<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 March 31, 1997
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 April 30, 1997, the following shares of the registrant's stock
were outstanding:
Common Shares, without par value 73,827,976 shares
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
---------- ------------ ----------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 44,585 $ 100,742 $ 34,109
Accounts receivable, less allowance for
doubtful accounts of $11,845, $11,391 and $11,795 207,364 81,606 217,817
Inventories 576,779 422,938 553,434
Other current assets 61,652 107,008 116,683
- -----------------------------------------------------------------------------------------------------------------
Total current assets 890,380 712,294 922,043
- -----------------------------------------------------------------------------------------------------------------
Equity and other investments 17,119 16,579 14,104
Property, plant and equipment, net 848,404 846,353 747,001
Excess of cost over net assets of acquired businesses 287,583 291,645 305,538
Deferred tax asset 15,189 15,311 ---
Partnership distribution reserve fund --- --- 18,480
Other assets 81,777 87,183 67,755
- -----------------------------------------------------------------------------------------------------------------
Total assets $2,140,452 $1,969,365 $2,074,921
=================================================================================================================
LIABILITIES
Debt due within one year $ 115,440 $ 118,937 $ 45,419
Accounts payable 314,200 198,273 276,123
Accrued and other liabilities 290,415 207,927 314,982
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 720,055 525,137 636,524
- -----------------------------------------------------------------------------------------------------------------
Long-term debt 403,501 404,707 405,837
Deferred tax liability -- non-current 135,018 134,523 115,377
Other liabilities 120,714 125,013 143,887
Minority interest 170,413 173,893 182,843
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,549,701 1,363,273 1,484,468
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 73,940, 75,010 and 81,433 shares 126,545 127,614 134,219
Paid-in capital 537,045 550,850 633,891
Cumulative translation adjustment (2,812) (1,430) (310)
Accumulated deficit (70,027) (70,942) (177,347)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 590,751 606,092 590,453
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,140,452 $1,969,365 $2,074,921
=================================================================================================================
</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
March 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
REVENUES
Net sales $423,683 $388,312
Other income, net 10,027 6,429
- -------------------------------------------------------------------------------------------------
433,710 394,741
- -------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 338,052 277,517
Selling, general and administrative expense 68,309 62,080
Equity in loss of unconsolidated affiliates 1,023 1,081
Interest income (710) (2,331)
Interest expense 13,484 11,565
Minority interest 6,910 13,169
- -------------------------------------------------------------------------------------------------
427,068 363,081
- -------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary items 6,642 31,660
Income tax provision 2,740 13,260
- -------------------------------------------------------------------------------------------------
Net income $ 3,902 $ 18,400
=================================================================================================
Net income per share $ 0.05 $ 0.23
=================================================================================================
Weighted average
number of shares outstanding 74,709 81,477
=================================================================================================
Cash dividends declared per share $ 0.04 $ 0.03
=================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,902 $ 18,400
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 22,621 17,102
Deferred income taxes 2,939 (1,178)
Minority interest in earnings 6,910 13,169
Other non-cash items 1,375 1,333
Changes in current assets and liabilities,
excluding working capital purchased:
Accounts receivable (125,295) (37,169)
Inventories (152,964) (177,433)
Other current assets 45,912 (7,946)
Accounts payable 115,927 70,397
Accrued and other liabilities 77,757 79,646
Unreimbursed Port Neal casualty ---- (16,822)
Other (7,367) (3,646)
- ---------------------------------------------------------------------------------------------------
Net cash used in operating activities (8,283) (44,147)
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (5,708) (4,910)
Port Neal plant construction (381) (38,376)
Purchase of property, plant and equipment (15,058) (15,568)
Other 848 291
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (20,299) (58,563)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings (3,367) 14,996
Principal payments on long-term debt (1,336) (1,327)
Stock (repurchase) issuance, net (14,871) 145
Distributions to minority interests (3,632) (13,227)
Dividends (2,987) (2,436)
- ---------------------------------------------------------------------------------------------------
Net cash used in financing activities (26,193) (1,849)
- ---------------------------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term investments (1,382) (39)
- ---------------------------------------------------------------------------------------------------
Decrease in cash and short-term investments (56,157) (104,598)
Cash and short-term investments at beginning of period 100,742 138,707
- ---------------------------------------------------------------------------------------------------
Cash and short-term investments at end of period $ 44,585 $ 34,109
===================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(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, 1995 $133,970 $631,195 $ (271) $(193,311) $571,583
Exercise of stock options 35 153 --- --- 188
Stock repurchase (3) (40) --- --- (43)
Issuance of common shares 215 2,580 --- --- 2,795
Stock incentive plan 2 3 --- --- 5
Translation adjustment --- --- (39) --- (39)
Dividends --- --- --- (2,436) (2,436)
Net income --- --- --- 18,400 18,400
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $134,219 $633,891 $ (310) $(177,347) $590,453
===================================================================================================================================
Cumulative
Common Paid-In Translation Accumulated
Shares Capital Adjustment Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $127,614 $550,850 $(1,430) $ (70,942) $606,092
Exercise of stock options 2 11 --- --- 13
Repurchase of common shares (1,071) (13,816) --- --- (14,887)
Translation adjustment --- --- (1,382) --- (1,382)
Dividends --- --- --- (2,987) (2,987)
Net income --- --- --- 3,902 3,902
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $126,545 $537,045 $(2,812) $ (70,027) $590,751
===================================================================================================================================
</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, results of operations 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 1996 Annual Report to Stockholders.
2. Per-share data are based on the weighted average number of Common Shares
outstanding and the dilutive effect of the Corporation's outstanding
restricted shares and stock options. Fully diluted earnings per share is
considered to be the same as primary earnings per share, since the effect
of certain dilutive securities was not significant.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 128, "Earnings per
Share." SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share. The impact on earnings per share
computed using SFAS 128 is insignificant, in comparison with net income per
share disclosed in the Consolidated Statements of Operations.
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(in thousands) 1997 1996 1996
-------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 40,177 $ 39,782 $ 35,673
Finished goods 536,602 383,156 517,761
-------------------------------------------------------
Total $576,779 $422,938 $553,434
=======================================================
</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") whereby, the Corporation 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 1997. The amount due, if any, is dependent upon average methanol
and natural gas prices during 1997. The quantity subject to the agreement
is 130 million gallons. The Corporation's methanol production facilities
have a capacity of 320 million gallons of methanol per year.
Approximately $939,000, pursuant to the Methanol Hedging Agreement was
deferred at March 31, 1997 and will be recognized as income over the
remaining 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 March 31, 1997 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. Insurance was in force to
cover the Corporation's property damage, business interruption and
6
<PAGE>
third party liability claims. Estimated lost profits recoverable under the
business interruption policy were 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.
As of March 31, 1997, the Corporation has received $203 million in
insurance payments. The Corporation presented documentation to the
insurance carriers supporting expenditures in excess of $350 million to
rebuild the plant and to compensate for the property damage and business
interruption losses. The Corporation filed a complaint in April 1997 in
federal court against its property insurance carriers alleging the carriers
have failed to act in a timely manner to handle the claim or to acknowledge
their obligations to pay the amounts owed. The complaint seeks, among other
things, monetary damages in excess of $150 million.
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 the final settlement reached with the Corporation's
insurance carriers.
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 supply contracts, financial derivatives
and other forward pricing techniques. These contracts reference physical
natural gas prices or appropriate NYMEX futures contract prices. Contract
physical prices are frequently based on the Henry Hub Louisiana price, but
natural gas supplies for the Corporation's six production facilities are
physically purchased for each plant location which often creates a location
basis differential between the contract price and the physical price of
natural gas. Accordingly, the use of financial derivatives may not exactly
offset the change in the price of physical gas. The contracts are traded in
months forward and settlement dates are scheduled to coincide with gas
purchases during that future period.
The Corporation has entered into firm contracts to minimize the risk of
interruption or curtailment of natural gas supplies. Additionally, the
Corporation has entered into forward pricing positions for a substantial
portion of its natural gas requirements for the remainder of 1997, 1998 and
1999, consistent with its policy. As a result of its policies, the
Corporation has reduced 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 gains from forward pricing positions totaled $23.0 million and
$45.6 million as of March 31, 1997 and 1996, respectively. The amount
recognized by the Corporation will be dependent on prices in effect at the
time of settlement.
For the first three months of 1997 and 1996, natural gas hedging activities
produced cost savings of approximately $21.6 million and $23.1 million,
respectively, compared with spot prices.
8. The Corporation has revolving credit facilities of up to $355 million for
domestic working capital needs and other corporate purposes. There was
$103.0 million outstanding at March 31, 1997. Interest on borrowings under
this line is charged at current market rates.
7
<PAGE>
9. 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 ensuing fifteen months.
As of March 31, 1997 the Corporation had repurchased 7,898,000 shares for
$106.7 million.
10. In August 1996, the Corporation, through Terra Funding Corporation ("TFC"),
a beneficially owned subsidiary of the Corporation and a limited purpose
corporation, entered into an agreement with a large financial institution
to sell an undivided interest in its accounts receivable. Under the
agreement, which expires August 1999, the Corporation may sell without
recourse an undivided interest in a designated pool of its accounts
receivable and receive up to $150 million in proceeds. Undivided interests
in new receivables may be sold as amounts are collected on previously sold
interests. As of March 31, 1997, the proceeds of the uncollected balance of
accounts receivable sold totaled $93 million. TFC is a separate legal
entity whose creditors have received security interests in its assets.
11. Pursuant to the provisions of the Terra Nitrogen Company, L.P. (TNCLP)
Agreement of Limited Partnership, the holders of all Senior Preference
Units (SPUs) had the right, through March 31, 1997, to convert their SPUs
into Common Units on a one-for-one basis. As of March 31, 1997,
approximately 13.3 million of the 13.6 million previously issued and
outstanding SPUs converted to Common Units. The Common Units began trading
on the New York Stock Exchange on April 1, 1997 under the symbol TNH. The
307,202 SPUs which did not convert to Common Units will be redeemed by
TNCLP on May 27, 1997 for $22.105 per unit, which includes a $0.605
distribution per unit for the first quarter of 1997.
On April 22, 1997, TNCLP announced a cash distribution for the quarter
ended March 31, 1997 of $1.02 per Common Unit to holders of record as of
May 5, 1997, payable on May 27, 1997. The cash distribution for the first
quarter will include $18.5 million from the elimination of the reserve
amount required to support four quarters of minimum quarterly distributions
on the SPUs. Due to the redemption of the SPUs on May 27, 1997, this
reserve amount is no longer required to be maintained.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31, 1997 COMPARED WITH
QUARTER ENDED MARCH 31, 1996
Consolidated Results
The Corporation reported net income of $3.9 million, or $0.05 per share, on
revenues of $433.7 million for the first quarter of 1997 compared with net
income of $18.4 million, or $0.23 per share, on revenues of $394.7 million in
1996. The decline in 1997 net income reflected significant increases to natural
gas costs and a slow start to the spring planting season.
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
from the Corporation's ammonia manufacturing and upgrading facilities. The
Methanol segment represents wholesale sales of methanol from the Corporation's
two methanol manufacturing facilities.
Total revenues and operating income (loss) for the three-month periods ended
March 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Distribution $ 260,543 $ 222,913
Nitrogen Products 135,918 153,067
Methanol 42,998 28,896
Other - net of intercompany eliminations (5,749) (10,135)
- ---------------------------------------------------------------------
$ 433,710 $ 394,741
=====================================================================
OPERATING INCOME (LOSS):
Distribution $ (24,557) $ (23,409)
Nitrogen Products 38,541 74,334
Methanol 13,158 (4,029)
Other expense - net (816) (891)
- ---------------------------------------------------------------------
26,326 54,063
Interest expense - net (12,774) (9,234)
Minority interest (6,910) (13,169)
- ---------------------------------------------------------------------
Total from operations $ 6,642 $ 31,660
=====================================================================
</TABLE>
9
<PAGE>
Volumes and prices for the three month periods ended March 31, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
VOLUMES AND PRICES
(excludes the Distribution segment) 1997 1996
- ------------------------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands) Volumes Unit Price Volumes Unit Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ammonia (tons) 225 $ 203 256 $ 188
Nitrogen solutions (tons) 621 92 666 99
Urea (tons) 157 178 150 209
Methanol (gallons) 74,129 0.58 75,259 0.38
- ------------------------------------------------------------------------------------------------
</TABLE>
Distribution
Distribution revenues for the 1997 first quarter increased $37.6 million or
16.9% to $260.5 million compared with 1996 results. Expansion of the
distribution network from 389 locations to 403 locations in 1997 contributed
$8.2 million to the revenue increase. Higher sales of crop protection products
primarily to dealer customers contributed $29.1 million to 1997 sales.
The operating loss for the Distribution segment was $24.6 million in 1997
compared with $23.4 million in 1996. This segment traditionally generates an
operating loss during the first quarter. New locations generated a first quarter
1997 operating loss of $.5 million. Selling expense increases due to an expanded
sales force and additional equipment in anticipation of the 1997 spring planting
season exceeded gross profit increases by $.7 million.
Nitrogen Products
Nitrogen Products revenues were $135.9 million and $153.1 million for the three
months ended March 31, 1997 and 1996, respectively. The decrease in 1997
revenues compared with 1996 was due to lower sales volumes and prices. Ammonia
and nitrogen solutions sales volumes declined 12% and 7%, respectively, in the
1997 period compared with the prior year. Additionally, nitrogen solutions and
urea prices decreased, contributing to price declines of $5.0 million. The
decline in sales volumes and prices was attributable to cold, wet weather and
higher inventory levels at dealer locations.
Operating income for the Nitrogen Products segment was $38.5 million in the
first quarter of 1997 compared with $74.3 million for the first quarter of 1996.
The decline in operating income was due to significantly higher natural gas
costs and lower sales prices. Natural gas costs, which comprised almost 45% of
total 1996 annual costs and expenses, increased 68% due to the December 1996
spike in gas prices from cold weather which continued into the first quarter of
1997.
Methanol
Methanol revenues increased $14.1 million during the first quarter of 1997 in
comparison with the same period in 1996. The increase was due to higher methanol
sales prices reflecting tight market conditions caused by production outages,
delayed startup of foreign plants and increased worldwide demand.
Methanol operating income for the three months ended March 31, 1997 and 1996 was
$13.2 million and $4.0 million, respectively. The increase in methanol sales
prices outpaced the 45% increase in the average cost of natural gas and
accounted for the increase in operating income. Natural gas costs comprised over
60% of the total 1996 annual cost and expense of methanol operations.
10
<PAGE>
Other Operating Expense - Net
Other operating expense was $.8 million and $.9 million for the first quarter of
1997 and 1996, respectively. Other operating expense includes expenses not
directly related to specific business segments, including certain insurance
coverage, corporate finance fees and other costs.
Interest Expense - Net
Interest expense, net of interest income, was $12.8 million for the first
quarter of 1997, compared with $9.2 million for the prior year period. Net
interest expense increased due to increased short-term borrowings to fund
current operations.
Income Taxes
Income taxes for the first quarter of 1997 were recorded at an effective tax
rate of 41%, comparable to the effective tax rate for the 1996 first quarter.
Minority Interest
Minority interest, representing primarily third party unitholder interest in the
earnings of Terra Nitrogen Company, L.P. (TNCLP), was $6.9 million for the first
quarter 1997 compared with $13.2 million in 1996. Minority interest declined
primarily due to lower earnings from TNCLP operations.
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 dividends on
common stock, 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 three months of 1997 was $8.3 million.
Working capital balances increased $38.7 million for the first three months of
1997 due to the seasonal nature of the Corporation's operations. The Corporation
has available a $355 million revolving credit facility for domestic working
capital needs. As of March 31, 1997, $103.0 million was outstanding under this
facility.
Cash used for investing activities was $20.3 million in the first three months
of 1997, $15.4 million funded investments in plant and equipment. Cash used for
acquisitions ($5.7 million) represents amounts paid to acquire new locations for
the Corporation's distribution network.
The rebuild of the Port Neal manufacturing plant was substantially complete in
1996. The Corporation began 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. The Corporation expects 1997 capital
expenditures, exclusive of expenditures related to the Port Neal nitric acid
plant and the acquisition of retail distribution locations, to approximate $67
million consisting of the expansion of existing service centers, routine
replacement of equipment, and efficiency improvements at manufacturing
facilities.
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 ensuing fifteen months. As of March
31, 1997, the Corporation had repurchased 7.9 million shares for $106.7 million.
11
<PAGE>
During the first three months of 1997, the Corporation distributed $.61 per
unit, or $3.2 million, to minority Senior Preference Unitholders, paid a
dividend rate of 7.50%, or $.5 million, to minority preferred stock
shareholders, and paid a dividend of $0.04 per Common Share which totaled $3.0
million.
Pursuant to the provisions of the Terra Nitrogen Company, L.P. (TNCLP) Agreement
of Limited Partnership, the holders of all Senior Preference Units (SPUs) had
the right, through March 31, 1997, to convert their SPUs into Common Units on a
one-for-one basis. As of March 31, 1997, approximately 13.3 million of the 13.6
million previously issued and outstanding SPUs converted to Common Units. The
307,202 SPUs which did not convert to Common Units will be redeemed by TNCLP on
May 27, 1997 for $22.105 per unit, which includes a $0.605 distribution per unit
for the first quarter of 1997.
On April 3, 1997 TNCLP announced a cash distribution of $.90 per Common Unit to
holders of record as of April 18, 1997, payable on April 30, 1997. This
distribution represents the balance of available cash for the fourth quarter of
1996.
On April 22, 1997, TNCLP announced a cash distribution for the quarter ended
March 31, 1997 of $1.02 per Common Unit to holders of record as of May 5, 1997,
payable on May 27, 1997. The cash distribution for the first quarter will
include $18.5 million from the elimination of the reserve amount required to
support four quarters of minimum quarterly distributions on the SPUs. Due to the
redemption of the SPUs on May 27, 1997, this reserve amount is no longer
required to be maintained.
Cash balances at March 31, 1997 were $44.6 million of which $5.4 million is used
to collateralize letters of credit supporting recorded liabilities.
12
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1997 Annual Meeting of stockholders was held on April 29, 1997, in
Sioux City, Iowa. At the meeting, a total of 71,692,388 votes were cast by
stockholders.
The following directors were elected to hold office until the next
Annual Meeting or until their successors are duly elected and qualified, and
received the votes set forth opposite their respective name:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
---- --- --------
<S> <C> <C>
Edward G. Beimfohr 70,273,944 1,418,444
Carol L. Brookins 70,270,307 1,422,081
Edward M. Carson 70,271,504 1,420,884
David E. Fisher 70,268,670 1,423,718
Burton M. Joyce 70,271,909 1,420,479
Anthony W. Lea 70,268,614 1,423,774
William R. Loomis, Jr. 70,246,844 1,445,544
John R. Norton III 70,271,246 1,421,142
Henry R. Slack 69,792,369 1,900,019
</TABLE>
The stockholders approved the adoption by the Corporation's Board of
Directors of the 1997 Stock Incentive Plan of the Corporation. The number of
votes cast for such proposal was 61,425,899, the number against was 5,934,991
and the number of abstentions was 251,670. Broker non-votes for this proposal
was 4,079,828.
In addition, the stockholders ratified the selection by the
Corporation's Board of Directors of Deloitte & Touche LLP as independent
accountants for the Corporation for 1997. The number of votes cast for such
proposal was 71,394,524, the number against was 245,126 and the number of
abstentions was 52,738.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.7 Amendment No. 4 dated as of March 13, 1997 to the 1995
Credit Agreement
27 Financial Data Schedule [EDGAR filing only]
(b) Reports on Form 8-K
Current Report on Form 8-K dated February 27, 1997 reporting the
promotion of Michael L. Bennett to Executive Vice President and Chief
Operating Officer.
Current Report on Form 8-K dated April 14, 1997 reporting the
Corporation's filing of a lawsuit against certain of its insurers.
13
<PAGE>
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: May 14, 1997 /s/ Francis G. Meyer
--------------------
Francis G. Meyer
Senior Vice President and Chief Financial Officer
and a duly authorized signatory
14
<PAGE>
[CONFORMED COPY]
AMENDMENT NO. 4
AMENDMENT NO. 4 (this "Agreement") dated as of March 13, 1997 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
the Lenders to amend the Credit Agreement in certain respects, and the Lenders
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. Except as otherwise defined in this
Amendment No. 4, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the Agent's receipt of this
Agreement, duly executed by each of the Obligors, the Required Lenders and the
Agent, but effective as of the date hereof, the Credit Agreement shall be
amended as follows:
A. General. References in the Credit Agreement to "this Agreement"
(including 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 is amended by
inserting the following definitions (or, in the case of any definition for a
term that is defined in the Credit Agreement before giving effect to this
Amendment No. 4, by amending and restating such definition to read as set forth
below):
"BFI" means Britz Fertilizer, Inc., a California corporation.
"Britz Documents" means the Britz LLC Agreement and the Britz JV
Agreement.
Amendment No. 4
<PAGE>
- 2 -
"Britz JV Agreement" means the Joint Venture Agreement among TI, BFI,
Britz LLC and certain other Persons pursuant to which TI will acquire
ownership interests in Britz LLC, as amended from time to time.
"Britz LLC" means Britz Fertilizer, L.L.C., a Delaware limited
liability company, as the same may be renamed from time to time.
"Britz LLC Agreement" means the limited liability company management
agreement for Britz LLC, as the same may be in effect from time to time.
"Specified Acquisitions" means Investments (including, without
limitation, Investments arising by reason of any merger or consolidation
permitted under Section 5.02(d)(i)(y) but excluding Investments
contemplated by the Port Neal Transaction) 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.
For purposes hereof, the amount of Specified Acquisitions made during any
period shall include, without duplication, the aggregate amount of
Investments in Britz LLC (other than those referred to in Section
5.02(f)(xvi)) made during such period and the aggregate amount of payments
made during such period by Terra and its Subsidiaries in respect of the
Obligations referred to in clauses (xv), (xvi) and (xvii) of Section
5.02(b).
C. Transactions with Affiliates. Section 5.01(m) of the Credit
Agreement shall be amended by deleting the "and" at the end of clause (v)
thereof, by substituting "; and" for the period at the end of clause (vi)
thereof and by adding the following new clause (vii) thereto:
"(vii) Investments in Britz LLC to the extent permitted hereunder and
general and administrative and purchasing services for Britz LLC (including
inventory purchasing arrangements, whether for inventory manufactured
and/or produced by Terra or any of its Subsidiaries or
Amendment No. 4
<PAGE>
- 3 -
purchased from third parties, vendors or suppliers and including leasing
and subleasing of furnishings, fixtures and equipment)."
D. Debt. Section 5.02(b) of the Credit Agreement shall be amended by
deleting the "and" at the end of clause (xiii) thereof, by substituting a
semicolon for the period at the end of clause (xiv) thereof and by adding the
following new clauses (xv), (xvi) and (xvii) thereto:
"(xv) if at any time Britz LLC is a Subsidiary of Terra, Capital
Lease Obligations owing by Britz LLC to BFI with respect to fixtures,
furniture, equipment and other Property in an aggregate principal amount
presently contemplated to be approximately $25,400,000 but in no event
exceeding $30,000,000, and (regardless of whether Britz LLC is a Subsidiary
of Terra) the Guarantee of such Obligations by Terra or one or more of its
Subsidiaries;
(xvi) Debt of Terra (or one or more of its Subsidiaries) in a
principal amount (presently contemplated to be approximately $20,000,000,
subject to adjustment in connection with increases or decreases in BFI's
capital account in Britz LLC) as required under the put/call provisions of
the Britz JV Agreement, but in any event not exceeding $30,000,000, owing
under one or more promissory notes payable by Terra or one or more of its
Subsidiaries to BFI and/or one or more of BFI's Affiliates as consideration
for the transfer by BFI to TI or one or more of its Subsidiaries of the
membership interests in Britz LLC not theretofore held by TI and its
Subsidiaries, and the Guarantee of such Debt by Terra or one or more of its
Subsidiaries; and
(xvii) Obligations of TI in a maximum amount not exceeding $5,000,000
owing to BFI and/or one or more of BFI's Affiliates under one or more
consulting or service agreements, and the Guarantee of such Obligations by
Terra or one or more of its Subsidiaries."
E. Sales, Etc., of Assets. Section 5.02(e) of the Credit Agreement
shall be amended by deleting the "and" at the end of clause (vii) thereof, by
substituting "; and" for the period at the end of clause (viii) thereof and by
adding the following new clause (ix) thereto:
"(ix) sales, transfers and other dispositions of assets to Britz LLC
so long as such transactions are (if at the time Britz LLC is not a wholly
owned Subsidiary of the
Amendment No. 4
<PAGE>
- 4 -
Company) in the ordinary course of business and on ordinary business
terms."
F. Investments. Section 5.02(f) of the Credit Agreement shall be
amended by deleting the "and" at the end of clause (xiv) thereof, by
substituting "; and" for the period at the end of clause (xv) thereof and by
adding the following new clause (xvi) thereto:
"(xvi) (x) working capital advances or loans made by Terra or one or
more of its Subsidiaries to Britz LLC from time to time to the extent
required or permitted pursuant to the terms of the Britz Documents; and (y)
loans, advances and capital contributions made by Terra or one or more of
its Subsidiaries to Britz LLC from time to time to finance the purchase by
Britz LLC of furnishings, fixtures and equipment, real estate and/or equity
interests in entities engaged in the same or allied lines of business in an
aggregate principal amount not to exceed $10,000,000 at any one time
outstanding."
Section 3. Representations and Warranties. The Company hereby
represents and warrants to the Agent and the Lenders that:
(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
(b) no event has occurred and is continuing that constitutes a
Default or an Event of Default.
Section 4. 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 Agreement 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 Agreement by signing
any such counterpart. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
Amendment No. 4
<PAGE>
- 5 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement 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
GUARANTORS
----------
TERRA INDUSTRIES INC.
By /s/ F. G. Meyer
-----------------------------
Title: Senior 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
Amendment No. 4
<PAGE>
-6-
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
THE AGENT
---------
CITIBANK, N.A.
By /s/ Judith Fishlow Minter
---------------------------
Title: Attorney-in-Fact
COMMITMENTS THE LENDERS
----------- -----------
Terra Commitment CITIBANK, N.A.
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Mary W. Corkran
---------------------------
Title: Vice President
Terra Commitment THE CHASE MANHATTAN BANK
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Peter M. Ling
---------------------------
Title: Vice President
Amendment No. 4
<PAGE>
-7-
Terra Commitment ARAB BANKING CORPORATION
- ----------------
$15,620,000.00
TNLP Commitment
- ---------------
$ 1,100,000.00 By /s/ Grant E. McDonald
---------------------------
Title: Vice President
Terra Commitment BANK OF AMERICA ILLINOIS
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ M. H. Claggett
---------------------------
Title: Vice President
Terra Commitment THE BANK OF NOVA SCOTIA
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ F. C. H. Ashby
---------------------------
Title: Senior Manager Loan
Operations
Terra Commitment CAISSE NATIONAL DE CREDIT AGRICOLE
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Dean Balice
---------------------------
Title: Senior Vice President
Branch Manager
Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN-
- ---------------- BOERENLEEBANK, B.A. "RABOBANK
$14,980,000.00 NEDERLAND", NEW YORK BRANCH
TNLP Commitment
- ---------------
$ 1,054,929.57
By /s/ W. Jeffrey Vollack
---------------------------
Title: Vice President, Manager
By /s/ Angela R. Reilly
---------------------------
Title: Vice President
Amendment No. 4
<PAGE>
-8-
Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Julie T. Kanak
---------------------------
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ Julie T. Kanak
---------------------------
Title: Authorized Signature
Terra Commitment DRESDNER BANK AG, CHICAGO AND GRAND
- ---------------- CAYMAN BRANCHES
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Robert Grella
---------------------------
Title: Vice President
By /s/ B. Craig Erickson
---------------------------
Title: Vice President
Terra Commitment FIRST BANK NATIONAL ASSOCIATION
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ David Y. Kopolow
---------------------------
Title: Vice President
Terra Commitment THE FUJI BANK, LIMITED
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Peter L. Chinnici
---------------------------
Title: Joint General Manager
Terra Commitment MELLON BANK, N.A.
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ John K. Walsh
---------------------------
Title: Vice President
Amendment No. 4
<PAGE>
-9-
Terra Commitment NATIONSBANK OF TEXAS, N.A.
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By /s/ Suzanne B. Smith
---------------------------
Title: Vice President
Terra Commitment UNION BANK OF SWITZERLAND, NEW YORK
- ---------------- BRANCH
$15,620,000.00
TNLP Commitment
- ---------------
$ 1,100,000.00 By /s/ Douglas Edwards
---------------------------
Title: Vice President
By /s/ Mary V. Turnbach
---------------------------
Title: Assistant Treasurer
Terra Commitment BOATMEN'S NATIONAL BANK
- ----------------
$ 7,000,000.00
TNLP Commitment
- ---------------
$ 492,957.75 By /s/ Mark Johnsrud
---------------------------
Title: Vice President
Terra Commitment BANQUE NATIONAL DE PARIS
- ----------------
$ 5,000,000.00
TNLP Commitment
- ---------------
$ 352,112.68 By /s/ Arnaud Collin du Bocage
---------------------------
Title: Executive Vice President
and General Manager
Amendment No. 4
<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
March 31, 1997 and the related consolidated statement of income for the three
months then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 36,863
<SECURITIES> 7,722
<RECEIVABLES> 219,209
<ALLOWANCES> (11,845)
<INVENTORY> 576,779
<CURRENT-ASSETS> 890,380
<PP&E> 1,076,559
<DEPRECIATION> (228,155)
<TOTAL-ASSETS> 2,140,452
<CURRENT-LIABILITIES> 720,055
<BONDS> 403,501
0
0
<COMMON> 126,545
<OTHER-SE> 464,206
<TOTAL-LIABILITY-AND-EQUITY> 2,140,452
<SALES> 423,683
<TOTAL-REVENUES> 433,710
<CGS> 338,052
<TOTAL-COSTS> 338,052
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 794
<INTEREST-EXPENSE> 13,484
<INCOME-PRETAX> 6,642
<INCOME-TAX> 2,740
<INCOME-CONTINUING> 3,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,902
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
