<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 June 30, 1996
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
SIOUX CITY, IOWA 51102-6000
(Address of principal executive offices) (Zip Code)
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 July 31, 1996, the following shares of the registrant's stock
were outstanding:
Common Shares, without par value 75,397,684 shares
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
---------- ------------ ----------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 47,897 $ 138,707 $ 201,009
Accounts receivable, less allowance for
doubtful accounts of $18,464, $10,626 and $10,665 566,112 178,738 496,351
Inventories 364,615 367,272 389,630
Deferred tax asset - current 23,768 23,768 43,992
Other current assets 78,679 55,511 43,446
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,081,071 763,996 1,174,428
- ------------------------------------------------------------------------------------------------------------------------------------
Equity and other investments 18,381 15,408 15,076
Property, plant and equipment, net 766,463 694,358 623,435
Excess of cost over net assets of acquired businesses 300,872 308,414 317,695
Partnership distribution reserve fund 18,480 18,480 18,480
Other assets 65,629 67,202 66,820
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,250,896 $1,867,858 $2,215,934
====================================================================================================================================
LIABILITIES
Debt due within one year $ 198,481 $ 30,425 $ 57,365
Accounts payable 411,611 203,400 382,016
Accrued and other liabilities 202,610 222,298 195,017
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 812,702 456,123 634,398
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 405,405 407,162 650,984
Deferred income taxes 122,449 111,871 106,735
Other liabilities 144,657 138,218 107,729
Minority interest 184,339 182,901 181,464
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,669,552 1,296,275 1,681,310
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 75,775, 81,173 and 81,099 shares 128,573 133,970 133,908
Paid-in capital 562,188 631,195 630,743
Cumulative translation adjustment (260) (271) (610)
Accumulated deficit (109,157) (193,311) (229,417)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 581,344 571,583 534,624
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,250,896 $1,867,858 $2,215,934
====================================================================================================================================
</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 Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Net sales $1,066,861 $ 971,709 $1,455,173 $1,405,830
Other income, net 18,817 31,960 25,246 41,179
- ------------------------------------------------------------------------------------------------------------------------------------
1,085,678 1,003,669 1,480,419 1,447,009
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 849,780 757,828 1,127,297 1,062,109
Selling, general and administrative expense 92,126 75,736 154,206 131,781
Equity in earnings of unconsolidated affiliates (2,265) (2,455) (1,184) (1,258)
Interest income (1,396) (3,397) (3,727) (6,063)
Interest expense 15,203 16,436 26,768 30,443
Minority interest 12,628 11,616 25,797 28,209
- ------------------------------------------------------------------------------------------------------------------------------------
966,076 855,764 1,329,157 1,245,221
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 119,602 147,905 151,262 201,788
Income tax provision 48,152 62,840 61,412 83,770
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 71,450 $ 85,065 $ 89,850 $ 118,018
====================================================================================================================================
NET INCOME PER SHARE $ 0.90 $ 1.05 $ 1.12 $ 1.45
====================================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 79,089 81,263 80,310 81,241
====================================================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.04 $ 0.02 $ 0.07 $ 0.04
====================================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(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, 1994 $ 133,770 $ 630,111 $ (1,259) $(344,193) $ 418,429
Exercise of stock options 134 625 --- --- 759
Translation adjustment --- --- 649 --- 649
Stock Incentive Plan 4 7 --- --- 11
Dividends --- --- --- (3,242) (3,242)
Net income --- --- --- 118,018 118,018
- -----------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $ 133,908 $ 630,743 $ (610) $(229,417) $ 534,624
====================================================================================================
Cumulative
Common Paid-In Translation Accumulated
Shares Capital Adjustment Deficit Total
- -----------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 133,970 $ 631,195 $ (271) $(193,311) $ 571,583
Exercise of stock options 121 486 --- --- 607
Stock repurchase (5,735) (72,078) --- --- (77,813)
Issuance of common shares 215 2,580 --- --- 2,795
Stock Incentive Plan 2 5 --- --- 7
Translation Adjustment --- --- 11 --- 11
Dividends --- --- --- (5,696) (5,696)
Net income --- --- --- 89,850 89,850
- -----------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $ 128,573 $ 562,188 $ (260) $(109,157) $ 581,344
=====================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 89,850 $ 118,018
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 37,190 32,139
Deferred income taxes 9,312 22,489
Equity in earnings of unconsolidated affiliates (1,184) (1,258)
Minority interest in earnings 25,797 28,209
Other non-cash items 426 (43)
Changes in current assets and liabilities, excluding
working capital purchased/sold:
Accounts receivable (385,464) (341,923)
Inventories 11,788 (52,896)
Other current assets 6,134 (1,381)
Accounts payable 205,885 200,966
Accrued and other liabilities (32,726) (2,242)
Unreimbursed Port Neal casualty (34,017) (20,925)
Other (3,654) (1,208)
- --------------------------------------------------------------------------------------
Net cash used in operating activities (70,663) (20,055)
- --------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (7,798) (12,185)
Port Neal plant construction (58,962) (53,119)
Insurance proceeds from plant casualty 13,895 53,091
Purchase of property, plant and equipment (26,722) (23,923)
Discontinued operations 31 (696)
Purchase of minority interest - TNCLP -- (3,629)
Proceeds from investments 574 425
- --------------------------------------------------------------------------------------
Net cash used in investing activities (78,982) (40,036)
- --------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings 168,168 (16,395)
Proceeds from issuance of long-term debt -- 200,000
Principal payments on long-term debt (1,869) (58,289)
Debt issuance costs -- (7,021)
Stock issuance/repurchase - net (77,205) 759
Distributions to minority interests (24,574) (13,745)
Dividends (5,696) (3,242)
- --------------------------------------------------------------------------------------
Net cash provided by financing activities 58,824 102,067
- --------------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term investments 11 649
- --------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments (90,810) 42,625
Cash and short-term investments at beginning of period 138,707 158,384
- --------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 47,897 $ 201,009
======================================================================================
</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. Certain
reclassifications have been made to prior years' financial statements to
conform with current year presentation. These statements should be read in
conjunction with the Corporation's 1995 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>
June 30, December 31, June 30,
(in thousands) 1996 1995 1995
-------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 42,856 $ 36,499 $ 40,869
Finished goods 321,759 330,773 348,761
-------------------------------------------------------
Total $364,615 $367,272 $389,630
=======================================================
</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. The Corporation entered into a methanol hedging agreement (the "Methanol
Hedging Agreement") effective October 1994. Pursuant to the agreement, the
Corporation 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. The amount due, if any, is dependent upon
average methanol and natural gas prices during each of the periods.
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. The Corporation's methanol
production facilities have a capacity of 320 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. No amounts have been
paid or are presently accrued under the terms of the agreement. The
estimated fair value of the agreement, representing the amount that the
Corporation would expect to pay at June 30, 1996 to liquidate the agreement
for its remaining term, is less than $1 million.
6. On December 13, 1994, the Corporation's Port Neal facility in Iowa was
extensively damaged as a result of an explosion. There were four employee
fatalities plus injuries to other people and property damage. Insurance was
in force to cover the Corporation's property damage, business interruption
and third party liability claims. A $7 million pretax charge was recorded
in 1994 for expected uninsured costs associated with the incident,
including deductibles. As of June 30, 1996, the Corporation had received
interim payments of $190.5 million on its insurance claims. The Corporation
is in discussions with its insurers concerning additional insurance
proceeds to which the Corporation believes it should be entitled.
6
<PAGE>
Estimated lost profits recoverable under the business interruption policy
are being included in income. Insurance proceeds received under the
Corporation's property damage claim are being deferred pending final
settlement of the claim. The Corporation has invested additional funds for
enhancements and improvements at the Port Neal facility.
The Corporation expects to record 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 amount of the gain
will be dependent on final construction, clean-up expenditures and the
settlement reached with the Corporation's insurance carriers. As of June
30, 1996, $85 million has been recorded as a deferred gain and is included
in other liabilities.
In September 1995, the Corporation transferred the Port Neal facility to
Port Neal Holdings Corp. ("PNH"). PNH was structured to finance and
complete the 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
commensurate with market interest rates.
7. The Corporation's natural gas procurement policy is to effectively fix or
cap the price of between 40% and 80% of its natural gas requirements for a
one-year period and up to 50% of its natural gas requirements for the
subsequent two-year period through various supply contracts, financial
derivatives and other forward pricing techniques to gain some protection
against natural gas price changes on the spot market. These contracts are
based on a designated price, which price is referenced to market natural
gas prices or appropriate NYMEX futures contract prices. The Corporation
frequently uses prices at Henry Hub Louisiana as the index price. Natural
gas supplies for the Corporation's six production facilities are purchased
from various suppliers for each plant location. This creates a location
basis differential between the contract price and the physical price of
natural gas. Accordingly, the use of financial derivatives may more than
offset the change in the price of physical gas.
The Corporation has entered into forward pricing positions for a
substantial portion of its natural gas requirements for the remainder of
1996, 1997 and 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. The
Corporation has entered into firm contracts to minimize the risk of
interruption or curtailment of natural gas supplies. Unrealized gains from
forward pricing positions totaled $78.3 million as of June 30, 1996
decreasing to $32.8 million as of July 31, 1996. As of June 30, 1995
unrealized losses from forward pricing positions totaled $18.0 million.
For the 1996 first half, natural gas hedging activities produced cost
savings of approximately $42.9 million. Conversely, for the comparable 1995
period, natural gas hedging increased cost by approximately $20.5 million.
8. In June 1995, the Corporation issued $200 million unsecured 10.5% Senior
Notes due in full June 15, 2005. The 10.5% Senior Notes are redeemable at
the option of the Corporation, in whole or part, at any time on or after
June 15, 2000, initially at 105.250% of their principal amount, plus
accrued interest, declining to 102.625% on or after June 15, 2001, and
declining to 100% on or after June 15, 2002. The 10.5% Senior Notes
Indenture contains certain restrictions, including the issuance of
additional debt, payment of dividends, issuance of capital stock, certain
transactions with affiliates, incurrence of liens, sale of assets, and
sale-leaseback transactions. Net proceeds of $28.8 million were used to
acquire 974,900 of the outstanding Senior Preference Units ("SPUs") of
Terra Nitrogen Company, L.P. ("TNCLP"). The remaining net proceeds were
used to repay bank term loans.
7
<PAGE>
During December 1995, the Corporation amended its credit agreement to
provide revolving credit facilities of up to $375 million for domestic
working capital needs and other corporate purposes. Bank term loans
outstanding were converted into advances under the amended credit
agreement. There was $179.0 million outstanding at June 30, 1996. Interest
on borrowings under this line is charged at current market rates.
9. In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation." Beginning in 1996, SFAS 123
requires expanded disclosures of stock-based compensation arrangements with
employees and encourages, but does not require, the recognition of employee
compensation expense related to stock compensation based on the fair value
of the equity instrument granted. Companies that do not adopt the fair
value recognition provisions of SFAS 123 and continue to follow the
existing APB Opinion 25 rules to recognize and measure compensation, will
be required to disclose the pro forma amounts of net income and earnings
per share that would have been reported had the Corporation elected to
follow the fair value recognition of SFAS 123. The Corporation will
continue to apply APB Opinion 25 to its stock-based compensation awards to
employees and will disclose annually the required pro forma effect on net
income and earnings per share. The impact on the Corporation's financial
position and results of operations is not material.
10. On April 30, 1996, the Board of Directors of the Corporation authorized the
repurchase of up to 8.5 million Common Shares on the open market and
through privately negotiated transactions over the next fifteen months. As
of June 30, 1996 the Corporation has repurchased 5,731,000 shares for $77.8
million.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED JUNE 30, 1996 COMPARED WITH
QUARTER ENDED JUNE 30, 1995
CONSOLIDATED RESULTS
The Corporation reported net income of $71.5 million, or $0.90 per share, on
revenues of $1.1 billion for the second quarter of 1996 compared with net income
of $85.1 million, or $1.05 per share, on revenues of $1.0 billion in 1995.
The Corporation classifies its operations into three business segments:
Distribution, Nitrogen Products and Methanol. The Distribution segment includes
sales of products purchased from manufacturers, including the Corporation, and
resold by the Corporation. Distribution revenues are derived primarily from
grower and dealer customers through sales of crop protection products,
fertilizers, seed and services. The Nitrogen Products segment represents only
those operations directly related to the wholesale sales of nitrogen products
produced at the Corporation's 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 (loss) for the three-month periods ended
June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Distribution $ 881,733 $ 775,093
Nitrogen Products 190,770 192,478
Methanol 29,664 47,743
Other - net of intercompany eliminations (16,489) (11,645)
- ----------------------------------------------------------------------------------------------------------------------------
$1,085,678 $1,003,669
============================================================================================================================
OPERATING INCOME:
Distribution $ 68,964 $ 71,024
Nitrogen Products 75,729 90,378
Methanol 1,615 13,924
Other expense - net (271) (2,766)
- ----------------------------------------------------------------------------------------------------------------------------
146,037 172,560
Interest expense - net (13,807) (13,039)
Minority interest (12,628) (11,616)
- ----------------------------------------------------------------------------------------------------------------------------
Total from operations $ 119,602 $ 147,905
============================================================================================================================
</TABLE>
9
<PAGE>
Volumes and prices for the three month periods ended June 30, 1996 and 1995 were
as follows:
<TABLE>
VOLUMES AND PRICES
(excludes the Distribution segment) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands) Volumes Unit Price Volumes Unit Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ammonia (tons) 390 $ 191 303 $ 221
Nitrogen solutions (tons) 798 $ 105 691 $ 109
Urea (tons) 151 $ 170 132 $ 193
Methanol (gallons) 77,089 $ 0.39 84,204 $ 0.57
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION
Distribution revenues of $881.7 million during the 1996 second quarter increased
$106.6 million, or 13.8%, over 1995 revenues of the comparable quarter. The
increase in revenues was due to the shifting of sales from the first quarter to
the second quarter 1996 and an expansion of the Corporation's distribution
network. Revenues from crop protection products increased $61.5 million, or
12.1%, in the second quarter 1996 compared with the 1995 second quarter.
Fertilizer revenues for the 1996 second quarter increased $29.1 million, or
15.8% compared with second quarter 1995. Seed and services revenues increased
$16.0 million for second quarter 1996 compared with the same period a year ago.
Seed revenues accounted for $9.5 million of the increase and custom application
revenues increased $2.7 million.
Operating income for the Distribution business totaled $69.0 million in 1996
compared with $71.0 million for the prior year second quarter. An increase in
gross profit from crop protection products, fertilizers and custom application
revenues was more than offset by higher selling, general and administrative
expenses for the 1996 second quarter compared with the 1995 quarter. Higher
volumes for crop protection products and fertilizers offset lower margins to
generate an $8.5 million increase in gross profit, compared with the 1995 second
quarter. Selling, general and administrative expenses increased $14.8 million
for the 1996 second quarter in comparison with 1995. Contributing to this
increase was an additional provision for bad debts of $6.0 million recorded in
the 1996 second quarter due to increased delinquencies relating to two
consecutive years of drought conditions in the South. The Corporation also added
employees and equipment to meet the demands of the 1996 selling season
increasing the related expenses.
NITROGEN PRODUCTS
Revenues of the Nitrogen Products business decreased $1.7 million for the second
quarter of 1996 compared with the same period of 1995. Prices for the second
quarter 1996 for ammonia, nitrogen solutions and urea decreased 13.3%, 3.6% and
11.8%, respectively, compared to the same period a year ago creating a negative
price variance of $18.0 million. An increase in volumes for the second quarter
of 1996 in comparison with 1995 substantially offset the price declines. The
restart of the Port Neal manufacturing plant contributed to this 1996 volumes
increase. Estimated lost profits from Port Neal recoverable under business
interruption insurance (the Corporation has received interim payments under the
policy and is currently in discussions with its carriers on the final
installment due Terra) were included in 1995 revenues.
Operating earnings for Nitrogen Products were $75.7 million in the second
quarter of 1996 compared with $90.4 million in the 1995 second quarter. The
decline in nitrogen prices as discussed above and a $4.2 million charge for
severance expenses at the Courtright manufacturing plant recorded in the 1996
second quarter contributed to the decline in operating income. The use of
financial derivatives to forward price a majority of the gas requirements for
the 1996 second quarter contributed positively to operating income.
10
<PAGE>
METHANOL
The Corporation's Methanol business revenues were $29.7 million in the second
quarter of 1996 compared with $47.7 million in 1995. Average prices were $0.39
in the 1996 second quarter and $0.57 in the 1995 second quarter, creating a
negative price variance of $14.7 million. Sales volumes in 1996 declined 7.1
million gallons, or 8.5%. Methanol production volumes declined due to a
maintenance turnaround at the Woodward manufacturing facility.
Operating income for the segment was $1.6 million in 1996 compared with $13.9
million in 1995. Lower prices and lower sales volumes accounted for the decline
in operating income as discussed above. Lower natural gas costs in 1996 offset a
portion of the price effect. The decline in natural gas costs was a result of
financial derivatives used to more than offset the increase in the price of
physical gas.
OTHER OPERATING EXPENSE - NET
Other operating expense was $0.3 million in the 1996 second quarter compared
with $2.8 million in the comparable 1995 period. Other expense includes expenses
not directly related to individual business segments, including certain
insurance coverages, corporate finance fees and other costs. Other operating
expenses in the second quarter 1995 included consulting fees related to the
proposed acquisition of the TNCLP minority interest and the revision of
financing arrangements.
INTEREST EXPENSE - NET
Interest expense, net of interest income, totaled $13.8 million in 1996 compared
with $13.0 million in 1995. Net interest expense increased due to increased
short-term borrowings to fund current operations and repurchase common shares.
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
subsidiary of the Corporation, and repay other long-term debt.
INCOME TAXES
Income taxes for the second quarter 1996 were recorded at an effective tax rate
of 40.3%, compared with 42.5% for the second quarter 1995. The reduction in the
effective tax rates is due to lower state income taxes for the 1996 quarter in
comparison with 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1995
CONSOLIDATED RESULTS
The Corporation reported net income of $89.9 million, or $1.12 per share, on
revenues of $1.48 billion for the first six months of 1996 compared with net
income of $118.0 million, or $1.45 per share, on revenues of $1.45 billion in
the first six months of 1995.
11
<PAGE>
Total revenues and operating income (loss) for the six-month periods ended June
30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Distribution $1,104,646 $1,013,547
Nitrogen Products 343,837 339,666
Methanol 58,560 113,617
Other - net of intercompany eliminations (26,624) (19,821)
- --------------------------------------------------------------------------
$1,480,419 $1,447,009
==========================================================================
OPERATING INCOME:
Distribution $ 45,555 $ 56,389
Nitrogen Products 150,063 147,762
Methanol 5,644 53,532
Other expense - net (1,162) (3,306)
- --------------------------------------------------------------------------
200,100 254,377
Interest expense - net (23,041) (24,380)
Minority interest (25,797) (28,209)
- --------------------------------------------------------------------------
Total from operations $ 151,262 $ 201,788
==========================================================================
</TABLE>
Volumes and prices for the six month periods ended June 30, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
VOLUMES AND PRICES
(excludes the Distribution segment) 1996 1995
- ---------------------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands) Volumes Unit Price Volumes Unit Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ammonia (tons) 646 $ 190 526 $ 215
Nitrogen solutions (tons) 1,464 $ 102 1,347 $99
Urea (tons) 283 $ 187 308 $ 190
Methanol (gallons) 152,347 $0.38 151,434 $0.75
- ---------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION
Revenues for the Distribution business were $1.1 billion in the 1996 first half
compared with $1.0 billion for the 1995 first half. The expansion of the
distribution network contributed $38.5 million to the increase in revenues for
all product lines and additional sales at existing locations accounted for the
remainder of the growth in the first half of the 1996 versus the prior year
comparable period. Revenues at existing locations for crop protection products,
fertilizers and seed increased $31.2 million, $6.7 million and $9.2 million,
respectively, for the first half of 1996 in comparison with 1995. Application
income and customer service charges contributed $2.6 million and $1.5 million,
respectively, to the revenue increase.
Operating income for the Distribution business totaled $45.6 million in 1996
compared with $56.4 million for the prior year. Gross profits from crop
protection products, fertilizers and seed increased $5.0 million, $1.4 million
and $1.0 million, respectively, for the first six months of 1996 compared with
1995. Higher volumes of crop protection products and fertilizers were offset by
lower margins than the prior year comparable period as inventories were
liquidated in response to the shortened planting season. Increases in
application income and customer service charges contributed to operating income.
Offsetting the gross profit increase was a $23.0 million increase in selling,
general and administrative expenses for the first half of 1996 versus the prior
year comparable period. A $6.0 million bad debt provision was recorded in 1996
as a result of continued drought conditions across the Southern market. The
expansion of the Distribution network to 393 locations from 373 in 1995
increased selling expenses by $4.3 million. Normal expense increases and added
employees and equipment
12
<PAGE>
necessary to meet expected demand increases for products and services for the
1996 planting season contributed to an increase in compensation, depreciation,
operating and maintenance expenses.
NITROGEN PRODUCTS
Nitrogen Products business revenues were $343.8 million in the first half of
1996 compared with $339.7 million in the first half of 1995. Prices for ammonia
and urea decreased 11.5% and 1.9%, respectively, while the price for nitrogen
solutions increased 3.3% for the first half of 1996 from the prior year
comparable period. These price changes reduced revenues by $12.1 million. An
increase in volumes more than offset the effect of price declines on revenues.
Ammonia and nitrogen solution volumes increased 22.8% and 8.7%, respectively,
partially offset by a decline in urea volumes of 8.1%, for the 1996 first six
months versus the 1995 six months. The Port Neal manufacturing plant began
producing ammonia in December 1995 and nitrogen solutions and urea in May 1996.
Included in 1995 revenues were estimated lost profits which would have been
generated by the Port Neal plant and were covered by business interruption
insurance.
Operating income for Nitrogen Products was $150.0 million compared with $147.8
million in the first six months of 1995. Operating income for the first half of
1996 compared with 1995 increased as a result of lower natural gas costs
partially offset by a decline in nitrogen prices as discussed above. A decline
in the average cost of natural gas of 27.0% was due to the use of financial
derivatives for natural gas procurement. In 1996, severance costs of $4.2
million were incurred at the Courtright manufacturing plant.
METHANOL
Methanol revenues were $58.6 million in 1996 compared with $113.6 million for
the first six months of 1995. Average prices were $0.38 and $0.75 for the first
six months of 1996 and 1995, respectively, creating a negative price variance of
$57.3 million. Sales volumes of methanol were constant for the comparable six
months of 1996 and 1995.
Methanol operating income for the 1996 first half was $5.6 million compared with
$53.5 million in 1995. Lower prices reduced operating income by $57.3 million as
compared with the 1995 first half. Lower natural gas costs offset a portion of
the pricing shortfall. The average natural gas cost decreased 10.5% as a result
of financial derivatives used to forward price gas requirements.
OTHER OPERATING EXPENSE - NET
Other operating expense was $1.2 million in the first half of 1996 compared with
$3.3 million in 1995. Other expense includes expenses not directly related to
individual business segments, including certain insurance coverages, corporate
finance fees and other costs. Other operating expenses in the first half of 1995
included consulting fees related to the proposed acquisition of the TNCLP
minority interest and revised financing arrangements.
INTEREST EXPENSE - NET
Net interest expense was $23.0 million in 1996 compared with $24.4 million in
1995. Interest expense on long-term debt for the first six months of 1996
declined $5.0 million due to the repayment of bank term loans in 1995. This
decline was partially offset by an increase in net short-term interest expense
as a result of an increase in short-term borrowings used to fund operations.
INCOME TAXES
Income tax expense was recorded at an effective rate of 40.6% for the first six
months of 1996 compared with 41.5% in the 1995 first half. The reduction in the
effective tax rates is due to lower state income taxes in 1996.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Corporation's primary uses of funds will be to fund its working capital
requirements, make payments on its indebtedness and other obligations, make
quarterly distributions to minority interests, disburse quarterly stock
dividends, make capital expenditures and acquisitions, and fund repurchases of
its common stock. The principal sources of funds will be cash flow from
operations and borrowings under available bank facilities. The Corporation
believes that cash from operations and available financing sources will be
sufficient to meet anticipated cash requirements.
Cash used for operations in the first six months of 1996 was $70.7 million due
to a seasonal increase in working capital balances of $194.4 million. The
Corporation has available a $375 million revolving credit facility for domestic
working capital needs. As of June 30, 1996, $179.0 million was outstanding under
this facility.
Cash used for investing activities was $79.0 million in the first half of 1996,
$59.0 million was used to rebuild the Port Neal manufacturing plant while $26.7
million funded other investments in plant and equipment. Cash used for
acquisitions represents amounts paid to acquire new locations for the
Corporation's distribution network. The Corporation received $13.9 million of
insurance proceeds related to the Port Neal casualty in the 1996 first half. The
Corporation is in discussions with its insurers and expects that additional
proceeds will be received in connection with the insurance claim.
The rebuild of the Port Neal manufacturing plant is substantially complete. The
Corporation intends to begin construction in the third quarter of 1996 on a $23
million nitric acid plant at Port Neal with the facility expected to be fully
operational by the end of 1997. In addition, the Corporation expects 1996
capital expenditures, exclusive of expenditures related to the Port Neal
casualty and the acquisition of retail distribution locations, to approximate
$50 million consisting of the expansion of existing service centers, routine
replacement of equipment, and efficiency improvements at manufacturing
facilities.
In May 1995, the Board of Directors of the Corporation 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. There were no repurchases in the first half of 1996.
On April 30, 1996, the Board of Directors of the Corporation authorized the
repurchase of up to 8.5 million Common Shares on the open market and through
privately negotiated transactions over the next fifteen months. As of June 30,
1996, the Corporation has repurchased 5.7 million shares for $77.8 million.
During the first half of 1996, the Corporation distributed $3.54 per unit, or
$23.6 million, to minority Senior Preference unitholders, paid a dividend rate
of 7.95%, or $1.0 million, to minority preferred stock shareholders, and paid a
dividend of $0.07 per Common Share which totaled $5.7 million.
Cash balances at June 30, 1996 were $47.9 million of which $8.7 million is used
to collateralize letters of credit supporting recorded liabilities.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
4.4 Consent and Amendment No. 1 dated as of June 4, 1996 to
Amended and Restated Credit Agreement dated as of December 14,
1995 among Terra Industries Inc., Terra Capital, Inc., Terra
Nitrogen, Limited Partnership, Certain Guarantors, Certain
Lenders, Certain Issuing Banks and Citibank, N.A.
27 Financial Data Schedule [EDGAR filing only]
(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: August 14, 1996 /s/ Francis G. Meyer
-------------------------------------------------
Francis G. Meyer
Senior Vice President and Chief Financial Officer
and a duly authorized signatory
15
<PAGE>
EXHIBIT 4.4
CONSENT AND AMENDMENT NO. 1
CONSENT AND AMENDMENT NO. 1 dated as of June 4, 1996 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 December 14, 1995 (as
from time to time amended, the "Credit Agreement"). The Company has requested
that the Lenders consent to the "Beaumont Disposition" (as hereinafter defined)
and to amend the Credit Agreement in certain respects. The Lenders 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.
Section 2. Amendments to Credit Agreement. Subject to the
satisfaction of the conditions precedent specified in Section 5 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. Section 1.01 of the Credit Agreement shall be
amended by adding the following new definitions in their appropriate
alphabetical locations (to the extent that such terms are not presently defined
in Section 1.01 of the Credit Agreement) and by restating the following
definitions (to the extent such terms are presently defined in said Section
1.01):
"Beaumont Disposition" has the meaning assigned to such term in
Section 5.02(e)(viii).
Consent and Amendment No. 1
---------------------------
<PAGE>
-2-
"Beaumont Disposition Proceeds" has the meaning assigned to such term
in Section 5.02(e)(viii).
"Beaumont Disposition Time" means the time as of which the Beaumont
Disposition shall have occurred in accordance with the terms set forth
herein and in the other Loan Documents.
"BMCH" means BMC Holdings, Inc., a Delaware corporation.
"BMLP" means Beaumont Methanol, Limited Partnership, a Delaware
limited partnership.
"Continuing Methanol Hedge Agreement Obligations" means liabilities
and other obligations under the Methanol Hedging Agreement with respect to
periods from and after the Beaumont Disposition Time.
"Cumulative Adjusted Net Income" means, for any period, the sum, for
each complete fiscal year of Terra (beginning with the fiscal year ending
December 31, 1995) during such period, of the Adjusted Net Income Amounts
for all such fiscal years. For purposes of this definition, "Adjusted Net
Income Amount" means, for any fiscal year of Terra, the greater of (x)
33-1/3% of the net income of Terra and its Subsidiaries on a Consolidated
basis during such fiscal year and (y) $20,000,000.
"Other Distribution" means a Dividend Payment made with respect to the
capital stock of the Company except to the extent that the Company
determines, reasonably and in good faith, that such Dividend Payment (1) is
made to fund one or more of the items described in the definition of
"Specified Payments" in this Section 1.01 or (2) is made out of the then-
available amount of Cumulative Adjusted Net Income.
"Prepay" means, with respect to any Debt, to purchase, redeem, retire
or otherwise acquire for value, or set apart any money for a sinking,
defeasance or other analogous fund for the purchase, redemption, retirement
or other acquisition of, or make any voluntary payment or prepayment of the
principal of or interest on, or any other amount owing in respect of, such
Debt, in each case except for regularly scheduled payments of principal and
interest in respect thereof required pursuant to the instruments evidencing
such Debt.
"Purchase Event" means that, during any period commencing January 1,
1995, the aggregate amount of Dividend
Consent and Amendment No. 1
---------------------------
<PAGE>
-3-
Payments with respect to the capital stock of the Company during such
period exceeds the sum of (a) the aggregate amount of Specified Payments
for such period plus (b) Cumulative Adjusted Net Income for such period
plus (c) the amounts available during such period for Restricted
Transactions under paragraphs (A) and (B) of Section 5.02(h) (without
taking into account the proviso at the end of said Section 5.02(h)) to the
extent not utilized for Restricted Transactions during such period.
Notwithstanding anything herein to the contrary, a Purchase Event will not
be deemed to occur hereunder unless a "Purchase Event" also would have
occurred pursuant to the terms of the Original Credit Agreement.
"Receivables Subsidiary" means a Subsidiary of the Company that meets
both of the following criteria:
(1) such Subsidiary is formed solely for the purpose of, and is
engaged solely in the business of, (x) purchasing Receivables of the
Company and one or more of its Subsidiaries under an Intercompany
Receivables Facility and, at its option, selling all or a portion of
such Receivables under a Permitted Receivables Facility and/or (y)
owning the capital stock of, or other ownership interests in, one or
more Receivables Subsidiaries; and
(2) all of the capital stock of such Subsidiary (other than, in
the case of a Subsidiary of the Company that is an obligor or a seller
under a Permitted Receivables Facility, shares of preferred stock of
such Subsidiary having a de minimis liquidation value, which preferred
shares may be held by one or more financial institutions party to such
Permitted Receivables Facility or their designees) is owned
beneficially and of record, directly or indirectly, by Terra Capital
Holdings, the Company and/or one or more other Receivables
Subsidiaries.
"Senior Preference Units" means, collectively, (a) the "Senior
Preference Units" issued and outstanding under, and as defined in, the
Agreement of Limited Partnership dated as of December 4, 1991 of TNCLP, as
such Agreement of Limited Partnership is in effect on the Restatement Date,
and (b) the "Common Units" into which such Senior Preference Units may be
converted in accordance with Section 5.5 of such Agreement of Limited
Partnership.
"Specified Acquisitions" means Investments (including, without
limitation, Investments arising by reason of any
Consent and Amendment No. 1
---------------------------
<PAGE>
-4-
merger or consolidation permitted under Section 5.02(d)(i)(y), but
excluding (1) Investments contemplated by the Port Neal Transaction, (2)
Terra Stock Repurchases, (3) the purchase, redemption or other acquisition
of Senior Preference Units pursuant to the SPU Redemption and (4) capital
contributions to Subsidiaries of Terra) consisting of acquisitions of
ownership interests in one or more entities engaged in the same or allied
line or lines of business as Terra and its Subsidiaries, taken as a whole.
"Subsidiary Guarantor" means, collectively, (x) TNC, (y) prior to the
Beaumont Disposition Time, BMCH, TMC and BMLP and (z) from and after the
SPU Redemption Time, TNLP and its successors.
"Terra Guarantors" means, collectively, (x) Terra, Terra Capital
Holdings and TNC, (y) prior to the Beaumont Disposition Time, TMC, BMCH and
BMLP and (z) from and after the SPU Redemption Time, TNLP and its
successors.
"TMC" means Terra Methanol Corporation, a Delaware corporation.
"TNLP Guarantors" means, collectively, (x) Terra, Terra Capital
Holdings, the Company and TNC and (y) prior to the Beaumont Disposition
Time, TMC, BMCH and BMLP.
C. Prepayments. Section 2.05(b)(i) of the Credit Agreement shall be
amended by deleting "and" immediately following clause (x) in the proviso
therein, by substituting "; and" for the period at the end of clause (y) in said
proviso and by adding the following new clause (z) to said proviso:
"(z) the Beaumont Disposition shall not be deemed to be a Disposition
for purposes of this clause (i)."
D. Representations. Section 4.01(i) of the Credit Agreement shall
be amended by restating the first sentence thereof to read as follows:
"No Obligor is engaged in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no proceeds of any
Advance will be used for any purpose which violates the provisions of the
regulations of the Board of Governors of the Federal Reserve System."
Consent and Amendment No. 1
---------------------------
<PAGE>
-5-
E. Preservation of Existence, Etc. Section 5.01(e) of the Credit
Agreement shall be amended to read as follows:
"(e) Preservation of Corporate Existence, Etc. Subject to Section
5.02(d) and (e), preserve and maintain, and cause each of its Material
Subsidiaries to preserve and maintain, its corporate existence, rights
(charter and statutory) and franchises; provided, that the Obligors may
consummate the Reorganization Transaction, the Port Neal Transaction and
the Beaumont Disposition, and that neither any Obligor nor any of its
Subsidiaries shall be required to preserve any right or franchise if the
Board of Directors of such Obligor or such Subsidiary shall determine that
the preservation thereof is no longer desirable in the conduct of the
business of such Obligor or such Subsidiary, as the case may be, and that
the loss thereof will not have a Material Adverse Effect."
F. Ownership of Obligors. Section 5.01(o) shall be amended by
restating the introductory clause thereof to read as follows:
"Take, and will cause each of its Subsidiaries to take, such action
from time to time as shall be necessary to ensure that, except to the
extent necessary to give effect to either or both of the Reorganization
Transaction and the Beaumont Disposition:".
G. Use of Beaumont Disposition Proceeds. The Credit Agreement shall
be amended by adding a new Section 5.01(q) reading as follows:
"(q) Use of Beaumont Disposition Proceeds. Take one or more of the
following actions at such times and in such manner as shall be necessary
such that neither Terra nor any of its Subsidiaries shall be required to
Prepay 1995 Terra Debt or AMCI Senior Notes with all or any portion of the
Beaumont Disposition Proceeds:
(1) invest and/or commit to invest (subject to the terms and
conditions hereof and of the other Loan Documents) Beaumont
Disposition Proceeds in the business of Terra and its Subsidiaries;
(2) prepay the Advances pursuant to Section 2.05(a); and
(3) reduce the Commitments pursuant to Section 2.04(a).
Consent and Amendment No. 1
---------------------------
<PAGE>
-6-
In addition, Terra will not, and will not permit any of its Subsidiaries
to, Prepay any Debt of Terra or any of its Subsidiaries (other than (i)
Debt hereunder and under the other Loan Documents, and (ii) Debt
outstanding under revolving lines of credit to the extent said lines of
credit remain available for reborrowing after giving effect to such
prepayment) with Beaumont Disposition Proceeds, in each case except to the
extent required pursuant to the instruments evidencing such Debt as in
effect on May 1, 1996; provided that nothing herein shall prohibit Terra or
any of its Subsidiaries from using Beaumont Disposition Proceeds (I) to
fund all or a portion of the Restricted Transactions referred to in Section
5.02(h)(C) and/or (II) to redeem the preferred stock of Port Neal Holdings
and otherwise to pay all or a portion of the obligations of Terra or any of
its Subsidiaries in respect of the Port Neal Transaction. For purposes of
this paragraph, the Company shall be entitled to make determinations as to
whether funds used by Terra and its Subsidiaries for a particular purpose
constituted "Beaumont Disposition Proceeds", provided that such
determinations are made reasonably and in good faith.
For purposes of determining compliance with this Section 5.01(q), the
Company shall, from time to time upon the request of the Agent or the
Required Lenders (through the Agent), deliver to the Agent a report in form
and detail reasonably satisfactory to the Required Lenders setting forth
the manner in which the Beaumont Disposition Proceeds have been or are to
be applied (including, without limitation, the amounts thereof that have
been used for the respective purposes described in this Section 5.01(q))."
H. Liens. Section 5.02(a) of the Credit Agreement shall be amended
by deleting "and" at the end of paragraph (xv) thereof, by substituting "; and"
for the period at the end of paragraph (xvi) thereof and by adding the following
new paragraph (xvii) thereto:
"(xvii) Liens securing obligations of the Company and its
Subsidiaries under Hedge Agreements permitted by Section 5.02(c)."
I. Hedge Agreements. Section 5.02(c) of the Credit Agreement shall
be amended by adding "prior to the Beaumont Disposition Time," at the beginning
of paragraph (y) thereof.
J. Sales, Etc., of Assets. Section 5.02(e) of the Credit Agreement
shall be amended by deleting the "and" at the end of paragraph (vi) thereof, by
redesignating the paragraph immediately following said paragraph (vi) as
paragraph (vii), by
Consent and Amendment No. 1
---------------------------
<PAGE>
-7-
substituting "; and" for the period at the end of said paragraph (vii) and by
adding the following new paragraph (viii) thereto:
"(viii) the Disposition (the "Beaumont Disposition") of BMLP
(whether through the Disposition by the Company of the capital stock of TMC
and BMCH, the Disposition by TMC and BMCH of the partnership interests of
BMLP, the Disposition by BMLP of all or substantially all of its assets or
otherwise) to one or more Persons (collectively, the "Beaumont
Purchasers"), provided that such Disposition shall be effected in
accordance with the following terms (or on such other terms as shall be
reasonably satisfactory to the Required Lenders):
(A) both immediately prior to and after giving effect to such
Disposition, no Default or Event of Default shall have occurred and be
continuing;
(B) none of the Beaumont Purchasers shall be an Affiliate of the
Company;
(C) the aggregate Net Available Proceeds of such Disposition
(the "Beaumont Disposition Proceeds") shall be not less than
$125,000,000 (at least $100,000,000 of which shall be in the form of
cash);
(D) after giving effect to such Disposition, Terra and its
Subsidiaries shall have no Continuing Methanol Hedge Agreement
Obligations (or, in the alternative, all of the Continuing Methanol
Hedge Agreement Obligations shall be assumed by one or more of the
Beaumont Purchasers, and such Beaumont Purchasers shall indemnify and
hold harmless Terra and its Subsidiaries from and against all claims,
damages, losses, liabilities, and expenses that may be incurred by
Terra and its Subsidiaries in connection therewith);
(E) to the extent the assets subject to such Disposition
constituted part of the Collateral, all proceeds thereof (whether in
the form of cash, instruments or otherwise) shall become subject to
the Lien created by the Security Documents in accordance with the
terms thereof (it being understood that nothing herein shall require
Terra or any of its Subsidiaries to segregate any of the cash proceeds
of such Disposition); and
(F) the Company shall deliver to the Agent a true, correct and
complete copy of each of the principal documents executed in
connection with the
Consent and Amendment No. 1
---------------------------
<PAGE>
-8-
Beaumont Disposition and shall certify to the Agent and the Lenders
that such Disposition has been (or is being) consummated in all
material respects in accordance with the terms and conditions set
forth herein (including, without limitation, in this Section 5.02(e))
and in the other Loan Documents."
K. Restricted Transactions. Section 5.02(h) of the Credit Agreement
shall be amended to read as follows:
"(h) Restricted Transactions. Make any Capital Expenditures or
Specified Acquisitions except for:
(A) Restricted Transactions, for Terra and its Subsidiaries on a
Consolidated basis, in any fiscal year (the "Subject Fiscal Year") in
an aggregate amount not exceeding the sum of (i) $150,000,000 plus
(ii) for fiscal years beginning January 1, 1996 and thereafter, the
lesser of (x) an amount equal to the unused portion (if any) of the
amount available for Restricted Transactions pursuant to paragraph (i)
of this Section 5.02(h)(A) for the prior fiscal year and (y)
$100,000,000;
(B) additional Restricted Transactions, for Terra and its
Subsidiaries on a Consolidated basis, during the period from and after
the Beaumont Disposition Time in an aggregate amount not exceeding the
excess, if any, of (x) the Beaumont Disposition Proceeds received from
time to time in the form of cash (including cash payments received
under instruments constituting part of the Beaumont Disposition
Proceeds) over (y) the aggregate amount of prepayments of Terra
Advances and Terra Commitment reductions, if any, made in accordance
with Section 5.01(q) prior to the occurrence of the relevant
Restricted Transaction; and
(C) additional Restricted Transactions, for Terra and its
Subsidiaries on a Consolidated basis, in an aggregate amount not
exceeding $60,000,000 constituting the purchase by the Company and/or
one or more of its Subsidiaries of the Courtright manufacturing plant
located in Ontario, Canada, from W. Patrick Moroney, as Trustee of The
1993 Courtright Property Trust;
provided that the amounts available for Restricted Transactions pursuant to
clauses (A) and (B) of this Section 5.02(h) shall be deemed to be reduced
at the time of each Other Distribution by the amount thereof as follows:
Consent and Amendment No. 1
---------------------------
<PAGE>
-9-
(1) first, the amount of such Other Distribution shall reduce
(but not below zero) the amount remaining available under said clause
(A) for the then-current fiscal year; and
(2) then, after the amount available for Restricted Transactions
under said clause (A) is reduced to zero (whether by the making of
Restricted Transactions and/or by the application of the preceding
clause (1)), the amount of such Other Distribution shall reduce (but
not below zero) the amount remaining available under said clause (B)."
L. Methanol Hedging Agreement. Section 5.02(l) of the Credit
Agreement shall be amended by adding, immediately after "Cancel or terminate"
therein, ", except as expressly provided in Section 5.02(e)(viii)(D),".
Section 3. Consents relating to the Beaumont Disposition. Subject to
the satisfaction of the conditions precedent set forth in Section 5 hereof, but
effective as of the date hereof, each of the Lenders hereby consents to the
Beaumont Disposition for all purposes of the Credit Agreement and the other Loan
Documents, and hereby authorizes and directs the Agent, upon the consummation
thereof, to execute such agreements, documents and other instruments, and to
take such other action, as the Company may reasonably request in order to (x)
release the Liens in favor of the Agent and the other "Secured Parties" under
the Security Documents with respect to the Collateral that is to be transferred
as part of the Beaumont Disposition and (y) release each of TMC, BMCH and BMLP
from their respective obligations as "Subsidiary Guarantors", "Terra Guarantors"
and "TNLP Guarantors" (and, thereby, to release each of TMC, BMCH and BMLP from
their respective obligations as "Guarantors", "Terra Obligors", "TNLP Obligors"
and "Obligors") under the Credit Agreement and the other Loan Documents.
Section 4. Representations and Warranties. The Company hereby
represents and warrants to the Agent and the Lenders that, both before and after
giving effect to the amendments to the Credit Agreement and the consents set
forth herein:
(a) the representations and warranties contained in each Loan
Document are correct on and as of the date hereof, as though made on and
as of such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date);
and
Consent and Amendment No. 1
---------------------------
<PAGE>
-10-
(b) no event has occurred and is continuing that constitutes a
Default or an Event of Default.
Section 5. Conditions Precedent. As provided in Sections 2 and 3
hereof, the amendments to the Credit Agreement set forth in said Section 2 and
the consents set forth in said Section 3 shall each 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 and Amendment No. 1,
duly executed by each of the Obligors, each of the Lenders 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.
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 and Amendment No. 1 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 and
Amendment No. 1 by signing any such counterpart. This Consent and Amendment No.
1 shall be governed by, and construed in accordance with, the law of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Consent and
Amendment No. 1 to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
THE BORROWERS
-------------
TERRA CAPITAL, INC.
By /s/ F. G. Meyer
-------------------------------
Title: Vice President
TERRA NITROGEN, LIMITED PARTNERSHIP
By Terra Nitrogen Corporation,
its General Partner
By /s/ Robert E. Thompson
---------------------------
Title: Vice President
Consent and Amendment No. 1
---------------------------
<PAGE>
-11-
GUARANTORS
----------
TERRA INDUSTRIES INC.
By /s/ F. G. Meyer
--------------------------------
Title: Vice President
TERRA NITROGEN CORPORATION
By /s/ Robert E. Thompson
--------------------------------
Title: Vice President
BEAUMONT METHANOL, LIMITED
PARTNERSHIP
By Terra Methanol Corporation,
its General Partner
By /s/ G. H. Valentine
---------------------------
Title: Vice President
TERRA METHANOL CORPORATION
By /s/ G. H. Valentine
--------------------------------
Title: Vice President
BMC HOLDINGS, INC.
By /s/ G. H. Valentine
--------------------------------
Title: Vice President
TERRA CAPITAL HOLDINGS, INC.
By /s/ F. G. Meyer
--------------------------------
Title: Vice President
Consent and Amendment No. 1
---------------------------
<PAGE>
-12-
THE AGENT
---------
CITIBANK, N.A.
By /s/ Judith C. Fisher
--------------------------------
Title: Attorney-in-Fact
COMMITMENTS THE LENDERS
----------- -----------
Terra Commitment CITIBANK, N.A.
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Judith C. Fisher
--------------------------------
Title: Attorney-in-Fact
Terra Commitment CHEMICAL BANK
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Peter Ling
--------------------------------
Title: Vice President
Terra Commitment ARAB BANKING CORPORATION
- ----------------
$16,500,000.00
TNLP Commitment
- ---------------
$ 1,100,000.00 By /s/ Grant E. McDonald
---------------------------------
Title: Vice President
Terra Commitment BANK OF AMERICA ILLINOIS
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ M. H. Claggett
--------------------------------
Title: Vice President
Terra Commitment THE BANK OF NOVA SCOTIA
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ F. C. Ashby
--------------------------------
Title: Senior Manager Loan
Operations
Consent and Amendment No. 1
---------------------------
<PAGE>
-13-
Terra Commitment CAISSE NATIONAL DE CREDIT AGRICOLE
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ W. Leroy Startz
---------------------------------
Title: First Vice President
Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN-
- ---------------- BOERENLEEBANK, B.A. "RABOBANK
$28,500,000.00 NEDERLAND", New York Branch
TNLP Commitment
- ---------------
$ 1,900,000.00
By /s/ Angela R. Reilly
--------------------------------
Title: Vice President
By /s/ W. Jeffrey Vollack
--------------------------------
Title: Vice President, Manager
Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Michel Buysschaert
-------------------------------
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ Michel Buysschaert
-------------------------------
Title: Authorized Signature
Terra Commitment DRESDNER BANK AG, CHICAGO AND GRAND
- ---------------- CAYMAN BRANCHES
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Thomas J. Nadramia
--------------------------------
Title: Vice President
By /s/ John W. Sweeney
--------------------------------
Title: Assistant Vice President
Consent and Amendment No. 1
---------------------------
<PAGE>
-14-
Terra Commitment FIRST BANK NATIONAL ASSOCIATION
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Marc E. Meirovitz
-------------------------------
Title: Commercial Banking
Officer
Terra Commitment THE FUJI BANK, LIMITED
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Peter L. Chinnici
--------------------------------
Title: Joint General Manager
Terra Commitment MELLON BANK, N.A.
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ George Davis
--------------------------------
Title: Vice President
Terra Commitment NATIONSBANK OF TEXAS, N.A.
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ C. Todd Kulp
--------------------------------
Title: Vice President
Terra Commitment UNION BANK OF SWITZERLAND, NEW YORK
- ---------------- BRANCH
$16,500,000.00
TNLP Commitment
- ---------------
$ 1,100,000.00 By /s/ Philippe R. Sandmeier
-------------------------------
Title: Assistant Vice President
By /s/ C. C. Glockler
--------------------------------
Title: Vice President
Consent and Amendment No. 1
---------------------------
<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
June 30, 1996 and the related consolidated statement of income for the six
months then ended.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 37,678
<SECURITIES> 10,219
<RECEIVABLES> 584,576
<ALLOWANCES> (18,464)
<INVENTORY> 364,615
<CURRENT-ASSETS> 1,081,071
<PP&E> 943,740
<DEPRECIATION> (177,277)
<TOTAL-ASSETS> 2,250,896
<CURRENT-LIABILITIES> 812,702
<BONDS> 405,405
<COMMON> 128,573
0
0
<OTHER-SE> 452,771
<TOTAL-LIABILITY-AND-EQUITY> 2,250,896
<SALES> 1,455,173
<TOTAL-REVENUES> 1,480,419
<CGS> 1,127,297
<TOTAL-COSTS> 1,255,528
<OTHER-EXPENSES> 50,588
<LOSS-PROVISION> 8,740
<INTEREST-EXPENSE> 26,768
<INCOME-PRETAX> 151,262
<INCOME-TAX> 61,412
<INCOME-CONTINUING> 89,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,850
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 0
</TABLE>
