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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
52-1145429
(I.R.S. Employer
Identification No.)
Terra Centre
600 Fourth Street
P. O. Box 6000
Sioux City, Iowa
(Address of principal executive offices)
51102-6000
(Zip Code)
Registrant's telephone number, including area code: (712) 277-1340
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Shares, without par value New York Stock Exchange
Toronto Stock Exchange
10 3/4% Senior Notes Due 2003 N/A
10 1/2% Senior Notes Due 2005 N/A
Securities registered pursuant to Section 12(g) of the Act: None
______________
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at December 31, 1996, was approximately $470,000,000.
On December 31, 1996, Registrant's outstanding voting stock consisted of
75,010,076 Common Shares, without par value.
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders of Registrant for the fiscal year ended December
31, 1996. Certain information therein is incorporated by reference into Part I,
Part II and Part IV hereof.
Proxy Statement for the Annual Meeting of Stockholders of Registrant to be held
on April 29, 1997. Certain information therein is incorporated by reference into
Part III hereof.
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TABLE OF CONTENTS
PART I
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Items 1 and 2. BUSINESS AND PROPERTIES..................................... 1
Item 3. LEGAL PROCEEDINGS........................................... 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 11
EXECUTIVE OFFICERS OF THE COMPANY........................... 12
PART II
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Item 5. MARKET FOR TERRA INDUSTRIES' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 13
Item 6. SELECTED FINANCIAL DATA..................................... 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 14
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 14
PART III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............. 14
Item 11. EXECUTIVE COMPENSATION...................................... 14
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 14
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 14
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.................................................. 14
SIGNATURES.................................................................. 20
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS............... S-1
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PART I
Items 1 and 2. BUSINESS AND PROPERTIES.
Terra Industries Inc., a Maryland corporation ("Terra" or the "Company"),
conducts its ongoing operations in North America primarily through its
subsidiaries. The Company's principal operating subsidiaries include Terra
International, Inc., an indirect wholly owned subsidiary ("Terra
International"), Terra International (Canada) Inc., a wholly owned subsidiary of
Terra International ("Terra Canada"), Beaumont Methanol, Limited Partnership, an
indirect wholly owned subsidiary ("BMLP"), Terra Nitrogen Corporation, an
indirect wholly owned subsidiary ("TNC"), and Terra Nitrogen, Limited
Partnership ("TNLP"). TNC is TNLP's sole general partner and owns, directly or
indirectly, approximately 60% of TNLP. Approximately 5% of TNLP is indirectly
owned by another wholly owned subsidiary of the Company and approximately 35% of
TNLP is indirectly owned by other limited partners in the form of publicly
traded units of Terra Nitrogen Company, L.P. ("TNCLP"). TNCLP is the 99% limited
partner of TNLP. Unless otherwise referred to herein or the context otherwise
requires, references to the "Company" or "Terra" shall mean Terra Industries
Inc., including, where the context so requires, its direct and indirect
subsidiaries. The principal corporate office of the Company is located at Terra
Centre, 600 Fourth Street, Sioux City, Iowa 51102-6000 and its telephone number
is 712-277-1340.
General
The Company is a leader in each of its three business segments: (i) the
distribution of crop production products and services, (ii) the manufacture and
marketing of nitrogen products and (iii) the manufacture and marketing of
methanol. The Company owns and operates the largest independent farm service
center network in North America and is the second largest supplier of crop
production products in the United States. The Company is also one of the largest
producers of anhydrous ammonia and nitrogen solutions in the United States and
Canada. In addition, the Company is one of the largest U.S. manufacturers and
marketers of methanol.
The Company's distribution network serves the United States and eastern
region of Canada and includes, as of December 31, 1996:
. 393 farm service centers and
. 840 affiliated dealer locations.
The Company's production facilities are comprised of:
.five nitrogen fertilizer plants, which are located in Oklahoma (the
"Woodward Facility" and the "Verdigris Facility"), Iowa (the "Port
Neal Facility"), Ontario, Canada (the "Courtright Facility") and
Arkansas (the "Blytheville Facility");
.a methanol production plant, which is located in Texas (the "Beaumont
Facility") (the Woodward Facility also includes methanol production
capacity);
.a crop protection products formulation plant, which is located in
Arkansas (the "Blytheville Formulation Facility"); and
.seven additional liquid crop protection product formulation
facilities.
For certain financial information regarding the Company's industry segments
(Distribution, Nitrogen Products and Methanol), see Note 21 to the Company's
Consolidated Financial Statements incorporated herein.
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Distribution
The Company's farm service center network is a distribution and marketing
system for a comprehensive line of fertilizers, crop protection products, seed
and services. The Company's customers are primarily farmers and dealers located
in the midwestern and southern regions of the United States, and the eastern
region of Canada.
Products. The Company markets a comprehensive line of crop protection
products (herbicides, insecticides, fungicides, adjuvants, plant growth
regulators, defoliants, desiccants and other products), fertilizer (nitrogen,
phosphates, potash and micronutrients) and seed.
Although most crop protection products marketed by the Company are
manufactured by unaffiliated suppliers, the Company also markets its own
Riverside(R) brand products. Riverside(R) products represented approximately 14%
of the Company's total crop protection product sales in 1996. As of December 31,
1996, the Riverside(R) line included approximately 170 products, of which 13
were added in 1996. The Riverside(R) line of products consists of herbicides,
insecticides, fungicides, adjuvants, seed treatments, plant growth regulators,
defoliants and desiccants. The majority of Riverside(R) products are formulated
or packaged in facilities owned by the Company. The Riverside(R) line includes
several formulations produced exclusively by the Company, but does not include
patented agricultural chemicals. Riverside(R) products generally provide higher
margins for the Company than products manufactured by unaffiliated suppliers.
The sale of such products, however, involves additional indirect costs,
including the cost of maintaining inventory, disposing of excess inventory and
potentially greater liability for product defects. The Company possesses and
processes the registrations required by the EPA for Riverside(R) pesticide
products.
The Company markets several major seed brands and, in its United States
marketing area, is one of the largest independent seed distributors. The Company
focuses marketing efforts on proprietary Terra brand corn hybrids, soybean,
wheat and cotton seed varieties, which generally provide higher margins. These
products represented approximately 15% of the Company's total seed sales in
1996. The Company also features DEKALB brand seed in the Midwest.
Services. In addition to selling products used to grow crops, the Company's
farm service centers offer a wide variety of services to grower customers. These
services include soil and plant tissue analysis, crop production program
recommendations, custom blending of fertilizers, field application services,
field inspections for pest control and crop program performance follow-up. The
farm service centers utilize the Company's Ag Analytical Services laboratory in
Elida, Ohio to analyze nutrient levels in soil and plant tissue samples.
Analytical results are down-loaded to a mainframe computer located at the
company headquarters in Sioux City, Iowa. These results are readily accessible
to most farm center locations through computer terminal links to the mainframe.
The results of these tests are used by the Company's proprietary CropMaster(R)
program to provide specific, localized soil fertility recommendations for
specific crops on a field-by-field basis. Recommendations can be made for
practically all crops grown in the Company's markets. The program also provides
"least cost" nutrient blending formula recommendations, makes seed variety
recommendations based on hybrid characteristics and other factors important to
the individual grower, and maintains crop input records for grower customers.
Terra has made a strong commitment to its customers by taking an active
role in "precision agriculture". Precision agriculture relies on global
positioning satellites to identify site-specific locations in a field where soil
sampling shows that specific nutrients are needed. Variable rate applicators and
yield monitors apply crop inputs and record yields using the same satellite
data. The Company has invested in hardware, software and people to meet the
demand of its Precision in Agriculture/TM/ program.
In connection with product sales to dealers, the Company provides
warehousing and delivery services. For selected dealer customers, the Company
offers a service package called MarketMaster/TM/. The package includes
environmental and safety audits, business management and agronomic training
courses, access to the Company's Ag
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Analytical Services laboratory, use of the CropMaster(R) program and other
services. The Company had 464 MarketMaster/TM/ dealer sites as of December 31,
1996.
Marketing and Distribution. The Company markets its products primarily to
agricultural customers, including both dealers and growers. For 1996,
approximately 73% of the Company's distribution revenues were attributable to
grower sales through farm service center locations and approximately 27% were
attributable to sales to dealers.
The Company also markets its products through its Professional Products(R)
group to non-farm customers, including turf growers, nurseries, golf courses,
parks, athletic facilities and utility companies. The Company offers these
customers herbicides, insecticides, fungicides, fertilizer, adjuvants, plant
growth regulators, seed and agronomic services. The Professional Products(R)
personnel generally utilize the Company's farm service centers, for delivery,
billing and other systems and services.
The Company's distribution operations are organized into Northern, Southern
and Western Divisions, which as of December 31, 1996 are divided into 12
separate geographical regions for management purposes. Field personnel receive
regular training through Terra University(R), a series of courses designed to
develop skills in agronomy, management, sales, environmental responsibility,
personal safety and crop inputs application. The field salespeople are supported
by the Ag Analytical Services laboratory, a staff of technical service
representatives and research stations where the efficacy of various crop
protection products and the performance of numerous seed varieties are tested.
Properties. The Company's farm service centers are located on a combination
of owned and leased properties and a majority of the buildings and other
improvements thereon are owned in fee. The leases have varying expiration dates
through the year 2007. The Company also leases or, in some cases, owns a number
of additional fertilizer storage facilities and various rolling stock equipment.
Product Formulations. The Company's Blytheville Formulation Facility
formulates dry flowable ("DF") crop protection products and liquid crop
protection products in separate production processes at the same location. DF
formulations are dry, water-dispersible granules that are mixed with water
before application. Liquid formulations are water based or solvent based
products that are also mixed with water before application. As of December 31,
1996, the Blytheville Formulation Facility formulated five DF products and eight
liquid products. Approximately 30% of the plant's volume in 1996 was
attributable to the Company's own Riverside(R) brand product line. The
Blytheville Formulation Facility is owned in fee.
Nitrogen Products
Nitrogen is one of three primary nutrients essential for plant growth.
Nitrogen fertilizer products must be reapplied each year in areas of extensive
agricultural usage because of absorption by crops and leaching from the soil.
There are currently no substitutes for nitrogen fertilizer in the cultivation of
high-yield crops.
The Company is a major producer and distributor of nitrogen products,
principally fertilizers. The Company's principal nitrogen products are ammonia,
urea and urea ammonium nitrate solution ("UAN"). A significant portion of the
Company's ammonia production is upgraded into other nitrogen fertilizer products
such as urea and UAN.
Products. Although, to some extent, the various nitrogen fertilizer
products are interchangeable, each has its own distinct characteristics which
produce agronomic preferences among end users. Farmers decide which type of
nitrogen fertilizer to apply based on the crop planted, soil and weather
conditions, regional farming practices, relative nitrogen fertilizer prices and
the cost and availability of appropriate storage, handling and application
equipment.
Ammonia. Anhydrous ammonia is the simplest form of nitrogen fertilizer and
is the feedstock for the production of most other nitrogen fertilizers,
including urea and UAN. It is produced by natural gas reacting with steam and
air at high temperatures and pressures in the presence of catalysts. It has a
nitrogen content of 82% by weight and is
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generally the least expensive form of fertilizer per pound of nitrogen. Ammonia
has a distinctive odor and requires refrigeration or pressurization for
transportation and storage.
Urea. Urea is produced for both the feed and fertilizer market by
converting ammonia into liquid urea, which can be turned into a solid form. Urea
has a nitrogen content of 46% by weight, the highest level for any solid
nitrogen product. The Company produces both solid urea in the granulated form,
generally for the fertilizer market, and urea liquor for feed supplements.
UAN. The Company produces UAN at all five of its fertilizer manufacturing
facilities. The Verdigris Facility in Oklahoma is the largest UAN production
facility in North America. UAN is produced by combining liquid urea and liquid
ammonium nitrate in water. The nitrogen content of UAN is typically 28% to 32%
by weight. UAN is a liquid fertilizer and, unlike ammonia, is generally odorless
and does not need to be refrigerated or pressurized for transportation or
storage.
UAN may be applied separately or may be mixed with various crop protection
products, permitting the application of several materials simultaneously, and
thus reducing energy and labor costs and accelerating field preparation for
planting. In addition, UAN may be applied from ordinary tanks and trucks and can
be sprayed or injected into the soil, or applied through irrigation systems,
throughout the growing season. UAN is relatively expensive to transport and
store because of its high water content. Due to its stable nature, UAN may be
used for no-till row crops where fertilizer is spread upon the surface but may
be subject to volatilization losses. The use of conservation tilling, which
reduces erosion, is increasing in the United States, and the Company believes
this trend, if continued, should increase UAN demand.
The Company's sales mix of its three principal nitrogen products for the
years ended December 31, 1996, 1995 and 1994 (including TNLP on a pro forma
basis) was approximately (based on tons sold):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ammonia 23% 25% 25%
Urea 13% 14% 16%
UAN 64% 61% 59%
</TABLE>
Plants. All the Company's plants are integrated facilities for the
production of ammonia, liquid urea and UAN. In addition, the Blytheville
Facility produces granular urea and the Courtright Facility produces solid
ammonium nitrate and granular urea. The following nitrogen fertilizer facilities
are operated by the Company:
<TABLE>
<CAPTION>
Gross Annual Ammonia Year when Terra first Year facility
Production Capacity (tons) acquired interest built
-------------------------- ----------------- -----
<S> <C> <C> <C>
Port Neal Facility (Iowa) 345,000 1965 1967*
Woodward Facility (Oklahoma) 390,000** 1976 1978
Courtright (Canada) 480,000 1993 1985
Verdigris Facility (Oklahoma) 1,050,000 1994
First ammonia and UAN plant 1975
Second ammonia plant 1977
Second UAN plant 1979
Blytheville Facility (Arkansas) 420,000 1994
Ammonia plant 1967
Urea plant --------------- 1975
TOTAL 2,685,000
</TABLE>
* This facility was substantially rebuilt in 1995 and 1996.
** Ammonia capacity depends, in part, on desired rate of methanol production at
this facility.
Each of the Company's five fertilizer manufacturing facilities is designed
to operate continuously, except for planned biennial shutdowns for maintenance
and installation of efficiency improvements. Capacity utilization (gross
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tons produced divided by capacity tons at expected operating rates and on stream
factors) of the Company's fertilizer manufacturing facilities for each of the
years ended December 31, 1996, 1995 and 1994, in the aggregate, was
approximately 101%, 97% and 95%, respectively.
The Port Neal Facility was the site of a major explosion on December 13,
1994. An investigative committee formed by the Company, which included
independent experts, determined that the explosion was caused primarily by a
defect in the design of the nitric acid sparger in the neutralizer vessel of the
ammonium nitrate plant. The Company repaired the facility, with ammonia
production resuming in December 1995 and the urea and UAN upgrading facilities
production resuming in May 1996. Property damage and business interruption
insurance payments received thus far have been used, in part, for the plant
repair and to recover lost profits. The Company is in discussions with its
insurers as to additional insurance proceeds to which the Company believes it
should be entitled. Terra has invested additional funds for other enhancements
and improvements at the Port Neal Facility.
In August 1996, the Company announced a $23 million capital project to
increase annual nitric acid production which will increase UAN production to
810,000 tons from 490,000 tons at the Port Neal Facility. The project is
currently expected to be operational by the end of 1997.
The Company owns in fee the real estate on which the Port Neal Facility is
located and has a 75% ownership interest in the related improvements after
transferring the improvements in September 1995 to a subsidiary, Port Neal
Holdings, Inc., that was structured to finance and complete the reconstruction
of such facility through its wholly owned subsidiary, Port Neal Corporation.
Various agreements between the Company and certain subsidiaries were entered
into with Port Neal Holdings, Inc. and/or Port Neal Corporation in connection
with this series of transactions, including intercompany debt obligations and
lease arrangements.
The Woodward Facility is owned in fee.
The Courtright Facility's liquid urea and granulation capacities increased
as a result of a $32 million plant upgrade project substantially completed in
early 1996 and fully completed in July 1996. The project enables the upgrade of
up to 65,000 tons of ammonia annually into urea and UAN. The Company owns the
Courtright Facility in fee after exercising a $55 million purchase option under
its lease financing agreement in late 1996.
Located at the Verdigris Facility are two ammonia plants, two nitric acid
plants and two UAN plants and the Port Terminal. The plants are owned in fee by
TNLP, while the Port Terminal is leased from the Tulsa-Rogers County Port
Authority. The leasehold interest is scheduled to expire in April 1999, and TNLP
has the option to renew the lease for two additional, consecutive terms of five
years each.
The Blytheville Facility consists of an anhydrous ammonia plant, a granular
urea plant and a UAN plant. The UAN plant began production in late 1994. The
ammonia plant at the Blytheville Facility is leased from the City of Blytheville
at a nominal annual rental. The lease term is scheduled to expire in November
1999, and TNLP has the option to extend the lease for twelve successive terms of
five years each at the same rental rate. TNLP has the unconditional right to
purchase the plant for a nominal price at the end of the lease term (including
any renewal term). The urea plant is also leased from the City of Blytheville.
The lease is scheduled to expire in November 1999, and TNLP has the option to
renew the lease for four successive periods of five years each at a nominal
annual rental. TNLP also has an option to purchase the urea plant for a nominal
price.
Marketing and Distribution. The Company's principal customers for its
manufactured nitrogen products are independent dealers, national retail chains,
cooperatives and industrial customers. Industrial customers accounted for
approximately 12.5% of the Company's 1996 total tons of its manufactured
nitrogen products. In 1996, approximately 11% of the Company's fertilizer
production tonnage was supplied to its farm service center locations for sale to
growers, while the rest was sold to outside customers. In 1996, no outside
customer accounted for greater than 10% of total manufactured nitrogen
fertilizer revenues.
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The Company's production facilities, combined with significant storage
capacity in about 60 locations, throughout the Midwestern U.S. and in other
major fertilizer consuming regions allow it to be a major supplier of nitrogen
fertilizers.
Methanol
The Company substantially increased its participation in the methanol
industry in October 1994 with the acquisition of the Beaumont Facility. The
Company has approximately 320 million gallons of annual methanol production
capacity, representing approximately 13% of the total United States rated
capacity in production at the end of 1996.
Product. Methanol is a liquid petrochemical made primarily from natural
gas. It is used as a feedstock in the production of other chemical products such
as formaldehyde, acetic acid and chemicals used in the building products
industry. Methanol is also used as a feedstock in the production of MTBE, an
oxygenate used as an additive in reformulated gasoline and an octane enhancer
used in non-reformulated gasoline. Reformulated gasoline has lower volatility
and is less aromatic than non-reformulated gasoline. The methanol manufacturing
process involves heating the natural gas feedstock, mixing it with steam and
passing it over a nickel-based catalyst, which breaks it down into carbon
monoxide, carbon dioxide and hydrogen. This reformed gas is then cooled,
compressed and passed over a copper-zinc based catalyst to produce crude
methanol. Crude methanol consists of approximately 80% methanol and 20% water.
In order to convert it to high-purity chemical grade methanol suitable for sale,
the crude methanol is distilled to remove the water and other impurities.
Plants. During the first half of 1994, the Company completed the capital
improvements necessary for optional production of methanol, offsetting up to
about 25% of the Woodward Facility's ammonia capacity. The design of the
Woodward Facility enabled this conversion to be accomplished for approximately
$16 million of capital spending, which the Company believes is approximately
half the capital cost required to convert most other ammonia plants to methanol
production. The Company has up to about 40 million gallons of annual methanol
capacity at the Woodward Facility and this facility produced 25 million, 36
million and 31 million gallons in each of 1994, 1995 and 1996, respectively.
This facility is owned by the Company in fee.
The Beaumont Facility is the largest methanol production plant in the
United States, with approximately 280 million gallons of annual methanol
capacity. This facility produced 286 million, 263 million and 280 million
gallons in each of 1994, 1995 and 1996, respectively. The plant and processing
equipment at the Beaumont Facility are owned by BMLP, and the land is leased
from E.I. du Pont de Nemours and Company ("DuPont"), for a nominal annual rental
under a lease agreement which expires in 2090. Because the Beaumont Facility is
entirely contained in a complex owned and operated by DuPont (the "Beaumont
Complex"), BMLP depends on DuPont for access to the Beaumont Facility. BMLP
also relies on DuPont for access and certain essential services relating to the
wharf located at the Beaumont Complex through which most of the finished
methanol product is shipped to customers. BMLP also depends on DuPont for access
to the pipelines used to transport methanol and to obtain natural gas, as well
as for certain utilities and waste water treatment facilities and other
essential services.
Marketing and Distribution; Contracts. Methanol customers are primarily
large chemical or MTBE producers located in the United States; however, some
product is exported to, for example, Central and South America.
BMLP has a number of long-term methanol sales contracts, the most
significant of which is with DuPont. In 1996, BMLP sold approximately 62% of its
production under such contracts. At December 31, 1996, BMLP had contracted to
sell approximately 63% of its 1997 scheduled production at prices indexed to
published sources. Most of the these sales contracts (other than the DuPont
Contract) cover fixed volumes and have terms of up to three years.
Under the DuPont contract, as amended, DuPont has agreed to purchase 108
million gallons of methanol through 1997 and 54 million gallons of methanol each
year thereafter until 2001 (representing 39% and 19%, respectively, of the
Beaumont Facility capacity). The price for the methanol delivered under the
DuPont contract is generally indexed
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to a published source. The DuPont contract will continue in effect after the
initial term unless terminated by either party on two year's notice.
Under a methanol hedging agreement, BMLP received a $4 million lump sum
payment in exchange for agreeing to make payments based on the market prices of
methanol and natural gas for the periods October 20, 1994 to December 31, 1995,
calendar year 1996 and calendar year 1997. No payment was due for the initial
period or for calendar year 1996. BMLP will be required to make a payment under
the methanol hedging agreement if 1997 methanol prices are high relative to
natural gas prices as compared with historical price levels. Through the
Beaumont Facility and the Company's other methanol production capabilities, the
Company will benefit from such market price differences at any time it is
required to make payments under such agreement. As a result of making such
payments, however, BMLP will not benefit fully from any increases in the price
of methanol during the term of the methanol hedging agreement.
Credit
A substantial portion of the Company's sales to its grower and dealer
customers is made on credit terms customary in the industry. The Company also
maintains a grower financing program to provide secured, interest-bearing
financing to qualified grower customers for their operating and crop input
requirements on extended payment terms. The Company provided approximately $65
million in 1994, $88 million in 1995 and $66 million in 1996 in credit lines to
grower customers under this program. Although there is additional credit risk
associated with the grower finance program, it is mitigated through a well
defined application, screening and approval process.
The Company's bad debt experience is affected by the financial condition of
its customers which, in turn, is affected by weather conditions, insect pressure
and other factors. Bad debt write offs were $2.8 million in 1994, $7.3 million
in 1995 and $17.9 million in 1996. This increase is due principally to two years
of drought conditions in the South and mid-South regions of the U.S.
Seasonality and Volatility
The agricultural crop production products business is seasonal, based upon
the planting, growing and harvesting cycles. Inventories must be accumulated to
be available for seasonal sales, requiring significant storage capacity.
Inventory accumulations are financed by suppliers or short-term borrowings,
which are retired with the proceeds of the sales of such inventory. In times of
lower demand, the Company can reduce purchases of crop inputs for the
distribution portion of its business, thereby decreasing inventory carrying
costs. In the past, over half of the Company's sales generally occurred during
the second quarter of each year. This seasonality also generally results in
higher fertilizer prices during peak periods, with prices typically reaching
their highest point in the spring, decreasing in the summer, increasing in the
fall (as depleted inventories are restored) through the spring.
The agricultural crop production products business can also be volatile as
a result of a number of other factors, the most important of which, for U.S.
markets, are weather patterns and field conditions (particularly during periods
of high fertilizer consumption), quantities of fertilizers imported to and
exported from North America and current and projected grain inventories and
prices, which are heavily influenced by U.S. exports and world-wide grain
markets. U.S. governmental policies may directly or indirectly influence the
number of acres planted, the level of grain inventories, the mix of crops
planted and crop prices. The U.S. farm bill passed in 1996 put an end to acreage
reduction and production control measures, allowing farmers more flexibility in
planting. Because of factors which are outside of the Company's control,
including the production capacity of competitors, there can be no assurance that
the relatively high nitrogen fertilizer price levels recently achieved will
continue.
As with any commodity chemical, the price of methanol can be volatile. The
industry has experienced cycles of oversupply, resulting in depressed prices and
idled capacity, followed by periods of shortage and rapidly rising prices.
Methanol prices since mid-1995 have remained near historically "normal" levels
after reaching uncharacteristically high levels in late 1994 and early 1995.
During 1994, several factors combined to create a tight market that
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dramatically increased prices: increased world demand for methanol, a large
number of plant shutdowns and turnarounds in the industry and the phase-in of
federally mandated standards for reformulated gasoline. Future demand for
methanol will depend in part on the regulatory environment with respect to
reformulated gasoline. Most methanol sold in the U.S. is sold pursuant to long-
term contracts based on market index pricing and a fixed volume.
Raw Materials
The principal raw material used to produce nitrogen fertilizer and methanol
is natural gas. Natural gas costs, including transportation and forward pricing
activities, comprised about 45% of the total costs and expenses associated with
the Company's Nitrogen Products segment in 1996. Natural gas costs represented
about 61% of the total costs and expenses associated with its Methanol segment
in 1996. A significant increase in the price of natural gas that is not
recovered through an increase in nitrogen fertilizer or methanol prices could
have a material adverse effect on the Company's profitability and cash flow.
The Company's natural gas procurement policy is to effectively fix or cap
the price of between 40% and 80% of its natural gas requirements for the
upcoming one-year period and up to 50% of its natural gas requirements for the
subsequent two-year period using supply contracts, financial derivatives and
other forward pricing techniques. Consequently, if natural gas prices were to
increase during this period, the Company may benefit from these forward pricing
techniques, but conversely, if natural gas prices were to fall, the Company may
incur costs above the spot market price as a result of such policies. The
settlement dates are scheduled to coincide with gas purchases during such future
periods. These contracts are based on a designated price, which price is
referenced to market natural gas prices or appropriate NYMEX futures contract
prices. The Company believes that there is sufficient supply to allow acceptable
costs for the foreseeable future and has entered into firm supply contracts to
minimize the risk of interruption or curtailment of natural gas supplies.
Reliable sources for supply of crop inputs at competitive prices are
critical to the distribution portion of the Company's business. The Company's
sources for fertilizer, agricultural chemicals and seed are typically
manufacturers of the products without an internal capability to distribute
products to the North American grower.
Transportation
The Company uses several modes of transportation to receive materials and
distribute products to customers and its own locations, including railroad cars,
common carrier trucks, barges, common carrier pipelines and Company-owned or
leased vehicles. The Company utilizes approximately 80 liquid, dry and anhydrous
ammonia fertilizer terminal storage facilities in numerous states and in
Ontario, Canada for both the Distribution and Nitrogen Products segments. The
Company also has varying amounts of warehouse space at each of its farm service
centers and has one methanol storage facility in Beaumont, Texas. For the
Beaumont Facility, the Company transports products primarily by marine transport
via the Neches River to the Intercoastal Canal and the Gulf of Mexico and via
pipeline to selected customers. Access to the wharf and the pipeline used at the
Beaumont Facility is provided through agreements with DuPont.
Through Terra Express, Inc. ("Terra Express"), a wholly owned truck
transportation subsidiary, the Company provides transportation services to its
own facilities and customers as a contract carrier. Terra Express uses
approximately 90 owner-operators and 14 Company drivers to deliver fertilizer,
crop protection products, seed, feed ingredients and other products to its own
facilities and customers. At its manufacturing facilities, Blytheville
Formulation Facility and liquid fertilizer storage locations, the Company
utilizes railcars as the major method of transportation. The Company leases
approximately 2,200 railcars and owns ten nitric acid railcars.
The Company transports purchased natural gas for the Woodward Facility and
the Verdigris Facility through an intrastate pipeline that is not an open access
carrier; however, the Company is able to transport gas supplies from any in-
state source connected to this widespread pipeline system, and has limited
access to supplies outside the state. The Beaumont Facility purchases natural
gas on a delivered basis via four intrastate pipelines. The Courtright Facility
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<PAGE>
utilizes local gas storage service provided by a local utility, and purchased
gas is transported from western Canada through the TransCanada Pipeline under
various delivery contracts. The Company transports purchased natural gas for the
Blytheville Facility through a natural gas pipeline company under an agreement
that extends through September 1998. Purchased natural gas is transported to the
Port Neal Facility via an interstate pipeline operating as an open access
natural gas transporter. Under a Federal Energy Regulatory Commission order, the
Port Neal Facility maintains direct access to its interstate pipeline shipper;
however, the Company has retained its alternative connection to a local utility
service to preserve some flexibility.
Research and Development
The Company owns and operates a 70-acre research station near its Port Neal
Facility that is utilized for program development, product testing and
demonstration. Product testing and protocols encompass a wide range of subjects,
including: fertilization, weed control, insect control, disease control, crop
varieties and precision agriculture. Corn, soybeans and wheat are the primary
crops grown, with an area set aside for various turf experiments. Trials are
viewed by farmers, dealers, university extension personnel, representatives from
other product manufacturers, investors and Terra employees.
Terra conducts an on-going cotton breeding project in the southern U.S. and
has developed several varieties of cotton for grower usage. Experimental corn
hybrids and soybean varieties are observed in numerous U.S. locations to
identify and select Terra branded cotton, corn and soybean lines. Emphasis is
placed on high yielding cotton, corn and soybean lines which also exhibit
herbicide, insect and disease resistance. In addition, Terra technical services
representatives establish various evaluation projects with universities and
private research companies to examine the efficacy of specific Riverside(R)
branded crop protection products that are formulated and marketed by the
Company.
Competition
The market for the fertilizer, crop protection products and seed
distributed by the Company is highly competitive. In 1996, sales attributable to
the Company's farm service centers accounted for roughly 5% of total crop
production products sold in the U.S. Within the specific market areas served by
its farm service centers, however, the Company's share of the market was
substantially higher in most instances. The Company's competitors include
cooperatives, divisions of diversified agribusiness companies, regional
distributors and independent dealers, some of which have substantially greater
financial and other resources than the Company. The Company competes in its
Distribution business primarily by providing a comprehensive line of products
and what the Company believes to be superior services to growers and dealers, as
well as on price.
Nitrogen fertilizer is a global commodity and the Company's customers
include end-users, dealers and other fertilizer producers. Customers base their
purchasing decisions principally on the delivered price and availability of the
product. The Company competes with a number of U.S. producers and producers in
other countries, including state-owned and government-subsidized entities. Some
of the Company's principal competitors may have greater total resources and may
be less dependent on earnings from nitrogen fertilizer sales than the Company.
Some foreign competitors may have access to lower cost or government-subsidized
natural gas supplies. Furthermore, as a consequence of recent favorable market
conditions for nitrogen producers, additional nitrogen fertilizer production
capacity is expected in the next few years. The Company believes that it
competes with other manufacturers of nitrogen fertilizer on delivery terms and
availability of products, as well as on price.
The methanol industry, like the fertilizer industry, is highly competitive
and such competition is based largely on price, reliability and deliverability
of this global commodity. The relative cost and availability of natural gas and
the efficiency of production facilities are important competitive factors.
Significant determinants of a methanol manufacturing plant's competitive
position are the natural gas acquisition and transportation contracts that a
plant negotiates with its major suppliers. Domestic competitors for methanol
include a number of large integrated petrochemical producers, many of which are
better capitalized than the Company.
9
<PAGE>
Environmental and Other Regulatory Matters
The Company's operations are subject to various federal, state and local
environmental, safety and health laws and regulations, including laws relating
to air quality, hazardous and solid wastes and water quality. Terra Canada's
operations are subject to various federal and provincial regulations regarding
such matters, including the Canadian Environmental Protection Act administered
by Environment Canada, and the Ontario Environmental Protection Act administered
by the Ontario Ministry of the Environment. The Company is also involved in the
manufacture, handling, transportation, storage and disposal of materials that
are or may be classified as hazardous or toxic by federal, state, provincial or
other regulatory agencies. Precautions are taken to reduce the likelihood of
accidents involving these materials. If such materials have been or are disposed
of at sites that are targeted for investigation and remediation by federal or
state regulatory authorities, the Company may be responsible under CERCLA or
analogous state laws for all or part of the costs of such investigation and
remediation.
Terra International has been designated as a potentially responsible party
("PRP") under CERCLA and its state analogues with respect to various sites.
Under such laws, all PRPs may be held jointly and severally liable for the costs
of investigation and remediation of an environmentally damaged site regardless
of fault or legality of original disposal. After consideration of such factors
as the number and levels of financial responsibility of other PRPs, the
existence of contractual indemnities, the availability of defenses and the
speculative nature of the costs involved, the Company's management believes that
its liability with respect to these matters will not be material.
Certain state regulatory agencies have enacted requirements to provide
secondary containment for crop protection product storage facilities present at
the Company's farm service centers and terminals. It is expected that other
states will adopt similar requirements pursuant to federal mandate. The Company
has commenced construction of these facilities at its farm service centers and
terminals, and estimates that the future cost of complying with these
regulations at these locations in 1997 and beyond will be approximately $6
million.
With respect to the Verdigris Facility and Blytheville Facility, Freeport-
McMoRan Resource Partners, Limited Partnership ("FMRP") (a former owner and
operator of such facilities) retains liability for certain environmental
matters. With respect to the Beaumont Facility, DuPont retains responsibility
for certain environmental costs and liabilities stemming from conditions or
operations to the extent such conditions or operations existed or occurred prior
to the 1991 disposition by DuPont. The Company does not believe that such
environmental costs and liabilities, whether or not retained by FMRP or DuPont,
will have a material effect on the Company's results of operations, financial
position or net cash flows.
Insulation and other construction or building materials at certain Company
plants contain asbestos. Over 400 suits have been filed by contractors'
employees against DuPont based on exposure to asbestos-containing material at
the complex in which the Beaumont Facility is located. At least nine of these
are directly related to the Beaumont Facility. An estimate of potential
liability associated with these suits is not available. DuPont retains
responsibility for all claims based on exposure to hazardous materials,
including asbestos, occurring prior to the 1991 disposition by DuPont. Although
no suit relating to asbestos exposure has been filed against the Company to
date, the possibility exists that liability could be incurred in the future for
claims based on exposure to asbestos-containing material after such acquisition.
The Company may be required to install additional air and water quality
control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors
and continuous emission monitors, at certain of its facilities in order to
maintain compliance with Clean Air Act and Clean Water Act requirements. These
equipment requirements are also typically applicable to competitors as well. The
Company estimates that the cost of complying with these requirements will total
$5 million to $10 million through 1998.
The Company endeavors to comply (and has incurred substantial costs in
connection with such compliance) in all material respects with applicable
environmental, safety and health regulations. Because environmental, safety and
health regulations are expected to continue to change and generally be more
restrictive than current requirements, the
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costs of complying with such regulations will likely increase. The Company does
not expect its compliance with such regulations to have a material adverse
effect on the Company's results of operations, financial position or net cash
flows.
Employees
The Company had 3,600 full-time employees at December 31, 1996, none of
whom were covered by a collective bargaining agreement. The Company also hires
temporary employees on a seasonal basis, and hired approximately 1,650 temporary
employees during the peak of its spring selling season in 1996.
Item 3. LEGAL PROCEEDINGS.
Various legal proceedings are pending against the Company and its
subsidiaries. Management of the Company considers that the aggregate liability
resulting from these proceedings will not be material to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of security holders of the Company during
the fourth quarter of 1996.
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EXECUTIVE OFFICERS OF THE COMPANY
The following paragraphs set forth the name, age and offices of each
present executive officer of Terra, the period during which each executive
officer has served as such and each executive officer's business experience
during the past five years:
<TABLE>
<CAPTION>
Present positions and offices with the Company
Name and age and principal occupations during the past five years
------------ ----------------------------------------------------
<S> <C>
Michael L. Bennett (43) Executive Vice President and Chief Operating Officer of Terra since February 1997; President of
Terra Distribution Division from November 1995 to February 1997; Senior Vice President of Terra
from February 1995 to February 1997; Senior Vice President, Distribution of Terra International
from October 1994 to February 1997; Vice President, Northern Division thereof from January 1992
to October 1994; Vice President, Wholesale Fertilizer Division thereof from January 1990 to
January 1992.
John S. Burchfield (56) Vice President, Human Resources of Terra since March 1992; Vice President, Human Resources of
AON Corporation from January 1989 to November 1991.
Lawrence S. Hlobik (52) President of Terra Nitrogen Division and Senior Vice President of Terra since February 1996;
Senior Vice President, Marketing of Terra Nitrogen Corporation from February 1995 to February
1996; Vice President, Marketing of Arcadian Corporation from 1989 to February 1995.
Burton M. Joyce (55) President and Chief Executive Officer of Terra since May 1991; Executive Vice President and
Chief Operating Officer thereof from February 1988 to May 1991.
William R. Loomis, Jr. (48) Chairman of the Board of Terra since April 1996; Managing Director of Lazard Freres & Co. LLC
since June 1995 and General Partner in the Banking Group of Lazard Freres & Co. from 1984 to
June 1995.
Francis G. Meyer (45) Senior Vice President and Chief Financial Officer of Terra since November 1995; Vice President
and Chief Financial Officer of Terra from November 1993 to November 1995; Controller thereof
from August 1991 to November 1993; Vice President, Controller of Terra International from June
1986 to August 1991.
Paula C. Norton (51) Vice President, Corporate and Investor Relations of Terra since February 1995, Director,
Corporate Relations of Terra from January 1993 to February 1995, Director, Corporate
Communication of Universal Foods Corp. prior thereto.
</TABLE>
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<PAGE>
Present positions and offices with the Company and
Name and age principal occupations during the past five years
------------ --------------------------------------------------
W. Mark Rosenbury (49) Vice President, Business Development and
Strategic Planning of Terra since November 1995;
President of Terra Nitrogen Corporation from
November 1994 to February 1996; Executive Vice
President of Terra from November 1993 to November
1995; Chief Operating Officer thereof from
November 1993 to November 1994; Vice President
and Chief Financial Officer thereof from August
1991 to November 1993; Vice President and
Corporate Controller thereof from January 1987 to
August 1991.
Robert E. Thompson (45) Vice President, Controller of Terra since
November 1994; Vice President, Finance and
Controller of Ameritech Custom Business Services
from April 1993 to June 1994; Controller of
Ameritech Services, Inc. from October 1990 to
April 1993; Controller of Ameritech Applied
Technologies prior thereto.
George H. Valentine (48) Senior Vice President, General Counsel and
Corporate Secretary of Terra since November 1995;
Vice President, General Counsel and Corporate
Secretary of Terra from November 1993 to November
1995; Assistant General Counsel of Household
International, Inc. from February 1986 to
November 1993.
There are no family relationships among the executive officers and
directors of Terra or arrangements or understandings between any executive
officer and any other person pursuant to which any executive officer was
selected as such. Officers of Terra are elected annually to serve until their
respective successors are elected and qualified.
PART II
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Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information with respect to the market for the Company's common equity and
related stockholder matters contained in Terra's 1996 Annual Report to
Stockholders under the captions "Quarterly Financial and Stock Market Data
(Unaudited)" and "Stockholders and Dividends" is incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA.
Information with respect to selected financial data contained in Terra's
1996 Annual Report to Stockholders under the caption "Five-Year Financial
Summary" is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information with respect to management's discussion and analysis of
financial condition and results of operations contained in Terra's 1996 Annual
Report to Stockholders under the caption "Financial Review" is incorporated
herein by reference.
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<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the notes thereto and
the report of independent auditors thereon, and the information set forth under
the caption "Quarterly Financial and Stock Market Data (Unaudited)" contained in
Terra's 1996 Annual Report to Stockholders are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information with respect to directors of the Company under the caption
"Election of Directors" in the Proxy Statement for the Annual Meeting of
Stockholders of Terra to be held on April 29, 1997, is incorporated herein by
reference. Information with respect to executive officers who are not also
directors of the Company appears under the caption "Executive Officers of the
Company" in Part I hereof and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation under the caption
"Executive Compensation and Other Information" in the Proxy Statement for the
Annual Meeting of Stockholders of Terra to be held on April 29, 1997, is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management under the caption "Equity Security Ownership" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
29, 1997, is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
29, 1997, is incorporated herein by reference.
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. Consolidated Financial Statements of Terra and its subsidiaries
(incorporated herein by reference to Terra's 1996 Annual Report to
Stockholders).
Consolidated Statements of Financial Position at December 31,
1996 and 1995.
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994.
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<PAGE>
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994.
Notes to the Consolidated Financial Statements.
Independent Auditors' Report.
Quarterly Production Data (Unaudited).
Quarterly Financial and Stock Market Data (Unaudited).
Revenues.
Stockholders.
Volumes and Prices (Unaudited).
Five-Year Financial Summary.
2. Index to Financial Statement Schedules
See Index to Financial Statement Schedules of Terra and its
subsidiaries at page S-1.
3. Other Financial Statements
Individual financial statements of Terra's subsidiaries are
omitted because all such subsidiaries are included in the
consolidated financial statements being filed. Individual
financial statements of 50% or less owned persons accounted for
on the equity method have been omitted because such 50% or less
owned persons considered in the aggregate, as a single
subsidiary, would not constitute a significant subsidiary.
(b) Executive Compensation Plans and Arrangements
1. Resolution adopted by the Personnel Committee of the Board of
Directors of Terra Industries with respect to supplemental retirement
benefits for certain senior executive officers of Terra Industries,
filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal
quarter ended March 31, 1991.
2. 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6
to Terra Industries' Form 10-K for the year ended December 31, 1992.
3. Form of Restricted Stock Agreement of Terra Industries under its 1992
Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form
10-K for the year ended December 31, 1992.
4. Form of Incentive Stock Option Agreement of Terra Industries under its
1992 Stock Incentive Plan filed as Exhibit 10.1.8 to Terra Industries'
Form 10-K for the year ended December 31, 1992.
5. Form of Nonqualified Stock Incentive Agreement of Terra Industries
under its 1992 Stock Incentive Plan filed as Exhibit 10.1.9 to Terra
Industries' Form 10-K for the year ended December 31, 1992.
15
<PAGE>
6. Excess Benefit Plan of Terra Industries, as amended effective as of
January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form
10-K for the year ended December 31, 1992.
7. Terra Industries Supplemental Deferred Compensation Plan effective as
of December 20, 1993, filed as Exhibit 10.1.9 to Terra Industries'
Form 10-K for the year ended December 31, 1993.
8. Amendment No. 1 to the Terra Industries Supplemental Deferred
Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries' Form
10-Q for the quarter ended September 30, 1995.
9. 1996 Incentive Award Program for Officers and Key Executives of Terra
Industries filed as Exhibit 10.1.12 to Terra Industries' Form 10-K for
the year ended December 31, 1995.
10. 1997 Incentive Award Program for Officers and Key Employees of Terra
Industries filed as Exhibit 10.1.10 to Terra Industries' Form 10-K for
the year ended December 31, 1996.
11. Revised Form of Performance Share Award of Terra Industries under its
1992 Stock Incentive Plan filed as Exhibit 10.1.11 to Terra
Industries' Form 10-K for the year ended December 31, 1996.
12. Revised Form of Incentive Stock Option Agreement of Terra Industries
under its 1992 Stock Incentive Plan filed as Exhibit 10.1.12 to Terra
Industries' Form 10-K for the year ended December 31, 1996.
13. Revised Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan filed as Exhibit
10.1.13 to Terra Industries' Form 10-K for the year ended December 31,
1996.
14. 1997 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.14
to Terra Industries' Form 10-K for the year ended December 31, 1996.
(c) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1996.
(d) Exhibits
3.1.1 Articles of Restatement of Terra Industries filed with the State of
Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra
Industries' Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
3.1.2 Articles of Amendment of Terra Industries filed with the State of
Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries'
Form 10-K for the year ended December 31, 1992, is incorporated herein
by reference.
3.1.3 Articles Supplementary of Terra Industries filed with the State of
Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra
Industries' Form 8-K/A dated November 3, 1994, is incorporated herein
by reference.
3.2 By-Laws of Terra Industries, as amended through August 7, 1991, filed
as Exhibit 3 to Terra Industries' Form 8-K dated September 30, 1991,
is incorporated herein by reference.
16
<PAGE>
4.1 Indenture dated as of October 15, 1993 among Terra Industries (as
successor by merger to Agricultural Minerals and Chemicals Inc.) and
Society National Bank, including form of Senior Note, filed as Exhibit
99.2 to Terra Industries' Registration Statement on Form S-3, as
amended (File No. 33-52493), is incorporated herein by reference.
4.2 Indenture, dated as of June 22, 1995 between the Company and First
Trust National Association, as trustee, including form of Exchange
Note, filed as Exhibit 4.1 to Terra Industries' Registration Statement
on Form S-4, as amended (File No. 33-60853), is incorporated herein by
reference.
4.3 Amended and Restated Credit Agreement dated as of December 14, 1995
(the "1995 Credit Agreement") among Terra Industries Inc., Terra
Capital, Inc., Terra Nitrogen, Limited Partnership, Certain Guarantors,
Certain Lenders, Certain Issuing Banks and Citibank, N.A. without
exhibits or schedules filed as Exhibit 4.3 to Terra Industries' Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
4.4 Consent and Amendment No. 1 dated as of June 4, 1996 to the 1995 Credit
Agreement filed as Exhibit 4.4 to Terra Industries' Form 10-Q for the
quarter ended June 30, 1996, is incorporated herein by reference.
4.5 Consent and Amendment No. 2 dated as of July 31, 1996 to the 1995
Credit Agreement filed as Exhibit 4.5 to Terra Industries' Form 10-Q
for the quarter ended September 30, 1996, is incorporated herein by
reference.
4.6 Consent, Waiver and Amendment No. 3 dated as of November 22, 1996 to
the 1995 Credit Agreement.
Other instruments defining the rights of holders of long-term debt of
Terra Industries and its subsidiaries are not being filed because the
total amount of securities authorized under any such instrument does
not exceed 10 percent of the total assets of Terra Industries and its
subsidiaries on a consolidated basis. Terra Industries agrees to
furnish a copy of any such instrument to the Securities and Exchange
Commission upon request.
10.1.1 Resolution adopted by the Personnel Committee of the Board of Directors
of Terra Industries with respect to supplemental retirement benefits
for certain senior executive officers of Terra Industries, filed as
Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal quarter
ended March 31, 1991, is incorporated herein by reference.
10.1.2 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6
to Terra Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.1.3 Form of Restricted Stock Agreement of Terra Industries under its 1992
Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form
10-K for the year ended December 31, 1992, is incorporated herein by
reference.
10.1.4 Form of Incentive Stock Option Agreement of Terra Industries under its
1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries'
Form 10-K for the year ended December 31, 1992, is incorporated herein
by reference.
10.1.5 Form of Nonqualified Stock Incentive Agreement of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra
Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
17
<PAGE>
10.1.6 Terra Industries Inc. Supplemental Deferred Compensation Plan effective
as of December 20, 1993 filed as Exhibit 10.1.9 to Terra Industries'
Form 10-K for the year ended December 31, 1993, is incorporated herein
by reference.
10.1.7 Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred
Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries' Form
10-Q for the quarter ended September 30, 1995, is incorporated herein
by reference.
10.1.8 Excess Benefit Plan of Terra Industries, as amended effective as of
January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form
10-K for the year ended December 31, 1992, is incorporated herein by
reference.
10.1.9 1996 Incentive Award Program for Officers and Key Executives of Terra
Industries filed as Exhibit 10.1.12 to Terra Industries' Form 10-K for
the year ended December 31, 1995, is incorporated herein by reference.
10.1.10 1997 Incentive Award Program for Officers and Key Employees of Terra
Industries.
10.1.11 Revised Form of Performance Share Award of Terra Industries under its
1992 Stock Incentive Plan.
10.1.12 Revised Form of Incentive Stock Option Agreement of Terra Industries
under its 1992 Stock Incentive Plan.
10.1.13 Revised Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan.
10.1.14 1997 Stock Incentive Plan of Terra Industries.
10.2 Asset Sale and Purchase Agreement among Inspiration Consolidated Copper
Company and Cyprus Miami Mining Corporation and Cyprus Christmas Mine
Corporation dated as of June 30, 1988, filed as Exhibit 10.19 to Terra
Industries' Form 10-K for the year ended December 31, 1988, is
incorporated herein by reference.
10.3.1 Stock Purchase Agreement, dated as of June 14, 1991, among Minorco,
Kirkdale Investments Limited, Terra Industries and Hudson Holdings
Corporation, filed as Exhibit 2 to Terra Industries' Form 8-K dated
June 14, 1991, is incorporated herein by reference.
10.3.2 Amended and Restated Stock Purchase Agreement, dated as of July 31,
1991, among Minorco, Kirkdale Investments Limited, Terra Industries and
Hudson Holdings Corporation, filed as Exhibit 1 to Terra Industries
Form 8-K dated July 31, 1991, is incorporated herein by reference.
10.3.3 Option Agreement, dated as of June 14, 1991, among Kirkdale Investments
Limited and Terra Industries, filed as Exhibit 3 to Terra Industries'
Form 8-K dated June 14, 1991, is incorporated herein by reference.
10.3.4 Amendment to Stock Option Agreement, dated July 31, 1991, among
Minorco, Kirkdale Investments Limited and Terra Industries, filed as
Exhibit 2 to Terra Industries' Form 8-K dated July 31, 1991, is
incorporated herein by reference.
10.4 Asset and Share Purchase Agreement, dated as of April 8, 1993, by and
between Terra International, Inc., Terra International (Canada) Inc.
and ICI Canada Inc., filed as Exhibit A to Terra Industries' Form 8-K
dated April 8, 1993, is incorporated herein by reference.
18
<PAGE>
10.5 Asset Purchase Agreement, dated as of December 30, 1993, by and between
Terra International, Inc., The Upjohn Company and Asgrow Florida
Company, filed as Exhibit A to Terra Industries' Form 8-K dated
December 31, 1993, is incorporated herein by reference.
10.6 Merger Agreement dated as of August 8, 1994 among Terra Industries
Inc., AMCI Acquisition Corp. and Agricultural Minerals and Chemicals
Inc. without exhibits or schedules, filed as Exhibit 2 to Terra
Industries' Registration Statement on Form S-3, as amended (File No.
33-52493), is incorporated herein by reference.
10.7 Methanol Hedging Agreement among BMLP (as successor by merger to
Beaumont Methanol Corporation) and The Morgan Stanley Leveraged Equity
Fund II, L.P. as Counterparty, form of which filed as Exhibit 99.1 to
Terra Industries' Registration Statement on Form S-3, as amended (File
No. 33-52493), is incorporated herein by reference.
10.8 Agreement of Limited Partnership of TNCLP (formerly known as
Agricultural Minerals Company, L.P.) dated as of December 4, 1991,
filed as Exhibit 99.3 to Terra Industries' Registration Statement on
Form S-3, as amended (File No. 33-52493), is incorporated herein by
reference.
10.9 Agreement of Limited Partnership of TNLP (formerly known as
Agricultural Minerals, Limited Partnership) dated as of December 4,
1991, filed as Exhibit 99.4 to Terra Industries' Registration Statement
on Form S-3, as amended (File No. 33-52493), is incorporated herein by
reference.
10.10 General and Administrative Services Agreement Regarding Services by
Terra Industries Inc., filed as Exhibit 10.11 to Terra Industries Inc.
Form 10-Q for the quarter ended March 31, 1995, is incorporated herein
by reference.
10.11 General and Administrative Services Agreement Regarding Services by
Terra Nitrogen Corporation, filed as Exhibit 10.12 to Terra Industries
Inc. Form 10-Q for the quarter ended March 31, 1995, is incorporated
herein by reference.
10.12 Receivables Purchase Agreement dated as of August 20, 1996 among Terra
Funding Corporation, Terra Capital, Inc., Certain Financial
Institutions and Bank of America National Trust and Savings Association
filed as Exhibit 10.12 to the Terra Industries' Form 10-Q for the
quarter ended September 30, 1996, is incorporated herein by reference.
10.13 Purchase and Sale Agreement dated as of August 20, 1996 among Terra
International, Inc., Terra Nitrogen, Limited Partnership, Beaumont
Methanol, Limited Partnership, Terra Funding Corporation and Terra
Capital, Inc., filed as Exhibit 10.13 to the Terra Industries' Form
10-Q for the quarter ended September 30, 1996, is incorporated herein
by reference.
13 Financial Review and Consolidated Financial Statements as contained in
the Annual Report to Stockholders of Terra Industries for the fiscal
year ended December 31, 1996.
21 Subsidiaries of Terra Industries.
24 Powers of Attorney.
27 Financial Data Schedule. [EDGAR filing only]
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TERRA INDUSTRIES INC.
By: /s/ Francis G. Meyer
---------------------------------
Francis G. Meyer
Senior Vice President and
Chief Financial Officer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
* Chairman of the Board
--------------------------
William R. Loomis, Jr.
* Chief Executive Officer,
-------------------------- President and Director
Burton M. Joyce (Principal Executive Officer)
* Senior Vice President and Chief
-------------------------- Financial Officer
Francis G. Meyer (Principal Financial Officer)
* Vice President, Controller
-------------------------- (Principal Accounting Officer)
Robert E. Thompson
* Director
--------------------------
Edward G. Beimfohr
* Director
--------------------------
Carol L. Brookins
* Director
--------------------------
Edward M. Carson
* Director
--------------------------
David E. Fisher
20
<PAGE>
* Director
--------------------------
Basil T.A. Hone
* Director
--------------------------
Anthony W. Lea
* Director
--------------------------
John R. Norton III
* Director
--------------------------
Henry R. Slack
*By: /s/ George H. Valentine March 14, 1997
-------------------------------
George H. Valentine
Attorney-in-Fact
21
<PAGE>
EXHIBIT INDEX
4.6 Consent, Waiver and Amendment No. 3 dated as of November 22, 1996 to
the 1995 Credit Agreement.
10.1.10 1997 Incentive Award Program for Officers and Key Employees of Terra
Industries.
10.1.11 Revised Form of Performance Share Award of Terra Industries under its
1992 Stock Incentive Plan.
10.1.12 Revised Form of Incentive Stock Option Agreement of Terra Industries
under its 1992 Stock Incentive Plan.
10.1.13 Revised Form of Nonqualified Stock Option Agreement of Terra Industries
under its 1992 Stock Incentive Plan.
10.1.14 1997 Stock Incentive Plan of Terra Industries.
13 Financial Review and Consolidated Financial Statements as contained in
the Annual Report to Stockholders of Terra Industries for the fiscal
year ended December 31, 1996.
21 Subsidiaries of Terra Industries.
24 Powers of Attorney.
27 Financial Data Schedule. [EDGAR filing only]
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS
------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Deloitte & Touche LLP on Financial Statement Schedules.. S-2
Consent of Deloitte & Touche LLP.................................. S-2
Schedule No.
------------
I Condensed Financial Information of Registrant........ S-3
II Valuation and Qualifying Accounts:
Years Ended December 31, 1996, 1995 and 1994......... S-8
</TABLE>
Financial statement schedules not included in this report have been omitted
because they are not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
-------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited the consolidated financial statements of Terra Industries
Inc. as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996, and have issued our report thereon dated
February 3, 1997; such financial statements and report are included in the 1996
Annual Report to Stockholders of Terra Industries Inc. and are incorporated
herein by reference. Our audits also included the Financial Statement Schedules
of Terra Industries Inc. listed in Item 14(a) of this Form 10-K. These Financial
Statement Schedules are the responsibility of the management of Terra Industries
Inc. Our responsibility is to express an opinion based on our audits. In our
opinion, such Financial Statement Schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 3, 1997
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Registration Nos.
33-46735, 33-46734, 33-30058 and 33-4939) and Registration Statements on Form
S-3 (Registration Nos. 2-90808, 2-84876 and 2-84669) of Terra Industries Inc.
of our report dated February 3, 1997, included in the 1996 Annual Report to
Stockholders of Terra Industries Inc. which is incorporated by reference in this
Form 10-K. We also consent to the incorporation by reference in such
Prospectuses of our report on the Financial Statement Schedules, appearing
above.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 12, 1997
S-2
<PAGE>
SCHEDULE I
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
STATEMENTS OF FINANCIAL POSITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands) December 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments $ 6,307 $ 10,700
Accounts receivable, net 761 1,721
Deferred tax asset - current 2,020 23,768
Other current assets 12,733 82
- --------------------------------------------------------------------------------
Total current assets 21,821 36,271
Investment in and advances to subsidiaries 1,055,909 1,021,406
Other assets 13,872 14,073
- --------------------------------------------------------------------------------
Total assets $1,091,602 $1,071,750
================================================================================
Liabilities
Income taxes payable $ 5,096 $ 15,897
Accrued and other liabilities 6,631 14,865
- --------------------------------------------------------------------------------
Total current liabilities 11,727 30,762
Long-term debt 358,755 358,755
Deferred income taxes 108,377 105,437
Other liabilities 5,221 4,942
- --------------------------------------------------------------------------------
Total liabilities 484,080 499,896
- --------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 127,614 133,970
Paid-in capital 550,850 631,195
Accumulated deficit (70,942) (193,311)
- --------------------------------------------------------------------------------
Total stockholders' equity 607,522 571,854
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,091,602 $1,071,750
================================================================================
</TABLE>
See accompanying Notes to the Condensed Financial Statements.
S-3
<PAGE>
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
- ----------------------------------------------------------------------------------------
(in thousands, except per-share amounts) For the Year Ended December 31,
- ----------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Equity in earnings of subsidiaries $ 160,204 $ 186,048 $ 64,065
Interest and other income 123 1,367 (49)
- ----------------------------------------------------------------------------------------
Total income 160,327 187,415 64,016
- ----------------------------------------------------------------------------------------
Expenses
Selling, general and administrative expense 2,544 3,328 3,788
Interest expense 38,725 29,183 6,382
Income tax benefit (14,893) (8,978) (5,329)
- ----------------------------------------------------------------------------------------
Total expenses 26,376 23,533 4,841
- ----------------------------------------------------------------------------------------
Income before extraordinary items 133,951 163,882 59,175
Extraordinary loss on early retirement of debt --- (4,338) (2,614)
- ----------------------------------------------------------------------------------------
Net income 133,951 159,544 56,561
Cash dividends paid to common stockholders (11,582) (8,662) (5,837)
Accumulated deficit - beginning of year (193,311) (344,193) (394,917)
- ----------------------------------------------------------------------------------------
Accumulated deficit - end of year $ (70,942) $(193,311) $(344,193)
========================================================================================
Income (loss) per common share:
Income before extraordinary items $ 1.72 $ 2.01 $ 0.81
Extraordinary loss on early retirement of debt --- (0.05) (0.03)
- ----------------------------------------------------------------------------------------
Net income $ 1.72 $ 1.96 $ 0.78
========================================================================================
</TABLE>
See accompanying Notes to the Condensed Financial Statements.
S-4
<PAGE>
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------
(in thousands) For the Year Ended December 31,
- -----------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 133,951 $ 159,544 $ 56,561
Adjustments to reconcile net income to
net cash used by operations:
Equity in earnings of subsidiaries (160,204) (186,048) (64,065)
Loss on early retirement of debt --- 4,338 2,614
Deferred income taxes 24,689 44,293 15,291
Other non-cash items 1,588 672 48
Change in working capital components (30,726) 16,071 (9,538)
Other 480 785 344
- -----------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (30,222) 39,655 1,255
- -----------------------------------------------------------------------------------------------
Investing Activities
Proceeds from asset sales and
discontinued operations --- 5,832 541
Capital contributions to subsidiaries --- --- (113,000)
Proceeds from investments --- --- 500
- -----------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities --- 5,832 (111,959)
- -----------------------------------------------------------------------------------------------
Financing Activities
Net short-term debt decrease --- --- (82,395)
Net long-term debt increase --- 200,000 ---
Loss on early retirement of debt --- --- (2,533)
Debt issuance costs --- (3,666) (2,873)
Issuance of common shares --- --- 113,000
Dividends (11,582) (8,662) (5,837)
Stock (repurchase) issuance - net (91,131) 1,187 4,666
Advances from (to) subsidiaries - net 128,542 (234,157) 72,938
- -----------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities 25,829 (45,298) 96,966
- -----------------------------------------------------------------------------------------------
Increase (Decrease) in Cash (4,393) 189 (13,738)
Cash and Investments at Beginning of Year 10,700 10,511 24,249
- -----------------------------------------------------------------------------------------------
Cash and Investments at End of Year $ 6,307 $ 10,700 $ 10,511
===============================================================================================
Interest Paid $ 39,639 $ 27,521 $ 6,285
===============================================================================================
Taxes Paid $ 58,809 $ 21,651 $ 16,065
===============================================================================================
</TABLE>
See accompanying Notes to the Condensed Financial Statements.
S-5
<PAGE>
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Basis of Presentation
The Condensed Financial Statements include the Registrant only and reflect the
equity method of accounting for its beneficially owned subsidiaries, Terra
Capital, Inc., Terra International, Inc., Terra Nitrogen Corporation, Beaumont
Methanol Limited Partnership and Terra Funding Corporation. Net income in 1995
and 1994 was reduced by $4.3 million and $2.6 million, or $0.05 and $0.03 per
share, repectively, due to the write-off of deferred financing fees in
connection with the early retirement of debt.
2. Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Notes, 10.5%, due 2005 $ 200,000 $ 200,000
Senior Notes, 10.75%, due 2003 158,755 158,755
- --------------------------------------------------------------------------------
358,755 358,755
Less current maturities --- ---
- --------------------------------------------------------------------------------
Total $ 358,755 $ 358,755
================================================================================
</TABLE>
In 1995, the Registrant 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
Registrant, 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 TNCLP.
The remaining net proceeds were used to repay bank term loans.
The 10.75% unsecured Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after September 30, 1998,
initially at 105.375% of their principal amount, plus accrued interest,
declining to 102.688% on or after September 30, 1999, and declining to 100% on
or after September 30, 2000. The 10.75% Senior Notes Indenture contains
restrictions similar to those in the 10.5% Senior Notes Indenture.
3. Commitments and Contingencies
The Registrant is committed to a non-cancelable office lease expiring in 1998.
Total minimum rental payments are: 1997, $3.3 million and 1998, $1.7 million.
These amounts are not reduced by sublease rentals, which in 1996 were $2.0
million.
The Registrant is contingently liable for retiree medical benefits of employees
of coal mining operations sold on January 12, 1993. Under the purchase
agreement, the purchaser agreed to indemnify the Registrant against its
obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50
percent or more of any company liable for such benefits as of certain specified
dates becomes liable for such benefits if the company directly liable is unable
to pay them. As a result, if the purchaser becomes unable to pay its retiree
medical obligations assumed pursuant to the sale, the Registrant may have to pay
such amount. The Registrant has estimated that the present value of liabilities
for which it retains contingent responsibility approximates $9.8 million at
December 31, 1996.
S-6
<PAGE>
The Registrant had letters of credit outstanding totaling $5.4 million at
December 31, 1996 and $8.9 million at December 31, 1995, guaranteeing various
insurance and financing activities. Short-term investments of $5.4 million at
December 31, 1996 and $8.9 million at December 31, 1995 are restricted to
collateralize certain of the letters of credit.
4. Income Taxes
The Registrant files a consolidated U.S. federal tax return. Beginning in 1995,
the Registrant adopted tax sharing agreements, under which all domestic
operating subsidiaries provide for and remit income taxes to the Registrant
equal to their pretax accounting income, adjusted for permanent differences
between pretax accounting income and taxable income. The tax sharing agreements
allocate the benefits of operating losses and temporary differences between
financial reporting and tax basis income to the Registrant.
S-7
<PAGE>
SCHEDULE II
TERRA INDUSTRIES INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995, and 1994
---------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Additions Less
Balance at Charged to Write-offs, Balance
Beginning Costs and Net of at End
Description of Period Expenses Recoveries of Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
- -----------------------------
Allowance for Doubtful Accounts $ 10,626 $ 15,428 $ (14,663) $ 11,391
Year Ended December 31, 1995:
- -----------------------------
Allowance for Doubtful Accounts $ 8,224 $ 7,798 $ (5,396) $ 10,626
Year Ended December 31, 1994:
- -----------------------------
Allowance for Doubtful Accounts $ 5,788 $ 2,231 $ 205 $ 8,224
</TABLE>
S-8
<PAGE>
Exhibit 4.6
[EXECUTION COUNTERPART]
CONSENT, WAIVER AND AMENDMENT NO. 3
CONSENT, WAIVER AND AMENDMENT NO. 3 (this "Agreement") dated as of
November 22, 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").
PRELIMINARY STATEMENTS
Terms used in these Preliminary Statements and not otherwise defined
have the respective meanings assigned to them in Section 1 of this Agreement.
(1) As more fully provided in the ADP Documents, Terra Canada has
leased the ADP Property from the ADP Trust, and has an option (the
"Option") to acquire the ADP Property for approximately C$70,000,000. Terra
Canada has obtained an independent appraisal of the ADP Property indicating
that the same has a current fair market value of approximately
C$303,000,000. Accordingly, Terra Canada estimates that the fair market
value of the Option is approximately C$233,000,000.
(2) Terra Canada wishes to exercise the Option and to utilize non-
capital losses within the Minorco-controlled group of Canadian companies to
obtain a tax basis in the ADP Property equal to its current fair market
value. Terra Canada will pay a negotiated fee to HBMS as consideration for
HBMS entering into the Terra Canada Transaction. In connection with the
foregoing, Terra Canada wishes to implement the Terra Canada Transaction on
the terms and conditions set forth herein.
The Company has requested that the Lenders consent to the Terra Canada
Transaction and to amend the Credit Agreement in certain respects, and the
Lenders are willing to so consent and so amend the Credit Agreement, all on the
terms and conditions
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-2-
set forth herein. Accordingly, the parties hereto hereby agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein as therein defined. In addition, as
used herein:
"ADP Documents" means, collectively, the InterParty Agreement and the
other Operative Documents referred to therein.
"ADP Property" means the anhydrous ammonia production facility and
related properties located in the Province of Ontario, Canada, owned by the
ADP Trust (which facility and related properties constitute the "Property",
as defined in the InterParty Agreement).
"ADP Trust" means The 1993 Courtright Property Trust formed pursuant
to the ADP Documents by a Declaration of Trust dated April 8, 1993.
"C$" means the lawful currency of Canada.
"HBMS" means Hudson Bay Mining & Smelting Co., Limited, a corporation
incorporated under the Canada Business Corporations Act and an indirect
wholly owned Subsidiary of Minorco.
"HBMS Fees" means the fees payable by Terra International and its
Subsidiaries to HBMS in connection with the Terra Canada Transaction.
"InterParty Agreement" means the InterParty Agreement dated as of
April 8, 1993 among Terra Canada; Terra International, as Guarantor; W.
Patrick Moroney, as Trustee; Montreal Trust Company of Canada, as Paying
Agent; and the Purchasers party thereto, as from time to time amended.
"Terra Canada" means Terra International (Canada) Inc., a corporation
governed by the laws of Ontario and an indirect wholly owned Subsidiary of
Terra Capital.
"Terra Canada Transaction" means, collectively, the transactions
described in Section 2(A) of this Agreement, the other transactions
described in Section 2(B) of this Agreement and the payment of HBMS Fees.
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-3-
Section 2. Description of Terra Canada Transaction.
A. Contemplated Transaction. The Company has requested that the
Lenders and the Issuing Banks consent to the following transactions (the
elements of which would occur in the order set forth below and, as to the
elements described in Paragraphs 1 through 4 below, would occur as promptly as
reasonably practicable):
1. Formation of Newco. Terra Canada will incorporate a new corporation
("Newco"). The authorized share capital of Newco will include common shares
and preferred shares. The authorized preferred shares of Newco will be non-
voting, will have no par value and will be redeemable for an amount equal
to the fair market value of the consideration received by Terra Canada upon
the issuance of such shares. Terra Canada will subscribe for one common
share of Newco in exchange for a contribution of C$1.00 to the capital of
Newco. Terra Canada will thereupon transfer the Option to Newco in exchange
for preferred shares of Newco ("Newco Preferred Shares") having an
aggregate redemption amount approximately equal to C$233,000,000. No other
consideration will be received by Terra Canada, and no other property will
be transferred by Terra or any of its Subsidiaries to Newco, in respect of
the elements of the Terra Canada Transaction described in this Paragraph 1.
2. Redemption of Newco Preferred; Newco Note. Newco will redeem the
Newco Preferred Shares held by Terra Canada in exchange for the issuance of
a promissory note (the "Newco Note") payable by Newco to Terra Canada in an
aggregate amount approximately equal to C$233,000,000. The Newco Note will
be repayable on demand and will not bear interest. The obligations of Newco
to Terra Canada in respect of the Newco Note will be secured by a pledge of
the Option; Terra Canada will have no other right of recourse against Newco
in respect of the Newco Note. Newco may, at its option, repay or prepay the
Newco Note through an assignment of the Option to Terra Canada.
3. Sale of Newco to HBMS. No later than the date three days following
the occurrence of the transactions described in Paragraph 2 above, Terra
Canada will sell the issued and outstanding common share of Newco to HBMS
for C$1.00. Upon the consummation of such sale, Newco will become a wholly
owned Subsidiary of HBMS and will cease to be a Subsidiary of Terra Canada.
4. Dissolution of Newco. HBMS will cause Newco to be wound up. Upon
the winding up of Newco (i) the assets of
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-4-
Newco will be distributed to, and the liabilities of Newco will be assumed
by, HBMS and (ii) Newco will be dissolved. Following the assumption of
Newco's liabilities from HBMS as aforesaid, Terra Canada will demand
repayment of the Newco Note from HBMS. HBMS will transfer the Option to
Terra Canada in full satisfaction of the Newco Note. The events referred to
in this Paragraph 4 shall be concluded no later than the date three days
following the sale of the capital stock of Newco to HBMS as described in
Paragraph 3 above.
5. Exercise of Option. Following the transfer of the Option to Terra
Canada described in Paragraph 4 above, Terra Canada will exercise the
Option in accordance with the terms of the ADP Documents.
B. Additional Transaction Elements. In addition to the contemplated
steps described in Section 2(A) above, the Terra Canada Transaction may include:
(a) such other transactions as are permitted under the terms of the
Credit Agreement and the other Loan Documents (in each case as in effect
immediately prior to the effectiveness of this Agreement); and/or
(b) such other transactions that, taken collectively, have
substantially the same result as the transactions described in Section 2(A)
above, provided that such other transactions are consummated as promptly as
reasonably practicable and (after giving effect to the consummation of all
such transactions):
(i) do not result in the Disposition by the Company or any of its
Subsidiaries of any Collateral;
(ii) do not result in the transfer of the Option or any ADP
Property to any Person other than a Subsidiary of the Company;
(iii) do not result in the Company or any of its Subsidiaries
being subject to any continuing indenture, instrument or other
agreement containing terms more restrictive than indentures,
instruments and other agreements to which such Persons are subject
immediately prior to the Terra Canada Transaction;
(iv) do not include the sale of ownership interests in any
Subsidiary of the Company (other than Subsidiaries created solely for
the purpose of the Terra Canada Transaction) to any Person other than
to the Company or a Subsidiary of the Company; and
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-5-
(v) do not have a Material Adverse Effect.
Section 3. Consent, Waiver and Amendment. Subject to the satisfaction
of the conditions precedent set forth in Section 6 hereof, but effective as of
the date hereof:
(a) each of the Lenders and Issuing Banks hereby consents to the Terra
Canada Transaction for all purposes of the Credit Agreement and the other
Loan Documents, and agrees that the same may be implemented (and in such
connection consents to the execution, delivery and performance of all
documents, instruments and other undertakings necessary to give effect to
the proposed transaction);
(b) each of the Lenders and Issuing Banks hereby waives all
prepayments under Sections 2.05(b) of the Credit Agreement that would
otherwise be required as a result of the occurrence of Dispositions
constituting part of the Terra Canada Transaction;
(c) each of the Lenders and Issuing Banks hereby waives any Default or
Event of Default that would otherwise occur solely as a result of the
consummation of the Terra Canada Transaction; and
(d) the Credit Agreement shall be amended by adding a new Section 9.16
thereto reading as follows:
"Section 9.16. Terra Canada Transaction. Notwithstanding anything
in this Agreement or the other Loan Documents to the contrary, nothing
in this Agreement or in any of the other Loan Documents shall prohibit
or otherwise restrict (or require any prepayment with the Net
Available Proceeds (if any) of) the Terra Canada Transaction (as such
term is defined in Consent, Waiver and Amendment No. 3 hereto dated as
of November 22, 1996)."
Section 4. Additional Amendments. Subject to the Agent's receipt of
this Agreement, duly executed by each of the Obligors, each of the Lenders and
the Agent, but effective as of the date hereof, the Credit Agreement is hereby
further amended as follows:
A. Definitions. Section 1.01 of the Credit Agreement is hereby amended
by amending clause (ii) of the definition of "Disposition" in said Section 1.01
to read as follows:
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-6-
"(ii) by any Obligor or a wholly owned Subsidiary of an Obligor to
another Obligor or to a wholly owned Subsidiary of an Obligor,".
B. Ownership, Etc. Section 5.01(o) of the Credit Agreement shall be
amended by amending paragraph (vi) thereof to read as follows:
"(vi) TNC will own no property other than cash and:
(v) ownership interests of TNCLP and its successors and a general
partnership interest in TNLP and its successors;
(w) capital stock of a wholly owned Subsidiary of TNC organized for
the purpose of holding Senior Preference Units;
(x) equipment and other property principally used in connection with
TNC's performance of general and administrative services (including,
without limitation, property related to incentive compensation plans,
deferred compensation plans and other funded benefit plans) for Terra and
its Subsidiaries;
(y) raw materials and other property used in the manufacture, storage,
sale and distribution of nitrogen and methanol products by Terra and its
Subsidiaries in the ordinary course of business, provided that the
aggregate book value of all tangible property of TNC referred to in this
paragraph (y) shall not at any time exceed $10,000,000; and
(z) other property incidental to its business as a holding company and
a general partner."
Section 5. 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.
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-7-
Section 6. Conditions Precedent. As provided in Section 3 hereof, the
consents, waivers and amendment set forth in said Section 3 shall each become
effective, as of the date hereof, upon the Agent's receipt of the following
(each in form and substance satisfactory to it):
A. Execution and Delivery, Etc. This Agreement, duly executed by each
of the Obligors, each of the Lenders and the Agent.
B. Consents; Approvals; Etc. A certificate of a senior officer of the
Company to the effect that:
(a) all necessary governmental and material third party consents
and approvals (including, without limitation, a favorable tax ruling
from Revenue Canada and the consent of the Trustee of the ADP Trust)
in connection with the Terra Canada Transaction have been obtained and
remain in effect; and
(b) a committee consisting of independent members of Terra's
board of directors has approved the amount of the HBMS Fees.
C. Other Documents. Such other documents as the Agent or any Lender or
special New York counsel to the Agent may reasonably request.
Section 7. 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.
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-8-
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
---------------------------------
Title:
TERRA NITROGEN, LIMITED PARTNERSHIP
By Terra Nitrogen Corporation,
its General Partner
By
---------------------------------
Title:
GUARANTORS
----------
TERRA INDUSTRIES INC.
By
---------------------------------
Title:
TERRA NITROGEN CORPORATION
By
---------------------------------
Title:
BEAUMONT METHANOL, LIMITED
PARTNERSHIP
By Terra Methanol Corporation,
its General Partner
By
----------------------------
Title:
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-9-
TERRA METHANOL CORPORATION
By
----------------------------
Title:
BMC HOLDINGS, INC.
By
----------------------------
Title:
TERRA CAPITAL HOLDINGS, INC.
By
----------------------------
Title:
THE AGENT
---------
CITIBANK, N.A.
By
----------------------------
Title:
COMMITMENTS THE LENDERS
----------- -----------
Terra Commitment CITIBANK, N.A.
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
-----------------------------
Title:
Terra Commitment THE CHASE MANHATTAN BANK
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
-----------------------------
Title:
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-10-
Terra Commitment ARAB BANKING CORPORATION
- ----------------
$16,500,000.00
TNLP Commitment
- ---------------
$ 1,100,000.00 By
----------------------------
Title:
Terra Commitment BANK OF AMERICA ILLINOIS
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------
Title:
Terra Commitment THE BANK OF NOVA SCOTIA
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------
Title:
Terra Commitment CAISSE NATIONAL DE CREDIT AGRICOLE
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------
Title:
Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN-
- ---------------- BOERENLEEBANK, B.A. "RABOBANK
$28,500,000.00 NEDERLAND", NEW YORK BRANCH
TNLP Commitment
- ---------------
$ 1,900,000.00
By
----------------------------
Title:
By
----------------------------
Title:
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-11-
Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By
---------------------------------
Title:
Terra Commitment DRESDNER BANK AG, CHICAGO AND GRAND
- ---------------- CAYMAN BRANCHES
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
---------------------------------
Title:
By
---------------------------------
Title:
Terra Commitment FIRST BANK NATIONAL ASSOCIATION
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------------
Title:
Terra Commitment THE FUJI BANK, LIMITED
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------------
Title:
Terra Commitment MELLON BANK, N.A.
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
----------------------------------
Title:
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
-12-
Terra Commitment NATIONSBANK OF TEXAS, N.A.
- ----------------
$28,500,000.00
TNLP Commitment
- ---------------
$ 1,900,000.00 By
---------------------------------
Title:
Terra Commitment UNION BANK OF SWITZERLAND, NEW YORK
- ---------------- BRANCH
$16,500,000.00
TNLP Commitment
- ---------------
$ 1,100,000.00 By
----------------------------------
Title:
By____________________________
Title:
Consent, Waiver and Amendment No. 3
-----------------------------------
<PAGE>
Exhibit 10.1.10
TERRA INDUSTRIES INC.
INCENTIVE AWARD PROGRAM FOR
OFFICERS & KEY MANAGERS
1997
----
I. Purpose of the Plan
-------------------
The purpose of this Incentive Award Program is to motivate and reward
officers and key managers of the company toward achievement of planned
annual goals and improved results.
II. Eligibility in the Plan
-----------------------
Participation in this Incentive Award Program is limited to officers
and key managers of Terra Industries Inc., Terra Distribution and
Terra Nitrogen whose efforts are expected to contribute directly to
the success and accomplishment of the company's planned goals.
III. Special Provisions and Considerations
-------------------------------------
Terra's incentive plan year coincides with the company's fiscal year.
The Chief Executive Officer will establish corporate financial goals,
which are approved by the Board of Directors, which will be used to
establish the 1997 incentive pool. Each officer and key manager
participating in this plan will be assigned an index which establishes
their target incentive as a percentage of year-end base salary. Some
Division participants will participate in this Plan and a Division
plan and their individual index will be split or allocated between
this plan and their Division plan in establishing the year-end pool
for this and their Division Plan.
The Chief Executive Officer is responsible for approving each plan
participant's individual goals or objectives as soon as practicable in
1997. The importance of each goal is reflected in the weight assigned
to each goal which sums to one hundred percent (100%). Each plan
participant must periodically report on their goal achievement to the
Chief Executive Officer. These individual goals or objectives will be
used in determining the participant's final incentive payment.
<PAGE>
IV. Funding the Officers and Key Managers Incentive Award Program
-------------------------------------------------------------
The funding for the officers and key managers incentive award pool is
based on the accomplishment of Terra Industries Inc. approved income
and return-on-equity objectives, which will fund the incentive pool.
The income goal will receive fifty percent (50%) weight and the
return-on-equity goal will receive fifty percent (50%) weight.
The pool starts to fund at fifty (50%) percent when the company's
composite performance reaches seventy-five (75%) percent and increases
on a straight-line basis where one hundred percent (100%) of composite
performance equals a one hundred percent (100%) funding of the pool.
Over-achievement is calculated in on a straight-line basis where the
pool capped at two hundred percent (200%) at one-hundred-twenty-five
(125%) percent of composite plan performance. The pool generated by
these calculations may be increased by up to twenty percent (20%) of
target, at the Chief Executive Officer's discretion, but the pool
cannot exceed 200% of target, including the discretionary portion of
the pool.
V. Basis of the Incentive Award
----------------------------
The starting point in determining each participant's individual
incentive award is the evaluation of the individual objectives. The
participant's individual raw award is calculated by taking each
participant's year-end salary, times their individual index (or that
portion of their index used to calculate this pool) and then adjusted
by their individual performance. The sum of all participants' adjusted
raw awards creates an adjusted raw pool. This adjusted raw pool is
compared with the sum of the plan participant's year-end salary, times
their index (or a portion of their index used to calculate this pool)
which is then adjusted by the company's composite performance to form
the incentive pool. This adjusted raw pool is adjusted up or down to
match the incentive pool. All participant incentives are paid from the
incentive pool.
The Chief Executive Officer has the discretion to adjust any
individual's participation up or down to reflect unusual or unplanned
events or to reflect the degree of difficulty of the goals. He may
adjust amounts between plan participants and may add amounts from the
discretionary part of the pool. The Chief Executive Officer may also
choose to award less than the full amount of the pool.
-2-
<PAGE>
VI. Review, Revision and Modification of the Goals
----------------------------------------------
Under normal business conditions, the corporate goals or individual
objectives will not be altered or revised once established for the
year. Unexpected and unforeseen developments during the course of the
year may prompt re-examination of an officer or key manager's
established goals. It is the responsibility of each officer and key
manager to note the conditions of change which would prompt such a
review and take timely action. Such action would include review with
the Chief Executive Officer for need for revision of an established
goal as soon as possible after the detected change. The change(s) is
subject to final approval of the Chief Executive Officer.
VII. Payment of Award
----------------
The incentive award will be paid each officer and key manager by check
as soon as possible after the close of the fiscal year and after
approval of the Chief Executive Officer's recommendations by the
Personnel Committee of the Board of Directors.
To be eligible for full payment, the officer or key manager must have
been in the employ of Terra Industries Inc. or one of its subsidiaries
as of January 1 of the incentive plan year and must be actively
employed by the company on the date the incentive award is paid.
VIII. Special Provision
-----------------
A newly elected officer or key manager will participate in the officer
and key manager's incentive program in proportion to the number of
full months worked as an officer or key manager during the incentive
program year.
An officer or key manager who retires, becomes permanently disabled or
dies shall cease to participate in the officers and key managers
incentive program as of the end of the month coincident with
retirement, disability or death. The proportionate incentive award
will be paid as soon as possible after the close of the fiscal year.
While it is the intent of the company to make awards under this plan
and to continue the plan from year to year, it reserves the right to
amend or terminate the plan entirely at its discretion.
-3-
<PAGE>
Exhibit 10.1.11
PERFORMANCE SHARE AWARD
Date of Award: [DATE]
Number of Shares Awarded: [NUMBER]
[NAME]
[ADDRESS]
[CITY, STATE, ZIP]
Dear [SALUTATION]:
We are pleased to inform you that as a key employee of Terra Industries
Inc. (the "Corporation") or a Subsidiary thereof, you have been awarded, under
the 1992 Stock Incentive Plan (the "Plan"), the number of Common Shares of the
Corporation set forth above, subject to certain restrictions, terms and
conditions set forth in this letter and in the Plan. The restricted Common
Shares issued to you are referred to in this letter as the "Performance Shares."
1. From the date hereof until the restrictions on the Performance Shares
terminate (the "Restriction Period"), the Performance Shares shall not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed; provided,
however, that any of the Performance Shares may be exchanged for any other
Common Shares that are similarly restricted.
2. The Restriction Period shall terminate at the following times:
a. The Restriction Period shall terminate with respect to twenty-five
percent of the Performance Shares on the business day following any period,
occurring on or before the fifth anniversary of the Date of Award, of thirty
consecutive business days during which the average closing price of the Common
Shares on the New York Stock Exchange -- Composite Transactions (or if the
Common Shares do not trade on the New York Stock Exchange, on the principal
securities market on which the Common Shares are traded) equals or exceeds
$_____.
b. The Restriction Period shall terminate with respect to another twenty-
five percent of the Performance Shares on the business day following any period,
occurring on or before the fifth anniversary of the Date of Award, of thirty
consecutive business days during which the average closing price of the Common
Shares on the New York Stock Exchange -- Composite Transactions (or if the
Common Shares do not trade on the New York Stock Exchange, on the principal
securities market on which the Common Shares are traded) equals or exceeds
$_____.
c. The Restriction Period shall terminate with respect to all of the
Performance Shares on the business day following any period, occurring on or
before the fifth anniversary of the Date of Award, of thirty consecutive
business days during which the average closing price of the Common Shares on the
New York Stock Exchange -- Composite Transactions (or if the Common Shares do
not trade on the New York Stock Exchange, on the principal securities market on
which the Common Shares are traded) equals or exceeds $_____.
<PAGE>
d. The Restriction Period shall terminate with respect to all of the
Performance Shares on the day any one of the following occurs: (i) any person or
group of persons acting in concert (other than Minorco, a company incorporated
under the laws of Luxembourg as a societe anonyme, and its affiliates or a group
consisting solely of such persons (the "Minorco Affiliates")) acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission promulgated under the Securities Exchange Act of 1934) of
the outstanding securities (the "Voting Shares") of the Corporation in an amount
having, or convertible into securities having, 25% or more of the ordinary
voting power for the election of directors of the Corporation, provided that
this 25% beneficial ownership trigger shall apply only when the Minorco
Affiliates no longer own 50% or more of the Voting Shares; (ii) during a period
of not more than 24 months, a majority of the Board of Directors of the
Corporation ceases to consist of the existing membership or successors nominated
by the existing membership or their similar successors; (iii) all or
substantially all of the individuals and entities who were the beneficial owners
of the Corporation's outstanding securities entitled to vote do not own more
than 60% of such securities in substantially the same proportions following a
shareholder approved reorganization, merger, or consolidation; or (iv)
shareholder approval of either (A) a complete liquidation or dissolution of the
Corporation or (B) a sale or other disposition of all or substantially all of
the assets of the Corporation, or a transaction having a similar effect.
e. The Restriction Period shall terminate with respect to all of the
Performance Shares on the business day following the ninth anniversary of the
Date of Award.
The Corporation shall retain possession of the Performance Shares until the
later to occur of the termination of the Restriction Period and the termination
of the security interest described in Section 6 of this letter.
3. If your employment with the Corporation and all Subsidiaries terminates
during the term of this agreement, all Performance Shares subject to the
Restriction Period shall automatically be forfeited by you and reconveyed to the
Corporation, except as follows:
a. If your employment terminates by reason of death, the Performance Shares
shall continue to be eligible for vesting pursuant to Sections 2a, 2b and/or 2c
for a period of one year from the date of death (provided that such vesting must
occur, if at all, on or before the fifth anniversary hereof).
b. If your employment terminates by reason of Total Disability or
Retirement, the Performance Shares shall continue to be eligible for vesting
pursuant to Sections 2a, 2b and/or 2c for a period of three years from the date
of Total Disability or Retirement (provided that such vesting must occur, if at
all, on or before the fifth anniversary hereof).
c. In cases of special circumstances the Committee may, in its sole
discretion when it finds that a waiver would be in the best interests of the
Corporation, extend the period for vesting or terminate the Restriction Period
with respect to all or a portion of your Performance Shares.
2
<PAGE>
4. This award shall not be effective unless you sign a copy of this letter and
deliver it to the Corporate Secretary of the Corporation, Terra Centre, 600
Fourth Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on [DATE].
If the Corporate Secretary does not have your properly executed copy of this
letter before such time, then, anything in this letter to the contrary
notwithstanding, this award shall terminate and be of no effect. Your signing
and delivering a copy of this letter shall evidence your acceptance of the
Performance Shares upon the terms and conditions of this Award. Attached is a
copy of your Stock Certificate and Stock Power. Your execution of the stock
power will permit the Corporation to enforce the security interest described in
Section 6 of this letter or reconvey the Performance Shares to the Corporation
in the event the Award is forfeited.
5. Except as set forth in this letter, upon the issuance of the Performance
Shares you shall have all of the rights of a stockholder, including the right to
vote the Performance Shares and the right to receive dividends thereon. The
certificates for any Performance Shares shall bear an appropriate legend
reciting the terms, conditions and restrictions applicable thereto, and shall be
subject to appropriate stop-transfer orders. The Corporation shall issue your
Performance Shares promptly after the Corporation's Corporate Secretary receives
the documents set forth in Section 4, the Performance Shares have been listed
(or authorized for listing upon official notice of issuance) upon each stock
exchange upon which the Common Shares of the Corporation are listed and there
has been compliance with such laws and regulations as the Corporation may deem
applicable. The Corporation agrees to use its best efforts to effect such
listing and compliance.
6. You hereby agree to pay to the Corporation, or otherwise make arrangements
satisfactory to the Corporation regarding payment of, any federal, state or
local taxes required or authorized by law to be withheld with respect to the
award of the Performance Shares or the termination of the Restriction Period
(the "Withholding Taxes"). The Corporation shall have, to the extent permitted
by law, the right to deduct from any payment of any kind otherwise due to the
Employee, any Withholding Taxes and to condition the delivery of the Performance
Shares after the termination of the Restriction Period on the payment to the
Corporation of the Withholding Taxes. You hereby grant to the Corporation a
security interest in the Performance Shares to secure the reconveyance of the
Performance Shares to the Corporation upon any forfeiture and to ensure adequate
provision for the Withholding Taxes. The Corporation shall release its security
interest in respect of any Performance Shares on which (i) the Restriction
Period has terminated and (ii) all Withholding Taxes have been paid. In lieu of
the payment of such amounts in cash, you may pay all or a portion of the
Withholding Taxes by (a) the delivery of Common Shares not subject to any
Restriction Period or (b) having the Corporation withhold a portion of the
Common Shares otherwise to be delivered upon vesting of the Performance Shares.
7. The Corporation may, in its sole discretion, at any time or from time to
time, in lieu of the delivery of all or any portion of your Performance Shares,
pay to you cash equal to the Fair Market Value (as defined in the 1992 Stock
Incentive Plan) of such shares on the day the Restriction Period terminates.
8. If any distribution is made to the holders of Performance Shares other than
a cash dividend and new, different, or additional shares or other securities of
the Corporation or of another company are received by the holders of the
Performance Shares, or if any recapitalization or reclassification, split-up
3
<PAGE>
or consolidation of the Performance Shares shall be effected, or, if in
connection with a merger or consolidation of the Corporation or a sale by the
Corporation of all or a part of its assets, the Performance Shares are exchanged
for a different number or class of shares of stock or other securities of the
Corporation or for shares of stock or other securities of any other company,
then any such other securities shall be subject to similar restrictions as the
Performance Shares, and the number and class of Performance Shares, and the
restrictions, terms and other conditions applicable to any such other securities
shall be equitably determined by the Committee.
9. Nothing in this Agreement shall confer upon the Employee any right to
continue in the employ of the Corporation or a Subsidiary, or affect the right
of the Corporation or of any Subsidiary to terminate the employment of the
Employee, with or without cause.
These Performance Shares are awarded pursuant to the Plan and are subject
to its terms. Capitalized terms used in this letter have the same meanings as
defined in the Plan. A copy of the Plan is being furnished to you with this
letter and also is available on request from the Corporate Secretary of the
Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By:
----------------------------------------------
President and Chief Executive Officer
By:
----------------------------------------------
Senior Vice President, General Counsel
and Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1992 Stock Incentive Plan and the Prospectus covering shares
issued under that Plan.
- ---------------------
Signature of Employee
4
<PAGE>
Exhibit 10.1.12
INCENTIVE STOCK OPTION AGREEMENT
Date of Grant: [DATE]
Number of Shares: [NUMBER]
Exercise Price Per Share: [PRICE]
[NAME]
[ADDRESS]
[CITY, STATE, ZIP]
Dear [SALUTATION]:
We are pleased to inform you that, as a key employee of Terra Industries
Inc. (the "Corporation") or a Subsidiary thereof, you have been granted, under
the Terra Industries Inc. 1992 Stock Incentive Plan, an Incentive Stock Option
(the "Option"), evidenced by this letter, to purchase up to a total of the
number of Common Shares set forth above at the price per share set forth above
and on the terms and conditions set forth below. The Option is intended (but not
warranted) to be an incentive stock option within the meaning of section 422 of
the Internal Revenue Code.
1. The Option cannot be exercised unless you sign your name in the space
provided on the copy of this letter enclosed with this letter and deliver it to
the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street,
Sioux City, Iowa 51101, before 4:30 p.m. central time on [DATE] . If the
Corporate Secretary does not have your properly executed copy of this letter
before such time, then, anything in this letter to the contrary notwithstanding,
this award shall terminate and be of no effect. Your signing and delivering a
copy of this letter will not commit you to purchase any of the shares that are
subject to the Option, but will evidence your acceptance of the Option upon the
terms and conditions herein stated.
2. Subject to the provisions of this letter, the Option shall be exercisable,
in whole at any time or in part from time to time, in integral multiples of 100
shares each (to the maximum extent possible), during the period set forth in
this Section 2.
a. The Option shall be exercisable with respect to one-third of the Number
of Shares set forth above beginning on the first business day following the
first anniversary of the Date of Grant.
b. The Option shall be exercisable with respect to the next one-third of
the Number of Shares set forth above beginning on the first business day
following the second anniversary of the Date of Grant.
c. The Option shall be exercisable with respect to the final one-third of
the Number of Shares set forth above beginning on the first business day
following the third anniversary of the Date of Grant.
<PAGE>
d. The Option shall be exercisable with respect to all of the Number of
Shares set forth above beginning on the day any one of the following occurs: (i)
any person or group of persons acting in concert (other than Minorco, a company
incorporated under the laws of Luxembourg as a societe anonyme, and its
affiliates or a group consisting solely of such persons (the "Minorco
Affiliates")) acquires beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission promulgated under the Securities Exchange
Act of 1934) of the outstanding securities (the "Voting Shares") of the
Corporation in an amount having, or convertible into securities having, 25% or
more of the ordinary voting power for the election of directors of the
Corporation, provided that this 25% beneficial ownership trigger shall apply
only when the Minorco Affiliates no longer own 50% or more of the Voting Shares;
(ii) during a period of not more than 24 months, a majority of the Board of
Directors of the Corporation ceases to consist of the existing membership or
successors nominated by the existing membership or their similar successors;
(iii) all or substantially all of the individuals and entities who were the
beneficial owners of the Corporation's outstanding securities entitled to vote
do not own more than 60% of such securities in substantially the same
proportions following a shareholder approved reorganization, merger, or
consolidation; or (iv) shareholder approval of either (A) a complete liquidation
or dissolution of the Corporation or (B) a sale or other disposition of all or
substantially all of the assets of the Corporation, or a transaction having a
similar effect.
e. The Option shall in all events terminate at the close of business on the
last business day preceding the tenth anniversary of the Date of Grant, but
shall be subject to earlier termination as provided in Section 4 hereof.
3. The Option shall not be transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, the Option shall be
exercisable only by you.
4. If your employment with the Corporation and all Subsidiaries terminates
during the term of this agreement, the Option shall automatically terminate and
cease to be exercisable, except the term shall be extended (subject to Section
2e) as follows:
a. If your employment terminates by reason of your death or Total
Disability, the Option shall terminate and cease to be exercisable one year from
the date of death or Total Disability.
b. If your employment terminates by reason of Retirement, the Option shall
terminate and cease to be exercisable three months from the date of Retirement.
c. If your employment terminates on or within two years subsequent to the
circumstances contemplated in Section 2d, the Option shall terminate and cease
to be exercisable three months from the date of such termination.
2
<PAGE>
d. Notwithstanding the foregoing, in cases of special circumstances the
Committee may, in its sole discretion when it finds that a waiver would be in
the best interests of the Corporation, extend the term of this Option with
respect to all or a portion of the Number of Shares set forth above for such
period of time as the Committee deems appropriate.
5. The Corporation shall not be obligated to deliver any shares until they
have been listed (or authorized for listing upon official notice of issuance)
upon each stock exchange upon which are listed outstanding shares of the same
class as that of the shares at the time subject to the Option and until there
has been compliance with such laws or regulations as the Corporation may deem
applicable. The Corporation agrees to use its best efforts to effect such
listing and compliance. No fractional shares will be delivered.
6. For the purposes of this Agreement: (a) a transfer of your employment from
the Corporation to a Subsidiary or vice versa, or from one Subsidiary to
another, without an intervening period, shall not be deemed a termination of
employment, and (b) if you are granted in writing a leave of absence, you shall
be deemed to have remained in the employment of the Corporation or a Subsidiary
during such leave of absence.
7. In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the number or kind of shares that are subject to the Option
immediately prior to such event shall be proportionately and appropriately
adjusted without increase or decrease in the aggregate option price to be paid
therefor upon exercise of the Option. The determination of the Committee as to
the terms of any such adjustment shall be binding and conclusive upon you and
any other person or persons who are at any time entitled to exercise the Option.
8. Neither you nor any other person shall have any rights of a stockholder as
to shares under the Option until, after proper exercise of the Option, such
shares shall have been recorded on the Corporation's official stockholder
records as having been issued or transferred.
9. Subject to the terms and conditions of this Agreement, the Option may be
exercised in whole at any time or in part from time to time in integral
multiples of 100 shares each (to the maximum extent possible) by a written
notice on a form approved by the Committee that (i) is signed by the person or
persons exercising the Option, (ii) is delivered to the Corporate Secretary of
the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101 (or at
such other place that the Corporate Secretary may specify by written notice to
you), (iii) signifies election to exercise the Option, (iv) states the number of
shares as to which it is being exercised, and (v) is accompanied by payment in
full of the option price of such shares. If a properly executed notice of
exercise of the Option is not delivered to and in the hands of the Corporate
Secretary of the Corporation by the applicable expiration date or dates of this
Option, such notice will be deemed null and void and of no effect. If notice of
exercise of the Option is given by a person or persons other than you, the
Corporation may require as a condition to exercise of the Option
3
<PAGE>
the submission to the Corporation of appropriate proof of the right of such
person or persons to exercise the Option. Certificates for shares so purchased
will be issued and delivered as soon as practicable.
10. Payment of the exercise price for shares may be made in cash, by the
delivery of or certification of ownership of Common Shares that have been held
by you for a period of at least six months with a Fair Market Value equal to the
exercise price, or by a combination of cash and such shares that have been held
by you for a period of at least six months.
11. You agree to notify the Corporate Secretary of the Corporation in the event
the shares acquired by you on exercise of the Option are sold or otherwise
disposed of within one year from the date of exercise or two years from the date
the Option was granted.
The Option is issued pursuant to the Plan and is subject to its terms.
Capitalized terms used in this letter have the same meanings as defined in the
Plan. A copy of the Plan is being furnished to you with this letter and also is
available on request from the Corporate Secretary of the Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By:
----------------------------------------
President and Chief Executive Officer
By:
----------------------------------------
Senior Vice President, General Counsel
and Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1992 Stock Incentive Plan and the Prospectus covering shares
issued under that plan.
- --------------------------------------
Signature of Employee
4
<PAGE>
Exhibit 10.1.13
NONQUALIFIED STOCK OPTION AGREEMENT
Date of Grant: [DATE]
Number of Shares: [NUMBER]
Exercise Price Per Share: [PRICE]
[NAME]
[ADDRESS]
[CITY, STATE, ZIP]
Dear [SALUTATION]:
We are pleased to inform you that, as a key employee of Terra Industries
Inc. (the "Corporation") or a Subsidiary thereof, you have been granted, under
the Terra Industries Inc. 1992 Stock Incentive Plan, a Nonqualified Stock
Option, evidenced by this letter, to purchase up to a total of the number of
Common Shares set forth above at the exercise price per share set forth above
and on the terms and conditions set forth below. The Option is not intended to
be an incentive stock option within the meaning of section 422 of the Internal
Revenue Code.
1. The Option cannot be exercised unless you sign your name in the space
provided on the copy of this letter enclosed with this letter and deliver it to
the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street,
Sioux City, Iowa 51101, before 4:30 p.m. central time on [DATE]. If the
Corporate Secretary does not have your properly executed copy of this letter
before such time, then, anything in this letter to the contrary notwithstanding,
this award shall terminate and be of no effect. Your signing and delivering a
copy of this letter will not commit you to purchase any of the shares that are
subject to the Option, but will evidence your acceptance of the Option upon the
terms and conditions herein stated.
2. Subject to the provisions of this letter, the Option shall be exercisable,
in whole at any time or in part from time to time, in integral multiples of 100
shares each (to the maximum extent possible), during the period set forth in
this Section 2.
a. The Option shall be exercisable with respect to one-third of the Number
of Shares set forth above beginning on the first business day following the
first anniversary of the Date of Grant.
b. The Option shall be exercisable with respect to the next one-third of
the Number of Shares set forth above beginning on the first business day
following the second anniversary of the Date of Grant.
c. The Option shall be exercisable with respect to the final one-third of
the Number of Shares set forth above beginning on the first business day
following the third anniversary of the Date of Grant.
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d. The Option shall be exercisable with respect to all of the Number of
Shares set forth above beginning on the day any one of the following occurs: (i)
any person or group of persons acting in concert (other than Minorco, a company
incorporated under the laws of Luxembourg as a societe anonyme, and its
affiliates or a group consisting solely of such persons (the "Minorco
Affiliates")) acquires beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission promulgated under the Securities Exchange
Act of 1934) of the outstanding securities (the "Voting Shares") of the
Corporation in an amount having, or convertible into securities having, 25% or
more of the ordinary voting power for the election of directors of the
Corporation, provided that this 25% beneficial ownership trigger shall apply
only when the Minorco Affiliates no longer own 50% or more of the Voting Shares;
(ii) during a period of not more than 24 months, a majority of the Board of
Directors of the Corporation ceases to consist of the existing membership or
successors nominated by the existing membership or their similar successors;
(iii) all or substantially all of the individuals and entities who were the
beneficial owners of the Corporation's outstanding securities entitled to vote
do not own more than 60% of such securities in substantially the same
proportions following a shareholder approved reorganization, merger, or
consolidation; or (iv) shareholder approval of either (A) a complete liquidation
or dissolution of the Corporation or (B) a sale or other disposition of all or
substantially all of the assets of the Corporation, or a transaction having a
similar effect.
e. The Option shall in all events terminate at the close of business on the
last business day preceding the tenth anniversary of the Date of Grant, but
shall be subject to earlier termination as provided in Section 4 hereof.
3. The Option shall not be transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, the Option shall be
exercisable only by you.
4. If your employment with the Corporation and all Subsidiaries terminates
during the term of this agreement, the Option shall automatically terminate and
cease to be exercisable, except the term shall be extended (subject to Section
2e) as follows:
a. If your employment terminates by reason of death, the Option shall
terminate and cease to be exercisable one year from the date of death.
b. If your employment terminates by reason of Total Disability or
Retirement, the Option shall terminate and cease to be exercisable three years
from the date of Total Disability or Retirement.
c. If your employment terminates on or subsequent to the circumstances
contemplated in Section 2d, the Option shall terminate and cease to be
exercisable two years from the date of such "change in control".
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d. Notwithstanding the foregoing, in cases of special circumstances the
Committee may, in its sole discretion when it finds that a waiver would be in
the best interests of the Corporation, extend the term of this Option with
respect to all or a portion of the Number of Shares set forth above for such
period of time as the Committee deems appropriate.
5. The Corporation shall not be obligated to deliver any shares until they
have been listed (or authorized for listing upon official notice of issuance)
upon each stock exchange upon which are listed outstanding shares of the same
class as that of the shares at the time subject to the Option and until there
has been compliance with such laws or regulations as the Corporation may deem
applicable. The Corporation agrees to use its best efforts to effect such
listing and compliance. No fractional shares will be delivered.
6. For the purposes of this Agreement: (a) a transfer of your employment from
the Corporation to a Subsidiary or vice versa, or from one Subsidiary to
another, without an intervening period, shall not be deemed a termination of
employment, and (b) if you are granted in writing a leave of absence, you shall
be deemed to have remained in the employment of the Corporation or a Subsidiary
during such leave of absence.
7. In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the number or kind of shares that are subject to the Option
immediately prior to such event shall be proportionately and appropriately
adjusted without increase or decrease in the aggregate option price to be paid
therefor upon exercise of the Option. The determination of the Committee as to
the terms of any such adjustment shall be binding and conclusive upon you and
any other person or persons who are at any time entitled to exercise the Option.
8. Neither you nor any other person shall have any rights of a stockholder as
to shares under the Option until, after proper exercise of the Option, such
shares shall have been recorded on the Corporation's official stockholder
records as having been issued or transferred.
9. Subject to the terms and conditions of this Agreement, the Option may be
exercised in whole at any time or in part from time to time in intregal
multiples of 100 shares each (to the maximum extent possible) by a written
notice on a form approved by the Committee that (i) is signed by the person or
persons exercising the Option, (ii) is delivered to the Corporate Secretary of
the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101 (or at
such other place that the Corporate Secretary may specify by written notice to
you), (iii) signifies election to exercise the Option, (iv) states the number of
shares as to which it is being exercised, and (v) is accompanied by payment in
full of the exercise price of such shares. If a properly executed notice of
exercise of the Option is not delivered to and in the hands of the Corporate
Secretary of the Corporation by the applicable expiration date or dates of this
Option, such notice will be deemed null and void and of no effect. If notice of
exercise of the Option is given by a person or persons other than you, the
Corporation may require as a condition to exercise of the Option the submission
to the Corporation
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of appropriate proof of the right of such person or persons to exercise the
Option. Certificates for shares so purchased will be issued and delivered as
soon as practicable.
10. Payment of the exercise price for shares may be made in cash, by the
delivery of or certification of ownership of Common Shares that have been held
by you for a period of at least six months with a Fair Market Value equal to the
exercise price, or by a combination of cash and such shares that have been held
by you for a period of at least six months.
11. You hereby agree to pay to the Corporation, or otherwise make arrangements
satisfactory to the Corporation regarding payment of, any federal, state or
local taxes required or authorized by law to be withheld with respect to the
award of this Option or its exercise (the "Withholding Taxes"). The Corporation
shall have, to the extent permitted by law, the right to deduct from any payment
of any kind otherwise due to the Employee, any Withholding Taxes and to
condition the delivery of the Common Shares after the exercise of the Option on
the payment to the Corporation of the Withholding Taxes. In lieu of the payment
of such amounts in cash, you may pay all or a portion of the Withholding Taxes
by (i) the delivery of Common Shares not subject to any Restriction Period or
(ii) having the Corporation withhold a portion of the Common Shares otherwise to
be delivered upon exercise of the Option.
The Option is issued pursuant to the Plan and is subject to its terms.
Capitalized terms used in this letter have the same meanings as defined in the
Plan. A copy of the Plan is being furnished to you with this letter and also is
available on request from the Corporate Secretary of the Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By:
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President and Chief Executive Officer
By:
----------------------------------------------
Senior Vice President, General Counsel
and Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1992 Stock Incentive Plan and the Prospectus covering shares
issued under that Plan.
- ---------------------
Signature of Employee
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Exhibit 10.1.14
TERRA INDUSTRIES INC.
1997 STOCK INCENTIVE PLAN
1. Purpose of the Plan; Effect on Prior Plan
(a) The purpose of this Stock Incentive Plan (the "Plan") is to aid Terra
Industries Inc. and its Subsidiaries in securing and retaining Key Employees of
outstanding ability by making it possible to offer them an increased incentive,
in the form of a proprietary interest in the Corporation, to join or continue in
the service of the Corporation and to increase their efforts for its welfare.
(b) From and after stockholder approval of the Plan, no stock awards shall
be granted under the Corporation's 1992 Stock Incentive Plan. All outstanding
stock options and restricted stock awards previously granted under the
Corporation's 1992 Stock Incentive Plan shall remain outstanding in accordance
with the terms thereof.
2. Definitions
As used in the Plan, the following words shall have the following meanings:
(a) "Award" means an award granted to any Key Employee in accordance with
the provisions of the Plan in the form of Options, Rights, Performance Units or
Restricted Stock, or any combination of the foregoing.
(b) "Beneficiary" means the beneficiary or beneficiaries designated pursuant
to Section 13 of the Plan to receive the amount, if any, of Awards of
Performance Units or Restricted Stock payable under the Plan upon the death of a
Key Employee.
(c) "Board of Directors" means the Board of Directors of the Corporation.
(d) "Committee" means the committee described in Section 4 of the Plan.
(e) "Common Shares" means the Common Shares (without par value) of the
Corporation.
(f) "Corporation" means Terra Industries Inc. and its successors and
assigns.
(g) "Fair Market Value" means (except as provided in Section 8(d)), as of
any date, the closing sales price of a Common Share on the New York Stock
Exchange- Composite Transactions or, if there are no sales reported on the New
York Stock Exchange - Composite Transactions for such date, such closing sales
price for the next preceding date for which sales were reported.
(h) "Incentive Stock Option" means an option to purchase Common Shares that
is intended to qualify as an incentive stock option as defined in Section 422 of
the Internal Revenue Code.
(i) "Internal Revenue Code" means the Internal Revenue Code of 1986 as now
in effect or as hereafter amended or modified from time to time.
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(j) "Key Employee" means any person, including officers and directors, in
the regular full-time employment of the Corporation or a Subsidiary who, in the
opinion of the Committee, is, or is expected to be, primarily responsible for
the management, growth or protection of some part or all of the business of the
Corporation and its Subsidiaries or otherwise to contribute substantially to the
success of the Corporation and its Subsidiaries.
(k) "Nonqualified Stock Option" means an option to purchase Common Shares
that is intended not to qualify as an incentive stock option as defined in
Section 422 of the Internal Revenue Code.
(l) "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
(m) "Performance Unit" means a performance unit awarded under Section 10 of
the Plan.
(n) "Restricted Stock" means one or more Common Shares awarded under Section
11 of the Plan, subject to such restrictions as the Committee deems appropriate
or desirable.
(o) "Retirement" means becoming eligible to receive immediate retirement
benefits under a retirement or pension plan of the Corporation or any
Subsidiary.
(p) "Right" means a stock appreciation right to elect to receive Common
Shares with a Fair Market Value, at the time of any exercise of such stock
appreciation right, equal to the amount by which the Fair Market Value of all
shares subject to the Option (or part thereof) in respect of which such stock
appreciation right was granted exceeds the exercise price of the Option (or part
thereof) or to receive from the Corporation, in lieu of such shares, the Fair
Market Value thereof in cash, as provided in Sections 7 and 8.
(q) "Subsidiary" means any corporation (other than Corporation) in an
unbroken chain of corporations beginning with Corporation if each of the
corporations other than the last corporation in the unbroken chain owns more
than 50% of the voting stock in one of the other corporations in such chain.
(r) "Total Disability" means the complete and permanent inability of a Key
Employee to perform the Key Employee's duties under the terms of the Key
Employee's employment with the Corporation or any Subsidiary, as determined by
the Committee upon the basis of such evidence, including independent medical
reports and data, as the Committee deems appropriate or necessary.
3. Shares Subject to the Plan
(a) The aggregate number of Common Shares that may be subject to Awards
under the Plan shall not exceed 3,800,000 shares. Such shares shall be made
available from authorized and unissued shares. If, for any reason, any Common
Shares awarded or subject to purchase by exercising an Option under the Plan are
not delivered or are reacquired by the Corporation, for reasons including, but
not limited to, a forfeiture of Restricted Stock or termination, expiration or
cancellation of an Option, Right or a Performance Unit, such Common Shares shall
again become available for award under the Plan. For the purposes of determining
the aggregate number of shares that are subject to Awards, Common Shares
issuable upon settlement of a Performance Unit shall be valued at their Fair
Market Value on the date of award. To the extent a Right granted in
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connection with an Option is exercised, the related Option shall, solely for the
purposes of determining the total number of shares available for grant under
this Plan, be deemed to have been exercised, and the Common Shares that
otherwise would have been issued upon the exercise of such Option shall not
thereafter be available for any further grants. In the event the Corporation
makes an acquisition or is a party to a merger or consolidation and the
Corporation assumes the options of the company acquired, merged or consolidated
that are administered pursuant to this Plan, the assumed options shall not count
as part of the total number of Common Shares that may be made subject to Awards
under this Plan.
(b) The maximum number of shares that may be granted in the form of Awards
pursuant to any and all Awards granted in any fiscal year to a Key Employee
shall be 500,000 shares (subject to adjustment in the same manner as provided in
Section 15). The limitations set forth in the preceding sentence shall be
applied in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of Section 162 (m) of
the Internal Revenue Code.
4. Administration of the Plan
(a) The Plan shall be administered by a Committee of directors of the
Corporation appointed by the Board of Directors and consisting of at least two
members of the Board of Directors.
(b) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in the
sole discretion of the Committee and shall be final, conclusive and binding on
all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof and to make and
amend rules for carrying out the Plan, and its interpretations and constructions
thereof and actions taken thereunder shall be, except as otherwise determined by
the Board of Directors, final, conclusive and binding on all persons for all
purposes.
(d) The Committee's decisions and determinations under the Plan need not be
uniform and may be made selectively among Key Employees, whether or not such Key
Employees are similarly situated.
(e) The Committee may, in its sole discretion, delegate such of its powers
as it deems appropriate.
(f) The Committee may adopt its own rules of procedure; and the action of a
majority of the Committee, taken at a meeting or taken without a meeting by a
writing signed by such majority, shall constitute action by the Committee.
5. Grant of Awards and Award Agreements
(a) Subject to the provisions of the Plan, the Committee shall (i) determine
and designate from time to time those Key Employees or groups of Key Employees
to whom Awards are to be granted; (ii) determine the form or forms of Award to
be granted to any Key Employee; (iii) determine the
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amount or number of Common Shares or Performance Units subject to each Award;
and (iv) determine the terms and conditions of each Award.
(b) Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Such agreement shall be subject to and incorporate the express terms
and conditions, if any, required under the Plan or otherwise provided by the
Committee, including, but not limited to, provisions relating to change in
control situations.
(c) The Committee may impose such conditions as it deems advisable on the
grant of an Award.
(d) The Committee may, in its discretion, grant one or more new Options (and
related Rights) to any Key Employee, having any such terms permitted under the
Plan as the Committee may determine, on the condition that such Key Employee
surrender to the Corporation for cancellation one or more Options (and related
Rights) previously granted to such Key Employee, whether or not at a higher
price.
6. Terms of Options
The terms of each Option granted under the Plan shall be as determined from
time to time by the Committee and shall be set forth in a form approved by the
Committee, consistent however with the following:
(a) The Option exercise price per share shall not be less than Fair Market
Value at the time the Option is granted.
(b) (i) Options may be granted for such lawful consideration as shall be
determined by the Committee. Such consideration may, but need not, consist of a
condition that, prior to exercise, the recipient of the Award remain in the
employ of the Corporation or a Subsidiary for such period or periods after the
date of grant of the Option as may be determined by the Committee. The Option
shall be exercisable in whole or in part from time to time during the period
beginning at the earlier of the date of grant or the completion of any required
service period stated in the Option and ending at the expiration of ten years
from the date of grant of an Incentive Stock Option and ten years and three
months from the date of grant of a Nonqualified Stock Option, unless an earlier
expiration date shall be stated in the Option or the Option shall cease to be
exercisable pursuant to paragraph (d) of this Section 6.
(ii) The aggregate Fair Market Value, determined at the time an Incentive
Stock Option is granted, of the shares with respect to which Incentive Stock
Options may be exercisable for the first time by a Key Employee in any calendar
year under all plans of the Corporation and any parent corporation of the
Corporation and any Subsidiary shall not exceed $100,000.
(c) Payment in full of the Option exercise price shall be made upon exercise
of each Option and may be made (i) in cash; (ii) by the delivery of or
certification of ownership of Common Shares with a Fair Market Value equal to
the Option exercise price, provided the Key Employee has held such shares for a
period of at least six months; (iii) by a combination of cash and such shares
that have been held by the Key Employee for a period of at least six months, the
Fair Market Value of which, together with such cash, shall equal the exercise
price; or (iv) for any other lawful consideration as determined by the
Committee. The Committee may also permit the holders of Options, in
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accordance with such procedures as the Committee may in its sole discretion
establish, to exercise Options and sell Common Shares thereby acquired pursuant
to a brokerage or similar arrangement, approved in advance by the Committee, and
to use the proceeds from such sale as payment of the exercise price of such
Options.
(d) (i) If a Key Employee's employment with the Corporation and all
Subsidiaries terminates other than by reason of the Key Employee's death, Total
Disability or Retirement, the Key Employee's Option shall terminate and cease to
be exercisable upon termination of employment, unless the Committee shall
determine otherwise.
(ii) If a Key Employee's employment with the Corporation and all
Subsidiaries terminates by reason of death, the Key Employee's Option shall
terminate and cease to be exercisable at the earlier of one year from the date
of death, unless the Committee shall determine otherwise, or the expiration of
the term stated in the Option Agreement.
(iii) If a Key Employee's employment with the Corporation and all
Subsidiaries terminates by reason of Total Disability or Retirement, the Key
Employee's Option shall terminate and cease to be exercisable at the earlier of
three years from date of Total Disability or Retirement, unless the Committee
shall determine otherwise, or the expiration of the term stated in the Option
Agreement.
7. Granting of Rights
The Committee, at the time of grant of an Option, or at any time prior to the
expiration of its term may also grant, subject to the terms and conditions of
the Plan, Rights in respect of all or part of such Option to the Key Employee
who has been granted the Option, provided that at such time the grantee is a Key
Employee.
8. Exercise of Options and Rights
(a) The holder of an Option or Right who decides to exercise the Option or
Right in whole or in part shall give notice to the Corporate Secretary of the
Corporation of such exercise in writing on a form approved by the Committee. A
notice exercising a Right shall also specify the extent, if any, to which the
Key Employee elects to receive Common Shares and the extent, if any, to which
the Key Employee elects to receive cash, and shall be subject to the
determination by the Committee as provided in Section 8(d). Any exercise shall
be effective as of the date the Corporate Secretary of the Corporation receives
the notice of exercise, and in the case of exercise of an Option, payment in
full of the Option exercise price.
(b) To the extent an Option is exercised in whole or in part, any Right
granted in respect of such Option (or part thereof) shall terminate and cease to
be exercisable. To the extent a Right is exercised in whole or in part, the
Option (or part thereof) in respect of which such Right was granted shall
terminate and cease to be exercisable.
(c) Subject to Section 7, a Right shall be exercisable only during the
period in which the Option (or part thereof) in respect of which such Right was
granted is exercisable. In addition, a Right that relates to an Incentive Stock
Option shall be exercisable only if and when there is a "positive spread" within
the meaning of applicable Treasury Regulations.
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(d) The Committee shall have sole discretion to determine the form in which
payment will be made following exercise of a Right. All or any part of the
obligation arising out of an exercise of a Right may be settled (i) by payment
in Common Shares with a Fair Market Value equal to the cash that would otherwise
be paid; (ii) by payment in cash; or (iii) by payment in combination of such
shares and cash.
9. Limitations and Conditions on Awards
(a) No Award shall be granted under the Plan after March 31, 2002, but
Awards theretofore granted may extend beyond that date. At the time an Award is
granted or amended or the terms or conditions of an Award are changed, the
Committee may provide for limitations or conditions on the exercisability or
vesting of the Award.
(b) An Award shall not be transferable by the Key Employee otherwise than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder. A Right
shall never be transferred except to the transferee of the related Option.
During the lifetime of the Key Employee, an Option or Right shall only be
exercisable by the Key Employee. Notwithstanding the foregoing, at the
discretion of the Committee, a grant of an Award may permit the transfer of the
Award by the Key Employee solely to members of the Key Employee's immediate
family or trusts or family partnerships for the benefit of such persons, subject
to such terms and conditions as may be established by the Committee.
(c) No person shall have any rights of a stockholder (i) as to shares under
Option until, after proper exercise of the Option, such shares shall have been
recorded on the Corporation's official stockholder records as having been issued
or transferred or (ii) as to shares to be delivered following exercise of a
Right until, after proper exercise of the Right and determination by the
Committee to make payment therefor in shares, such shares shall have been
recorded on the Corporation's official stockholder records as having been issued
or transferred.
10. Performance Units
(a) Subject to the provisions of the Plan, the Committee shall (i) determine
and designate from time to time those Key Employees or groups of Key Employees
to whom Awards of Performance Units are to be made, (ii) determine the
Performance Period (the "Performance Period") and Performance Objectives (the
"Performance Objectives") applicable to such Awards, (iii) determine the form of
settlement of a Performance Unit and (iv) generally determine the terms and
conditions of each such Award. Each Performance Unit shall have a value of $100.
(b) The Committee shall determine a Performance Period of not less than two
nor more than five years. Performance Periods may overlap and Key Employees may
participate simultaneously with respect to Performance Units for which different
Performance Periods are prescribed.
(c) The Committee shall determine the Performance Objectives of Awards of
Performance Units. Performance Objectives may vary from Key Employee to Key
Employee and between groups of Key Employees and shall be based upon such
performance criteria or combination of factors as the Committee may deem
appropriate, including, but not limited to, minimum earnings, earnings per
share, earnings growth, earnings per share growth, return on equity or share
price appreciation. If during the course of a Performance Period there shall
occur significant events that the Committee expects to have a substantial effect
on the applicable Performance Objectives during such period, the Committee may
revise such Performance Objectives.
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(d) At the beginning of a Performance Period, the Committee shall determine
for each Key Employee or group of Key Employees the number of Performance Units
that shall be paid to the Key Employee or member of the group of Key Employees
if the applicable Performance Objectives are met in whole or in part.
(e) If a Key Employee terminates service with the Corporation and all
Subsidiaries during a Performance Period because of death, Total Disability,
Retirement, or under other circumstances where the Committee in its sole
discretion finds that a waiver would be in the best interests of the
Corporation, that Key Employee may, as determined by the Committee, be entitled
to an Award of Performance Units at the end of the Performance Period based upon
the extent to which the Performance Objectives were satisfied at the end of such
period and prorated for the portion of Performance Period during which the Key
Employee was employed by the Corporation or any Subsidiary; provided, however,
the Committee may provide for an earlier payment in settlement of such
Performance Units in such amount and under such terms and conditions as the
Committee deems appropriate or desirable. If a Key Employee terminates service
with the Corporation and all Subsidiaries during a Performance Period for any
other reason, then such Key Employee shall not be entitled to any Award with
respect to that Performance Period unless the Committee shall otherwise
determine.
(f) Each Award of a Performance Unit shall be paid in whole Common Shares,
or cash, or a combination of Common Shares and cash either as a lump sum payment
or in annual installments, all as the Committee shall determine, with payment to
commence as soon as practicable after the end of the relevant Performance
Period.
(g) Common Shares issued in settlement of Performance Units shall be valued
at their Fair Market Value on the last day of the Performance Period.
(h) No Key Employee awarded a Performance Unit shall have any right as a
stockholder with respect to any shares covered by the Award prior to the date
such shares have been recorded on the Corporation's official stockholder records
as having been issued or transferred to the Key Employee.
11. Restricted Stock
(a) Restricted Stock shall be subject to a restriction period (after which
restrictions shall lapse), which shall mean a period commencing on the date the
Award is granted and ending on such date as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse of restrictions
in installments where deemed appropriate. The Committee may, at its discretion,
provide that the Restricted Stock shall be subject to Performance Objectives (as
such term is defined in Section 10).
(b) Except when the Committee determines otherwise pursuant to Section
11(d), if a Key Employee terminates employment with the Corporation and all
Subsidiaries for any reason before the expiration of the Restriction Period, all
shares of Restricted Stock still subject to restriction shall be forfeited by
the Key Employee and shall be reacquired by the Corporation.
(c) Except as otherwise provided in this Section 11 or in the last sentence
of Section 9(b), no shares of Restricted Stock received by a Key Employee shall
be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of
during the Restriction Period.
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(d) In cases of death, Total Disability or Retirement or in cases of special
circumstances, the Committee may, in its sole discretion when it finds that a
waiver would be in the best interests of the Corporation, elect to waive any or
all remaining restrictions or extend the restriction period on a basis
consistent with the extension of Options contemplated in Section 6(d) with
respect to such Key Employee's Restricted Stock.
(e) The Committee may require, under such terms and conditions as it deems
appropriate or desirable, that the certificates for Common Shares delivered
under the Plan may be held in custody by a bank or other institution, or that
the Corporation may itself hold such shares in custody until the Restriction
Period expires or until restrictions thereon otherwise lapse, and may require,
as a condition of any Award of Restricted Stock that the Key Employee shall have
delivered a stock power endorsed in blank relating to the Restricted Stock.
(f) Nothing in this Section 11 shall preclude a Key Employee from exchanging
any shares of Restricted Stock subject to the restrictions contained herein for
any other Common Shares that are similarly restricted.
(g) Subject to Section 11(e) and Section 12, each Key Employee entitled to
receive Restricted Stock under the Plan shall be issued a certificate for the
Common Shares. Such certificate shall be registered in the name of the Key
Employee, and shall bear an appropriate legend reciting the terms, conditions
and restrictions, if any, applicable to such Award and shall be subject to
appropriate stop-transfer orders.
(h) Except for the restrictions on Restricted Stock under this Section 11,
each Key Employee who receives Common Shares in settlement of an Award of
Restricted Stock shall have the rights of a stockholder with respect to such
shares, including the right to vote the shares and receive dividends and other
distributions.
12. Certificates for Awards of Stock
(a) The Corporation shall not be required to issue or deliver any
certificates for Common Shares prior to (i) the listing of such shares on any
stock exchange on which the Common Shares may then be listed and (ii) the
completion of any registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any government body which the
Corporation shall, in its sole discretion, determine to be necessary or
advisable.
(b) All certificates for Common Shares delivered under the Plan shall also
be subject to such stop-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Shares are then listed and any applicable federal, state or local securities
laws, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
13. Beneficiary Designation
(a) Each Key Employee may file with the Corporation a written designation of
one or more persons as the Beneficiary or Beneficiaries who shall be entitled to
receive the benefits of any Award payable under the Plan upon the Key Employee's
death. Subject to the requirements of law, a Key Employee may from time to time
revoke or change the Beneficiary designation without the consent of any prior
Beneficiary by filing a new designation with the Corporation. The last such
designation received by the Corporation shall be controlling; provided, however,
that no designation,
8
<PAGE>
or change or revocation thereof, shall be effective unless received by the
Corporation prior to the Key Employee's death, and in no event shall it be
effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of a Key
Employee's death, or if no designated Beneficiary survives the Key Employee or
if such designation conflicts with the law, the Key Employee's estate shall be
entitled to receive the benefits of any Award payable under the Plan upon the
Key Employee's death. If the Committee is in doubt as to the right of any person
to receive such Award, the Corporation may retain such Award, without liability
for any interest thereon, until the Committee determines the rights thereto, or
the Corporation may pay such Award into any court of appropriate jurisdiction
and such payment shall be a complete discharge of the liability of the
Corporation therefor.
14. Transfers and Leaves of Absence
Solely for the purposes of the Plan: (a) a transfer of a Key Employee's
employment without an intervening period from the Corporation to a Subsidiary or
vice versa, or from one Subsidiary to another, shall not be deemed a termination
of employment, and (b) a Key Employee who is granted in writing a leave of
absence shall be deemed to have remained in the employ of the Corporation or a
Subsidiary, as the case may be, during such leave of absence.
15. Stock Adjustments
In the event of any merger, consolidation, stock or other non-cash dividend,
split-up, combination or exchange of shares or recapitalization or change in
capitalization involving the Corporation, or any other similar corporate event,
the number of shares set forth in Section 3 shall be proportionately and
appropriately adjusted. In any such case, (i) the number and kind of shares that
are subject to any Award (including any Option outstanding after termination of
employment) and the Option exercise price per share shall be proportionately and
appropriately adjusted without any change in the aggregate Option exercise price
to be paid therefor upon exercise of the Option, and (ii) the Committee may make
such adjustments in the number and kind of Rights, Performance Units and
Restricted Stock as it shall deem appropriate in the circumstances. The
determination by the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
16. Tax Benefit Rights and Withholding
(a) The Committee may also from time to time and upon such terms and
conditions as it may in its discretion determine, grant the holder of any Option
under this Plan selected by the Committee the right ("tax benefit right") to
receive from the Corporation or any of its wholly owned subsidiaries as a result
of the exercise of any Option or Right (except an Incentive Stock Option or
Right with respect thereto) granted pursuant to this Plan, an amount, in cash,
equal to the then applicable maximum statutory federal income tax rate for
corporations (subject to a maximum of 40%) multiplied by the amount of
compensation, if any, realized by the holder for federal income tax purposes
upon exercise. Such payment shall not be made except pursuant to the exercise of
any Option or Right not earlier than six months after the date of grant of the
related tax benefit right. The Committee may cancel or place a limit on the term
or amount of any tax benefit right at any time and shall determine all other
terms and provisions of any tax benefit right.
(b) The Corporation shall have the right to deduct from any cash payment
made under the Plan any federal, state or local income or other taxes required
by law to be withheld with respect to such payment. It shall be a condition to
the obligation of the Corporation to deliver Common Shares
9
<PAGE>
upon the exercise of any Option or Right, upon payment of a Performance Unit or
upon delivery of Restricted Stock that the Key Employee pay to the Corporation
such amount as may be requested by the Corporation for the purpose of satisfying
any liability for such withholding taxes. Any Award Agreement may provide that
the Key Employee may elect, in accordance with any conditions set forth in such
Award Agreement, to pay a portion or all of such withholding taxes in Common
Shares.
17. Amendment and Termination
(a) The Board of Directors may amend, suspend, or discontinue the Plan at
any time; provided, however, that no amendment, suspension or discontinuance
shall adversely affect any outstanding benefit and if any law, agreement or
exchange on which Common Shares of the Corporation is traded requires
stockholder approval for an amendment to become effective, no such amendment
shall become effective unless approved by vote of the Corporation's
stockholders.
(b) The Board of Directors may suspend or terminate the Plan at any time. No
such suspension or termination shall affect Awards then in effect.
(c) The Committee may, in its discretion, amend or modify the terms and
conditions of outstanding Awards, including amending or modifying an Option to
convert the Option from an Incentive Stock Option to a Nonqualified Stock Option
or from a Nonqualified Stock Option to an Incentive Stock Option.
(d) The Committee may not, without the consent of the Award recipient,
modify such terms and conditions in a manner that would adversely affect the
rights of such person, except to the extent, if any, provided in the Plan or in
the Award.
18. Effective Date
The Plan shall be effective as of February 20, 1997, subject to its approval
by the stockholders of the Corporation. All Awards that have been or may be
granted under the Plan prior to stockholder approval shall be conditioned upon,
and may not vest or be exercisable until after, such stockholder approval.
10
<PAGE>
Exhibit 13
TERRA INDUSTRIES INC.
1996 ANNUAL REPORT
FINANCIAL SECTION
FINANCIAL TABLE OF CONTENTS
Financial Review
Consolidated Statements of Financial Position
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to the Consolidated Financial Statements
Responsibility for Financial Statements
Independent Auditors' Report
Quarterly Production Data
Quarterly Financial and Stock Market Data
Revenues
Volumes and Prices
Stockholders
Financial Summary
<PAGE>
CONFIDENTAL
2
Financial Review
Consolidated Results
Net income for 1996 amounted to $134.0 million compared with $159.5 million in
1995 and $56.6 million in 1994 with per share earnings of $1.72, $1.96 and
$0.78, respectively. Revenues increased to $2.32 billion in 1996 from $2.29
billion in 1995 and $1.67 billion in 1994.
In 1996, income taxes were reduced $18 million as a result of a transaction with
a Canadian subsidiary of Minorco, the Corporation's majority shareholder. The
Corporation purchased $32 million of tax benefits at a cost of $14 million. Net
income in 1995 and 1994 was reduced by $4.3 million and $3.1 million, or $0.05
and $0.04 per share, respectively, due to the write-off of deferred financing
fees in connection with the early retirement of debt. Additionally, 1994 results
included a net gain of $3.4 million, or $0.05 per share, to recognize the
cumulative effect of a change in the method of accounting for major maintenance
costs and adoption of Statement of Financial Accounting Standards (SFAS) 112,
"Employers' Accounting for Post-Employment Benefits."
Financial Comparability and Overview
The Corporation's improved earnings in 1996 and 1995 compared to 1994 reflect
internal growth and acquisitions which have increased its manufacturing and
distribution capabilities. The following acquisitions are included in operating
results:
On October 20, 1994, the Corporation acquired the stock of Agricultural Minerals
and Chemicals Inc. (AMCI), for $506 million in cash. Through the AMCI
acquisition and subsequent open market purchases, the Corporation, including its
interest as the general partner, has an approximate 65% ownership interest in
ammonia production and upgrading facilities located in Verdigris, Oklahoma and
Blytheville, Arkansas. The acquisition also included a wholly owned methanol
production facility located in Beaumont, Texas.
On September 15, 1994, the Corporation acquired an approximate 34% interest in
Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a 104-location
distributor of crop production products in the mid-Atlantic region with annual
sales of approximately $200 million.
In addition, the Corporation continues to add distribution locations each year
through acquisition of numerous distributors in its marketing area.
<PAGE>
CONFIDENTAL
3
Factors That Affect Operating Results
Factors that may affect the Corporation's future operating results include: the
relative balance of supply and demand for nitrogen fertilizers and methanol, the
number of planted acres - which is impacted by both worldwide demand and
governmental policies - the types of crops planted, the effects general weather
patterns have on the timing and duration of field work for crop planting and
harvesting, the supply of crop production products, the availability and cost of
natural gas, the effect of environmental legislation on demand for the
Corporation's products, the availability of financing sources to fund seasonal
working capital needs, and the potential for interruption to operations due to
accident or natural disaster.
Prices for nitrogen products are influenced by the world supply and demand
balance for ammonia and nitrogen-based products. Long-term demand is affected by
population growth and rising living standards that determine food consumption.
Supply is affected by worldwide capacity and the availability of nitrogen
product exports from major producing regions such as the former Soviet Union,
the Middle East and South America. Due to several years of favorable economics
in the industry, capacity additions in the form of new and expanded production
facilities have been undertaken. Consequently, new nitrogen fertilizer suppliers
are anticipated to come on-stream during the next few years. If increasing
demand is insufficient to absorb new supplies, profit margins would be under
pressure.
Methanol is used as a raw material in the production of formaldehyde, methyl
tertiary butyl ether (MTBE), acetic acid and numerous other chemical
derivatives. The price of methanol is highly influenced by the supply and demand
for each of these secondary markets, in particular MTBE, an oxygenate used in
reformulated gasoline and an octane enhancer used in non-reformulated gasoline.
Future demand for MTBE and methanol will depend on the degree to which Clean Air
Act Amendments are implemented and enforced, potential legislation and the
willingness of regulatory agencies to grant waivers.
Due to the higher quantities of crop production products per acre for corn and
cotton compared with other major crops, changes in corn and cotton acreages have
a more significant effect on the demand for the Corporation's products and
services than changes in other crops. Passage of the 1996 Farm Bill (the Federal
Agriculture Improvement and Reform Act of 1996) eliminates over the next seven
years annual acreage set-asides and base acreage restrictions for most crops.
This will provide farmers more freedom in making decisions regarding what crops
are planted. Worldwide grain stocks remain at low levels. Planted acreage for
corn is expected to increase
<PAGE>
CONFIDENTAL
4
in 1997 to 82.1 million acres from 79.5 million acres in 1996. Planted cotton
acreage in the U.S. is estimated to decline to 13.7 million acres from 14.7
million acres in 1996.
Weather can have a significant effect on the Corporation's operations. Weather
conditions that delay or intermittently disrupt field work during the planting
and growing season may result in fewer than normal crop production products
being applied and/or shift plantings to crops with shorter growing seasons.
Similar conditions following harvest may delay or eliminate opportunities to
apply fertilizer in the fall. Weather can also have an adverse effect on crop
yields, which lowers the income of growers and could impair their ability to pay
for crop production products purchased from the Corporation and its dealer
customers. During 1996 planting conditions were unfavorable in many areas of the
U.S. causing a reduction in planted acres and use of certain crop production
products.
Reliable sources for supply of crop production products at competitive prices
are critical to the Distribution portion of the Corporation's business. The
Corporation's sources for fertilizer, crop protection products and seed are
typically manufacturers without the capability to distribute products to the
North American grower. The Corporation has entered into purchase agreements
which should ensure an adequate supply of products for its grower and dealer
customers through 1997, with some major supplier agreements extending into 1999.
The principal raw material used to produce manufactured nitrogen products and
methanol is natural gas. Natural gas costs comprise almost 45% of the total
costs and expenses associated with nitrogen production and in excess of 50% of
the total costs and expenses associated with methanol. The Corporation's natural
gas procurement policy is to effectively fix or cap the price of approximately
40% to 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. The Corporation believes that there is a sufficient supply to allow
acceptable costs for the foreseeable future and has entered into firm contracts
to minimize the risk of interruption or curtailment of natural gas supplies
during the heating season.
The Corporation's Distribution business segment is highly seasonal with the
majority of sales occurring during the second quarter in conjunction with spring
planting activity. Due to the seasonality of the business and the relatively
brief periods during which products can be used by customers, the Corporation
builds inventories during the first quarter of the year in order to ensure
timely product availability during the peak sales season. The Corporation's
ability to purchase product at off-season prices and carry inventory until
periods of peak demand generally contributes to higher margins. For its current
level of sales, the Corporation requires lines of credit to
<PAGE>
CONFIDENTAL
5
fund inventory increases and to support customer credit terms. The Corporation
believes that its credit facilities are adequate for expected sales levels in
1997 and for the next several years.
The Corporation's manufacturing operations may be subject to significant
interruption if one or more of its facilities were to experience a major
accident or were damaged by severe weather or other natural disaster. The
Corporation currently maintains insurance (including business interruption
insurance) and expects that it will continue to do so in an amount which it
believes is sufficient to allow the Corporation to withstand major damage to any
of its facilities. The Corporation's Port Neal facility experienced such a
casualty on December 13, 1994.
Derivative Financial Instruments
The Corporation uses derivative financial instruments to manage risk in the
areas of (a) foreign currency fluctuations, (b) changes in natural gas supply
prices, (c) changes in interest rates and (d) the effect of methanol prices
relative to natural gas prices. See Note 13 to the Consolidated Financial
Statements for information on the use of derivative financial instruments.
Results of Operations
1996 Compared with 1995
Consolidated Results
The Corporation reported net income of $134.0 million, or $1.72 per share, on
revenues of $2.32 billion for 1996 compared with net income of $159.5 million,
or $1.96 per share, on revenues of $2.29 billion in 1995. The 1995 results
included an extraordinary loss on early retirement of debt of $4.3 million, or
$0.05 per share.
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 those
operations directly related to 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.
<PAGE>
CONFIDENTIAL
6
Total revenues and operating income for years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Distribution $1,573,827 $1,495,166
Nitrogen Products 654,486 635,126
Methanol 132,533 194,565
Other - net of intercompany eliminations (44,360) (32,684)
- ------------------------------------------------------------------------
$2,316,486 $2,292,173
========================================================================
OPERATING INCOME:
Distribution $ 25,268 $ 41,207
Nitrogen Products 255,263 263,787
Methanol 18,520 77,138
Other expense - net (3,870) (4,430)
- ------------------------------------------------------------------------
295,181 377,702
Interest expense - net (52,845) (51,086)
Minority interest (44,485) (47,234)
- ------------------------------------------------------------------------
Total from operations $ 197,851 $ 279,382
========================================================================
</TABLE>
Distribution
Distribution revenues for the year ended December 31, 1996 increased 5.3% to
$1.57 billion from the comparable 1995 period. New locations in 1996 contributed
$69.0 million to the increase in revenues. Same store revenues did not
significantly change in 1996 due to adverse weather conditions, change in mix of
crops, lower insect pressure and the economic condition of some growers.
Operating income for the Distribution segment amounted to $25.3 million for 1996
in comparison with $41.2 million for 1995. Provisions for doubtful accounts
increased $8.1 million in 1996 as a result of two consecutive years of drought
conditions across Southern markets. Growth of the Distribution network to 393
locations from 382 in 1995 increased gross profits by $12.7 million but also
increased selling expenses by $11.7 million. Expense increases resulting from an
expanded sales force and additional equipment at existing locations to meet
demands for services and products in the 1996 season exceeded increases to gross
profits by approximately $8 million.
Nitrogen Products
Nitrogen Products revenues increased $19.4 million to $654.5 million for 1996 in
comparison with 1995 due to greater sales volumes for ammonia and nitrogen
solutions partly offset by lower sales volumes for urea and lower prices. Sales
volumes increased as a result of the start-up of the Port Neal manufacturing
plant which began producing ammonia in December 1995 and nitrogen solutions in
May 1996.
<PAGE>
CONFIDENTIAL
7
Nitrogen Products 1996 operating income of $255.3 million was $8.5 million less
than 1995. Earnings attributable to the 1996 start-up of the Port Neal plant
approximated 1995 business interruption proceeds. Price declines of $20.7
million were partially offset by natural gas cost savings of $18.3 million for
1996 compared with 1995. The use of financial derivatives to forward price
natural gas costs more than offset an approximate 27% increase in the 1996 spot
market price of natural gas compared with 1995. Non-recurring costs of $4.2
million were incurred in 1996 as a result of staff reductions at the Courtright
manufacturing plant.
Methanol
Methanol revenues in 1996 and 1995 totaled $132.5 million and $194.6 million,
respectively. Revenues declined in 1996 as the result of significantly lower
selling prices. Prices fell almost one-third from $0.62 per gallon in 1995 to
$0.42 per gallon in 1996.
Methanol operating income for 1996 was $18.5 million while 1995 operating income
was $77.1 million. Lower selling prices reduced 1996 Methanol operating income
but were partially offset by lower natural gas costs. Natural gas costs were
lower as the use of financial derivatives to forward price a majority of the
natural gas requirements more than offset an approximate 27% increase in the
spot market price of natural gas for 1996 in comparison with 1995. The
Corporation expects methanol prices to continue within their "normal" historical
range of $0.30 to $0.60 per gallon.
Other Operating Expense - Net
Other operating expense was $3.9 million in 1996 compared with $4.4 million in
1995. Other expense includes expenses not directly related to individual
business segments, including certain insurance coverages, corporate finance fees
and other costs.
Interest Expense - Net
Net interest expense of $52.8 million in 1996 approximated 1995 amounts for the
year ended December 31, 1996.
Minority Interest
Minority interest, representing primarily third party unitholder interest in the
earnings of Terra Nitrogen Company, L.P. (TNCLP), totaled $44.5 million in 1996
compared with $47.2 million in 1995. Minority interest declined due primarily to
the purchase of Senior Preference Units (SPUs) by the Corporation in the second
and third quarters of 1995.
<PAGE>
CONFIDENTIAL
8
Income Taxes
Income tax expense was recorded at an effective rate of 32.3% for the year ended
December 31, 1996 compared with 41.3% in 1995. During 1996 the Corporation
purchased tax benefits from a Canadian subsidiary of Minorco, resulting in a
deferred tax asset for the Corporation which reduced the effective rate by 9.1%.
Results of Operations
1995 Compared with 1994
Consolidated Results
The Corporation reported net income of $159.5 million, or $1.96 per share, on
revenues of $2.29 billion in 1995 compared with net income of $56.6 million, or
$0.78 per share, on revenues of $1.67 billion in 1994. Results for 1995 include
a full year's effect of the AMCI acquisition which took place on October 20,
1994. The effect of including a full year of operations of the acquired business
increased 1995 revenues by $433 million and net income by $60 million. Other
significant factors that contributed to a successful 1995 were continued growth
in the Distribution segment despite a reduction in planted acres, a 24% increase
in nitrogen prices and natural gas costs which averaged 15% less than the prior
year.
Total revenues and operating income for the years ended December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
Pro Forma
1994
(in thousands) 1995 (unaudited - see below) 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Distribution $1,495,166 $1,318,416 $1,318,416
Nitrogen Products 635,126 539,152 296,557
Methanol 194,565 246,404 70,274
Other - net (32,684) (19,145) (19,300)
- -------------------------------------------------------------------------------
$2,292,173 $2,084,827 $1,665,947
===============================================================================
OPERATING INCOME:
Distribution $ 41,207 $ 33,784 $ 33,784
Nitrogen Products 263,787 111,961 48,369
Methanol 77,138 129,888 42,679
Other expense - net (4,430) (9,466) (9,537)
- -------------------------------------------------------------------------------
377,702 266,167 115,295
Interest expense - net (51,086) (49,367) (16,541)
Minority interest (47,234) (34,916) (8,809)
- -------------------------------------------------------------------------------
Total from operations $ 279,382 $ 181,884 $ 89,945
===============================================================================
</TABLE>
<PAGE>
CONFIDENTIAL
9
The unaudited, pro forma results of operations have been prepared to give effect
to the Corporation's (i) acquisition of AMCI, (ii) issuance of 9.7 million
Common Shares, and (iii) borrowing under a credit agreement entered into in
connection with the acquisition, assuming that all such transactions had
occurred on January 1, 1994. The pro forma financial data is presented for
informational purposes only and is not necessarily indicative of the results
that actually would have been obtained if the transactions had occurred on
January 1, 1994.
Distribution
Distribution revenues were $1.50 billion in 1995 compared with $1.32 billion in
1994, an increase of 13%. Higher volumes and the expansion of the retail
distribution network contributed to increased sales despite wet weather during
the spring planting season and a reduction in planted acres. Same store sales
increased by approximately 7%. About $100 million of the 1995 sales growth
consisted of increased retail chemical sales including sales of Terra's own
brand of Riverside products. Riverside product sales increased by $19 million.
Distributed fertilizer sales increased $62 million. Seed and other sales and
services increased by $17 million.
Operating income for the Distribution business was $41.2 million in 1995
compared with $33.8 million in 1994. Overall gross profits increased by
approximately $50 million. Increased sales volumes added approximately $30
million in gross profits while higher margin grower and Riverside brand sales
accounted for the remainder. Selling, general and administrative expenses
increased $42.6 million. An estimated 60%, or $25 million, of the expense
increase relates to expansion of the Distribution business. The remaining
increase of $17 million includes increased marketing and promotional spending,
an increase in bad debt experience from 1994 and inflationary cost increases.
Nitrogen Products
Nitrogen Products revenues were $635 million in 1995 compared with $297 million
in 1994. The increase reflects the inclusion in the Corporation's Consolidated
Financial Statements of a full year of results from the Verdigris, Oklahoma and
Blytheville, Arkansas ammonia plants acquired in October 1994. The acquired
plants raised the Corporation's total production capacity from 1.3 million to
2.7 million gross tons of ammonia. Revenues also increased as a result of an
approximate 24% increase in prices.
Operating income for the Nitrogen Products business was $264 million in 1995
compared with $48 million in 1994. The increase reflects a full year of results
from the Verdigris, Oklahoma and Blytheville, Arkansas plants as well as the
effect of the approximate 24% increase in prices. Additionally, natural gas
costs decreased by
<PAGE>
CONFIDENTIAL
10
approximately 15% compared with 1994 costs. The increase in operating margin to
42% in 1995 from 16% in 1994 primarily reflects the change in nitrogen prices
and natural gas costs.
Methanol
Methanol revenues were $195 million in 1995 compared with $70 million in 1994.
The increase reflects the inclusion in the Corporation's Consolidated Financial
Statements of a full year of results from the Beaumont, Texas methanol facility,
which was acquired in October 1994, and a full year of operation of the
Corporation's Woodward, Oklahoma plant, whose capacity was partially converted
from ammonia to methanol production in April 1994. The production capacities of
the two plants are 280 million gallons per year and 40 million gallons per year,
respectively.
Operating income totaled $77 million in 1995 compared with $43 million in 1994.
Prices for methanol rose rapidly in the fourth quarter of 1994 and then fell
sharply in February, March and April of 1995. The reduction in operating margin
from 61% in 1994 to 40% in 1995 primarily reflects the decline in selling
prices. Gross profits were $82.6 million in 1995 compared with $44.8 million in
1994. Selling, general and administrative expenses were $5.5 million in 1995
compared with $2.1 million in 1994.
In October 1994, the Corporation entered into the Methanol Hedging Agreement.
Under the Methanol Hedging Agreement the Corporation is required to make
payments should the market price of methanol increase in relation to the cost of
natural gas for defined quantities of production. As a result of the unusually
high methanol prices at the end of 1994, $15.9 million was accrued as payable
under the Methanol Hedging Agreement. This accrual was reversed in 1995 as
prices declined to lower levels. The effect of the accrual and its subsequent
reversal was to decrease 1994 revenues and operating income by $15.9 million and
increase 1995 revenues and operating income by a like amount.
Other Operating Expense - Net
Other operating expense was $4.4 million in 1995 compared with $9.5 million in
1994. Other operating expense consists of corporate level expenses, including
certain insurance coverages, corporate finance fees and other costs.
Interest Expense - Net
Interest expense, net of interest income, totaled $51.1 million in 1995 compared
with $16.5 million in 1994. The increase was principally the result of higher
interest expense due to additional debt in connection with the acquisition of
AMCI.
<PAGE>
CONFIDENTIAL
11
Minority Interest
Minority interest, representing third party unitholder interest in the earnings
of TNCLP, increased to $47.2 million in 1995 compared with $8.8 million in 1994.
The increase was due to the inclusion of a full year of operations of TNCLP in
the Corporation's Consolidated Financial Statements and the effect of higher
nitrogen prices on TNCLP's results.
Income Taxes
Income tax provision was recorded at an effective rate of 41.3% for 1995
compared with 37.5% for 1994. The increased rate results primarily from the
amortization of goodwill from the AMCI acquisition which is not deductible for
tax purposes.
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 Shares, make capital expenditures and acquisitions, and fund repurchases
of its Common Shares. Its principal sources of funds will be cash flow from
operations and borrowings under available credit facilities. The Corporation
believes that cash from operations and available financing sources will be
sufficient to meet anticipated cash requirements.
Cash provided by operations in 1996 was $201.8 million. The net amount received
in 1996 from the sale of receivables (see Note 4 to the Consolidated Financial
Statements) was included in cash flows from operating activities and amounted to
$82 million. The decrease in receivables was partially offset by a $53.2 million
increase in inventory due in part to a weaker than expected fall fertilizer
season. The ratio of current assets to current liabilities decreased to 1.4 at
December 31, 1996 from 1.7 at December 31, 1995. The Corporation has available a
$355 million revolving credit facility for domestic working capital needs. As of
December 31, 1996, $110.0 million was outstanding under this facility.
Cash used in investing activities in 1996 was $168.5 million. Construction costs
for rebuilding the Port Neal facility amounted to $86.3 million and were
partially offset by insurance advances of $26.7 million. The purchase of
property, plant and equipment, excluding Port Neal, amounted to $99.3 million.
Included in this amount was $55 million to exercise the purchase option under
the Courtright, Ontario nitrogen manufacturing plant lease.
<PAGE>
CONFIDENTIAL
12
Cash used for acquisitions, $16.2 million, represents amounts paid to acquire
new locations for the Corporation's distribution network. The Port Neal nitrogen
manufacturing plant became fully operational in 1996. Additionally, in order to
increase nitrogen solution production, the Corporation began construction in the
third quarter of 1996 on a $23 million nitric acid expansion project at Port
Neal. The nitric acid expansion is expected to be completed by the end of 1997.
The Corporation has received $203 million in advances from its insurers ($26.7
million in 1996) related to the Port Neal casualty. The Corporation is in
discussions with its insurers concerning additional proceeds to which the
Corporation believes it should be entitled in connection with the insurance
claim.
The Corporation expects other 1997 capital expenditures, exclusive of 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
December 31, 1996, the Corporation had repurchased 6.8 million shares for $91.8
million.
During 1996, the Corporation distributed $7.73 per unit, or $51.5 million, to
minority Senior Preference Unitholders, paid a dividend rate of 8.0%, or $2.0
million, to minority preferred stock shareholders of Port Neal Holdings, and
paid dividends of $0.15 per Common Share of the Corporation which totaled $11.6
million.
Cash generated from operations during 1997 is expected to be adequate to meet
normal business requirements and service debt. Cash balances at December 31,
1996 were $100.7 million of which $5.4 million was used to collateralize letters
of credit supporting recorded liabilities. The Corporation's bank facility
contains certain restrictions which are described in Notes 9 and 11.
Additionally, the public holders of TNCLP's SPUs representing a 35% interest in
the Corporation's Blytheville, Arkansas and Verdigris, Oklahoma ammonia plants
are entitled to receive a minimum quarterly distribution of $0.605 per unit, or
$4.0 million, plus arrearages before any distribution to the Corporation's
Common Units. At December 31, 1996 there were no distributions in arrears. The
preference period for SPUs ended on December 31, 1996 and the SPUs can now be
converted into Common Units. In addition, the SPUs can now be called by the
general partner. See Note 22 for additional information.
<PAGE>
CONFIDENTIAL
13
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
At December 31,
- --------------------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments $ 100,742 $ 138,707
Accounts receivable, less allowance for doubtful
accounts of $11,391 and $10,626 81,606 178,738
Inventories 422,938 367,272
Other current assets 107,008 79,279
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 712,294 763,996
- --------------------------------------------------------------------------------------------------------------------------
Equity and other investments 16,579 15,408
Property, plant and equipment, net 846,353 694,358
Excess of cost over net assets of acquired businesses 291,645 308,414
Deferred tax asset 15,311 ---
Partnership distribution reserve fund --- 18,480
Other assets 87,183 67,202
- --------------------------------------------------------------------------------------------------------------------------
Total assets $1,969,365 $1,867,858
==========================================================================================================================
Liabilities
Debt due within one year $ 118,937 $ 30,425
Accounts payable 198,273 203,400
Accrued and other liabilities 207,927 222,298
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 525,137 456,123
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt 404,707 407,162
Deferred income taxes 134,523 111,871
Other liabilities 125,013 138,218
Minority interest 173,893 182,901
Commitments and contingencies (Note 12)
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,363,273 1,296,275
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock
Common Shares, authorized 133,500 shares;
75,010 and 81,173 shares outstanding 127,614 133,970
Paid-in capital 550,850 631,195
Cumulative translation adjustment (1,430) (271)
Accumulated deficit (70,942) (193,311)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 606,092 571,583
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,969,365 $1,867,858
==========================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
14
CONFIDENTAL
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $2,264,509 $2,215,874 $1,633,499
Other income, net 51,977 76,299 32,448
- ------------------------------------------------------------------------------------------------------------------------------------
2,316,486 2,292,173 1,665,947
- ------------------------------------------------------------------------------------------------------------------------------------
Cost and Expenses
Cost of sales 1,722,450 1,657,070 1,344,062
Selling, general and administrative expense 300,897 259,295 207,333
Equity in earnings of unconsolidated affiliates (2,042) (1,894) (743)
- ------------------------------------------------------------------------------------------------------------------------------------
2,021,305 1,914,471 1,550,652
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 295,181 377,702 115,295
Interest income 7,102 13,811 5,541
Interest expense (59,947) (64,897) (22,082)
Minority interest (44,485) (47,234) (8,809)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes, extraordinary
items and cumulative effect of accounting changes 197,851 279,382 89,945
Income tax provision 63,900 115,500 33,700
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items and
cumulative effect of accounting changes 133,951 163,882 56,245
Extraordinary loss on early retirement of debt --- (4,338) (3,060)
Cumulative effect of accounting changes --- --- 3,376
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 133,951 $ 159,544 $ 56,561
====================================================================================================================================
Weighted average number of shares outstanding 77,757 81,332 72,870
====================================================================================================================================
Income Per Share:
Income before extraordinary items $ 1.72 $ 2.01 $ 0.77
Extraordinary loss on early retirement of debt --- (0.05) (0.04)
Cumulative effect of accounting changes --- --- 0.05
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.72 $ 1.96 $ 0.78
====================================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
CONFIDENTAL
15
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
================================================================================
Year ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income $ 133,951 $ 159,544 $ 56,561
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 83,210 66,075 27,218
Deferred income taxes 15,959 47,849 20,956
Cumulative effect of accounting changes --- --- (3,376)
Minority interest in earnings 44,485 47,234 8,809
Other non-cash items (3,059) 2,544 10,923
Change in current assets and liabilities,
excluding working capital purchased:
Accounts receivable 100,359 (24,557) 19,615
Inventories (53,185) (30,466) (59,303)
Other current assets (42,849) 46 (13,056)
Accounts payable (8,291) 22,950 60,478
Accrued and other liabilities (27,952) 35,349 39,405
Unreimbursed Port Neal casualty (26,498) (68,748) ---
Other (14,291) (14,699) 212
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 201,839 243,121 168,442
- --------------------------------------------------------------------------------
Investing Activities
Port Neal plant construction (86,323) (133,106) ---
Insurance proceeds from plant casualty 26,675 127,557 ---
Acquisitions, net of cash acquired (16,181) (22,326) (373,722)
Purchase of property, plant and equipment (99,326) (44,023) (31,213)
Purchase of minority interest - TNCLP --- (28,834) ---
Proceeds from asset sales 5,798 --- ---
Other 861 5,670 (1,448)
- --------------------------------------------------------------------------------
Net Cash Used In Investing Activities (168,496) (95,062) (406,383)
- --------------------------------------------------------------------------------
Financing Activities
Net short-term borrowings 90,318 4,906 13,795
Proceeds from issuance of long-term debt 151 203,112 326,407
Principal payments on long-term debt (4,412) (349,134) (101,416)
Debt issuance costs --- (8,333) (13,581)
Stock (repurchase) issuance - net (91,131) 1,187 117,666
Distributions to minority interests (53,493) (36,750) (5,040)
Sale of minority interest in subsidiaries --- 24,950 ---
Dividends (11,582) (8,662) (5,837)
- --------------------------------------------------------------------------------
Net Cash (Used In) Provided by Financing
Activities (70,149) (168,724) 331,994
- --------------------------------------------------------------------------------
Foreign Exchange Effect on Cash and
Short-Term Investments (1,159) 988 (771)
- --------------------------------------------------------------------------------
(Decrease) Increase in Cash and Short-Term
Investments (37,965) (19,677) 93,282
Cash and Short-Term Investments at
Beginning of Year 138,707 158,384 65,102
- --------------------------------------------------------------------------------
Cash and Short-Term Investments at
End of Year $ 100,742 $ 138,707 $ 158,384
================================================================================
Interest Paid $ 58,706 $ 77,800 $ 16,500
================================================================================
Income Taxes Paid $ 80,340 $ 47,665 $ 22,600
================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
CONFIDENTAL
16
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
=====================================================================================================
Capital Stock Cumulative
----------------- Paid-In Translation Accumulated
(in thousands) Shares Amount Capital Adjustment Deficit Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 69,455 $122,257 $516,128 $ (488) $(394,917) $242,980
Conversion of debentures 731 731 5,176 --- --- 5,907
Exercise of stock options 847 847 3,819 --- --- 4,666
Issuance of Common Shares 9,700 9,700 103,300 --- --- 113,000
Translation adjustment --- --- --- (771) --- (771)
Stock Incentive Plan 232 235 1,688 --- --- 1,923
Dividends --- --- --- --- (5,837) (5,837)
Net income --- --- --- --- 56,561 56,561
- -----------------------------------------------------------------------------------------------------
December 31, 1994 80,965 133,770 630,111 (1,259) (344,193) 418,429
Exercise of stock options 192 192 1,073 --- --- 1,265
Translation adjustment --- --- --- 988 --- 988
Stock Incentive Plan 16 8 11 --- --- 19
Dividends --- --- --- --- (8,662) (8,662)
Net income --- --- --- --- 159,544 159,544
- -----------------------------------------------------------------------------------------------------
December 31, 1995 81,173 133,970 631,195 (271) (193,311) 571,583
Exercise of stock options, net 144 144 515 --- --- 659
Issuance of Common Shares 219 219 2,623 --- --- 2,842
Repurchase of Common Shares (6,827) (6,827) (84,963) --- --- (91,790)
Translation adjustment --- --- --- (1,159) --- (1,159)
Stock Incentive Plan 301 108 1,480 --- --- 1,588
Dividends --- --- --- --- (11,582) (11,582)
Net income --- --- --- --- 133,951 133,951
- -----------------------------------------------------------------------------------------------------
December 31, 1996 75,010 $127,614 $550,850 $(1,430) $ (70,942) $606,092
=====================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
CONFIDENTAL
17
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation:
The Consolidated Financial Statements include the accounts of Terra Industries
Inc. and all majority owned subsidiaries (the Corporation). All significant
intercompany accounts and transactions have been eliminated.
Foreign exchange:
Results of operations for the Canadian subsidiary are translated using average
currency exchange rates during the period while assets and liabilities are
translated using current rates. Resulting translation adjustments are recorded
as currency translation adjustments in stockholders' equity.
Cash and short-term investments:
The Corporation considers short-term investments with an original maturity of
three months or less to be cash equivalents which are reflected at their
approximate fair value.
Inventories:
Inventories are stated at the lower of cost or estimated net realizable value.
The cost of inventories is determined using the first-in, first-out method.
Property, plant and equipment:
Expenditures for plant and equipment additions, replacements and major
improvements are capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives ranging from 15 to 20 years for
buildings and 3 to 18 years for plant and equipment. Maintenance and repair
costs are expensed as incurred.
Excess of costs over net assets of acquired business:
The Corporation amortizes costs in excess of fair value of net assets of
businesses acquired using the straight-line method over periods ranging from 15
to 18 years. Management periodically determines the recoverability of this
asset through an assessment of future operations.
Plant turnaround costs:
Costs related to the periodic scheduled major maintenance of continuous process
production facilities (plant turnarounds) are deferred and charged to product
costs on a straight-line basis during the period to the next scheduled
turnaround, generally two years.
Accounting standards not adopted:
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
establishes accounting and reporting standards for such transfers. The
Corporation will adopt SFAS 125 effective January 1, 1997 as required. The
impact on the Corporation's financial position and results of operations is not
expected to be material.
Hedging transactions:
Realized gains and losses from hedging activities and premiums paid for option
contracts are deferred and recognized in the month to which the hedged
transactions relate.
Stock-based compensation:
The Corporation recognizes compensation costs for stock-based employee
compensation plans based on the difference, if any, between the quoted market
price of the stock and the amount an employee pays to acquire the stock.
<PAGE>
CONFIDENTAL
18
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to prior years' financial statements to
conform with current year presentation.
Per-share results:
Earnings-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.
2. Acquisitions
On October 20, 1994, the Corporation acquired Agricultural Mineral and Chemicals
Inc. (AMCI) for $506 million in cash. AMCI, through its subsidiaries
manufactures nitrogen-based fertilizers and industrial use products and
methanol. The subsidiaries controlled by the Corporation as a result of the
AMCI acquisition include Terra Nitrogen Corporation (TNC), Beaumont Methanol,
Limited Partnership (BMLP) and Terra Nitrogen Company, L.P. (TNCLP). As a
result of the acquisition and subsequent open market purchases (see Note 11 -
Long-Term Debt), the Corporation and its subsidiaries have approximately a 65%
ownership interest in TNCLP, formerly Agricultural Minerals Company, L.P., which
operates nitrogen products manufacturing facilities in Verdigris, Oklahoma and
Blytheville, Arkansas through an operating partnership, Terra Nitrogen, Limited
Partnership (TNLP). Terra Methanol Corporation (TMC) is the general partner of
BMLP which operates a methanol production facility in Beaumont, Texas. The
acquisition has been accounted for using the purchase method of accounting.
To finance the acquisition of AMCI, the Corporation issued 9.7 million Common
Shares for aggregate net proceeds of approximately $113 million, entered into
credit arrangements to issue $310 million of long-term debt, and refinanced
certain bank debt and credit lines of the Corporation, AMCI and AMCI's
subsidiaries aggregating $260 million of which $152 million in borrowings were
outstanding. As a result of the acquisition of AMCI, the Corporation also
assumed AMCI's obligations including its 10.75% Senior Notes due 2003 (see Note
11 - Long-Term Debt).
On September 15, 1994, the Corporation acquired an approximate 34% interest in
Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a 104-location
distributor of crop input and protection products in the mid-Atlantic region.
<PAGE>
CONFIDENTAL
19
Operating results of the acquired businesses subsequent to the respective dates
of each acquisition are included in the Consolidated Statements of Income. The
following represents unaudited pro forma summary results of operations as if the
acquisition of AMCI had occurred at the beginning of 1994:
<TABLE>
<CAPTION>
(in thousands, except per-share data) Year ended December 31,
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
<S> <C>
Revenues $ 2,084,827
Income before extraordinary items and
cumulative effect of accounting changes $ 110,370
Net income $ 110,680
Income per share before extraordinary items $ 1.37
Net income per share $ 1.37
================================================================================
</TABLE>
The pro forma operating results were adjusted to include depreciation of the
fair value of capital assets acquired based on estimated useful lives,
amortization of intangibles, reduction of incentive compensation expense for
plans terminated at acquisition, interest expense on the acquisition borrowings,
the issuance of common stock and the effect of income taxes.
The pro forma information listed above does not purport to be indicative of the
results that would have been obtained if the operations were combined during the
above period, and is not intended to be a projection of future operating results
or trends.
3. Accounting Changes
Coincident with the 1994 acquisition of AMCI (see Note 2 - Acquisitions), the
Corporation changed its method of accounting for major maintenance turnarounds
at manufacturing facilities and recorded a $4.2 million credit, net of income
taxes of $2.7 million, as the cumulative effect at January 1, 1994 of the change
in accounting principle. Excluding the cumulative effect, this change increased
net income for 1994 by approximately $1.0 million, or $0.01 per share. Under
the new accounting principle the Corporation defers the cost of turnarounds when
incurred and charges the costs to production ratably over the period until the
next scheduled turnaround. Previously, estimated costs of turnarounds were
charged to product costs over the period preceding each scheduled major
maintenance, generally two years. The change was made to charge turnaround
costs to production over the period most clearly benefited by the turnaround.
In 1994, the Corporation adopted SFAS 112, "Employers' Accounting for Post-
Employment Benefits." This change required the Corporation to recognize future
liabilities of $0.8 million, net of income taxes of $0.5 million, for benefits
to disabled employees. Prior to the adoption of SFAS 112, the Corporation
recognized such expenses in the period the benefits were paid.
4. Accounts Receivable
On August 20, 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 financial institution to sell an
undivided interest in its accounts receivable. Under the agreement, which
expires August 20, 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 December 31, 1996,
the proceeds of the uncollected balance of accounts receivable sold totaled $132
million. The Corporation pays a monthly discount fee on the outstanding amount
of the accounts receivable sold which is included in interest expense in the
Consolidated Statements of Income. TFC is a separate legal entity whose
creditors have received security interests in its assets. Under a previous
agreement which expired during 1996, the Corporation sold an undivided interest
in a designated pool of its accounts receivable up to $50 million in proceeds.
<PAGE>
CONFIDENTAL
20
5. Inventories
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 39,782 $ 36,499
Finished goods 383,156 330,773
- --------------------------------------------------------------------------------
Total $ 422,938 $ 367,272
================================================================================
</TABLE>
6. Other Current Assets
Other current assets consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset - current $ 15,180 $ 23,768
Income taxes recoverable - federal 12,641 ---
Income taxes recoverable - foreign 10,884 ---
Partnership distribution reserve fund 18,480 ---
Insurance recoverable --- 29,808
Other current assets 49,823 25,703
- --------------------------------------------------------------------------------
Total $ 107,008 $ 79,279
================================================================================
</TABLE>
7. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 128,741 $ 105,715
Plant and equipment 886,150 556,206
Finance leases 3,526 4,716
Construction in progress 30,576 171,967
- --------------------------------------------------------------------------------
1,048,993 838,604
Less accumulated depreciation and amortization (202,640) (144,246)
- --------------------------------------------------------------------------------
Total $ 846,353 $ 694,358
================================================================================
</TABLE>
8. Port Neal Casualty
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 December 31, 1996, the Corporation had received interim
payments of $203.3 million on its claim. The Corporation is in discussions with
its insurers as to additional insurance proceeds to which the Corporation
believes it should be entitled. 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.
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
<PAGE>
CONFIDENTIAL
21
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. As of
December 31, 1996, $119.6 million has been recorded as a deferred gain and is
included in other liabilities.
9. Debt Due Within One Year
Debt due within one year consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings $116,332 $26,014
Current maturities of long-term debt 2,605 4,411
- --------------------------------------------------------------------------------
Total $118,937 $30,425
================================================================================
Weighted average short-term borrowings $109,701 $53,483
================================================================================
Weighted average interest rate 7.6% 8.4%
================================================================================
</TABLE>
During 1996, the Corporation had a credit agreement to provide revolving credit
facilities of up to $375 million for domestic seasonal working capital needs and
other corporate purposes. At December 31, 1996, the revolving credit facilities
were reduced to $355 million. The Corporation also has a $25.6 million ($35
million Cdn) revolving credit facility used to provide for working capital needs
for its Canadian operations. There was $110.0 million outstanding at December
31, 1996 under the domestic facility and $6.3 million outstanding under the
Canadian facility. Interest on borrowings under these lines is charged at
current market rates.
Under the credit agreement, the Corporation has agreed, among other things, to
maintain certain financial covenants including minimum net worth and interest
coverage ratios and maximum debt to cash flow ratios, and to adhere to certain
limitations on additional debt, capital expenditures, acquisitions, liens, asset
sales, investments, prepayment of subordinated indebtedness, changes in lines of
business and transactions with affiliates. The Corporation's domestic revolving
credit facilities expire December 31, 2000. A commitment fee is charged on the
unused portion of the facilities under the credit agreement, currently 1/4
percent adjustable based on the Corporation's most recent quarter debt to cash
flow ratio. The credit agreement is secured by the stock of certain principal
subsidiaries of the Corporation as well as the personal property of the former
AMCI subsidiaries.
Under the Canadian facility, the Corporation has agreed, among other things, to
maintain a certain level of net worth and restrict payments to the Corporation
from operating subsidiaries. The Canadian facility expires May 25, 1997 and is
renewable every 240 days for a 360-day term. A commitment fee of 1/8 percent is
paid on the facility.
10. Accrued and Other Liabilities
Accrued and other liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Customer deposits $102,347 $101,851
Payroll and benefit costs 26,382 33,242
Income taxes - federal --- 12,761
Income taxes - state 5,096 13,448
Other 74,102 60,996
- --------------------------------------------------------------------------------
Total $207,927 $222,298
================================================================================
</TABLE>
<PAGE>
CONFIDENTIAL
22
11. Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Notes, 10.5%, due 2005 $200,000 $200,000
Senior Notes, 10.75%, due 2003 158,755 158,755
Senior Notes, 8.48%, due 2005 30,000 30,000
Industrial Development Revenue Bonds bearing interest at an
average 6.81% with increasing payments from 1997 to 2011 8,860 9,045
Notes, 8.75%, due 1997 to 1998 2,000 4,500
Other 7,697 9,273
- --------------------------------------------------------------------------------
407,312 411,573
Less current maturities (2,605) (4,411)
- --------------------------------------------------------------------------------
Total $404,707 $407,162
================================================================================
</TABLE>
Scheduled principal payments for each of the five years 1997 through 2001 are
$2.6 million, $2.6 million, $3.5 million, $8.2 million and $5.4 million,
respectively.
In 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 TNCLP.
The remaining net proceeds were used to repay bank term loans.
The 10.75% unsecured Senior Notes are redeemable at the option of the
Corporation, in whole or part, at any time on or after September 30, 1998,
initially at 105.375% of their principal amount, plus accrued interest,
declining to 102.688% on or after September 30, 1999, and declining to 100% on
or after September 30, 2000. The 10.75% Senior Notes Indenture contains
restrictions similar to those in the 10.5% Senior Notes Indenture.
The $30 million unsecured 8.48% Senior Notes require annual principal payments
commencing November 1, 1999 through May 1, 2005. The notes include covenants
similar to the revolving credit agreement described in Note 9 - Debt Due Within
One Year and a requirement for rental and interest obligations coverage. The
Corporation has executed interest rate swap agreements to convert one-half of
the 8.48% unsecured Senior Notes to LIBOR-based floating rate instruments. The
interest rate agreements became effective on April 15, 1993 and terminate on
April 15, 2003.
The Industrial Development Revenue Bonds due in 2011 are secured by a letter of
credit guaranteed by the Corporation and, along with other long-term debt due in
2003, by the Corporation's headquarters building located in Sioux City, Iowa.
<PAGE>
CONFIDENTIAL
23
12. Commitments and Contingencies
The Corporation and its subsidiaries are committed to various non-cancelable
operating leases for agricultural equipment, and office, production, and storage
facilities expiring on various dates through 2010. Total minimum rental payments
are as follows:
<TABLE>
<CAPTION>
(in thousands)
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 44,486
1998 28,737
1999 21,110
2000 9,292
2001 and thereafter 7,942
- -------------------------------------------------------------------------------
Total $111,567
===============================================================================
</TABLE>
Total rental expense under all leases, including short-term cancelable operating
leases, was approximately $54.1 million, $46.8 million and $37.3 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
In April 1993, the Corporation entered into a lease financing agreement in
connection with the purchase of an ammonia manufacturing plant and related
upgrading facilities located near Sarnia, Ontario. The agreement included an
option to purchase the nitrogen plant which the Corporation exercised during
1996.
The Corporation is contingently liable for retiree medical benefits of employees
of coal mining operations sold on January 12, 1993. Under the purchase
agreement, the purchaser agreed to indemnify the Corporation against its
obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50% or
more of any company liable for such benefits as of certain specified dates
becomes liable for such benefits if the company directly liable is unable to pay
them. As a result, if the purchaser becomes unable to pay its retiree medical
obligations assumed pursuant to the sale, the Corporation may have to pay such
amount. The Corporation has estimated the present value of contingent
liabilities at approximately $9.8 million at December 31, 1996.
The Corporation is involved in various legal actions and claims, including
environmental matters, arising from the normal course of business. It is the
opinion of management that the ultimate resolution of these matters will not
have a material adverse effect on either the results of operations, financial
position or net cash flows of the Corporation.
13. Derivative Financial Instruments
The Corporation manages four categories of risk using derivative financial
instruments: (a) foreign currency fluctuations (b) changes in natural gas supply
prices (c) interest rate fluctuations and (d) the effect of fluctuations in
methanol prices relative to natural gas prices. Derivative financial instruments
have credit risk and market risk.
To manage credit risk, the Corporation only enters into derivative transactions
with counter-parties that are currently rated AA or better or equivalent as
recognized by a national rating agency. The Corporation will generally continue
in a derivative transaction if the counter-party's credit rating is downgraded
to A. Appropriate steps will be taken to minimize risks if the counter-party's
credit rating is downgraded below A. The Corporation will not enter into
transactions with counter-parties if the additional transaction will result in
credit exposure exceeding $20 million. For purposes of this policy, "credit
exposure" means the market value of derivatives transactions with that counter-
party. Additionally, the credit rating of counter-parties may be modified
through guarantees, letters of credit or other credit enhancement vehicles.
Market risk related to derivative financial instruments should be substantially
offset by changes in the valuation of the underlying items being hedged.
<PAGE>
CONFIDENTAL
24
Foreign Currency Fluctuations - The Corporation enters into foreign exchange
forward and option contracts to manage risk associated with foreign currency
exchange rate fluctuations. The contracts are designated as hedges of fixed
obligations and hedges of net foreign currency positions. Contract maturities
are consistent with the settlement dates of items being hedged. Foreign currency
hedges require cash settlement at termination. Gains and losses on these
contracts are deferred and included as a component of the related transaction.
A significant portion of the Corporation's Canadian production is sold in the
U.S., or is based on U.S. prices, but many of the production costs are in
Canadian dollars. As a result, the Corporation's earnings will decline when the
Canadian dollar increases in value compared with the U.S. dollar. Consequently,
the Corporation buys Canadian dollars forward or uses derivatives to fix future
exchange rates over a twelve-month period to cover a portion of its estimated
net Canadian dollar requirements which include firm commitments to purchase
natural gas. As of December 31, 1996, the existing forward contracts represented
approximately 20% of anticipated net 1997 Canadian dollar requirements of
approximately $25 million (Cdn).
Natural Gas Prices - Natural gas supplies to meet production requirements at the
Corporation's production facilities are purchased at market prices. Natural gas
market prices, as with other commodities, are volatile and the Corporation
effectively fixes prices for a portion of its natural gas production
requirements and inventory through the use of futures contracts, swaps and
options. These contracts reference physical natural gas prices or appropriate
NYMEX futures contract prices. The contracts' physical prices are frequently
based on the Henry Hub Louisiana price. Natural gas supplies for the
Corporation's six production facilities are purchased from various suppliers for
each plant location which 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.
A swap is a contract between the Corporation and a third party to exchange cash
based on a designated price. Option contracts give the holder the right to
either own or sell a futures or swap contract. The futures contracts require
maintenance of cash balances generally 10% to 20% of the contract value and
option contracts require initial premium payments ranging from 2% to 5% of
contract value.
The following summarizes open natural gas contracts at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ---------------------------------------------------------------------
Contract Unrealized Contract Unrealized
MMBtu Gain (Loss) MMBtu Gain
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Futures 2,530 $ (1,024) 6,840 $ 592
Swaps 177,315 41,958 167,040 13,475
Options 6,260 1,102 6,470 797
- ---------------------------------------------------------------------
186,105 $ 42,036 180,350 $ 14,864
=====================================================================
</TABLE>
Annual production requirements are approximately 134,000 MMBtu. Contracts were
in place at December 31, 1996 to cover 65% of 1997 natural gas requirements, 59%
for 1998 and 23% for 1999.
Gains and losses on settlement of these contracts and premium payments on option
contracts are credited or charged to cost of sales in the month in which the
hedged transaction occurs. The risk and reward of outstanding natural gas
positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices. Realized gains
on closed contracts and premium payments on option contracts of $18.1 million
and $4.7 million, respectively, relating to future periods have been deferred
and are included in other current assets as of December 31, 1996.
During 1996, natural gas hedging activities reduced the Corporation's natural
gas costs by approximately $74.3 million compared with spot prices. During 1995,
natural gas hedging activities produced cost increases of approximately $34.5
million compared with spot prices. During 1994, natural gas hedging increased
cost by approximately $15.5 million compared with spot prices.
<PAGE>
CONFIDENTIAL
25
The Corporation has also entered into basis swaps. Such contracts require
payments to or from the Corporation for the amount, if any, that monthly
published gas prices from the source specified in the contract differ from
prices of NYMEX natural gas futures during a specified period. As of December
31, 1996 and 1995, MMBtu's under such contracts totaled 16.0 million and 14.7
million, respectively.
Interest Rate Fluctuations - The Corporation has limited the effect of interest
rate fluctuations for a portion of its floating rate obligations through the use
of interest rate collar agreements which are designated as hedges. The
agreements require payments to the Corporation for the amount, if any, that
interest costs, based on LIBOR, exceed 8.5% to 9.0% and require payments by the
Corporation for the amount that interest costs based on LIBOR fall below 5.65%.
The interest rate collar agreements, with a notional amount of $135 million
(which declines over the remaining two-year period), cover 54% of the variable
interest rate obligations at December 31, 1996. The unamortized cost of the
collar agreements is carried in other assets in the Consolidated Statement of
Financial Position. The Corporation paid $100,000 during the year and $39,000
was due at December 31, 1996 related to the agreements.
The Corporation has also entered into interest rate swap agreements to convert
50% of its $30 million fixed-rate, long-term borrowings to variable rates
through April 15, 2003. The interest rate swap agreements are designated as
hedges. For 1996, the net interest rate effect of the swap arrangements totaled
1.7% effectively reducing the interest rate on its $30 million of 8.48% Senior
Notes to 7.61%. For 1995, the net interest rate effect of the swap arrangements
totaled 1.8% effectively reducing the interest rate to 7.58%. At December 31,
1996, the notional amount of the swap agreement was approximately $15 million.
Methanol Prices - 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
production 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
by the Corporation or are presently accrued under the terms of the agreement.
The following table presents the carrying amounts and estimated fair values of
the Corporation's derivative financial instruments at December 31, 1996 and
1995. SFAS 107, "Disclosures about Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign currency $ -- $ -- $ -- $ 0.7
Natural gas 9.6 51.6 6.2 21.1
Interest rate 0.3 0.3 0.7 (1.9)
Methanol (1.3) -- (2.5) --
===========================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of derivative financial instrument:
Foreign currency contracts: Estimated based on quotations received from a
quotation service and computations prepared by the Corporation.
<PAGE>
CONFIDENTAL
26
Natural gas futures, swaps and options: Estimated based on quoted market prices
from brokers, and computations prepared by the Corporation.
Interest rate collar agreements and interest rate swap agreements: Estimated
based on quotes from the market makers of these instruments.
Methanol Hedging Agreement: Estimated based on historical and forecasted market
prices for both methanol and natural gas prices and computations prepared by the
Corporation.
14. Financial Instruments and Concentrations of Credit Risk
The following table presents the carrying amounts and estimated fair values of
the Corporation's financial instruments at December 31, 1996 and 1995. SFAS 107
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and short-term investments $ 100.7 $ 100.7 $ 138.7 $ 138.7
Receivables 81.6 81.6 178.7 178.7
Equity and other investments 16.6 18.6 15.4 17.7
Other assets 9.2 9.8 9.0 9.6
Financial Liabilities
Short-term borrowings (116.3) (116.3) (26.0) (26.0)
Long-term debt (407.3) (437.0) (411.6) (444.8)
=============================================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
Equity and other investments: Investments in untraded companies are valued on
the basis of management's estimates and, when available, comparisons with
similar companies whose shares are publicly traded.
Other assets: The amounts reported relate to notes receivable obtained from
sale of previous operating assets. The fair value is estimated based on current
interest rates and repayment terms of the individual notes.
Short-term borrowings: The carrying amounts approximate fair value because of
the short maturity of these issues.
Long-term debt: The fair value of the Corporation's long-term debt is estimated
based on the quoted market price of these or similar issues or by discounting
expected cash flows at the rates currently offered to the Corporation for debt
of the same remaining maturities.
Concentration of Credit Risk - The Corporation is subject to credit risk through
trade receivables and short-term investments. Although a substantial portion of
its debtors' ability to pay is dependent upon the agribusiness economic sector,
credit risk with respect to trade receivables is minimized due to a large
customer base and its geographic dispersion. Short-term cash investments are
placed in short duration corporate and government debt securities funds with
well capitalized, high quality financial institutions. By policy, the
Corporation limits the amount of credit exposure in any one type of investment
instrument.
<PAGE>
CONFIDENTAL
27
Financial Instruments - At December 31, 1996, the Corporation had letters of
credit outstanding totaling $21.5 million, guaranteeing various insurance and
financing activities. Short-term investments of $5.4 million and $8.9 million at
December 31, 1996 and 1995, respectively, are restricted to collateralize
certain letters of credit.
15. Stockholders' Equity
The Corporation allocates $1.00 per share upon the issuance of Common Shares to
the Common Share capital account.
At December 31, 1996, 1.9 million Common Shares were reserved for issuance upon
award of restricted shares and exercise of employee stock options.
The Corporation has authorized 16,500,000 Trust Shares for issuance. There was
no activity related to the Trust Shares from December 31, 1993 to December 31,
1996 and no Trust Shares were outstanding at December 31, 1996.
In September 1995, the Corporation transferred its Port Neal facility (including
improvements then in progress) and $1.3 million in cash to Port Neal Holdings
Corp. (PNH) and PNH issued $25 million of non-convertible preferred stock to
unrelated third parties. As a result, the Corporation owns 100% of the common
stock of PNH (representing 75% of the voting rights of PNH). PNH was structured
to finance and complete the construction of the Port Neal facility through its
wholly owned subsidiary, Port Neal Corporation (PNC). The preferred stock
represents 25% of the voting rights of PNH and accrues dividends at a floating
rate commensurate with market interest rates. The Corporation accounts for the
preferred stock as a minority interest. Various agreements between the
Corporation and certain subsidiaries were entered into with PNH and/or PNC
including intercompany debt obligations and lease arrangements.
16. Stock-Based Compensation
The Corporation accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees," which utilizes the intrinsic value method. Compensation cost related
to stock-based compensation was $2.8 million and $1.0 million for the years
ended December 31, 1996 and 1995, respectively.
The Corporation's 1992 Stock Incentive Plan authorized granting key employees
options to purchase Common Shares at not less than fair market value on the date
of grant and also authorizes the award of performance units and restricted
shares. Awards to a maximum of 2.5 million Common Shares may be granted under
the 1992 Plan. There were no performance units outstanding at December 31, 1996.
Options generally may not be exercised prior to one year or more than ten years
from the date of grant. Stock options and restricted shares vest over specified
periods, or in some cases upon the attainment, prior to a termination date, of
pre-established market price objectives for the Corporation's Common Shares. The
restricted shares are entitled to normal voting rights and earn dividends as
declared during the performance periods. Compensation expenses are accrued on a
ratable basis through the service periods. At December 31, 1996, 479,000 Common
Shares were available for grant under the 1992 Plan.
<PAGE>
CONFIDENTIAL
28
A summary of the Corporation's stock-based compensation activity related to
stock options for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
(in thousands, except $ amounts)
- ----------------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 1,350 $ 6.92 1,533 $ 6.79 2,145 $ 5.81
Granted 535 14.62 9 13.00 289 10.50
Expired/terminated 8 10.50 --- --- 54 8.10
Exercised 158 5.36 192 6.16 847 5.50
- -----------------------------------------------------------------------------------------------------
Outstanding - end of year 1,719 $ 9.44 1,350 $ 6.92 1,533 $ 6.79
=====================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1996:
<TABLE>
<CAPTION>
(in thousands, except years and $ amounts)
- ------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 $ 5.99 538 5.3 years $ 4.96 538 $ 4.96
6.00 8.99 267 2.5 6.81 267 6.81
9.00 11.99 370 4.8 10.29 230 10.16
12.00 14.99 544 9.9 14.60 --- ---
- ------------------------------------------------------------------------------------------------------
Total 1,719 6.2 $ 9.44 1,035 $ 6.59
======================================================================================================
</TABLE>
There were 1,052,000 and 1,244,000 options exercisable at December 31, 1995 and
1994, respectively.
The weighted average fair value of options granted was $4.34 per option for 1996
and $5.08 per option for 1995. The fair value of options granted under the 1992
Plan was estimated at the date of grant using a binomial option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.93% 6.45%
Dividend yield 1.00% 1.00%
Expected volatility 27.0% 27.0%
Expected life (years) 4.5 7.0
================================================================================
</TABLE>
There were 376,000 restricted shares granted during 1996 with a weighted average
fair value of $14.40 per share. There were 54,000 restricted shares granted
during 1995 with a weighted average fair value of $12.80 per share.
The effect on 1996 and 1995 net income and earnings per share of accounting for
stock-based compensation using the fair value method required by SFAS 123,
"Accounting for Stock-Based Compensation" is immaterial.
17. Retirement Plans
The Corporation and its subsidiaries maintain non-contributory pension plans
that cover substantially all salaried and hourly employees. Benefits are based
on a final pay formula for the salaried plans and a flat benefit formula for the
hourly plans. The plans' assets consist principally of equity securities and
corporate and government debt
<PAGE>
CONFIDENTAL
29
securities. The Corporation and its subsidiaries also have certain non-
qualified pension plans covering executives, which are unfunded. The
Corporation accrues pension costs based upon annual independent actuarial
valuations for each plan and funds these costs in accordance with statutory
requirements. The components of net periodic pension expense were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current service cost $ 5,280 $ 4,120 $ 3,248
Interest on projected benefit obligation 6,098 4,746 3,971
Actual loss (return) on assets (6,591) (12,763) 361
Net amortization and other 1,203 8,080 (4,764)
- --------------------------------------------------------------------------------
Pension expense $ 5,990 $ 4,183 $ 2,816
================================================================================
</TABLE>
Net periodic pension expense for 1994 includes components of expense for the
former AMCI plan for the period from acquisition through December 31, 1994.
The following table reconciles the plans' funded status to amounts included in
the Consolidated Statements of Financial Position at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Plans with Plans with
Plans with accumulated Plans with accumulated
assets in excess benefits in assets in excess benefits in
of accumulated excess of of accumulated excess of
benefits plan assets benefits plan assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligations $(57,455) $ (3,206) $(46,543) $ (2,496)
===================================================================================================================================
Accumulated benefit obligations $(62,092) $ (3,354) $(50,778) $ (2,718)
===================================================================================================================================
Projected benefit obligations $(84,997) $ (4,169) $(70,658) $ (3,160)
Plan assets at fair value 71,596 --- 60,460 --
- ------------------------------------------------------------------------------------------------------------------------------------
Funded status (13,401) (4,169) (10,198) (3,160)
Unrecognized net experience loss (gain) 5,570 915 (2,737) 526
Unrecognized prior service cost 155 276 205 311
Unrecognized net transition (asset) obligation (2,371) 466 1,744 372
Additional minimum liability --- (753) --- (767)
- ------------------------------------------------------------------------------------------------------------------------------------
Pension liability $(10,047) $ (3,265) $(10,986) $ (2,718)
====================================================================================================================================
</TABLE>
The assumptions used to determine the actuarial present value of benefit
obligations and pension expense during each of the years in the three-year
period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.25% 8.5%
Long-term per annum compensation increase 5.0% 5.0% 5.0%
Long-term return on plan assets 9.5% 9.5% 9.5%
================================================================================
</TABLE>
The Corporation also sponsors a qualifying savings plan covering most full-time
employees. Contributions made by participating employees are matched based on a
specified percentage of employee contributions up to 6% of the employees' pay
base. The cost of the Corporation's matching contribution to the savings plan
totaled $4.0 million in 1996, $3.7 million in 1995 and $1.9 million in 1994.
<PAGE>
CONFIDENTIAL
30
18. Post-Retirement Benefits
The Corporation also provides health care benefits for eligible retired
employees of one of its wholly owned subsidiaries. Participants generally become
eligible after reaching retirement age with ten years of service. The plan pays
a stated percentage of most medical expenses reduced for any deductible and
payments made by government programs. The plan is unfunded.
Employees hired prior to January 1, 1990 are eligible for participation in the
plan. Participant contributions and co-payments are subject to escalation.
The following table indicates the components of the post-retirement medical
benefits obligation included in the Corporation's Consolidated Statements of
Financial Position at December 31:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement medical benefit obligation:
Retirees $ (2,554) $ (2,713)
Fully eligible active plan participants (2,099) (2,140)
Other active participants (4,583) (6,617)
- -------------------------------------------------------------------------------------------------------------
Funded status (9,236) (11,470)
Unrecognized net gain (3,367) (141)
Unrecognized prior service benefit (1,505) (1,784)
- -------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit cost $(14,108) $(13,395)
=============================================================================================================
</TABLE>
Net periodic post-retirement medical benefit cost consisted of the following
components:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 424 $ 521 $ 534
Interest cost on accumulated post-retirement
medical benefit obligation 638 730 624
Net amortization and other (260) (193) (127)
- -------------------------------------------------------------------------------------------------------------
Net periodic post-retirement medical benefit cost $ 802 $1,058 $ 1,031
=============================================================================================================
</TABLE>
The Corporation limits its future obligation for post-retirement medical
benefits by capping at 5% the annual rate of increase in the cost of claims it
assumes under the plan. The weighted average discount rate used in determining
the accumulated post-retirement medical benefit obligation is 7.5% in 1996,
7.25% in 1995, and 8.5% in 1994.
19. Other Income, Net
Other income consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fertilizer service revenue $ 28,529 $ 25,132 $ 17,294
Service charge income 10,318 8,178 6,008
Other, including business interruption 13,130 42,989 9,146
- -------------------------------------------------------------------------------------------------------------
Total $ 51,977 $ 76,299 $ 32,448
=============================================================================================================
</TABLE>
<PAGE>
CONFIDENTAL
31
20. Income Taxes
Components of the income tax provision (benefit) applicable to operations are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 28,853 $ 45,938 $ 9,925
Foreign 12,939 12,285 2,416
State 6,149 9,416 4,291
- -----------------------------------------------------------------------------------------------------
47,941 67,639 16,632
- -----------------------------------------------------------------------------------------------------
Deferred:
Federal 49,994 42,673 15,197
Foreign (34,876) 3,568 2,533
State 841 1,620 (662)
- -----------------------------------------------------------------------------------------------------
15,959 47,861 17,068
- -----------------------------------------------------------------------------------------------------
Total income tax provision $ 63,900 $115,500 $ 33,700
=====================================================================================================
The income tax provision differs from the federal statutory provision for the
following reasons:
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
Income from operations before taxes:
U.S. $138,318 $237,892 $ 75,842
Canada 59,533 41,490 14,103
- -----------------------------------------------------------------------------------------------------
$197,851 $279,382 $ 89,945
=====================================================================================================
Statutory income tax:
U.S. $ 48,411 $ 83,262 $ 26,545
Canada 22,801 15,891 5,359
- -----------------------------------------------------------------------------------------------------
71,212 99,153 31,904
Purchased Canadian tax benefit (18,000) --- ---
Non-deductible expenses, primarily goodwill 6,312 6,020 650
State and local income taxes 6,069 8,345 2,545
Benefit of loss carryforwards (1,001) (1,183) (613)
Other (692) 3,165 (786)
- -----------------------------------------------------------------------------------------------------
Income tax provision $ 63,900 $115,500 $ 33,700
=====================================================================================================
</TABLE>
Current deferred tax assets totaled $15.2 million and $23.8 million at December
31, 1996 and 1995, respectively, while deferred tax liabilities totaled $134.5
million and $111.9 million, respectively. Deferred tax assets, non-current
totaled $15.3 million and none at December 31, 1996 and 1995, respectively. The
tax effect of net
<PAGE>
CONFIDENTIAL
32
operating loss (NOL) and tax credit carryforwards and significant temporary
differences between reported and taxable earnings that gave rise to net deferred
tax (liabilities) assets were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NOL, capital loss and tax credit carryforwards $ 6,306 $ 21,807
Discontinued business costs 7,461 7,832
Unfunded employee benefits 16,605 17,376
Accrued liabilities (12,517) (66)
Inventory valuation 3,799 3,157
Investments in partnership (28,569) (29,536)
Depreciation (88,369) (103,247)
Valuation allowance (9,142) (4,022)
Other 394 (1,403)
- ------------------------------------------------------------------------------------------------------------------------------------
$(104,032) $ (88,102)
====================================================================================================================================
</TABLE>
Remaining unutilized NOL carryforwards were approximately $0.7 million and $12.5
million at December 31, 1996 and 1995, respectively. NOL carryforwards that
have not been utilized expire in 2005. Alternative minimum tax (AMT) credits
were $3.0 million and $13.4 million at December 31, 1996 and 1995, respectively.
AMT credits have an indefinite life. The Corporation's capital loss
carryforwards totaled $8.6 and $11.5 million at December 31, 1996 and 1995,
respectively. Capital loss carryforwards that are not utilized will expire in
1997. A valuation allowance is provided since the realization of tax benefits of
capital loss carryforwards is not assured.
During 1996, the Corporation, after receiving a favorable ruling from Revenue
Canada, refreshed its tax basis in plant and equipment at its Canadian
subsidiary by entering into a transaction with a Canadian subsidiary of Minorco,
resulting in a deferred tax asset for the Corporation. Minorco, through its
beneficial ownership of Common Shares, owned approximately 57% of the equity of
the Corporation at December 31, 1996. The ultimate realization of the deferred
tax asset will require future taxable income in Canada. The Corporation has
assessed its past earnings history and trends and has established a valuation
allowance of $6.1 million related to the transaction. The Corporation will
continue to review this valuation allowance and make adjustments as appropriate.
Components of income tax provision (benefit) included in net income other than
from continuing operations are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ --- $ (2,392) $ (1,647)
State --- (107) (44)
- ------------------------------------------------------------------------------------------------------------------------------------
--- (2,499) (1,691)
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal --- --- 1,816
State --- --- 331
- ------------------------------------------------------------------------------------------------------------------------------------
--- --- 2,147
- ------------------------------------------------------------------------------------------------------------------------------------
$ --- $ (2,499) $ 456
====================================================================================================================================
</TABLE>
Current tax benefits in 1995 and 1994 result from losses on early retirement or
refinancing of long-term debt. Deferred income taxes in 1994 were provided for
the net cumulative effect of changes in accounting principles.
21. Industry Segment Data
The Corporation operates in three principal industry segments - Distribution,
Nitrogen Products and Methanol. The Distribution segment sells crop inputs -
fertilizer, crop protection products, seed and services - through its
<PAGE>
CONFIDENTIAL
33
farm service center network. These inputs include both Terra's own brands and
vendor products from virtually all other agricultural chemical and seed
suppliers. Terra has the largest company-operated farm service center network in
North America. The Nitrogen Products business produces and distributes ammonia,
urea, nitrogen solutions, and urea feed which are used by farmers to provide
crops with nitrogen, an essential nutrient for plant growth and as a feed
additive for livestock. The Methanol business manufactures and distributes
methanol, which is principally used as a raw material in the production of a
variety of chemical derivatives and in the production of methyl tertiary butyl
ether (MTBE), an oxygenate and an octane enhancer for gasoline. Inter-segment
sales have been recorded at amounts approximating market. Segment revenues and
costs for Distribution, Nitrogen Products and Methanol include inter-segment
transactions. Included in Other are eliminations of inter-segment sales and
unallocated portions of the business. The following summarizes additional
information about the Corporation's industry segments:
<TABLE>
<CAPTION>
Nitrogen
(in thousands) Distribution Products Methanol Other Total
- --------------------------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Sales $ 1,573,827 $ 654,486 $ 132,533 $ (44,360) $ 2,316,486
Operating earnings 25,268 255,263 18,520 (3,870) 295,181
Identifiable assets 639,062 1,048,241 194,635 87,427 1,969,365
Depreciation and amortization 17,101 47,690 12,866 5,553 83,210
Capital expenditures 27,310 156,833 1,327 179 185,649
================================================================================================================================
1995
<S> <C> <C> <C> <C> <C>
Sales $ 1,495,166 $ 635,126 $ 194,565 $ (32,684) $ 2,292,173
Operating earnings 41,207 263,787 77,138 (4,430) 377,702
Identifiable assets 564,243 984,363 225,034 94,218 1,867,858
Depreciation and amortization 12,245 32,518 16,636 4,676 66,075
Capital expenditures 14,347 150,687 10,329 1,766 177,129
================================================================================================================================
1994
<S> <C> <C> <C> <C> <C>
Sales $ 1,318,416 $ 296,557 $ 70,274 $ (19,300) $ 1,665,947
Operating earnings 33,784 48,369 42,679 (9,537) 115,295
Identifiable assets 502,921 713,209 347,147 124,693 1,687,970
Depreciation and amortization 9,497 9,575 4,263 3,883 27,218
Capital expenditures 16,374 6,086 8,732 21 31,213
================================================================================================================================
</TABLE>
22. Agreements of Limited Partnership
In accordance with the Agreement of Limited Partnership of TNCLP, quarterly
distributions to Unitholders and TNC (the General Partner) are made in an amount
equal to 100% of its Available Cash, as defined, unless Available Cash is
required to fund a reserve amount. TNCLP must fund and maintain a reserve of
$18.5 million to support Minimum Quarterly Distributions, as defined, on the
Senior Preference Units (the Reserve Amount). Such Reserve Amount was fully
funded and included in other current assets at December 31, 1996.
During the period which commenced December 4, 1991, and ended on December 31,
1996 (the Preference Period), Senior Preference Units (SPUs) and Common Units
participated equally in distributions after each class of units received its
Minimum Quarterly Distribution, subject to the General Partner's right to
receive cash distributions.
The General Partner receives a combined minimum 2% of total cash distributions,
and as an incentive, the General Partner's participation increases if cash
distributions exceed specified target levels.
Pursuant to the provisions of the TNCLP Agreement of Limited Partnership, the
Preference Period for TNCLP ended on December 31, 1996. Until March 31, 1997,
the holders of all SPUs have the right to elect to convert their SPUs into
Common Units on a one-for-one basis, effective as of December 31, 1996. Any SPUs
which do
<PAGE>
CONFIDENTIAL
34
not convert will continue to be entitled to the Minimum Quarterly Distribution
but will not participate with the Common Units in any additional distributions.
After March 31, 1997, any or all of the non-converted SPUs may be redeemed at
the option of the Partnership, exercised at the sole discretion of the General
Partner, upon at least 30 but not more than 60 days' notice at a price equal to
Unrecovered Capital plus accrued arrearages, if any. Unrecovered Capital, as
further defined in the Partnership Agreement, means an amount equal to the
excess of (i) the initial public offering price per SPU ($21.50) over (ii) the
sum of all distributions made in respect of an SPU out of Available Cash
constituting Cash from Interim Capital Transactions. If after giving effect to
an anticipated redemption, fewer than 1.0 million SPUs would be held by non-
affiliates of the General Partner, the Partnership must redeem all such SPUs if
it redeems any SPUs.
If at any time less than 25% of the issued and outstanding units of any class
(Senior Preference or Common) are held by non-affiliates of the General Partner,
the Partnership may call, or assign to the General Partner or its affiliates its
right to acquire, all such outstanding units held by non-affiliated person.
TNCLP shall give at least 30 but not more than 60 days notice of its decision to
purchase the outstanding units. The purchase price per unit will be the greater
of (1) the average of any previous twenty trading days closing prices as of the
date five days before the purchase is announced or (2) the highest price paid by
the General Partner or any of its affiliates for any unit within the 90 days
preceding the date the purchase is announced.
After March 31, 1997, the Reserve Amount will be maintained only to support
distributions on any remaining non-converted SPUs. The Reserve Amount will be
maintained in the amount equal to four quarters of Minimum Quarterly
Distributions on all non-converted SPUs. It is anticipated that any reduction in
the Reserve Amount from its current level of $18.5 million will be available for
cash distributions to partners of TNCLP in May 1997.
<PAGE>
CONFIDENTIAL
35
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Terra Industries Inc. and
its subsidiaries have been prepared in conformity with generally accepted
accounting principles appropriate in the circumstances. The integrity and
objectivity of data in these financial statements and supplemental data,
including estimates and judgments related to matters not concluded by year end,
are the responsibility of management.
The Corporation has a system of internal accounting controls that provides
management with reasonable assurance that transactions are recorded and executed
in accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that financial records are maintained to permit preparation
of financial statements in accordance with generally accepted accounting
principles. This system includes written policies and procedures, and
organizational structure that segregates duties, and a comprehensive program of
periodic audits by the internal auditors. The Corporation also has instituted
policies and guidelines that require employees to maintain the highest level of
ethical standards.
The Audit Committee of the Board of Directors is responsible for the review and
oversight of the financial statements and reporting practices used, as well as
the internal audit function. The Audit Committee meets periodically with
management, internal auditors and the independent accountants. The independent
accountants and internal auditors have access to the Audit Committee and,
without management present, have the opportunity to discuss the adequacy of
internal accounting controls and to review the quality of financial reporting.
The Consolidated Financial Statements contained in this Annual Report have been
audited by our independent accountants. Their audits included a review of
internal accounting controls to establish a basis for reliance thereon in
determining the nature, extent and timing of audit tests applied in their
examinations of the Consolidated Financial Statements.
Burton M. Joyce Francis G. Meyer Robert E. Thompson
President and Chief Financial Officer Chief Accounting Officer
Chief Executive Officer
<PAGE>
CONFIDENTIAL
36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Terra Industries Inc.
We have audited the accompanying consolidated statements of financial position
of Terra Industries Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Terra Industries Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Corporation changed its
method of accounting for major maintenance turnarounds and post-employment
benefits effective January 1, 1994.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 3, 1997
<PAGE>
CONFIDENTIAL
37
<TABLE>
<CAPTION>
Quarterly Production Data (unaudited)
- ----------------------------------------------------------------------------
Quarter Quarter Quarter Quarter Year
Ended Ended Ended Ended Ended
March 31 June 30 Sept. 30 Dec. 31 Dec. 31
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Net Production (tons):
Anhydrous ammonia 333,934 278,868 308,404 282,777 1,203,983
Nitrogen solutions 738,659 745,663 750,754 885,472 3,120,548
Urea 142,798 154,494 154,139 190,047 641,478
Methanol (million gallons) 84.3 68.0 78.5 80.9 311.7
1995 Net Production (tons):
Anhydrous ammonia 262,210 274,377 247,117 257,026 1,040,730
Nitrogen solutions 662,508 659,044 596,833 696,272 2,614,657
Urea 154,140 140,554 154,745 110,594 560,033
Methanol (million gallons) 75.1 58.7 81.4 83.7 298.9
============================================================================
Quarterly Financial and Stock Market Data (unaudited)
- ----------------------------------------------------------------------------
(in thousands, except
per-share data and stock
prices) March 31, June 30, Sept. 30, Dec. 31,
- ----------------------------------------------------------------------------
1996
Total revenues $394,741 $1,085,678 $471,538 $364,529
Gross profit 117,224 235,898 128,433 112,481
Net income 18,400 71,450 23,902 20,199
Per Share:
Net income $ 0.23 $ 0.90 $ 0.32 $ 0.27
Dividends 0.03 0.04 0.04 0.04
Common Share Price:
High $ 14.25 $ 14.25 $ 15.00 $ 15.00
Low 11.00 12.38 12.00 13.63
============================================================================
1995
Total revenues $443,340 $1,003,669 $492,265 $352,899
Gross profit 139,059 245,841 135,122 115,081
Income before
extraordinary items 32,953 85,065 29,235 16,629
Net income 32,953 85,065 24,897 16,629
Per Share:
Income before
extraordinary items $ 0.41 $ 1.05 $ 0.36 $ 0.20
Net income 0.41 1.05 0.31 0.20
Dividends 0.02 0.02 0.03 0.03
Common Share Price:
High $ 13.38 $ 12.38 $ 14.88 $ 14.25
Low 9.75 9.75 12.00 11.75
============================================================================
</TABLE>
<PAGE>
CONFIDENTIAL
38
<TABLE>
<CAPTION>
Revenues
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Manufactured nitrogen products $ 654,486 $ 635,126 $ 296,557
Methanol 132,533 194,565 70,274
Resale fertilizer 386,774 360,725 307,400
Crop protection products 975,000 956,727 859,151
Seed 90,175 78,588 71,355
Other 77,518 66,442 61,210
- --------------------------------------------------------------------------------
Total $2,316,486 $2,292,173 $1,665,947
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Volumes & Prices (unaudited)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Realized Sales Realized
(quantities in thousands) Volumes/(1)/ Price/unit Volumes Price/unit
- --------------------------------------------------------------------------------
Anhydrous ammonia (tons) 1,174 $ 185 1,089 $ 195
Nitrogen solutions (tons) 3,180 94 2,667 95
Urea (tons) 575 179 640 189
Other nitrogen products (tons) 159 184 102 138
Methanol (gallons) 314,670 0.42 316,022 0.62
================================================================================
</TABLE>
(1) Sales volumes in 1996 include sales from Port Neal production which was
shut down for substantially all of 1995.
STOCKHOLDERS
- --------------------------------------------------------------------------------
The Corporation's Common Shares are traded principally on the New York Stock
Exchange. At January 31, 1997, 75 million Common Shares were outstanding and
held by 4,662 stockholders.
<PAGE>
CONFIDENTIAL
39
<TABLE>
<CAPTION>
Financial Summary
- ------------------------------------------------------------------------------------------
(in thousands, except
per-share and employee
data) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position
Working capital $ 187,157 $ 307,873 $ 273,941 $ 231,287 $ 215,817
Total assets $1,969,365 $1,867,858 $1,687,970 $ 634,482 $ 580,192
Long-term debt $ 407,312 $ 411,573 $ 558,256 $ 121,384 $ 133,679
Stockholders' equity $ 606,092 $ 571,583 $ 418,429 $ 242,980 $ 221,476
Results of Operations
Revenues $2,316,486 $2,292,173 $1,665,947 $1,238,001 $1,082,191
Costs and expenses (2,021,305) (1,914,471) (1,550,652) (1,196,173) (1,056,472)
Interest income 7,102 13,811 5,541 3,261 3,084
Interest expense (59,947) (64,897) (22,082) (12,944) (10,617)
Minority interest (44,485) (47,234) (8,809) --- ---
Income tax provision (63,900) (115,500) (33,700) (9,300) (7,757)
- -------------------------------------------------------------------------------------------
Income from
continuing operations 133,951 163,882 56,245 22,845 10,429
Discontinued operations --- --- --- --- (1,665)
Extraordinary items --- (4,338) (3,060) --- ---
Cumulative effect of
accounting changes --- --- 3,376 --- 22,265
- -------------------------------------------------------------------------------------------
Net income $ 133,951 $ 159,544 $ 56,561 $ 22,845 $ 31,029
===========================================================================================
Earnings per share:
Continuing operations $ 1.72 $ 2.01 $ 0.77 $ 0.33 $ 0.15
Discontinued operations --- --- --- --- (0.02)
Extraordinary items --- (0.05) (0.04) --- ---
Cumulative effect of
accounting changes --- --- 0.05 --- 0.32
- -------------------------------------------------------------------------------------------
Total $ 1.72 $ 1.96 $ 0.78 $ 0.33 $ 0.45
===========================================================================================
Dividends Per Share $ 0.15 $ 0.10 $ 0.08 $ 0.02 $ ---
===========================================================================================
Capital Expenditures
Continuing operations $ 185,649 $ 177,129 $ 31,213 $ 21,620 $ 17,620
Discontinued operations --- --- --- --- 2,231
- -------------------------------------------------------------------------------------------
Total $ 185,649 $ 177,129 $ 31,213 $ 21,620 $ 19,851
===========================================================================================
Permanent employees
at end of period 3,575 3,415 3,210 2,570 2,020
===========================================================================================
</TABLE>
Amounts have been restated as appropriate to reflect continuing operations.
<PAGE>
Exhibit 21
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
February 17, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage Percentage
Name of Company Held by TRA Held by Sub Jurisdiction
- --------------- ----------- ----------- ------------
I. El Rancho Rock & Sand, Inc. 100.0 California
II. Hudson Bay Gold Inc. 100.0 Canada
which owns
A. Mingold Resources Inc. /1/ 50.0 Canada
III. Inspiration Coal Inc. 100.0 Delaware
IV. Inspiration Coal Development Company 100.0 Delaware
which owns
A. Ashland Mining Corporation 100.0 W. Virginia
B. Briarwood Mining Inc. 100.0 Virginia
C. Plateau Fuels, Inc. 100.0 Kentucky
D. Southern Floyd Coal, Inc. 100.0 Kentucky
V. Inspiration Consolidated Copper Company 100.0 Maine
which owns
A. Black Pine Mining Company 100.0 Montana
B. Inspiration Development Company 100.0 Delaware
VI. Inspiration Gold Incorporated 100.0 Delaware
VII. Terra Capital Holdings, Inc. 100.0 Delaware
which owns
A. Terra Capital, Inc. 100.0 Delaware
which owns
1. Terra Methanol Corporation 100.0 Delaware
2. Terra International, Inc. 100.0 Delaware
which owns
a. Farmbelt Chemicals, Inc. 100.0 Delaware
b. Farmers Agricultural Credit Corporation 100.0 Iowa
c. Northern Agricultural Credit Corporation 100.0 Minnesota
</TABLE>
- ------------------------------
/1/ 50% of Special Voting Preference Shares held by Hudson Bay Gold. Western
Gold Exploration and Mining Co., Limited owns 100% of Limited Voting Common
Shares and 100% of Non-Voting Preference Shares.
<PAGE>
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
February 17, 1997
<TABLE>
<CAPTION>
Percentage Percentage
Name of Company Held by TRA Held by Sub Jurisdiction
- --------------- ----------- ----------- ------------
<S> <C> <C> <C>
A. Terra Capital, Inc. (continued)
2. Terra International, Inc. (continued)
d. Terra International (Oklahoma) Inc. 100.0 Delaware
e. Terra Real Estate Corporation 100.0 Iowa
f. Terra Real Estate Development
Corporation 100.0 Iowa
g. Terra Express, Inc. 100.0 Delaware
h. Terra International (Canada) Inc. 100.0 Ontario, Canada
which owns
1. Belmont Farm Supply Inc. 50.0 Federal
2. Bluewater Agromart Limited 50.0 Ontario
3. Brussels Agomart Ltd. 50.0 Ontario
4. Cardinal Farm Supply Limited 50.0 Ontario
5. Fingal Farm Supply Limited 50.0 Ontario
6. Grand Falls Agromart Ltd. 50.0 Federal
7. Hartland Agromart Ltd. 50.0 Federal
8. Harvex Agromart Inc. 50.0 Ontario
9. Hoegy's Farm Supply Limited 50.0 Ontario
10. Lakeside Grain & Feed Limited 50.0 Ontario
11. Macroblend Limited 50.0 Ontario
12. Maple Farm Supply Limited 50.0 Ontario
13. Max Underhill's Farm Supply Limited 50.0 Ontario
14. Munro Agromart Ltd. 50.0 Ontario
15. Oakwood Agromart Ltd. 50.0 Ontario
16. Oxford Agropro Ltd. 50.0 Ontario
17. Scotland Agromart Ltd. 50.0 Ontario
18. Setterington's Fertilzer Service 50.0 Ontario
Limited
19. Sprucedale Agromart Limited 50.0 Ontario
20. Tri-County Agromart Ltd. 50.0 Ontario
i. Royster-Clark, Inc. 34.14 Delaware
j. Port Neal Holdings Corp./2/ 100.0 Delaware
which owns
1. Port Neal Corporation 100.0 Delaware
</TABLE>
- -----------------------------
/2/ An outside investor has a 25% voting interest represented by 1,000,000
shares of Cumulative Variable Rate Voting Preferred Stock.
<PAGE>
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
February 17, 1997
<TABLE>
<S> <C> <C> <C>
3. BMC Holdings, Inc. 100.0 Delaware
which owns
a. Beaumont Methanol, Limited
Partnership/3/ 99.0 Delaware
4. Terra Nitrogen Corporation 100.0 Delaware
which owns
a. Terra Nitrogen Company, L.P./4/ 65.0 Delaware
which owns
1. Terra Nitrogen, Limited
Partnership/5/ 99.0 Delaware
5. Terra Capital Funding LLC/6/ 99.0 Delaware
a. Terra Funding Corporation/7/ 100.0 Delaware
VIII. Western Gold Exploration and Mining Company,
Limited Partnership 50.0 Delaware
which owns
A. West Gold Placer, Inc. 100.0 Delaware
B. No. 136 Sail View Ventures Ltd. 100.0 British Col.
which owns
1. Coastech Research Inc. 50.3 British Col.
</TABLE>
- ------------------------------
/3/ Terra Methanol Corporation is 1% General Partner.
/4/ Terra Nitrogen Corporation's interest includes 1.0101% as General Partner.
/5/ Terra Nitrogen Corporation is 1% General Partner.
/6/ Terra Capital Holdings, Inc. has a 1% interest.
/7/ An outside investor owns one share of Class SV Preferred Shares with
limited voting rights.
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD G. BEIMFOHR
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 14th day of February, 1997.
/s/ Edward G. Beimfohr
-------------------------------
EDWARD G. BEIMFOHR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
CAROL L. BROOKINS
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ Carol L. Brookins
-------------------------------
CAROL L. BROOKINS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD M. CARSON
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ Edward M. Carson
-------------------------------
EDWARD M. CARSON
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
DAVID E. FISHER
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ David E. Fisher
-------------------------------
DAVID E. FISHER
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
BASIL T.A. HONE
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ Basil T.A. Hone
-------------------------------
BASIL T.A. HONE
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
BURTON M. JOYCE
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Robert
E. Thompson, or each of them, with full power of substitution and
resubstitution, my true and lawful attorney, for me and in my name, place and
stead, to sign my name as a director of Terra Industries Inc. (the "Company") to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and any amendments or supplements thereto, and to file said Annual Report
and any amendment or supplement thereto, with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 18th day of February, 1997.
/s/ Burton M. Joyce
-------------------------------
BURTON M. JOYCE
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
ANTHONY W. LEA
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 19th day of February, 1997.
/s/ Anthony W. Lea
-------------------------------
ANTHONY W. LEA
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
WILLIAM R. LOOMIS, JR.
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ William R. Loomis, Jr.
-------------------------------
WILLIAM R. LOOMIS, JR.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
JOHN R. NORTON III
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 21st day of February, 1997.
/s/ John R. Norton III
-------------------------------
JOHN R. NORTON III
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
HENRY R. SLACK
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 14th day of February, 1997.
/s/ Henry R. Slack
-------------------------------
HENRY R. SLACK
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
FRANCIS G. MEYER
hereby constitute and appoint George H. Valentine, Robert E. Thompson and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as Senior Vice President and Chief Financial Officer of Terra Industries
Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and any amendments or supplements thereto, and to
file said Annual Report and any amendment or supplement thereto, with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ Francis G. Meyer
-------------------------------
FRANCIS G. MEYER
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
ROBERT E. THOMPSON
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as Vice President, Controller of Terra Industries Inc. (the "Company") to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and any amendments or supplements thereto, and to file said Annual Report
and any amendment or supplement thereto, with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 20th day of February, 1997.
/s/ Robert E. Thompson
-------------------------------
ROBERT E. THOMPSON
<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
December 31, 1996 and the related consolidated statement of income for the year
then ended.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 94,570
<SECURITIES> 6,172
<RECEIVABLES> 92,997
<ALLOWANCES> (11,391)
<INVENTORY> 422,938
<CURRENT-ASSETS> 712,294
<PP&E> 1,048,993
<DEPRECIATION> (202,640)
<TOTAL-ASSETS> 1,969,365
<CURRENT-LIABILITIES> 525,137
<BONDS> 404,707
<COMMON> 127,614
0
0
<OTHER-SE> 478,478
<TOTAL-LIABILITY-AND-EQUITY> 1,969,365
<SALES> 2,264,509
<TOTAL-REVENUES> 2,316,486
<CGS> 1,722,450
<TOTAL-COSTS> 1,946,995
<OTHER-EXPENSES> 118,795
<LOSS-PROVISION> 15,428
<INTEREST-EXPENSE> 59,947
<INCOME-PRETAX> 197,851
<INCOME-TAX> 63,900
<INCOME-CONTINUING> 133,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,951
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 0
</TABLE>
