<PAGE>
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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1145429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Terra Centre
P.O. Box 6000
600 Fourth Street 51102-6000
Sioux City, Iowa (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (712) 277-1340
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of April 30, 1999, the following shares of the registrant's stock were
outstanding:
Common Shares, without par value 75,462,640 shares
<PAGE>
PART I. FINANCIAL INFORMATION
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
----------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments $ 25,808 $ 141,643 $ 42,451
Accounts receivable, less allowance for
doubtful accounts of $15,605, $15,134, $14,018 234,523 138,751 225,804
Inventories 565,420 419,704 597,234
Other current assets 73,378 38,592 29,090
- ---------------------------------------------------------------------------------------------------
Total current assets 899,129 738,690 894,579
- ---------------------------------------------------------------------------------------------------
Equity and other investments 11,374 25,334 23,583
Property, plant and equipment, net 1,156,195 1,159,313 1,187,155
Excess of cost over net assets of acquired businesses 285,163 291,325 299,765
Deferred tax asset 6,683 6,202 10,874
Other assets 76,087 94,283 89,188
- -------------------------------------------------------- ---------- ---------- ----------
Total assets $2,434,631 $2,315,147 $2,505,144
======================================================== ========== ========== ==========
LIABILITIES
Debt due within one year $ 43,572 $ 9,470 $ 17,554
Accounts payable 339,213 257,484 290,434
Accrued and other liabilities 257,386 209,453 299,603
- -------------------------------------------------------- ---------- ---------- ----------
Total current liabilities 640,171 476,407 607,591
- -------------------------------------------------------- ---------- ---------- ----------
Long-term debt 485,204 487,560 496,681
Deferred tax liability - non-current 204,153 204,153 193,456
Other liabilities 62,013 62,671 80,885
Minority interest 335,886 336,504 352,586
- -------------------------------------------------------- ---------- ---------- ----------
Total liabilities 1,727,427 1,567,295 1,731,199
- -------------------------------------------------------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
Capital stock
Common Shares, authorized 133,500 shares;
outstanding 75,464, 75,465 and 74,945 shares 127,888 127,887 127,587
Paid-in capital 552,899 552,893 548,799
Accumulated other comprehensive loss (21,851) (14,157) (2,878)
Retained earnings 48,268 81,229 100,437
- -------------------------------------------------------- ---------- ---------- ----------
Total stockholders' equity 707,204 747,852 773,945
- -------------------------------------------------------- ---------- ---------- ----------
Total liabilities and stockholders' equity $2,434,631 $2,315,147 $2,505,144
======================================================== ========== ========== ==========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 2
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
---------- ---------
<S> <C> <C>
REVENUES
Net sales $406,632 $455,621
Other income, net 8,026 10,051
- ---------------------------------------------- -------- --------
414,658 465,672
-------- --------
COSTS AND EXPENSES
Cost of sales 378,453 394,682
Selling, general and administrative expense 75,627 81,828
Equity in loss of unconsolidated affiliates 1,013 695
- ---------------------------------------------- -------- --------
455,093 477,205
-------- --------
Loss from operations (40,435) (11,533)
Gain on sale of unconsolidated affiliates 9,804 ---
Interest income 967 1,568
Interest expense (14,818) (14,982)
Minority interest (4,155) (6,301)
- ---------------------------------------------- -------- --------
Loss before income taxes (48,637) (31,248)
Income tax benefit 19,450 12,968
- ---------------------------------------------- -------- --------
Net loss $(29,187) $(18,280)
============================================== ======== ========
Basic loss per share $(0.39) $ (0.25)
Diluted loss per share $(0.39) $ (0.25)
============================================== ======== ========
Basic weighted average shares outstanding 74,166 73,860
Diluted weighted average shares outstanding 74,166 73,860
============================================== ======== ========
Cash dividends declared per share $0.05 $ 0.05
============================================== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 3
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (29,187) $ (18,280)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 32,612 29,055
Deferred income taxes (1,261) ---
Minority interest in earnings 4,155 6,301
Gain on sale of unconsolidated affiliate (9,804) ---
Other non-cash items 1,639 1,321
Changes in current assets and liabilities,
excluding working capital purchased:
Accounts receivable (95,772) (114,114)
Inventories (145,716) (201,294)
Other current assets (33,885) 7,901
Accounts payable 81,729 86,880
Accrued and other liabilities 47,933 76,440
Reimbursed Port Neal casualty --- 14,314
Other 14,075 54
- ------------------------------------------------------------- --------- ---------
Net cash (used in) provided by operating activities (133,482) (111,422)
- ------------------------------------------------------------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired --- (6,353)
Purchase of property, plant and equipment (22,132) (15,702)
Proceeds from sale of unconsolidated affiliate 22,206 ---
Other 2,061 587
- ------------------------------------------------------------- --------- ---------
Net cash provided by (used in) investing activities 2,135 (21,468)
- ------------------------------------------------------------- --------- ---------
FINANCING ACTIVITIES
Net short-term borrowings 32,078 8,000
Principal payments on long-term debt (332) (333)
Stock issuance - net 7 33
Distributions to minority interests (4,773) (11,708)
Repurchases of TNCLP common units --- (2,576)
Dividends (3,774) (3,747)
- ------------------------------------------------------------- --------- ---------
Net cash provided by (used in) financing activities 23,206 (10,331)
- ------------------------------------------------------------- --------- ---------
Foreign exchange effect on cash and short-term investments (7,694) 5,610
- ------------------------------------------------------------- --------- ---------
Decrease in cash and short-term investments (115,835) (137,611)
Cash and short-term investments at beginning of period 141,643 180,062
- ------------------------------------------------------------- --------- ---------
Cash and short-term investments at end of period $ 25,808 $ 42,451
============================================================= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements. 4
<PAGE>
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Capital Paid-In Comprehensive Retained
Stock Capital Loss Earnings Total
-------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $127,887 $552,893 $(14,157) $ 81,229 $747,852
Comprehensive loss:
Net loss --- --- --- (29,187) (29,187)
Foreign currency
translation adjustment --- --- (7,694) --- (7,694)
--------
Comprehensive loss (36,881)
--------
Exercise of stock options 1 6 --- --- 7
Dividends --- --- --- (3,774) (3,774)
- ------------------------------- -------- ----------- ----------- -------- --------
Balance at March 31, 1999 $127,888 $552,899 $(21,851) $ 48,268 $707,204
=============================== ======== =========== =========== ======== ========
Accumulated
Other
Capital Paid-In Comprehensive Retained
Stock Capital Loss Earnings Total
-------- ----------- ----------- ----------- --------
Balance at December 31, 1997 $127,581 $548,772 $ (8,488) $122,464 $790,329
Comprehensive loss:
Net loss --- --- --- (18,280) (18,280)
Foreign currency
translation adjustment --- --- 5,610 --- 5,610
--------
Comprehensive loss (12,670)
--------
Exercise of stock options 6 27 --- --- 33
Dividends --- --- --- (3,747) (3,747)
- ------------------------------- -------- ----------- ----------- -------- --------
Balance at March 31, 1998 $127,587 $548,799 $ (2,878) $100,437 $773,945
=============================== ======== =========== =========== ======== ========
</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 1998 Annual Report to Stockholders.
2. 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.
3. Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(in thousands) 1999 1998 1998
- ----------------------- -------- -------- --------
<S> <C> <C> <C>
Raw materials $ 53,675 $ 60,676 $ 43,556
Finished goods 511,745 359,028 553,678
- ----------------------- -------- -------- --------
Total $565,420 $419,704 $597,234
======================= ======== ======== ========
</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 prices at the Henry Hub in
Louisiana, the most common and financially liquid location of reference for
financial derivatives related to natural gas. However, natural gas supplies
for the Corporation's six North American production facilities are purchased
for each plant at locations other than Henry Hub 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 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
6
<PAGE>
totaled $4.2 million and $60.1 million as of March 31, 1999 and 1998,
respectively. The amount recognized by the Corporation will be dependent
on prices in effect at the time of settlement.
For the first quarter of 1999, natural gas hedging activities contributed
to cost increases of $12.1 million compared with spot prices. For the
first three months of 1998, natural gas hedging activities produced cost
savings of approximately $4.8 compared with spot prices.
6. The Corporation has a revolving credit facility of up to $225 million for
working capital needs and other corporate purposes. Under the credit
facility, there was $32.1 million outstanding classified as short-term
borrowing and $7.0 million outstanding classified as long-term debt at
March 31, 1999. 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 large financial
institution to sell an undivided interest in its accounts receivable.
Under the agreement, which expires August 1999, the Corporation may sell
without recourse an undivided interest in a designated pool of its
accounts receivable and receive up to $150 million in proceeds. Undivided
interests in new receivables may be sold as amounts are collected on
previously sold interests. As of March 31, 1999, the proceeds of the
uncollected balance of accounts receivable sold totaled $80 million. TFC
is a separate legal entity whose creditors have received security
interests in its assets.
8. The Corporation temporarily shut down production at its Beaumont, Texas
methanol plant in January 1999 due to methanol sales prices being less
than raw material costs. The plant came back on stream March 29, 1999.
9. On May 3, 1999, the Corporation announced that it has signed a contract to
sell its Distribution business to Cenex/ Land O' Lakes Agronomy Company
for $361 million, adjusted for changes to working capital levels and other
costs. The transaction, which is subject to customary conditions to
closing including regulatory review under the Hart-Scott-Rodino Act and
approval by the Corporation's lenders, is expected to close within three
months. The Corporation will use sale proceeds primarily to reduce its
debt obligations.
In the pending transaction, Cenex/Land O' Lakes would acquire all rights
to the Distribution business' earnings from April 1, 1999 forward.
Included in the sale are the Corporation's approximately 400 retail farm
service centers in the U.S. and Canada, and its 50% ownership position in
the Omnium chemical formulation plants.
Cenex/Land O' Lakes and the Corporation have also entered into a three-
year nitrogen fertilizer supply agreement through which Cenex/Land O'
Lakes will purchase approximately the quantity that the Corporation's
Nitrogen Products segment currently supplies to both the Distribution
business and Cenex/Land O' Lakes.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED MARCH 31, 1999 COMPARED WITH
QUARTER ENDED MARCH 31, 1998
Consolidated Results
The Corporation reported a net loss of $29.2 million on revenues of $414.7
million for the first quarter of 1999 compared with a net loss of $18.3 million
on revenues of $465.7 million in 1998. Basic and diluted loss per share for the
three months ended March 31, 1999 and 1998 was $(0.39) and $(0.25),
respectively.
The Corporation classifies its operations into three business segments:
Distribution, Nitrogen Products and Methanol. The Distribution segment includes
sales of products purchased from manufacturers, including the Corporation, and
resold by the Corporation. Distribution revenues are derived primarily from
grower and dealer customers through sales of crop protection products,
fertilizers, seed and services. The Nitrogen Products segment represents only
those operations directly related to the wholesale sales of nitrogen products
from the Corporation's ammonia manufacturing and upgrading facilities. The
Methanol segment represents wholesale sales of methanol produced at the
Corporation's two methanol manufacturing facilities.
Total revenues and operating income (loss) by segment for the three-month
periods ended March 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------- --------- ---------
<S> <C> <C>
REVENUES:
Distribution $237,868 $264,816
Nitrogen Products 179,730 169,138
Methanol 10,791 33,971
Other - net of intercompany eliminations (13,731) (2,253)
- ------------------------------------------- -------- --------
$414,658 $465,672
======== ========
OPERATING INCOME (LOSS):
Distribution $(21,671) $(30,387)
Nitrogen Products (8,667) 11,778
Methanol (9,238) 7,239
Other expense - net (859) (163)
- ------------------------------------------- -------- --------
$(40,435) $(11,533)
======== ========
</TABLE>
8
<PAGE>
Distribution
Revenues from the Distribution segment for the three-month periods ended March
31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Distribution Revenues
- ---------------------------
(in thousands) 1999 1998
- --------------------------- -------- --------
<S> <C> <C>
Resale fertilizer $ 58,653 $ 65,659
Crop protection products 132,911 141,877
Seed 14,138 21,931
Other 32,166 35,349
- --------------------------- -------- --------
$237,868 $264,816
======== ========
</TABLE>
Revenues for the first three months of 1999 declined by $26.9 million in
comparison to the 1998 period due in part to the closing of seven locations in
the 1999 first quarter for under-performance. The Corporation continues to
monitor the performance of its distribution locations.
The operating loss for the three months ended March 31, 1999 and 1998 was $21.7
million and $30.4 million, respectively for the Distribution segment. This
segment traditionally generates an operating loss in the first quarter. Lower
product costs in the 1999 first quarter resulted in gross profits $2.8 million
higher compared to the 1998 quarter. Selling expenses in the 1999 quarter
declined by $5.9 million in comparison with 1998. The decline was a result of
lower compensation expense, lease expense and direct operating costs.
On May 3, 1999, the Corporation announced that it has signed a contract to sell
its Distribution business to Cenex/ Land O' Lakes Agronomy Company for $361
million. In the pending transaction, Cenex/Land O' Lakes would acquire all
rights to the Distribution business' earnings from April 1, 1999 forward.
Included in the sale are the Corporation's approximately 400 retail farm service
centers in the U.S. and Canada, and its 50% ownership position in the Omnium
chemical formulation plants.
Nitrogen Products
Volumes and prices for the three-month periods ended March 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
VOLUMES AND PRICES
(excludes the Distribution segment) 1999 1998
- -------------------------------------- -------------------- --------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
- -------------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Ammonia 359 $ 115 243 $152
Nitrogen solutions 802 62 642 65
Urea 177 96 184 113
Ammonium nitrate 279 118 210 139
- -------------------------------------- ---- ----- --- ----
</TABLE>
Nitrogen revenues increased by $10.6 million in the 1999 first quarter compared
with the 1998 quarter. The increase in revenue was due to an increase in
volumes largely offset by lower prices. Sales volumes for ammonia, nitrogen
solutions and ammonium nitrate increased 48%, 25% and 33%, respectively, in the
1999 quarter compared with 1998. Ammonia prices declined by 24%, nitrogen
solutions prices were down 5%, and urea and ammonium nitrate prices both
declined by 15% in comparison to the 1998 first quarter. Industry over-capacity
continued to depress prices during the first quarter.
9
<PAGE>
The Nitrogen segment had an operating loss of $8.7 million for the first quarter
of 1999 compared with operating income of $11.8 million for the first quarter of
1998. The decline in operating income was primarily related to lower selling
prices.
In the pending Distribution business sale, Cenex/Land O' Lakes and the
Corporation have also agreed to enter into a three-year nitrogen fertilizer
supply agreement through which Cenex/Land O' Lakes will purchase approximately
the quantity that the Corporation's Nitrogen Products segment currently supplies
to both the Distribution business and Cenex/Land O' Lakes.
Methanol
For the three months ended March 31, 1999 and 1998, respectively, the methanol
segment had revenues of $10.8 million and $34.0 million. The Beaumont plant was
operational for one month of the 1999 three-month period which caused the
significant decline in revenues. The Corporation made the decision to cease
production because raw material costs exceeded selling prices. The average price
for methanol for the first quarter of 1999 was $0.27 per gallon compared with
$0.45 per gallon a year ago. As a result of the shutdown, sales volumes
declined by 47% to 40.0 million gallons compared with the 1998 quarter.
The methanol segment had an operating loss of $9.2 million for the first quarter
of 1999 compared with operating income of $7.2 million for the 1998 quarter.
The operating loss was a result of lower prices and sales volumes as discussed
above. Additionally, the segment incurred $2.8 million of losses on its natural
gas hedges which were not required due to the plant shutdown. The Beaumont plant
resumed operations on March 29, 1999.
Gain on Sale of Unconsolidated Affiliate
The corporation sold its interest in Royster-Clark for $22 million cash,
generating a pretax gain of $9.8 million.
Interest Expense - Net
Interest expense, net of interest income, totaled $13.9 million for the first
quarter of 1999 compared with $13.4 million for the prior year period.
Income Taxes
Income taxes for the first quarter 1999 were recorded at an effective tax rate
of 40%, comparable to the effective tax rate for the 1998 first quarter.
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 $4.2 million for the first quarter 1999 compared with $6.3 million
in 1998. Minority interest declined due primarily to lower earnings from TNCLP
operations.
10
<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.
Cash used for operations in the first three months of 1999 was $133.5 million.
The 1999 decline to earnings resulted mainly from lower prices for nitrogen
products and methanol produced by the Corporation. Management anticipates that
nitrogen and methanol prices will remain at or near current levels through 1999.
Nevertheless, the Corporation expects over $120 million of non-cash charges to
1999 income and consequently believes that cash from operations and available
financing sources will be sufficient to meet anticipated cash requirements.
The Corporation has available a $225 million revolving credit facility for
working capital needs. As of March 31, 1999, $39.1 million was outstanding
under this facility. On May 3, 1999, the Corporation announced that it has
signed a contract to sell its Distribution business to Cenex/ Land O' Lakes
Agronomy Company for $361 million, adjusted for changes to working capital
levels and other costs. The Corporation will use sale proceeds primarily to
reduce its obligations.
The Corporation funded plant and equipment investments of $22.1 year-to-date in
1999. The Corporation began construction in the fourth quarter of 1997 of a $57
million ammonia production loop at the Beaumont, Texas methanol plant with the
facility expected to be fully operational by the end of 1999. The Corporation
expects 1999 capital expenditures to approximate $80 million consisting of the
expenditures to complete the Beaumont ammonia production loop, expansion of
existing service centers, routine replacement of equipment, and efficiency
improvements at manufacturing facilities.
Proceeds from the sale of the Royster-Clark investment amounted to $22.2
million. In calendar 1998 and 1997, the Corporation realized $306,000 and $1.3
million of equity earnings, respectively, from this unconsolidated affiliate.
During the first quarter of 1999, the Corporation distributed a preferred return
of $4.8 million to BMLP's minority partner, and paid a dividend of $0.05 per
Common Share which totaled $3.8 million. On May 5, 1999 the Board of Directors
of the Corporation declared the payment of a regular quarterly dividend on
common stock. The dividend of $0.02 per common share will be paid on June 11,
1999 to shareholders of record on May 28, 1999. The dividend is a decrease from
the former quarterly dividend rate of $0.05 per share. This action was taken in
recognition of the very difficult market environment in which the Corporation is
operating.
Cash balances at March 31, 1999 were $25.8 million of which $4.6 million is used
to collateralize letters of credit supporting recorded liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Corporation has reviewed SFAS 133 and
intends to implement the standard on January 1, 2000. At this time, the
Corporation has not determined the impact SFAS 133 will have on its financial
position, results of operations or cash flows.
11
<PAGE>
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
applications could fail or create erroneous results near January 1, 2000. This
issue affects virtually every company.
The Corporation has assigned dedicated resources to address its Year 2000 issues
with a Year 2000 Steering Committee providing management oversight and
coordination. The Corporation has also published Year 2000 Information and
Readiness Disclosures on its website (http://www.terraindustries.com). In
general, management believes the "State of Readiness" for the Corporation is
such that it will be ready for Year 2000 issues on time.
The Corporation's management information systems (MIS) environment has been
assessed for year 2000 issues and some remedial actions have been identified.
The cost of remedial actions for the MIS area is not material to the
Corporation. Nearly all of these remedial actions are complete with minimal
cost. Testing is substantially complete with the mainframe hardware systems and
the associated software, with the exception of a few software packages
originally purchased from third parties that are scheduled to be updated in
1999.
The Corporation recently completed an organization-wide review of all possible
computing functions, including the process control systems and instrumentation
in the manufacturing facilities and the diverse operations in the distribution
segment. Some remedial actions have been identified in a few areas, with the
bulk of those remaining principally associated with the Corporation's U.K.
operations. The cost of these remedial actions is not expected to be material
to the Corporation. Testing is substantially complete at three of the
Corporation's manufacturing facilities and at a small part of the operations at
the lower risk distribution segment.
The Corporation is also assessing Year 2000 issues in relation to its customers,
suppliers and other constituents because the action or inaction of third parties
may materially affect the Corporation. An initial assessment of key third
parties, including utility suppliers, has been completed and some follow up is
ongoing.
Although the Corporation expects that there will be no significant adverse
consequences relating to its Year 2000 issues, the Corporation believes its most
reasonably likely worst case Year 2000 scenario involves the interruption of its
manufacturing facilities due to failed utility supplies or some other cause.
The Corporation has in place contingency plans to deal with such interruptions,
although restarting these facilities may be dependent on the resumption of
utilities from sole source suppliers. Other general contingency planning
efforts continue to be evaluated and refined 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, although implementation of two projects will be completed at
plant turnarounds scheduled for other reasons in October 1999. Based on
substantial completion of these activities to date, the Corporation anticipates
that Year 2000 issues, including the historical and estimated costs of
remediation, will not have a material effect on its business, results of
operations or financial condition. 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.
PENDING CHANGE OF CONTROL
Minorco, S.A., through its wholly-owned subsidiaries, owns 56% of the
Corporation's outstanding shares. Minorco has made public its intention to
dispose of its interest in the Corporation.
12
<PAGE>
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 "Factors that Affect Operating Results" section
of the Corporation's most recent Form 10-K.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 Annual Meeting of stockholders was held on May 4, 1999, in
Sioux City, Iowa. At the meeting, a total of 70,900,168 votes were cast by
stockholders.
The following directors were elected to hold office until the next
Annual Meeting or until their successors are duly elected and qualified, and
received the votes set forth opposite their respective name:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
---- --- --------
<S> <C> <C>
Edward G. Beimfohr 69,858,993 1,041,175
Carole L. Brookins 69,831,776 1,068,392
Edward M. Carson 69,876,445 1,023,723
David E. Fisher 69,831,548 1,068,620
Burton M. Joyce 69,816,461 1,083,707
Anthony W. Lea 69,827,570 1,072,598
William R. Loomis, Jr. 69,842,543 1,057,625
John R. Norton III 69,810,516 1,089,652
Henry R. Slack 69,825,753 1,074,415
</TABLE>
The stockholders ratified the selection by the Corporation's Board of
Directors of Deloitte & Touche LLP as independent accountants for the
Corporation for 1999. The number of votes cast for such proposal was 70,298,793,
the number against was 484,014 and the number of abstentions was 117,361.
14
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.5 Limited Waiver dated as of March 22, 1999 to the 1998 Credit
Agreement.
27 Financial Data Schedule [EDGAR filing only]
(b) Reports on Form 8-K
Current report on Form 8-K dated May 3, 1999 reporting the
Corporation's sale of its Distribution business.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TERRA INDUSTRIES INC.
Date: May 14, 1999 /s/ Francis G. Meyer
_________________________________________________
Francis G. Meyer
Senior Vice President and Chief Financial Officer
and a duly authorized signatory
15
<PAGE>
EXHIBIT 4.5
EXECUTION COPY
LIMITED WAIVER
LIMITED WAIVER (this "Agreement") dated as of March 22, 1999 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 waive compliance with
- ---------
certain provisions of the Credit Agreement in certain respects for the period
from the date hereof through and including June 30, 1999, and the Lenders are
willing to do so, 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. Limited Waiver. 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 any and all fees as Terra shall have agreed to pay in
connection herewith, but effective as of the date hereof, the Lenders hereby
waive compliance with (i) Sections 5.04(a) and (b)of the Credit Agreement for
the Rolling Period ending March 31, 1999 and (ii) Section 5.04(c) and (d) of the
Credit Agreement for each Rolling Period ending March 31, 1999 and June 30,
1999.
Section 3. Representations and Warranties. The Company hereby
------------------------------
represents and warrants to the Administrative Agent and the Lenders that, after
giving effect hereto:
(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
<PAGE>
-2-
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>
-3-
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/ Francis G. Meyer
--------------------
Name: Francis G. Meyer
Title: Vice President
TERRA NITROGEN, LIMITED PARTNERSHIP
By Terra Nitrogen Corporation, its General
Partner
By: /s/ George H. Valentine
-----------------------
Name: George H. Valentine
Title: Vice President
GUARANTORS
----------
TERRA INDUSTRIES INC.
By: /s/ Francis G. Meyer
--------------------
Name: Francis G. Meyer
Title: Senior Vice President &
Chief Financial Officer
TERRA CAPITAL HOLDINGS, INC.
By: /s/ George H. Valentine
-----------------------
Name: George H. Valentine
Title: Vice President
<PAGE>
-4-
TERRA NITROGEN CORPORATION
By: /s/ George H. Valentine
-----------------------
Name: George H. Valentine
Title: Vice President
TERRA METHANOL CORPORATION
By: /s/ George H. Valentine
-----------------------
Name: George H. Valentine
Title: Vice President
BMC HOLDINGS, INC.
By: /s/ Francis G. Meyer
--------------------
Name: Francis G. Meyer
Title: Vice President
TERRA INTERNATIONAL, INC.
By: /s/ Francis G. Meyer
--------------------
Name: Francis G. Meyer
Title: Senior Vice President &
Chief Financial Officer
THE ADMINISTRATIVE AGENT
------------------------
CITIBANK, N.A.
By: /s/ Judith Fishlow Minter
-------------------------
Name: Judith Fishlow Minter
Title: Attorney-in-Fact
<PAGE>
-5-
THE LENDERS
-----------
CITIBANK, N.A.
By: /s/ Judith Fishlow Minter
-------------------------
Name: Judith Fishlow Minter
Title: Attorney-in-Fact
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Margaret H. Claggett
------------------------
Name: Margaret H. Claggett
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
----------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
FIRST BANK NATIONAL ASSOCIATION
By: /s/ David A. Draxler
--------------------
Name: David A. Draxler
Title: Vice President
<PAGE>
-6-
THE CHASE MANHATTAN BANK
By: /s/ Gary L. Spevack
----------------------
Name: Gary L. Spevack
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Barry P. Sullivan
------------------------
Name: Barry P. Sullivan
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
-------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl
------------------
Name: David Bouhl
Title: First Vice President
By: /s/ W. Leroy Startz
-----------------------
Name: W. Leroy Startz
Title: First Vice President
<PAGE>
-7-
CREDIT LYONNAIS CHICAGO BRANCH
By: /s/ Julie T. Kanak
------------------
Name: Julie T. Kanak
Title: Vice President
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Deborah Slusarczyk
----------------------
Name: Deborah Slusarczyk
Title: Vice President
By: /s/ A. Richard Morris
---------------------
Name: A. Richard Morris
Title: First Vice President
HARRIS TRUST & SAVINGS BANK
By: /s/ Christopher Fisher
----------------------
Name: Christopher Fisher
Title: Vice President
SUNTRUST BANK, ATLANTA
By: /s/ Michel A. Odermatt
----------------------
Name: Michel A. Odermatt
Title: Vice President
<PAGE>
-8-
BANQUE NATIONALE DE PARIS
By: /s/ Christine Howatt
--------------------
Name: Christine Howatt
Title: Vice President
By: /s/ Cathleen Schaede
--------------------
Name: Cathleen Schaede
Title: Assistant Vice President
THE BANK OF NEW YORK
By: /s/ Richard A. Raffetto
-----------------------
Name: Richard A. Raffetto
Title: Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEEBANK, B.A. "RABOBANK
NEDERLAND", New York Branch
By: /s/ Ian Reece
-------------
Name: Ian Reece
Title: Senior Credit Officer
By: /s/ Dana W. Hemenway
--------------------
Name: Dana W. Hemenway
Title: Vice President
<PAGE>
-9-
NORWEST BANK IOWA, NATIONAL
ASSOCIATION
By: /s/ Scott Sehnert
-----------------
Name: Scott Sehnert
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ John A. Kemper
------------------
Name: John A. Kemper
Title: Senior Vice President
FIRST NATIONAL BANK OF CHICAGO
By: /s/ Suzanne Ergastolo
---------------------
Name: Suzanne Ergastolo
Title: Corporate Banking Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated statement of financial position of Terra Industries Inc., as of
March 31, 1999 and the related consolidated statement of income for the three
months then ended.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,598
<SECURITIES> 5,210
<RECEIVABLES> 250,128
<ALLOWANCES> (15,605)
<INVENTORY> 565,420
<CURRENT-ASSETS> 899,129
<PP&E> 1,544,713
<DEPRECIATION> (388,518)
<TOTAL-ASSETS> 2,434,631
<CURRENT-LIABILITIES> 640,171
<BONDS> 485,204
0
0
<COMMON> 127,888
<OTHER-SE> 579,316
<TOTAL-LIABILITY-AND-EQUITY> 2,434,631
<SALES> 406,632
<TOTAL-REVENUES> 414,658
<CGS> 378,453
<TOTAL-COSTS> 378,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 967
<INTEREST-EXPENSE> 14,818
<INCOME-PRETAX> (48,637)
<INCOME-TAX> (19,450)
<INCOME-CONTINUING> (29,187)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,187)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
