<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1997
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland 1-8520 52-1145429
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
Terra Centre
600 Fourth Street
P.O. Box 6000
Sioux City, Iowa 51102-6000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 277-1340
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<PAGE>
Reference is made to Terra Industries Inc.'s current report on Form 8-K/A
(Amendment No. 1) dated December 31, 1997. There is hereby added to such Form
8-K/A the additional Item 7 information as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired:
Report of KPMG Audit Plc.................................... F-1
Combined statement of net assets............................ F-2
Combined statement of revenues and expenses................. F-3
Combined cash flow statement................................ F-4
Notes....................................................... F-5
(b) Pro Forma Financial Information................................. F-9
Pro Forma Combined Statement of Income
For the Year Ended December 31, 1997...................... F-10
Notes to Pro Forma Combined Statement of Income............. F-11
(c) Exhibits........................................................ II-1
<PAGE>
KPMG
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
Report of the auditors to the directors of ICI Chemicals & Polymers Limited
We have audited the combined statement of net assets of the UK Fertilizers
business ('Fertilizers UK') of ICI Chemicals & Polymers Limited as of 31
December 1997 and 31 December 1996 and the combined statements of revenue and
expenses and cash flows for the years then ended. These financial statements are
the responsibility of ICI Chemicals & Polymers Limited management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United Kingdom. These 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
statements presentation.
The accompanying combined statement of revenues and expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Form 8-K/A of Terra Industries Inc. and
excludes material amounts, described in note 1 to the combined statement of
revenues and expenses, that would not be comparable to those resulting from the
proposed future operations of assets acquired.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fertilizers UK as of 31
December 1997 and 1996, and of the results of their operations before interest
and taxes and their cash flows for each of the years in the two year period
ended 31 December 1997, in conformity with measurement principles of generally
accepted accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. However, the application of generally accepted accounting principles in
the United States would not have a material effect on the operations for each of
the years in the two year period ended 31 December 1997 or on the financial
position as of 31 December 1997 and 31 December 1996.
KPMG Audit Plc 26 February 1998
Chartered Accountants
Registered Auditor
F-1
<PAGE>
UK Fertilizers business (`Fertilizers UK') of ICI Chemicals & Polymers Limited
Financial statements
31 December 1997 and 1996
<TABLE>
<CAPTION>
Combined statement of net assets (excluding corporate debt)
at 31 December 1997 and 1996
<S> <C> <C> <C>
Notes 31 December 31 December
----------- -----------
1997 1996
(Pounds) (Pounds)
million million
Assets
Current assets
Accounts receivable 2 20.4 23.1
Inventories 4 21.0 15.5
----------- -----------
41.4 38.6
Property, plant and equipment 5 36.4 42.3
----------- -----------
Total assets 77.8 80.9
----------- -----------
Liabilities and net assets
Current liabilities
Accounts payable and accrued liabilities 3 25.9 24.2
Net assets 6 51.9 56.7
----------- -----------
77.8 80.9
----------- -----------
</TABLE>
See accompanying notes to financial statements.
These financial statements were approved by the ICI Chemical & Polymers Limited
Chief Financial Officer on 26 February 1998.
T. A. Shovlin
Chief Financial Officer
F-2
<PAGE>
UK Fertilizers business (`Fertilizers UK') of ICI Chemicals & Polymers Limited
Financial statements
31 December 1997 and 1996
<TABLE>
<CAPTION>
Combined statement of revenues and expenses (excluding interest and taxes)
Years ended 31 December 1997 and 1996
1997 1996
(Pounds) million (Pounds) million
<S> <C> <C>
Revenue
Net sales 184.9 227.1
Costs and expenses
Cost of sales (106.9) (110.0)
Depreciation and amortization (5.1) (6.6)
Selling, general and administration (63.5) (52.9)
----------------- -----------------
Profit before interest and tax 9.4 57.6
----------------- -----------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
UK Fertilizers business ('Fertilizers UK') of ICI Chemicals & Polymers Limited
Financial statements
31 December 1997 and 1996
<TABLE>
<CAPTION>
Combined cash flow statement (excluding interest and taxes)
Years ended 31 December 1997 and 1996
1997 1997 1996 1996
(Pounds) (Pounds) (Pounds) (Pounds)
million million million million
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations
Profit before interest and tax 9.4 57.6
Items not involving cash:
Depreciation 5.1 6.6
Change in non-cash operating working capital:
Accounts receivable 2.7 (1.6)
Inventories (5.5) (4.0)
Accounts payable and accrued liabilities 1.7 6.2
-------- --------
(1.1) 0.6
Investments
Purchases of property, plant and equipment (3.2) (1.4)
-------- --------
Net cash contribution 10.2 63.4
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
U.K. Fertilizers business ('Fertilizers UK') of ICI Chemicals & Polymers Limited
Financial statements
31 December 1997 and 1996
Notes
(forming part of the financial statements)
1. Accounting policies
The accompanying financial statements have been prepared in Sterling under
the historic cost convention and conform in all material respects with the
measurement principles of generally accepted accounting principles in the
United Kingdom, and conform in all material respects with those accounting
principles generally accepted in the United States. However, certain
disclosures relating to cash flows required by United Kingdom generally
accepted accounting principles have been excluded.
The financial statements do not constitute "statutory accounts" within the
meaning of the Companies Act 1985 of the United Kingdom for any of the
periods presented.
Basis of presentation
Fertilizers UK comprises fertilizers, ammonia, CO2, nitric/nitrite and
Billingham site services which are business units of ICI Chemicals &
Polymers Limited. Fertilizers UK produces and distributes ammonia, nitric
acid, ammonium nitrate fertilizers, sodium nitrite and liquid carbon
dioxide as well as supplying site services at Billingham.
Fertilizers UK was acquired by Terra Industries Inc. effective 31 December
1997. The financial statements include substantially all the assets and
liabilities of Fertilizers UK. However, Terra Industries Inc. only acquired
the following:
- (Pounds)32.7 million of the property, plant and equipment, and;
- (Pounds) 18.2 million of stocks.
Terra Industries Inc. did not purchase those assets or stocks relating to
the CO2 plant at Grimsby or Propane stocks at Wilton. In addition, Terra
Industries Inc. did not purchase any shared assets. Property, plant and
equipment at 31 December 1997 excludes the proportion of the shared assets,
refer note 5, which were allocated to the business in the prior period.
Subject to the foregoing, the statement of revenues and expenses includes
all revenues, costs and expenses directly incurred by, or related to
Fertilizers UK. Costs and expenses also include certain allocated overheads
from ICI Chemicals & Polymers Limited. For example, the costs of certain
personnel and facilities were shared with, and allocated among, the various
business units of ICI Chemicals & Polymers Limited. However, the statement
of revenues and expenses excludes certain amounts which would not be
comparable to the proposed future operations. The interest expense, income
tax or deferred tax provisions which were accounted for at the corporate
level by ICI Chemicals & Polymers Limited have been excluded.
All significant intra-Fertilizers UK accounts and profits have been
eliminated in these financial statements.
Significant accounting policies are summarized below:
Depreciation
The policy is to write off the book value of each tangible fixed asset to
its residual value evenly over its estimated remaining life. Reviews are
made periodically of the estimated remaining lives of individual productive
assets, taking account of commercial and technological obsolescence as well
as normal wear and tear. Depreciation of assets qualifying for grants is
calculated on their full cost.
Government grants
Grants related to expenditure on tangible fixed assets are credited to the
statement of revenues and expenses over a period approximating to the lives
of qualifying assets. Thus, grants included in the combined statement of
net assets consist of the total grants receivable to date less the amounts
so far credited to the statement of revenues and expenses.
F-5
<PAGE>
UK Fertilizers business ('Fertilizers UK') of ICI Chemicals & Polymers Limit
Financial statements
31 December 1997 and 1996
1. Accounting policies (continued)
Leases
Assets held under finance leases are capitalized and included in property,
plant and equipment. Each asset is depreciated over the shorter of the
lease term or its useful life. The obligations related to finance leases,
net finance charges in respect of future periods, are included as
appropriate under creditors due within, or creditors due after, one year.
The interest element of the rental obligation is allocated to accounting
periods during the lease term to reflect a constant rate of interest on the
remaining balance of the obligation for each accounting period. Rentals
under operating leases are charged to the statement of revenues and
expenses as incurred.
Pension costs
The pension costs relating to the retirement plans are assessed in
accordance with advice of independent qualified actuaries. The amounts so
determined included the regular cost of providing the benefits under the
plans which should be a level percentage of current and expected future
earnings of the employees covered under the plans. Variations from the
regular cost are spread in a systematic basis over the estimated average
remaining service lives of current employees in the plans.
Research and development
Research and development expenditure is charged to the profit and loss
account in the year in which it is incurred.
Stock valuation
Finished goods are stated at the lower of cost and net realizable value,
raw materials and other stocks at the lower of cost or replacement price.
The average method of valuation is used. In determining cost for stock
valuation purposes, depreciation is included but selling expenses and
certain overhead expenses are excluded.
Environment liabilities
Provisions for significant environmental liabilities are made when
expenditure on remedial work is probable and the cost can be estimated
within a reasonable range of possible outcomes.
Ultimate holding company
The results of Fertilizers UK are incorporated in the financial statements
of ICI Chemicals & Polymers Limited. The ultimate holding company is
Imperial Chemicals Industries PLC which is incorporated in England.
F-6
<PAGE>
UK Fertilizers business (`Fertilizers UK') of ICI Chemicals & Polymers Limited
Financial statements
31 December 1997 and 1996
2. Accounts receivable
<TABLE>
<CAPTION>
31 December 1997 31 December 1996
(Pounds) million (Pounds) million
<S> <C> <C>
Amounts due within the year:
Trade debtors 20.0 22.7
Other debtors 0.4 0.4
---------------- ----------------
20.4 23.1
---------------- ----------------
</TABLE>
3. Accounts payable and accrued liabilities
<TABLE>
<CAPTION>
31 December 1997 31 December 1996
(Pounds) million (Pounds) million
<S> <C> <C>
Amounts due within the year
Trade creditors 19.0 15.0
Other creditors 6.9 9.2
---------------- ----------------
25.9 24.2
---------------- ----------------
</TABLE>
4. Inventories
<TABLE>
<CAPTION>
31 December 1997 31 December 1996
(Pounds) million (Pounds) million
<S> <C> <C>
Raw materials 3.3 1.6
Engineering stores 6.5 6.2
Finished products 11.2 7.7
---------------- ----------------
21.0 15.5
---------------- ----------------
</TABLE>
F-7
<PAGE>
UK Fertilizers business ('Fertilizers UK') of ICI Chemicals & Polymers Limited
Financial statements
31 December 1997 and 1996
5. Property, plant and equipment
<TABLE>
<CAPTION>
31 December 1997 31 December 1996
(Pounds) million (Pounds) million
---------------- ----------------
<S> <C> <C>
Cost at end of year 289.1 285.1
---------------- ----------------
Less: accumulated depreciation at end of year 252.7 242.8
---------------- ----------------
Net book value at end of year 36.4 42.3
---------------- ----------------
Net book value comprises:
Property 0.7 0.5
Plant and equipment 35.7 41.8
---------------- ----------------
36.4 42.3
---------------- ----------------
</TABLE>
Movements in cost and accumulated depreciation during 1997 have been
adjusted for transfers between business units of ICI Chemicals & Polymers
Limited. These intra-ICI Chemicals & Polymers Limited transfers only affect
the net asset position; there is no cash flow impact. Property, plant and
equipment at 31 December 1997 excludes the proportion of the shared assets
wich were allocated to Fertilizer UK at the prior year end. At 31 December
1996 the allocation of the shared assets included in the net book value was
(Pounds)4.1 million.
6. Net assets
Net assets represents ICI Chemicals & Polymers Limited's investment in the
Fertilizers UK as well as cumulative net operating advances by ICI
Chemicals & Polymers Limited and its business units. Fertilizers UK
participated in the ICI Chemicals & Polymers Limited corporate cash
management system and, accordingly, cash provided by the division was
applied to reduce the net asset position.
7. Commitments and contingencies
Fertilizers UK has a contingent liability for fifty percent of the bad debt
risk of certain trade debtors. The remaining risk is held by Capital Bank
plc.
As at 25.12.97 the total of such trade debtors (of which Fertilizers UK is
exposed to fifty percent of any bad debt risk) was (Pounds)4,211,357. As at
30.1.98 the total of such trade debtors was (Pounds)3,927,296.
F-8
<PAGE>
Terra Industries Inc.
Pro Forma Combined Financial Statements
On December 31, 1997, a wholly owned subsidiary of the Corporation, Terra
International (Canada) Inc. (Terra Canada) acquired two nitrogen fertilizer
manufacturing plants in the United Kingdom from Imperial Chemical Industries PLC
for approximately $338 million. The plants, located in Billingham and
Severnside, England, produce nitrogen products for sale in the agricultural and
industrial markets in the U.K. and western Europe. The acquisition has been
accounted for using the purchase method of accounting. The Corporation funded
the acquisition with $125 million from a five year term loan provided by a bank
group and secured by the assets of Terra Canada, $175 million as part of a
contribution to the Corporation for a $225 million minority preferred limited
interest in its Beaumont Methanol, Limited Partnership (BMLP) subsidiary, and
the balance with available cash. The purchase price was allocated to the assets
based on estimated fair values at the date of acquisition. The excess of the
purchase price over the fair value of the assets acquired of $24 million will be
amortized on a straight line basis over 18 years which is estimated to be the
average remaining useful life of the manufacturing plants acquired.
The accompanying Pro Forma Combined Statement of Income (unaudited) for the year
ended December 31, 1997 presents the combined results of Terra Industries Inc.
and the UK Fertilizers business ('Fertilizers UK') of ICI Chemicals & Polymers
Limited assuming the acquisition occurred at the beginning of the period.
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, amortization of plant turnaround costs in
accordance with the Corporation's accounting policy, minority interest expense
related to the preferred limited interest in BMLP used to partially fund the
acquisition, interest expense of the acquisition borrowings and the effect of
income taxes. The historical income statement of Fertilizers UK was converted to
U.S. dollars using an exchange rate of $1.6376 U.S. dollars to (Pounds)1.00
Sterling for the year. The accompanying pro forma information 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.
The acquisition was included in the Corporation's Consolidated Statement of
Financial Position as of December 31, 1997 and the Consolidated Statement of
Financial Position in Exhibit 13 to Terra Industries Inc.'s Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
F-9
<PAGE>
TERRA INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF INCOME (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1997
(in U.S. dollars)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Audited
1997 Audited
Terra 1997 Pro Forma Pro Forma
Industries Fertilizers UK Adjustments Combined
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Net sales $ 2,462,081 $ 302,800 $ --- $ 2,764,881
Other income 80,288 --- --- 80,288
------------------------------------------------ ------------
2,542,369 302,800 --- 2,845,169
------------------------------------------------ ------------
Cost and Expenses
Cost of sales 1,967,344 183,400 3,120 (a) 2,153,864
Selling, general and administrative 323,975 104,000 --- 427,975
Equity in earnings of affiliates (2,266) --- --- (2,266)
------------------------------------------------ ------------
2,289,053 287,400 3,120 2,579,573
------------------------------------------------ ------------
Income from operations 253,316 15,400 (3,120) 265,596
Insurance recovery-damaged facility 163,427 --- --- 163,427
Interest income 6,525 --- --- 6,525
Interest expense (63,153) --- (6,440) (b) (69,593)
Minority interest (27,633) --- (17,744) (c) (45,377)
------------------------------------------------ ------------
Income before incomes taxes 332,482 15,400 (27,304) 320,578
Income taxes (122,600) --- 5,703 (d) (116,897)
------------------------------------------------ ------------
Income before extraordinary item $ 209,882 $ 15,400 $ (21,601) $ 203,681
================================================ ============
Basic weighted average shares 73,830 73,830
Diluted weighted average shares 75,025 75,025
Basic Earnings Per Share:
Income before extraordinary item $ 2.84 $ 2.76
============ ============
Diluted Earnings Per Share:
Income before extraordinary item $ 2.80 $ 2.71
============ ============
</TABLE>
F-10
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE PRO FORMA COMBINED STATEMENT OF INCOME (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1997
(in U.S. dollars)
(in thousands)
<TABLE>
<S> <C> <C>
(a) Amortization of excess of purchase price over the net assets of acquired business $ 1,331
Increased depreciation on fair value of assets acquired 7,925
Adjustment to plant turnaround costs to conform to the Corporation's policy of
deferring the cost and charging to product costs on a straight-line basis during
the period to the next scheduled turnaround (6,136)
-----------
$ 3,120
===========
(b) Increase interest expense on new long-term debt: $125 million at 7.19% $ (8,984)
Decrease interest expense on retired long-term debt: $30 million at 8.48% 2,544
-----------
$ (6,440)
===========
(c) Increase minority interest related to the sale of a 42% limited interest in Beaumont
Methanol Limited Partnership (BMLP) for $225 million. Proceeds of $175 million
were used to partially fund the acquisition. The 42% limited interest will receive
a first priority return from BMLP approximating LIBOR plus 1.95% (7.87%). $ (17,744)
===========
(d) Income taxes are provided at an assumed rate of 39% for U.S. pro forma adjustments 9,509
Income taxes are provided at an assumed rate of 31% for U.K. operating income (4,774)
Income taxes are provided at an assumed rate of 31% for U.K. pro forma adjustments 968
-----------
$ 5,703
===========
</TABLE>
F-11
<PAGE>
Item 7.(c) Exhibits
*2 Sale of Business Agreement dated November 20, 1997 between ICI
Chemicals & Polymers Limited, Imperial Chemical Industries, Terra
Nitrogen (U.K.) Limited (f/k/a Terra Industries Limited) and
Terra Industries Inc.
*4 Amended and Restated Credit Agreement dated December 31, 1997
among Terra Capital, Inc., Terra Nitrogen, Limited Partnership,
Certain Guarantors, Certain Lenders, Certain Issuing Banks and
Citibank, N.A. (without exhibits or schedules).
23 Consent of KPMG Audit Plc
*99 Ammonium Nitrate Hedge Agreement dated December 31, 1997 between
Terra International (Canada) Inc. and ICI Chemicals & Polymers
Limited.
*Incorporated by reference to identical exhibit filed in Terra Industries'
Form 8-K/A (Amendment No. 1) dated December 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERRA INDUSTRIES INC.
By: /s/ Francis G. Meyer
--------------------
Francis G. Meyer
Senior Vice President and
Chief Financial Officer
Date: March 16, 1998
II-1
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EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
ICI Chemicals & Polymers Limited
We consent to the incorporation by reference in the registration statement (No.
333-31769) on Form S-3 of Terra Industries Inc. of our report dated February 26,
1998, with respect to the combined statement of net assets of the UK Fertilizers
business ("Fertilizers UK") of ICI Chemicals & Polymers Limited as of December
31, 1997 and 1996, and the related statements of revenues and expenses and cash
flows for each of the years in the two year period ended December 31, 1997,
which report appears in the Form 8-K/A of Terra Industries Inc. dated March 16,
1998.
KPMG Audit Plc 16 March 1998
Chartered Accountants
Registered Auditor
