<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1145429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Terra Centre
P.O. Box 6000
600 Fourth Street 51102-6000
Sioux City, Iowa (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (712) 277-1340
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of October 31, 1998, the following shares of the registrant's stock were
outstanding:
Common Shares, without par value 74,890,711 shares
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 39,547 $ 180,062 $ 47,623
Accounts receivable, less allowance for
doubtful accounts of $10,235, $13,154 and $15,889 376,440 111,690 370,519
Inventories 393,414 395,940 344,167
Other current assets 27,319 51,287 68,382
- -------------------------------------------------------------------------------------------------------
Total current assets 836,720 738,979 830,691
- -------------------------------------------------------------------------------------------------------
Equity and other investments 28,827 24,485 27,139
Property, plant and equipment, net 1,168,495 1,181,384 879,279
Excess of cost over net assets of acquired businesses 289,923 304,567 284,171
Deferred tax asset 4,373 10,794 15,138
Other assets 104,780 99,745 76,226
- -------------------------------------------------------------------------------------------------------
Total assets $2,433,118 $2,359,954 $ 2,112,644
=======================================================================================================
LIABILITIES
Debt due within one year $ 34,547 $ 9,538 $ 160,643
Accounts payable 273,307 203,554 250,753
Accrued and other liabilities 222,178 223,163 145,024
- -------------------------------------------------------------------------------------------------------
Total current liabilities 530,032 436,255 556,420
- -------------------------------------------------------------------------------------------------------
Long-term debt 496,018 497,030 410,553
Deferred tax liability non-current 192,158 193,456 176,533
Other liabilities 82,011 82,315 82,487
Minority interest 336,458 360,569 132,906
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,636,677 1,569,625 1,358,899
- -------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 74,898, 74,977 and 74,963 shares 127,623 127,581 127,559
Paid-in capital 549,015 548,772 548,667
Accumulated other comprehensive income (1,934) (8,488) (3,012)
Retained earnings 121,737 122,464 80,531
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 796,441 790,329 753,745
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,433,118 $2,359,954 $ 2,112,644
=======================================================================================================
</TABLE>
2
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------------
1998 1997 1998 1997
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Net sales $444,339 $480,600 $2,127,414 $2,092,524
Other income, net 18,378 15,236 60,224 58,916
- -------------------------------------------------------------------------------------------------------------
462,717 495,836 2,187,638 2,151,440
- -------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 399,250 381,311 1,838,994 1,670,479
Selling, general and administrative expense 81,659 75,905 262,879 240,244
Equity in earnings of unconsolidated affiliates (2,039) (2,916) (4,579) (4,916)
- -------------------------------------------------------------------------------------------------------------
478,870 454,300 2,097,294 1,905,807
- -------------------------------------------------------------------------------------------------------------
Income (loss) from operations (16,153) 41,536 90,344 245,633
Insurance recovery - damaged facility --- 89,000 --- 89,000
Interest income 1,874 1,827 3,859 4,532
Interest expense (16,820) (15,694) (46,704) (44,447)
Minority interest (5,425) (3,901) (22,585) (23,127)
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (36,524) 112,768 24,914 271,591
Income tax provision (benefit) (14,700) 45,253 14,400 110,370
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(21,824) $67,515 $10,514 $161,221
=============================================================================================================
Basic earnings (loss) per share $ (0.30) $ 0.91 $ 0.14 $ 2.18
Diluted earnings (loss) per share $ (0.30) $ 0.90 $ 0.14 $ 2.15
=============================================================================================================
Basic weighted average shares outstanding 73,898 73,833 73,885 73,820
Diluted weighted average shares outstanding 73,898 75,202 75,013 74,951
=============================================================================================================
Cash dividends declared per share $ 0.05 $ 0.05 $ 0.15 $ 0.13
=============================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,514 $ 161,221
Adjustments to reconcile net income to net cash
used in operating activities:
Insurance recovery - damaged facility --- (89,000)
Depreciation and amortization 89,060 70,798
Deferred income taxes 4,116 49,619
Minority interest in earnings 22,585 23,127
Other non-cash items (3,089) (11,065)
Changes in current assets and liabilities,
excluding working capital purchased:
Accounts receivable (264,750) (269,048)
Inventories 2,526 109,223
Other current assets 9,531 45,771
Accounts payable 69,753 39,649
Accrued and other liabilities (440) (70,102)
Reimbursed Port Neal casualty 14,314 ---
Other (1,058) 8,322
- -----------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (46,938) 68,515
- -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (6,603) (40,792)
Purchase of property, plant and equipment (66,797) (34,281)
Port Neal plant construction --- (22,806)
Insurance proceeds from plant casualty --- 5,453
Other 6,924 1,601
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (66,476) (90,825)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term borrowings 25,000 41,668
Proceeds from issuance of long-term debt --- 7,867
Principal payments on long-term debt (1,003) (1,983)
Stock (repurchase) issuance, net 285 (21,397)
Distribution to minority interests (30,173) (32,560)
Repurchases of TNCLP common units (16,523) ---
Distribution reserve fund --- 18,480
Redemption of SPUs --- (6,604)
Redemption of preferred stock --- (24,950)
Dividends (11,241) (9,748)
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (33,655) (29,227)
- -----------------------------------------------------------------------------------------
Foreign exchange effect on cash and short-term investments 6,554 (1,582)
- -----------------------------------------------------------------------------------------
Decrease in cash and short-term investments (140,515) (53,119)
Cash and short-term investments at beginning of period 180,062 100,742
- -----------------------------------------------------------------------------------------
Cash and short-term investments at end of period $ 39,547 $ 47,623
=========================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Retained
Comprehensive Capital Paid-In Comprehensive Earnings
Income Stock Capital Income (Deficit) Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $127,614 $550,850 $(1,430) $(70,942) $606,092
Comprehensive income
Net income $161,221 -- -- -- 161,221 161,221
Foreign currency
translation adjustment (1,582) -- -- (1,582) -- (1,582)
--------
$159,639
========
Exercise of stock options 119 963 -- -- 1,082
Repurchase of common shares (1,673) (20,759) (22,432)
Issuance of common shares 1,499 17,613 -- -- 19,112
Dividends -- -- -- (9,748) (9,748)
- -------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $127,559 $548,667 $(3,012) $ 80,531 $753,745
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Retained
Comprehensive Capital Paid-In Comprehensive Earnings
Income Stock Capital Income (Deficit) Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $127,581 $548,772 $(8,488) $122,464 $790,329
Comprehensive income
Net income $ 10,514 -- -- -- 10,514 10,514
Foreign currency
translation adjustment 6,554 -- -- 6,554 -- 6,554
--------
$ 17,068
========
Exercise of stock options 42 243 -- -- 285
Dividends -- -- -- (11,241) (11,241)
- -------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $127,623 $549,015 $(1,934) $121,737 $796,441
=======================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 5
<PAGE>
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying unaudited consolidated financial statements and notes
thereto contain all adjustments necessary to summarize fairly the financial
position of Terra Industries Inc. and all majority-owned subsidiaries (the
"Corporation") and the results of the Corporation's operations for the
periods presented. Because of the seasonal nature of the Corporation's
operations and effects of weather-related conditions in several of its
marketing areas, results of operations of any single reporting period
should not be considered as indicative of results for a full year. Certain
reclassifications have been made to prior years' financial statements to
conform with current year presentation. These statements should be read in
conjunction with the Corporation's 1997 Annual Report to Stockholders.
2. Earnings per share are calculated in accordance with SFAS 128, "Earnings
Per Share". Basic earnings per share data are based on the weighted-average
number of Common Shares outstanding during the period. Diluted earnings per
share data are based on the weighted-average number of Common Shares
outstanding and the effect of all dilutive potential common shares
including stock options, restricted shares and contingent shares. All prior
periods have been restated in accordance with SFAS 128.
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(in thousands) 1998 1997 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 58,118 $ 41,724 $ 43,054
Finished goods 335,296 354,216 301,113
--------------------------------------------------------------------
Total $393,414 $395,940 $344,167
====================================================================
</TABLE>
4. The Corporation and certain of its subsidiaries are involved in various
legal actions and claims, including environmental matters, arising during
the normal course of business. Although it is not possible to predict with
any certainty the outcome of such matters, it is the opinion of management
that these matters will not have a material adverse effect on the results
of operations, financial position or cash flows of the Corporation.
5. The Corporation's natural gas procurement policy is to effectively fix or
cap the price of between 40% and 80% of its natural gas requirements for a
one-year period and up to 50% of its natural gas requirements for the
subsequent two-year period through supply contracts, financial derivatives
and other forward pricing techniques. These contracts reference physical
natural gas prices or appropriate NYMEX futures contract prices. Contract
physical prices are frequently based on the Henry Hub Louisiana price, but
natural gas supplies for the Corporation's six North American production
facilities are physically purchased for each plant location which often
creates a location basis differential between the contract price and the
physical price of natural gas. Accordingly, the use of financial
derivatives may not exactly offset the change in the price of physical gas.
The contracts are traded in months forward and settlement dates are
scheduled to coincide with gas purchases during that future period.
The Corporation has entered into firm contracts to minimize the risk of
interruption or curtailment of natural gas supplies. Additionally, the
Corporation has entered into forward pricing positions for a substantial
portion of its natural gas requirements for the remainder of 1998, 1999 and
2000, consistent with its policy. As a result of its policies, the
Corporation has reduced the potential adverse financial impact of natural
gas price increases during the forward pricing period, but conversely, if
natural gas prices were to fall, the Corporation will incur higher costs.
Unrealized gains from forward pricing positions totaled $22.7 million and
$71.4 million as of September 30, 1998 and 1997, respectively. The amount
recognized by the Corporation will be dependent on prices in effect at the
time of settlement.
6
<PAGE>
For the first nine months of 1998 and 1997, natural gas hedging activities
produced cost savings of approximately $14.1 million and $34.5 million,
respectively, compared with spot prices.
6. The Corporation has a revolving credit facility of up to $350 million for
working capital needs and other corporate purposes. Under the credit
facility, there was $25.0 million classified as short-term borrowings and
$7.0 million classified as long-term debt at September 30, 1998. Interest
on borrowings under this line is charged at current market rates.
7. In August 1996, the Corporation, through Terra Funding Corporation (TFC), a
beneficially owned subsidiary of the Corporation and a limited purpose
corporation, entered into an agreement with a financial institution to sell
an undivided interest in its accounts receivable. Under the agreement,
which expires August 1999, the Corporation may sell without recourse an
undivided interest in a designated pool of its accounts receivable and
receive up to $150 million in proceeds. Undivided interests in new
receivables may be sold as amounts are collected on previously sold
interests. As of September 30, 1998, the proceeds of the uncollected
balance of accounts receivable sold totaled $142 million. TFC is a separate
legal entity whose creditors have received security interests in its
assets.
8. On December 17, 1997, the Corporation announced that it is resuming
purchases of common units of Terra Nitrogen Company, L.P. (TNCLP) on the
open market and through privately negotiated transactions. Under an
existing authorization of the Board of Directors dating back to May 1995,
the Corporation may acquire up to 5 million common units. The Corporation
acquired 632,500 common units in the first nine months of 1998 for $16.5
million, bringing its total number of common units acquired since 1995,
under this authorization, to 1.6 million units.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1997
Consolidated Results
The Corporation reported net income of $10.5 million on revenues of $2.19
billion for the first nine months of 1998 compared with net income of $161.2
million on revenues of $2.15 billion in the first nine months of 1997. Basic
earnings per share for the first nine months of 1998 was $0.14 compared with
$2.18 for the comparable 1997 period. Diluted earnings per share was $0.14 and
$2.15, respectively, for the nine months ended September 30, 1998 and 1997. The
1997 results reflect a gain of $0.71 per share for the partial settlement of
insurance claims related to the rebuild of the Port Neal plant. Worldwide
overcapacity in both nitrogen and methanol markets has lowered prices and
margins for these products which substantially accounts for the decline in
earnings in 1998.
The Corporation classifies its operations into three business segments:
Distribution, Nitrogen Products and Methanol. The Distribution segment includes
sales of products purchased from manufacturers, including the Corporation, and
resold by the Corporation. Distribution revenues are derived primarily from
grower and dealer customers through sales of crop protection products,
fertilizers, seed and services. The Nitrogen Products segment represents only
those operations directly related to the wholesale sales of nitrogen products
produced at the Corporation's ammonia manufacturing and upgrading facilities.
The Methanol segment represents wholesale sales of methanol produced at the
Corporation's two methanol manufacturing facilities.
Total revenues and operating income (loss) by segment for the nine-month periods
ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Distribution $1,553,194 $1,578,747
Nitrogen Products 569,892 486,561
Methanol 77,054 132,635
Other - net of intercompany eliminations (12,502) (46,503)
- --------------------------------------------------------------------
$2,187,638 $2,151,440
=======================
OPERATING INCOME (LOSS):
Distribution $ 47,631 $ 58,606
Nitrogen Products 47,042 141,814
Methanol (2,284) 47,337
Other expense - net (2,045) (2,124)
- --------------------------------------------------------------------
$ 90,344 $ 245,633
=======================
</TABLE>
8
<PAGE>
Distribution
Revenues from the Distribution segment for the nine-month periods ended
September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Distribution Revenues
- ---------------------------------------------------
(in thousands) 1998 1997
- ---------------------------------------------------
<S> <C> <C>
Resale fertilizer $ 333,355 $ 357,562
Crop protection products 949,090 1,001,447
Seed 116,532 96,023
Other 154,217 123,715
- ---------------------------------------------------
$1,553,194 $1,578,747
=======================
</TABLE>
Distribution revenues for the first nine months of 1998 were $1.6 billion, a
decrease of $25.6 million from the comparable 1997 period. Operating income for
the Distribution segment was $47.6 million and $58.6 million, respectively, for
the nine months ended September 30, 1998 and 1997. Acquisitions, net of closed
locations (due to under performance), contributed $24.6 million in revenues,
while revenues at existing locations declined $50.2 million in comparison with
the prior-year nine months. Operating income at new locations, net of closed
locations amounted to $0.5 million for the nine months ended September 30, 1998.
Operating income at existing locations declined $11.5 million in comparison with
the 1997 nine months.
Fertilizer revenues were $24.2 million lower in the 1998 nine months as selling
prices were 4.6% lower or $16.6 million driven principally by lower nitrogen
prices. Correspondingly, fertilizer cost of sales declined $16.4 million. Resale
fertilizer volumes decreased by 1.4% lowering gross profit by $0.6 million for
the nine months ended September 30, 1998 compared with 1997. Heavy fall
applications in 1997 combined with continuously rainy weather in the spring of
1998 throughout the Corn Belt more than offset a volume increase across the
Southern division.
Crop protection products revenues for the first nine months of 1998 amounted to
$949.1 million, or $52.4 million less than the 1997 period. Dealer sales were
$34.6 million lower and grower sales declined $19.6 million in 1998 compared
with 1997. An increase in sales by basic manufacturers directly to dealers
resulted in the dealer revenue decline. Additionally, the impact of low grain
prices reduced crop protection products demand from both dealers and growers.
Correspondingly, gross profits for crop protection products declined $7.0
million for 1998 in comparison with the 1997 nine months.
A marketing focus on seed sales as well as an increase in demand and
availability of specialized seeds led to an increase in seed revenues of $20.5
million for the nine months of 1998 in comparison with 1997. The increase in
sales contributed to a $3.0 million increase in seed gross profit.
Other distribution revenues increased $30.5 million in 1998 compared with the
first nine months of 1997. Grain and feed have contributed $17.4 million of new
revenues with a corresponding gross profit of $5.7 million. Fees related to
biotechnical seeds added $14.5 million to revenues in 1998 and $2.3 million to
gross profits.
Selling, general and administrative expenses increased $12.6 million for the
nine months ended September 30, 1998 in comparison with 1997. Acquisitions, net
of closed locations increased expenses by $7.0 million while expenses at
existing locations increased by $5.6 million. The 1997 period included a $5.3
million decrease to employee benefits expense related to a reduction in retiree
medical benefits.
9
<PAGE>
Nitrogen Products
Volumes and prices for the nine-month periods ended September 30, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
Volumes and Prices
- ------------------------------------------------------------------------------------
(excludes the Distribution segment) 1998 1997
- ------------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ammonia 973 $ 150 964 $ 192
Nitrogen solutions 2,450 69 2,327 88
Urea 468 125 498 157
Ammonium nitrate 619 136 45 149
- ------------------------------------------------------------------------------------
</TABLE>
Nitrogen Products revenues increased by $83.3 million to $569.9 million for the
first nine months of 1998 in comparison with 1997. Revenue for 1998 at the
Corporation's UK plants, which were acquired December 31, 1997, amounted to
$217.1 million. Revenue for 1998 at the North American plants declined by $133.8
million in comparison with the first nine months of 1997 as a result of lower
prices for all products and lower sales volumes for ammonia and urea. Ammonia,
nitrogen solutions and urea prices decreased by 24%, 22% and 20%, respectively,
causing revenue to decline by $97.9 million. Lower worldwide demand for urea and
increased worldwide nitrogen production capacity created excess nitrogen
supplies and caused prices to fall. For the North American operations ammonia
sales volumes declined 20% while nitrogen solutions sales volumes increased 5%
in the nine months ended September 30, 1998 compared with 1997. Weather
conditions during the 1998 period favored nitrogen solutions applications while
the weather in 1997 favored ammonia applications.
The Nitrogen Products segment reported operating income of $47.0 million and
$141.8 million for the nine months ended September 30, 1998 and 1997,
respectively. UK operations contributed $5.6 million towards operating income.
North American operating income declined by $98.8 million for the 1998 nine
months in comparison with 1997. Pricing pressures and lower volumes as discussed
above accounted for the significant change in operating income. Natural gas
costs for the nine-month period declined by 1% in comparison with 1997.
Methanol
Methanol revenues were $77.1 million compared with $132.6 million for the nine
months ended September 30, 1998 and 1997, respectively. Average methanol sales
prices were $0.36 per gallon and $0.58 per gallon for the comparable nine-month
periods of 1998 and 1997. Methanol volumes declined by 4.5% to 218 million
gallons for the 1998 nine months. The decline in prices resulted in a revenue
decline of $49.8 million while the volume decrease accounted for $5.7 million of
the decline. Lower prices in 1998 were a result of oversupply conditions due to
higher production and lower worldwide demand.
The Methanol segment reported an operating loss of $2.3 million for the nine
months ended September 30, 1998 and an operating income of $47.3 million for the
comparable 1997 period. The decline in prices and revenues discussed above
accounted for the decline in operating income. Partially offsetting these was a
5% decline in the cost of natural gas.
Interest Expense - Net
Net interest expense was $42.8 million in the first nine months of 1998 compared
with $39.9 million in 1997. Interest expense increased as a result of additional
borrowings used to fund the U.K. acquisition, partially offset by decreased
borrowings for working capital needs.
10
<PAGE>
Income Taxes
Income tax expense was recorded at an effective rate of 58% for the first nine
months of 1998 compared with 41% in the 1997 nine months. The increase in the
effective tax rate is due to goodwill charges that are not deductible for tax
purposes representing a higher percentage of 1998 pretax income compared with
1997.
Minority Interest
Minority interest, represents interest in the earnings of the publicly held
common units of Terra Nitrogen Company, L.P. (TNCLP) and a third-party's limited
partnership interest in Beaumont Methanol, Limited Partnership (BMLP). Minority
interest was $22.6 million for the first nine months of 1998 compared with $23.1
million in 1997. Minority interest declined $13.5 million due to lower earnings
from TNCLP operations. Minority interest increased $13.0 million in 1998 due to
the BMLP minority interest issued by the Corporation on December 31, 1997 and
not outstanding in the 1997 nine months.
11
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 1997
Consolidated Results
The Corporation reported a net loss of $21.8 million on revenues of $462.7
million for the third quarter of 1998 compared with net income of $67.5 million
on revenues of $495.8 million in 1997. Basic earnings (loss) per share amounted
to $(0.30) and $0.91 for the third quarter of 1998 and 1997, respectively, while
diluted earnings (loss) per share was $(0.30) and $0.90, respectively. The
Corporation recorded a gain, net of income taxes, of $0.71 per diluted share in
the 1997 third quarter to reflect a partial settlement of insurance claims
related to the Port Neal plant rebuild. The Corporation's decline in earnings
has been significantly impacted by worldwide overcapacity in both nitrogen and
methanol markets which continued to put downward pressure on these products'
prices and margins.
Total revenues and operating income (loss) by segment for the three-month
periods ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
REVENUES:
Distribution $292,108 $337,747
Nitrogen Products 146,527 134,950
Methanol 22,243 48,763
Other - net of intercompany eliminations 1,839 (25,624)
- -----------------------------------------------------------------
$462,717 $495,836
====================
OPERATING INCOME (LOSS):
Distribution $(17,404) $ (2,883)
Nitrogen Products 7,546 26,745
Methanol (3,335) 18,914
Other expense - net (2,960) (1,240)
- -----------------------------------------------------------------
$(16,153) $ 41,536
====================
</TABLE>
12
<PAGE>
Distribution
Revenues from the Distribution segment for the three-month periods ended
September 30, 1998 and 1997 were as follows:
Distribution Revenues
- --------------------------------------------------------------------------------
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Resale fertilizer $ 31,009 $ 43,224
Crop protection products 211,507 241,699
Seed 9,236 7,620
Other 40,356 45,204
- -------------------------------------------------------------------------------
$292,108 $337,747
===============================
</TABLE>
Distribution revenues for the third quarter of 1998 totaled $292.1 million, a
decline of $45.6 million compared with the 1997 third quarter. The expansion of
the distribution network, net of closed, underperforming locations, contributed
$8.9 million in revenue for the quarter. Revenue at existing locations declined
$54.5 million in the third quarter of 1998 compared with 1997. The Distribution
segment reported an operating loss of $17.4 million and $2.9 million,
respectively, for the third quarters of 1998 and 1997. Existing locations
primarily accounted for the decline in operating earnings for the quarter.
Operating expenses at new locations, net of closed locations, offset the revenue
increase resulting in a minimal decline to operating income.
Resale fertilizer revenues declined $12.2 million for the 1998 quarter in
comparison with 1997. Correspondingly, fertilizer gross profit decreased $2.3
million in the third quarter of 1998 compared with 1997. Inclement weather in
the 1998 season reduced fertilizer applications. Crop protection products
revenues for the 1998 third quarter were $30.2 million less than the 1997 third
quarter as low grain prices caused growers to reduce crop protection products
applications. Gross profit from crop protection products was flat for the 1998
quarter in comparison with 1997. Seed revenues for the 1998 third quarter
increased $1.6 million in comparison with 1997 while feed and grain revenues
declined $3.6 million. Selling, general and administrative expenses for the
third quarter of 1998 increased $6.6 million in comparison with the third
quarter of 1997. The 1997 quarter included a $5.3 million decrease to employee
benefits expense related to a reduction in retiree medical benefits.
Nitrogen Products
Volumes and prices for the three-month periods ended September 30, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
Volumes and Prices
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(excludes the Distribution segment) 1998 1997
- --------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
- --------------------------------------------------------------------------------
Ammonia 274 $ 143 289 $ 181
Nitrogen solutions 407 68 793 76
Urea 117 123 146 128
Ammonium nitrate 245 133 4 144
- --------------------------------------------------------------------------------
</TABLE>
Nitrogen Products revenues increased $11.6 million for the third quarter of 1998
in comparison with the 1997 quarter. The Corporation's two nitrogen plants in
the United Kingdom contributed $70.5 million in revenues for the 1998 quarter.
The UK plants were acquired on December 31, 1997. Nitrogen Products revenue at
the Corporation's North American plants declined by $58.9 million for the 1998
quarter versus the 1997 quarter due to lower prices and
13
<PAGE>
volumes for all products. Ammonia, nitrogen solutions and urea prices declined
26%, 10% and 4%, respectively. Excess worldwide capacity continued to put
pressure on prices. Ammonia volumes were down as a result of lower demand for
winter wheat acres due to drought conditions and the impact of poor wheat
prices. Nitrogen solutions and urea volumes were less than the comparable
quarter a year ago due to customers' decisions to delay purchases to fill
storage.
Operating income for the Nitrogen Products segment declined $19.2 million for
the 1998 third quarter in comparison with the 1997 quarter. The UK nitrogen
plants generated an operating loss of $0.4 million for the quarter while
operating income at the North American plants declined $18.8 million.
Operating income declined due to lower prices and volumes as discussed above.
Natural gas costs for the quarter were comparable to the 1997 quarter.
Methanol
Methanol revenues for the third quarter of 1998 were $22.2 million compared with
$48.8 million for the comparable quarter of 1997. Methanol sales prices
averaged $0.31 per gallon and $0.58 per gallon, respectively, for the quarters
ended September 30, 1998 and 1997. The price decline resulted in a revenue
decrease of $18.7 million while a 16% decrease in volumes to 71.3 million
gallons for 1998 impacted revenues by $7.9 million. Lower prices in 1998 were
due to oversupply conditions caused by higher worldwide production and lower
worldwide demand. The Corporation reduced production of methanol in the third
quarter of 1998 compared to the 1997 quarter as a result of current market
conditions.
The Methanol segment reported an operating loss of $3.3 million for the third
quarter of 1998 compared with operating income of $18.9 million for the third
quarter of 1997. The operating income decline was a direct impact of lower
prices and volumes as discussed above. The cost of natural gas for the 1998
third quarter was 1% lower than in the 1997 quarter.
Interest Expense - Net
Interest expense, net of interest income, totaled $14.9 million in the third
quarter of 1998 compared with $13.9 million in 1997. Additional borrowings used
to fund the UK acquisition caused the increase, offset in part by decreased
borrowings for working capital purposes.
Income Taxes
Income taxes for the third quarter of 1998 were recorded at an effective tax
rate of 40%, comparable with the effective tax rate for the third quarter of
1997.
Minority Interest
Minority interest represents interest in the earnings of the publicly held
common units of TNCLP and a third-party's limited partnership interests in BMLP.
Minority interest was $5.4 million for the third quarter of 1998 compared with
$3.9 million in 1997. Minority interest declined $2.8 million due to lower
earnings from TNCLP operations. Minority interest increased $4.3 million in
1998 due to the BMLP minority interest issued by the Corporation on December 31,
1997 and not outstanding in the 1997 quarter.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Corporation's primary uses of funds will be to fund its working capital
requirements, make payments on its indebtedness and other obligations, make
quarterly distributions to minority interests, disburse quarterly dividends on
common stock, make capital expenditures and acquisitions and fund repurchases of
TNCLP common units. The principal sources of funds will be cash flow from
operations and borrowings under available bank facilities. The Corporation
believes that cash from operations and available financing sources will be
sufficient to meet anticipated cash requirements.
Cash used for operations in the first nine months of 1998 was $46.9 million.
Net working capital balances increased $184.9 million for the first nine months
of 1998 due to the seasonal nature of the Corporation's operations. The
Corporation has available a $350 million revolving credit facility for working
capital needs. As of September 30, 1998, $32.0 million was outstanding under
this facility.
The Corporation funded plant and equipment investments of $66.8 million and
expended $6.6 million to acquire new distribution locations in the first nine
months of 1998. The Corporation began construction in the fourth quarter of
1997 of a $57 million ammonia production loop at the Beaumont, Texas plant with
the facility expected to be fully operational by the end of 1999. The
corporation expects 1998 capital expenditures, exclusive of expenditures related
to the Beaumont ammonia production loop and the acquisition of retail
distribution locations, to approximate $50 million consisting of the expansion
of existing service centers, routine replacement of equipment, and efficiency
improvements at manufacturing facilities.
During the first nine months of 1998, the Corporation distributed $2.89 per
unit, or $17.2 million, to minority TNCLP Common Unitholders, distributed a
preferred return of $13.0 million to BMLP's minority partner, and paid a
dividend of $0.15 per Common Share which totaled $11.2 million.
On December 17, 1997, the Corporation announced that it is resuming purchases of
common units of TNCLP on the open market and through privately negotiated
transactions. Under an existing authorization of the Board of Directors dating
back to May 1995, the Corporation may acquire up to 5 million common units. The
Corporation acquired 632,500 common units in the first nine months of 1998 for
$16.5 million, bringing its total number of common units acquired since 1995,
under this authorization, to 1.6 million units.
Cash balances at September 30, 1998 were $39.5 million of which $5.1 million is
used to collateralize letters of credit supporting recorded liabilities.
YEAR 2000 ISSUES
- ----------------
The Year 2000 issue concerns computer programs that use only the last two digits
to identify the year in date fields. If not corrected, many of these computer
programs could fail or produce erroneous results on or before January 1, 2000.
This issue affects virtually every company.
The Corporation has assigned dedicated resources to address its Year 2000
issues. Most, but not all, of the Corporation's management information systems
environment have been assessed for Year 2000 issues and some remedial actions
have been identified in these assessed areas. The impact of remedial actions
for areas where an assessment has already been completed is not expected to be
material to the Corporation. Some of these actions have already been completed
at minimal cost.
The Corporation plans to complete in the first quarter of 1999 an organization-
wide review of all possible computing functions, including the process control
systems and instrumentation in the manufacturing facilities. The Corporation
15
<PAGE>
is also assessing Year 2000 issues in relation to its customers, suppliers and
other constituents because the actions or inactions of such third parties may
materially affect the Corporation. General contingency planning efforts have
recently been initiated for precautionary purposes.
The Corporation anticipates that it will complete all assessment, remediation,
testing and contingency planning efforts for Year 2000 issues in the third
quarter of 1999 with no material adverse consequences or material costs to the
Corporation. However, the costs or consequences of incomplete or untimely
resolution of Year 2000 issues by the Corporation or third parties could have a
material adverse affect on the Corporation.
FORWARD LOOKING PRECAUTIONS
- ---------------------------
Information contained in this report, other than historical information, may be
considered forward looking. Forward looking information reflects Management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the following: general
economic conditions within the agricultural industry, competitive factors and
price changes (principally, sales prices of nitrogen and methanol products and
natural gas costs), changes in product mix, changes in the seasonality of demand
patterns, changes in weather conditions, changes in agricultural regulations,
and other risks detailed in the Corporation's Securities and Exchange Commission
filings, in particular the "Factors that Affect Operating Results" section of
its most recent Form 10-K.
16
<PAGE>
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
(a) Proposed Sale by Majority Shareholder
On October 15, 1998, the Corporation's majority shareholder,
Minorco, announced its intention to sell its ownership in the
Corporation by early 1999.
(b) Shareholder Proposals
If a shareholder intends to bring a matter before the 1999 Annual
Meeting of Shareholders, other than by submitting a proposal for
inclusion in Terra's proxy statement for that meeting, the
shareholder must give timely notice to Terra and otherwise
satisfy the requirements of the Securities Exchange Act of 1934.
To be timely, a shareholder's notice must be received by Terra's
Corporate Secretary at Terra's principal office, 600 Fourth
Street, Sioux City, Iowa 51102, on or before February 14, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.5 Amendment No. 1. Dated as of September 30, 1998 to the
Amended and Restated Credit Agreement dated as of March 31, 1998
among Terra Capital, Inc.; Terra Nitrogen, Limited Partnership;
NationsBank, N.A.; The Chase Manhattan Bank; and Citibank, N.A.
10.12 Amendment No. 1 dated as of September 30, 1998 to the
Second Amended and Restated Agreement of Limited Partnership of
Beaumont Methanol, Limited Partnership dated as of March 31,
1998.
27 Financial Data Schedule [EDGAR filing only]
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERRA INDUSTRIES INC.
Date: November 12, 1998 /s/ Francis G. Meyer
--------------------------------------------
Francis G. Meyer
Senior Vice President and Chief Financial
Officer and a duly authorized signatory
18
<PAGE>
CONFORMED COPY
AMENDMENT NO. 1
AMENDMENT NO. 1 (this "Agreement") dated as of September 30, 1998
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") listed on the signature pages
hereof; and
CITIBANK, N.A., as administrative agent for the Lenders and Issuing
Banks under the Credit Agreement referred to below (in such capacity, the
"Administrative Agent").
The Obligors, the Lenders, certain Issuing Banks and the
Administrative Agent are parties to an Amended and Restated Credit Agreement
dated as of March 31, 1998 (as from time to time amended, the "Credit
Agreement"). The Company has requested the Lenders to amend the Credit Agreement
in certain respects, and the Lenders are willing to so amend the Credit
Agreement, all on the terms and conditions set forth herein. Accordingly, the
parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Agreement,
terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to (i) the Administrative Agent's
receipt of this Agreement, duly executed by each of the Obligors, the Required
Lenders and the Administrative Agent and (ii) payment by Terra to the
Administrative Agent of such fees as Terra shall have agreed to pay in
connection herewith, but effective as of the date hereof, the Credit Agreement
shall be amended as follows:
A. Definitions. Section 1.01 of the Credit Agreement is amended by
inserting the following definitions:
"Refinanceable Debt" has the meaning assigned to such term in
Section 5.02(b)(1)(xxii)(I).
<PAGE>
-2-
"Special Refinancing Debt" has the meaning assigned to such term
in Section 5.02(b)(1)(xxii).
"Terra Customer Debt" means Debt of a customer of Terra or any of
its Subsidiaries owing to Deere and Company ("Deere") or any of
Deere's Subsidiaries, provided that:
(1) such customer is required to repay such Debt in full
within 15 months of the date on which such Debt is incurred;
(2) in the reasonable opinion of TI, such customer is
creditworthy; and
(3) it is a condition of the extension of credit by Deere or
its Subsidiaries to such customer that TI Guarantees a portion of
such Debt.
B. Adjusted Debt to Cash Flow Ratio Definition. The definition of
"Adjusted Debt to Cash Flow Ratio" in Section 1.01 of the Credit Agreement
is amended by adding the following sentence at the end thereof:
"In addition, solely for purposes of Section 5.04, in determining
the Adjusted Debt to Cash Flow Ratio on any date or for any period
when any Special Refinancing Debt is outstanding, Funded Debt and
EBITDA shall be determined as follows during the period from the date
on which such Special Refinancing Debt is incurred until the
Refinanceable Debt is refinanced or replaced in accordance with
Section 5.02(b)(1)(xxii)(I):
(1) the Funded Debt component shall be determined excluding
either such Special Refinancing Debt or the related Refinanceable
Debt, whichever is lower in aggregate outstanding principal
amount (the "Excluded Debt"); and
(2) the EBITDA component shall be determined excluding
interest expense on such Excluded Debt."
C. Adjusted Interest Coverage Ratio Definition. The definition of
"Adjusted Interest Coverage Ratio" in Section 1.01 of the Credit Agreement
is amended by adding the following sentence at the end thereof:
"In addition, solely for purposes of Section 5.04, in determining
the Adjusted Interest Coverage Ratio on any date or for any period
when any Special Refinancing Debt is outstanding, EBITDA and Cash
Interest Expense shall be determined as follows during the period from
the date on which such Special Refinancing Debt is incurred until the
Refinanceable Debt is refinanced or replaced in accordance with
Section 5.02(b)(1)(xxii)(I):
<PAGE>
-3-
(1) the EBITDA component shall be determined excluding
interest expense on either such Special Refinancing Debt or the
related Refinanceable Debt, whichever is lower in aggregate
outstanding principal amount (the "Excluded Debt"); and
(2) the Cash Interest Expense component shall be determined
excluding interest expense on such Excluded Debt."
D. Applicable Margin Definition. (i) The definition of "Applicable
Margin" in Section 1.01 of the Credit Agreement is amended by restating the
introductory clause therein as follows:
""Applicable Margin" means, (a) with respect to all Base Rate
Advances, 1.50% per annum and (b) with respect to all Eurodollar Rate
Advances, 3.00% per annum; provided that:"
(ii) The definition of "Applicable Margin" in Section 1.01 of the
Credit Agreement is further amended by restating the pricing grid therein
as follows:
<TABLE>
<CAPTION>
"Applicable Margin (% p.a.)
---------------------------
<S> <C> <C>
Range of Debt Base Rate Eurodollar Rate
to Cash Flow Ratio Advances Advances
- ------------------------- --------- ---------------
Greater than 4.50 to 1 1.500% 3.000%
Less than or equal to
4.50 to 1 and greater
than 3.75 to 1 1.250% 2.500%
Less than or equal to
3.75 to 1 and greater
than 3.00 to 1 1.000% 2.000%
Less than or equal to
3.00 to 1 and greater
than 2.00 to 1 0.375% 1.250%
Less than or equal to
2.00 to 1 and greater
than 1.25 to 1 0.250% 0.750%
Less than or equal to
1.25 to 1 and greater
</TABLE>
<PAGE>
-4-
<TABLE>
<S> <C> <C>
than 0.75 to 1 0.000% 0.625%
Less than or equal to
0.75 to 1 0.000% 0.500%"
</TABLE>
(iii) The definition of "Applicable Margin" in Section 1.01 of the
Credit Agreement is further amended by restating clause (2) therein as
follows:
"(2) (x) Notwithstanding any reduction in the Applicable Margin
below 0.375% per annum (in the case of Base Rate Advances) or 1.250%
per annum (in the case of Eurodollar Rate Advances) that would
otherwise be made pursuant to clause (1) above, the "Applicable
Margin" during the period from the Restatement Date until the
Quarterly Date in September, 1998 shall be not less than 0.375% per
annum (in the case of Base Rate Advances) and not less than 1.250% (in
the case of Eurodollar Rate Advances).
(y) Notwithstanding any reduction in the Applicable Margin below
1.000% per annum (in the case of Base Rate Advances) or 2.000% per
annum (in the case of Eurodollar Rate Advances) that would otherwise
be made pursuant to clause (1) above, the "Applicable Margin" during
the period from the Quarterly Date in September, 1998 until the
Quarterly Date in March, 1999 shall be not less than 1.000% per annum
(in the case of Base Rate Advances) and not less than 2.000% (in the
case of Eurodollar Rate Advances)."
E. Debt to Cash Flow Ratio Definition. The definition of "Debt to Cash
Flow Ratio" in Section 1.01 of the Credit Agreement is amended by adding
the following sentence at the end thereof:
"In addition, solely for purposes of Section 5.04, in determining
the Debt to Cash Flow Ratio on any date or for any period when any
Special Refinancing Debt is outstanding, Funded Debt and EBITDA shall
be determined as follows during the period from the date on which such
Special Refinancing Debt is incurred until the Refinanceable Debt is
refinanced or replaced in accordance with Section 5.02(b)(1)(xxii)(I):
(1) the Funded Debt component shall be determined excluding
either such Special Refinancing Debt or the related Refinanceable
Debt, whichever is lower in aggregate outstanding principal
amount (the "Excluded Debt"); and
(2) the EBITDA component shall be determined excluding
interest expense on such Excluded Debt."
F. Funded Debt Definition. The definition of "Funded Debt" in Section
1.01 of the Credit Agreement is amended by restating the last sentence
therein as follows:
<PAGE>
-5-
"For all purposes of this Agreement, "Funded Debt" shall not
include Guarantees by Terra U.K. of Terra U.K. Customer Debt and
Guarantees by TI of Terra Customer Debt."
G. Interest Coverage Ratio Definition. The definition of "Interest
Coverage Ratio" in Section 1.01 of the Credit Agreement is amended by
adding the following sentence at the end thereof:
"In addition, solely for purposes of Section 5.04, in determining
the Interest Coverage Ratio on any date or for any period when any
Special Refinancing Debt is outstanding, EBITDA and Cash Interest
Expense shall be determined as follows during the period from the date
on which such Special Refinancing Debt is incurred until the
Refinanceable Debt is refinanced or replaced in accordance with
Section 5.02(b)(1)(xxii)(I):
(1) the EBITDA component shall be determined excluding
interest expense on either such Special Refinancing Debt or the
related Refinanceable Debt, whichever is lower in aggregate
outstanding principal amount (the "Excluded Debt"); and
(2) the Cash Interest Expense component shall be determined
excluding interest expense on such Excluded Debt."
H. Debt. Section 5.02(b)(1) of the Credit Agreement is amended by
deleting the "and" at the end of clause (xx) thereof, substituting "; and"
for the period at the end of clause (xxi) thereof and adding the following
new clauses (xxii) and (xxiii) thereto:
"(xxii) Debt of Terra and its Subsidiaries ("Special Refinancing
Debt"), provided that:
(I) such Special Refinancing Debt refinances or replaces
Debt outstanding under clause (vi), (vii) or (xviii) of this
Section 5.02(b)(1) ("Refinanceable Debt") within 45 days after
the incurrence of such Special Refinancing Debt;
(II) the proceeds of such Special Refinancing Debt are used,
among other things, to refinance or replace Refinanceable Debt,
to pay call premiums (if any) on the Refinanceable Debt so
refinanced or replaced and reasonable fees and expenses incurred
by Terra and its Subsidiaries in connection therewith;
(III) the aggregate principal amount of outstanding Special
Refinancing Debt does not exceed the aggregate principal amount
of Refinanceable Debt so refinanced or replaced plus $16,500,000;
<PAGE>
-6-
(IV) until the proceeds of such Special Refinancing Debt are
applied to the outstanding principal amount of Refinanceable
Debt, such proceeds are held in an account pursuant to escrow or
similar arrangements in form and substance satisfactory to the
Administrative Agent; and
(V) all of the direct obligors on such Special Refinancing
Debt are direct obligors on the related Refinanceable Debt, and
all of the contingent obligors on such Special Refinancing Debt
are direct or contingent obligors on the related Refinanceable
Debt; and
(xxiii) Guarantees by TI of Terra Customer Debt; provided that
the aggregate principal amount of Terra Customer Debt Guaranteed by TI
at any time during any fiscal year of TI shall not exceed
$10,000,000."
I. Financial Covenants. Section 5.04 of the Credit Agreement is
amended by restating paragraphs (a), (b), (c) and (d) to read as follows:
"(a) Debt to Cash Flow Ratio. Maintain the Debt to Cash Flow
Ratio at not more than the ratio set forth below for each Rolling
Period ending in the respective periods set forth below:
<TABLE>
<CAPTION>
Each
Rolling Period
Ending In Ratio
-------------- ------------
<S> <C>
September, 1998 4.50 to 1.00
December, 1998 4.50 to 1.00
March, 1999 4.50 to 1.00
June, 1999 5.00 to 1.00
September, 1999 5.00 to 1.00
December, 1999 4.50 to 1.00
March, 2000 4.50 to 1.00
June, 2000 5.00 to 1.00
September, 2000 5.00 to 1.00
December, 2000 4.50 to 1.00
March and December of
each fiscal year after 2000 3.00 to 1.00
June and September of
each fiscal year after 2000 3.50 to 1.00
</TABLE>
(b) Adjusted Debt to Cash Flow Ratio. Maintain the Adjusted
Debt to Cash Flow Ratio at not more than the ratio set forth below for
each Rolling Period ending in the respective periods set forth below:
<PAGE>
-7-
<TABLE>
<CAPTION>
Each
Rolling Period
Ending In Ratio
-------------- ------------
<S> <C>
September, 1998 4.50 to 1.00
December, 1998 4.50 to 1.00
March, 1999 4.50 to 1.00
June, 1999 5.00 to 1.00
September, 1999 5.00 to 1.00
December, 1999 4.50 to 1.00
March, 2000 4.50 to 1.00
June, 2000 5.00 to 1.00
September, 2000 5.00 to 1.00
December, 2000 4.50 to 1.00
March and December of
each fiscal year after 2000 3.00 to 1.00
June and September of
each fiscal year after 2000 3.50 to 1.00
</TABLE>
(c) Interest Coverage Ratio. Maintain the Interest Coverage
Ratio at not less than the ratio set forth below for each Rolling
Period ending in the respective periods set forth below:
Each
Rolling Period
Ending In Ratio
-------------- ------------
1998, 1999 and 2000 2.00 to 1.00
2001 and thereafter 3.50 to 1.00
(d) Adjusted Interest Coverage Ratio. Maintain the Adjusted
Interest Coverage Ratio at not less than the ratio set forth below for
each Rolling Period ending in the respective periods set forth below."
Each
Rolling Period
Ending In Ratio
-------------- ------------
1998, 1999 and 2000 2.00 to 1.00
2001 and thereafter 3.50 to 1.00
J. General. References in the Credit Agreement to "this Agreement"
(including indirect references such as "hereunder", "hereby", "herein" and
"hereof") shall be deemed to be references to the Credit Agreement as
amended hereby.
<PAGE>
-8-
Section 3. Representations and Warranties. The Company hereby
represents and warrants to the Administrative Agent and the Lenders that:
(a) the representations and warranties contained in each Loan Document
are correct on and as of the date hereof, as though made on and as of such
date (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date); and
(b) no event has occurred and is continuing that constitutes a Default
or an Event of Default.
Section 4. Miscellaneous. Except as herein provided, the Credit
Agreement and each of the other Loan Documents shall remain unchanged and in
full force and effect. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
<PAGE>
-9-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE BORROWERS
-------------
TERRA CAPITAL, INC.
By /s/F. G. Meyer
----------------
Name: Francis G. Meyer
Title: Vice President
TERRA NITROGEN, LIMITED PARTNERSHIP
By Terra Nitrogen Corporation, its General
Partner
By /s/G. H. Valentine
--------------------
Name: George H. Valentine
Title: Vice President
GUARANTORS
----------
TERRA INDUSTRIES INC.
By /s/F. G. Meyer
----------------
Name: Francis G. Meyer
Title: S.V.P. and C.F.O.
TERRA CAPITAL HOLDINGS, INC.
By /s/G. H. Valentine
--------------------
Name: George H. Valentine
Title: Vice President
<PAGE>
-10-
TERRA NITROGEN CORPORATION
By /s/G. H. Valentine
--------------------
Name: George H. Valentine
Title: Vice President
TERRA METHANOL CORPORATION
By /s/G. H. Valentine
--------------------
Name: George H. Valentine
Title: Vice President
BMC HOLDINGS, INC.
By /s/F. G. Meyer
----------------
Name: Francis G. Meyer
Title: Vice President
TERRA INTERNATIONAL, INC.
By /s/F. G. Meyer
----------------
Name: Francis G. Meyer
Title: S.V.P. and C.F.O.
THE ADMINISTRATIVE AGENT
------------------------
CITIBANK, N.A.
By /s/Judith Fishlow Minter
--------------------------
Name: Judith Fishlow Minter
Title: Attorney-in-Fact
<PAGE>
-11-
COMMITMENTS THE LENDERS
- ----------- -----------
Terra Commitment CITIBANK, N.A.
- ----------------
$44,683,934.79
TNLP Commitment
- ---------------
$3,154,116.21 By /s/Judith Fishlow Minter
-------------------------------------
Name: Judith Fishlow Minter
Title: Attorney-in-Fact
Terra Commitment BANK OF AMERICA NATIONAL TRUST
- ---------------- AND SAVINGS ASSOCIATION
$26,980,000.00
TNLP Commitment
- ---------------
$1,927,142.00 By /s/M. H. Claggett
-------------------------------------
Name: Margaret H. Claggett
Title: Vice President
Terra Commitment THE BANK OF NOVA SCOTIA
- ----------------
$26,980,000.00
TNLP Commitment
- ---------------
$1,927,142.00 By /s/F.C.H. Ashby
-------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
Terra Commitment FIRST BANK NATIONAL ASSOCIATION
- ----------------
$25,800,000.00
TNLP Commitment
- ---------------
$1,842,857.00 By /s/David A. Draxler
-------------------------------------
Name: David A. Draxler
Title: Vice President
<PAGE>
-12-
Terra Commitment THE CHASE MANHATTAN BANK
- ----------------
$25,362,319.00
TNLP Commitment
- ---------------
$1,811,594.00 By /s/Gary L. Spevak
------------------------------------------
Name: Gary L. Spevak
Title: Vice President
Terra Commitment NATIONSBANK, N.A.
- ----------------
$25,362,319.00
TNLP Commitment
- ---------------
$1,811,594.00 By /s/Barry P. Sullivan
------------------------------------------
Name: Barry P. Sullivan
Title: Vice President
Terra Commitment THE FUJI BANK, LIMITED
- ----------------
$18,421,053.00
TNLP Commitment
- ---------------
$1,315,790.00 By /s/Peter L. Chinnici
------------------------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
Terra Commitment CREDIT AGRICOLE INDOSUEZ
- ----------------
$17,753,623.00
TNLP Commitment
- ---------------
$1,268,116.00 By /s/David Bouhl
------------------------------------------
Name: David Bouhl
Title: First Vice President
Head of Corporate Banking Chicago
By /s/W. Leroy Startz
------------------------------------------
Name: W. Leroy Startz
Title: First Vice President
<PAGE>
-13-
Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH
- ----------------
$17,753,623.00
TNLP Commitment
- ---------------
$1,268,116.00 By /s/Julie T. Kanak
-------------------------------------
Name: Julie T. Kanak
Title: Vice President
Terra Commitment DRESDNER BANK AG, NEW YORK AND
- ---------------- GRAND CAYMAN BRANCHES
$17,753,623.00
TNLP Commitment
- ---------------
$1,268,116.00 By /s/Deborah Slusarczyk
-------------------------------------
Name: Deborah Slusarczyk
Title: Vice President
By /s/A. Richard Morris
-------------------------------------
Name: A. Richard Morris
Title: First Vice President
Terra Commitment HARRIS TRUST & SAVINGS BANK
- ----------------
$17,753,623.00
TNLP Commitment
- ---------------
$1,268,116.00 By /s/Christopher Fisher
-------------------------------------
Name: Christopher Fisher
Title: Vice President
Terra Commitment SUNTRUST BANK, ATLANTA
- ----------------
$17,753,623.00 By /s/Michel A. Odermatt
-------------------------------------
Name: Michel A. Odermatt
Title: Vice President
TNLP Commitment
- ---------------
$1,268,116.00 By /s/Jess E. Jarratt
-------------------------------------
Name: Jess E. Jarratt
Title: Group Vice President
<PAGE>
-14-
Terra Commitment BANQUE NATIONALE DE PARIS
- ----------------
$17,684,211.00
TNLP Commitment
- ---------------
$1,263,158.00 By /s/Christine Howatt
-------------------------------------
Name: Christine Howatt
Title: Vice President
By /s/Cathleen Schaede
-------------------------------------
Name: Cathleen Schaede
Title: Assistant Vice President
Terra Commitment THE BANK OF NEW YORK
- ----------------
$12,681,159.00
TNLP Commitment
- ---------------
$905,797.00 By /s/Richard A. Raffetto
-------------------------------------
Name: Richard A. Raffetto
Title: Vice President
Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN-
- ---------------- BOERENLEEBANK, B.A. "RABOBANK
$10,144,928.00 NEDERLAND," New York Branch
TNLP Commitment
- ---------------
$724,638.00 By /s/Ian Reece
-------------------------------------
Name: Ian Reece
Title: Senior Credit Officer
By /s/Dana W. Hemenway
-------------------------------------
Name: Dana W. Hemenway
Title: Vice President
Terra Commitment NORWEST BANK IOWA, NATIONAL
- ---------------- ASSOCIATION
$10,144,928.00
TNLP Commitment
- ---------------
$724,638.00 By /s/Scott Sehnert
-------------------------------------
Name: Scott Sehnert
Title: Vice President
<PAGE>
-15-
Terra Commitment THE SUMITOMO BANK, LIMITED
- ----------------
$10,144,928.00
TNLP Commitment
- ---------------
$724,638.00 By /s/John H. Kemper
-------------------------------------
Name: John H. Kemper
Title: Senior Vice President
Terra Commitment FIRST NATIONAL BANK OF CHICAGO
- ----------------
$6,842,105.21
TNLP Commitment
- ---------------
$526,315.79 By /s/Nathan L. Bloch
-------------------------------------
Name: Nathan L. Bloch
Title: First Vice President
<PAGE>
CONFORMED COPY
AMENDMENT NO. 1
AMENDMENT NO. 1 (this "Agreement") dated as of September 30, 1998 by
and among:
TERRA METHANOL CORPORATION, a Delaware corporation ("TMC"), as the
General Partner of Beaumont Methanol, Limited Partnership, a Delaware
limited partnership ("BMLP");
BMC HOLDINGS, INC., a Delaware corporation ("BMCH"), as the Class B
Limited Partner of BMLP; and
NOVA PRODUCTS LLC, a Delaware limited liability company ("Nova"), as
the Class A Limited Partner of BMLP.
Section 1. Definitions. Except as otherwise defined in this Agreement,
terms defined in the Second Amended and Restated Agreement of Limited
Partnership of BMLP dated as of March 31, 1998 (as from time to time amended,
the "Partnership Agreement"), including terms defined in the Appendix thereto,
are used herein as defined therein.
Section 2. Amendments. Terra Capital has requested the Partners to
amend the Partnership Agreement in certain respects, and the Partners are
willing to so amend the Partnership Agreement, all on the terms and conditions
set forth herein. Accordingly, the parties hereto hereby agree that, subject to
the execution of this Agreement by each Partner, but effective as of the date
hereof, the Partnership Agreement shall be amended as follows:
A. Early Termination Premium Definition. The definition of "Early
Termination Premium" in the Appendix to the Partnership Agreement is amended to
read as follows:
"Early Termination Premium" means an amount equal to (a) the
aggregate Capital Contribution of the Class A Limited Partner
multiplied by (b) the difference, if any, between (i) the present
value of the sum of (A) 0.00217 received quarterly on the last
Business Day of each Distribution Period occurring during the period
commencing on the applicable Retirement Date, Purchase Date or
Termination Date, as the case may be, and ending on the then current
Reset Date and (B) 0.04444 received on such Reset Date (the
"Applicable Amounts"), discounted at a rate equal to the sum of (1)
the bid-side yield on U.S. Treasury notes whose maturity matches or
approximates the then current Reset Date and (2) 2.50% minus (ii) the
present value of the Applicable Amounts, discounted at the rate of
19.5%.
B. First Priority Return Rate Definition. The definition of "First
Priority Return
<PAGE>
Rate" in the Appendix to the Partnership Agreement is amended to read as
follows:
"First Priority Return Rate" means (a) for each Current Period
occurring during the period commencing on September 30, 1998 and
ending on the first Reset Date, a rate per annum equal to (i) the sum
of (A) 3.4083% per annum and (B)(1) 0.95556 multiplied by (2) the
Adjusted Eurodollar Rate in effect on the first day of such Current
Period or (ii) if at any time the Eurodollar Rate is unavailable, the
sum of (A) 1.9750% per annum and (B)(1) 0.95556 multiplied by (2) the
Alternate Base Rate in effect from time to time during such Current
Period and (b) for each Current Period commencing on or after the
first Reset Date, a rate per annum equal to either (i)(A) the sum of
(1) 3.6565% per annum and (2) the Adjusted Eurodollar Rate in effect
on the first day of such Current Period or (B) if at any time the
Eurodollar Rate is unavailable, the sum of (1) 2.1565% per annum and
(2) the Alternate Base Rate in effect from time to time during such
Current Period or (ii) such rate per annum as shall be agreed among
all of the Partners.
C. General. References in the Partnership Agreement to "this
Agreement" (including indirect references such as "hereunder", "hereby",
"herein" and "hereof") shall be deemed to be references to the Partnership
Agreement as amended hereby.
Section 3. Representations and Warranties. Each Terra Partner hereby
represents and warrants that:
(a) the representations and warranties made by it in the Transaction
Documents 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 Notice
Event or a Termination Event or an Incipient Event.
Section 4. Miscellaneous. Except as herein provided, the Partnership
Agreement and the other Transaction 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 Delaware.
<PAGE>
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 GENERAL PARTNER
TERRA METHANOL CORPORATION
By /s/ William D. Connor
--------------------------------------
Name: William D. Connor
Title: Vice President
THE CLASS B LIMITED PARTNER
BMC HOLDINGS, INC.
By /s/ Wynn Stevenson
--------------------------------------
Name: Wynn Stevenson
Title: Vice President
THE CLASS A LIMITED PARTNER
NOVA PRODUCTS LLC
By: STONEHURST CAPITAL L.L.C.,
as Managing Member
By: STONEHURST CAPITAL, INC.
as Manager
By /s/ Douglas D. Stark
------------------------------
Name: Douglas D. Stark
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
consolidated statement of financial position of Terra Industries Inc. as of
September 30, 1998 and the related consolidated statement of income for the nine
months then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,655
<SECURITIES> 14,892
<RECEIVABLES> 386,675
<ALLOWANCES> (10,235)
<INVENTORY> 393,414
<CURRENT-ASSETS> 836,720
<PP&E> 1,496,808
<DEPRECIATION> (328,313)
<TOTAL-ASSETS> 2,433,118
<CURRENT-LIABILITIES> 530,032
<BONDS> 496,018
0
0
<COMMON> 127,623
<OTHER-SE> 668,818
<TOTAL-LIABILITY-AND-EQUITY> 2,433,118
<SALES> 2,127,414
<TOTAL-REVENUES> 2,187,638
<CGS> 1,838,994
<TOTAL-COSTS> 1,838,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,452
<INTEREST-EXPENSE> 46,704
<INCOME-PRETAX> 24,914
<INCOME-TAX> 14,400
<INCOME-CONTINUING> 10,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,514
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
