuance, Casualty Event or incurrence of Debt.
C. Excess Cash Flow Prepayment. Section 2.05(b)(i) of the Credit
Agreement shall be amended to read in its entirety as follows:
"(i) Excess Cash Flow. Not later than the date 90 days after the end
of each fiscal year of the Company commencing with the fiscal year ending
December 31, 1995, the Company shall prepay the Advances in an aggregate
amount equal to (x) 75% of Excess Cash Flow for such fiscal year minus (y)
the aggregate amount of Early Excess Cash Flow Prepayments made during such
fiscal year and minus (z) in the case of the prepayment made with respect
to Excess Cash Flow for the fiscal year ending December 31, 1995, the
Excess SPU Amount (as defined below), if any; provided, that once an
aggregate amount of $20,000,000 or more has been prepaid pursuant to this
clause (i), the figure 75% set forth above shall automatically be deemed to
be reduced to 50%. For purposes of this clause (i), "Excess SPU Amount"
means the excess, if any, of the aggregate consideration paid by Terra and
its Subsidiaries to purchase, redeem or otherwise acquire Senior Preference
Units pursuant to the SPU Redemption over the aggregate amount of Debt
(other than Terra Working Capital Advances) incurred by Terra and its
Subsidiaries to finance such purchase, redemption or other acquisition."
D. 1995 Terra Debt Prepayment. Section 2.05(b)(v) of the Credit
Agreement shall be amended to read in its entirety as follows:
"(v) Non-Redemption of Senior Preference Units, Etc. On or prior to
December 31, 1995, the Company shall prepay the Advances in an aggregate
amount equal to the excess, if any, of (x) 100% of the net proceeds
received by Terra and its Subsidiaries from the issuance of the 1995 Terra
Debt to the extent such proceeds (or proceeds of Terra Working Capital
Advances, if such use is permitted pursuant to Section 2.01(c)(iv)) have
not theretofore been applied to the redemption of Senior Preference Units
pursuant to the SPU Redemption over (y) the aggregate amount of Bridge
Indebtedness contractually required to be repaid by the Company in
connection with such issuance."
<PAGE>
Section 5. Conditions Precedent.
(1) Amendment Conditions. As provided in Section 4 hereof, the
amendments to the Credit Agreement set forth in said Section 4 shall become
effective, as of the date hereof, upon the satisfaction of the condition
precedent that the Agent shall have received the following (each in form and
substance satisfactory to it):
A. Execution and Delivery, Etc. This Consent, Waiver and Amendment,
duly executed by each of the Obligors, each of the Lenders, each of the
Issuing Banks and the Agent.
B. Other Documents. Such other documents as the Agent or any Lender or
special New York counsel to the Agent may reasonably request.
(2) Additional Consent and Waiver Conditions. As provided in Section
3 hereof, the consent and waiver set forth in said Section 3 shall become
effective, as of the date hereof, upon the satisfaction of the condition
precedent that the Agent shall have received all of the documents referred to in
paragraph (1) above and also shall have received the following (each in form and
substance satisfactory to it):
A. Transaction Documents. Certified copies of the Holdco Note, the
Contribution Agreement, the charter documents of Holdco and PNC, the
preferred stock purchase and sale agreement and each other document,
instrument and undertaking executed and delivered in connection with the
Proposed Transaction.
B. Final Transaction Amounts. A certificate from the Company setting
forth the amount of net proceeds to be received by Holdco under Paragraph
2(A) above, the cash consideration to be received by Holdco under Paragraph
2(B) above, the cash to be contributed by Holdco to PNC under Paragraph
2(C) above and an updated management estimate of the amount of loans
anticipated to be made by the Company to Holdco under Paragraph 2(G) above.
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement and each of the other Loan Documents shall remain unchanged and in
full force and effect. This Consent, Waiver and Amendment may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Consent,
Waiver and Amendment by signing any such counterpart. This Consent, Waiver and
Amendment shall be governed by, and construed in accordance with, the law of the
State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent, Waiver and
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
THE BORROWERS
-------------
TERRA CAPITAL, INC.
By /s/ FG Meyer
------------------------
Title: Vice President
TERRA NITROGEN, LIMITED PARTNERSHIP
By Terra Nitrogen Corporation, its General Partner
By /s/ VM Klopfenstein
------------------------
Title: Vice President
GUARANTORS
----------
TERRA INDUSTRIES INC.
By /s/ FG Meyer
------------------------
Title: Vice President
TERRA NITROGEN CORPORATION
By /s/ VM Klopfenstein
------------------------
Title: Vice President
BEAUMONT METHANOL, LIMITED PARTNERSHIP
By Terra Methanol Corporation, its General Partner
By /s/ George H. Valentine
------------------------
Title: Vice President
<PAGE>
TERRA METHANOL CORPORATION
By /s/ George H. Valentine
------------------------
Title: Vice President
BMC HOLDINGS, INC.
By /s/ George H. Valentine
------------------------
Title: Vice President
TERRA CAPITAL HOLDINGS, INC.
By /s/ George H. Valentine
------------------------
Title: Vice President
THE AGENT
---------
CITIBANK, N.A.
By /s/ James M. Simpson
------------------------
Title: Attorney-in-Fact
CO-ARRANGER
-----------
CHEMICAL BANK
By /s/ James H. Ramage
------------------------
Title: Vice President
THE ISSUING BANKS
-----------------
CITIBANK, N.A.
By /s/ James M. Simpson
------------------------
Title: Attorney-in-Fact
<PAGE>
THE LENDERS
-----------
CITIBANK, N.A.
By /s/ James M. Simpson
------------------------
Title: Attorney-in-Fact
CHEMICAL BANK
By /s/ James H. Ramage
------------------------
Title: Vice President
ARAB BANKING CORPORATION
By /s/ Grant E. McDonald
------------------------
Title: Vice President
BANK OF AMERICA ILLINOIS
By /s/ M. H. Claggett
---------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. Ashby
------------------------
Title: Senior Manager Loan
Operations
CAISSE NATIONAL DE CREDIT AGRICOLE
By /s/ Dean Balice
------------------------
Title: Senior Vice President
Branch Manager
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK, B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH
By /s/ Lawrence W. Sidwell
------------------------
Title: Vice President
By /s/ W. Jeffrey Vollack
------------------------
Title: Vice President, Manager
CREDIT LYONNAIS CHICAGO BRANCH
By /s/ Sandra E. Horwitz
------------------------
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By /s/ Sandra E. Horwitz
------------------------
Title: Vice President
DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES
By /s/ John Schaus
------------------------
Title: FVP
By /s/ Graham Lewis
------------------------
Title: AVP
FIRST BANK NATIONAL ASSOCIATION
By /s/ Jeffrey R. Torrison
------------------------
Title: Vice President
<PAGE>
THE FUJI BANK, LIMITED
By /s/ Peter L. Chinnici
------------------------
Title: Joint General Manager
MELLON BANK, N.A.
By /s/ George B. Davis
------------------------
Title: Vice President
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
investment advisor
By /s/ John W. Fraser
------------------------
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By /s/ John W. Fraser
------------------------
Title: Authorized Signatory
NATIONSBANK OF TEXAS, N.A.
By /s/ Perry B. Stephenson
------------------------
Title: Senior Vice President
PROTECTIVE LIFE INSURANCE COMPANY
By /s/ Mark K. Okada
------------------------
Title: Principal
<PAGE>
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.
By Chancellor Senior Secured Management, Inc.,
its Portfolio Advisor
By /s/ Gregory L. Smith
------------------------
Title: Vice President
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA2)
By Chancellor Senior Secured Management, Inc.,
its Portfolio Advisor
By /s/ Gregory L. Smith
------------------------
Title: Vice President
UNION BANK OF SWITZERLAND, CHICAGO BRANCH
By /s/ Walter R. Wolff
------------------------
Title: Managing Director
By /s/ Denis J. Campbell IV
---------------------------------
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the consolidated statement of financial position of Terra Industries Inc. as of
September 30, 1995 and the related consolidated statement of income for the
nine-month period 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 18,971
<SECURITIES> 74,476
<RECEIVABLES> 418,594
<ALLOWANCES> (11,481)
<INVENTORY> 344,587
<CURRENT-ASSETS> 948,560
<PP&E> 856,229
<DEPRECIATION> (189,049)
<TOTAL-ASSETS> 2,020,336
<CURRENT-LIABILITIES> 520,315
<BONDS> 503,925
<COMMON> 133,969
0
0
<OTHER-SE> 424,429
<TOTAL-LIABILITY-AND-EQUITY> 2,020,336
<SALES> 1,889,148
<TOTAL-REVENUES> 1,939,274
<CGS> 1,419,252
<TOTAL-COSTS> 1,591,007
<OTHER-EXPENSES> 59,991
<LOSS-PROVISION> 5,702
<INTEREST-EXPENSE> 48,240
<INCOME-PRETAX> 250,923
<INCOME-TAX> 103,670
<INCOME-CONTINUING> 147,253
<DISCONTINUED> 0
<EXTRAORDINARY> (4,338)
<CHANGES> 0
<NET-INCOME> 142,915
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 0
</TABLE>
