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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
52-1145429
(I.R.S. Employer
Identification No.)
Terra Centre
600 Fourth Street
P.O. Box 6000
Sioux City, Iowa
(Address of principal executive offices)
51102-6000
(Zip Code)
Registrant's telephone number, including area code: (712) 277-1340
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Shares, without par value New York Stock Exchange
Toronto Stock Exchange
10 3/4% Senior Notes Due 2003 N/A
10 1/2% Senior Notes Due 2005 N/A
Securities registered pursuant to Section 12(g) of the Act: None
______________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by non-
affiliates of the Registrant, at January 31, 2000, was approximately $71
million.
On January 31, 2000, the Registrant's outstanding voting stock consisted of
75,308,040 Common Shares, without par value.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on May 2, 2000. Certain information therein is incorporated by reference
into Part III hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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<S> <C>
Items 1 and 2. Business and Properties.................................................. 1
Item 3. Legal proceedings........................................................ 8
Item 4. Submission of matters to a vote of security holders...................... 8
Executive officers of Terra.............................................. 8
PART II
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Item 5. Market for Terra's common equity and related stockholder matters......... 9
Item 6. Selected financial data.................................................. 9
Item 7. Management's discussion and analysis of financial condition and results
of operations........................................................... 9
Item 8. Financial statements and supplementary data.............................. 9
Item 9. Changes in and disagreements with accountants on accounting and financial
disclosure.............................................................. 9
PART III
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Item 10. Directors and executive officers of Terra................................ 10
Item 11. Executive compensation................................................... 10
Item 12. Security ownership of certain beneficial owners and management........... 10
Item 13. Certain relationships and related transactions........................... 10
PARTIV
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Item 14. Exhibits, financial statement schedules and reports on Form 8-K.......... 10
Signatures............................................................................... 15
Index to financial statement schedules, reports and consents............................. S-1
</TABLE>
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PART I
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Items 1 and 2. BUSINESS AND PROPERTIES.
Terra Industries Inc., a Maryland corporation, is referred to as "Terra" in
this report. References to Terra also include the direct and indirect
subsidiaries of Terra Industries Inc. where required by the context.
Subsidiaries not wholly owned by Terra include a limited partnership which
operates Terra's manufacturing facilities in Blytheville, Arkansas and
Verdigris, Oklahoma. Terra is the sole general partner and the majority limited
partner in this limited partnership. Terra's principal corporate office is
located at Terra Centre, 600 Fourth Street, P.O. Box 6000, Sioux City, Iowa
51102-6000 and its telephone number is (712) 277-1340.
Business Overview
Terra is an industry leader in the production and marketing of both
nitrogen products and methanol. Terra is one of the largest producers of
anhydrous ammonia and nitrogen solutions in the United States and Canada and is
the largest producer of ammonium nitrate in the United Kingdom. In addition,
Terra is one of the largest U.S. producers and marketers of methanol.
Terra owns eight facilities that produce nitrogen products and methanol.
These facilities are located in or near the following locations and have the
following production capacities:
<TABLE>
<CAPTION>
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Location
Annual Capacity
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Ammonia/1/ Urea/2/ Methanol/3/ UAN-28/4/ AN/4/
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<S> <C> <C> <C> <C> <C>
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Beaumont, Texas/5/ 255,000 280,000,000
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Blytheville, Arkansas 420,000 480,000 30,000
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Port Neal, Iowa 350,000 35,000 810,000
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Verdigris, Oklahoma 1,050,000 2,180,000
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Woodward, Oklahoma/6/ 440,000 25,000 40,000,000 340,000
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Courtright, Ontario 480,000 175,000 400,000
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Severnside, U.K. 265,000 500,000
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Billingham, U.K./7/ 550,000 500,000
- ----------------------------------------------------------------------------------------------
Total 3,810,000 715,000 320,000,000 3,760,000 1,000,000
- ----------------------------------------------------------------------------------------------
1. Measured in gross tons of ammonia produced; net tons will vary with upgrading
requirements.
2. Urea is sold as urea liquor from Port Neal and Woodward and as a granular urea from
Blytheville and Courtright.
3. Measured in gallons.
4. Measured in tons.
5. Terra's Beaumont, Texas facility produced only methanol until completion of an ammonia
production loop at that facility in January 2000.
6. Ammonia capacity depends, in part, on the desired rate of methanol production at this
facility.
7. Terra's Billingham, England facility produces merchant nitric acid; 1999 sales were
348,390 product tons.
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</TABLE>
1
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Until June 30, 1999, Terra also operated retail facilities in the U.S. and
Canada for the distribution and marketing of fertilizers, crop protection
products, seed and services. Terra sold this business to Agro Distribution, LLC,
an affiliate of Cenex/Land O'Lakes Agronomy Company, on that date.
For more information regarding the industry segments in which Terra
operates and the sold distribution operations, see notes 2 and 21 to the
consolidated financial statements included in this report.
Nitrogen Products
Nitrogen is one of three primary nutrients essential for plant growth.
Nitrogen fertilizers must be reapplied each year in agricultural areas because
of absorption by crops and leaching from the soil. There are currently no
substitutes for nitrogen fertilizers in the cultivation of high-yield crops.
Terra is a major producer and distributor of nitrogen products, principally
fertilizers. Ammonia, urea and urea ammonium nitrate solution ("UAN") are
Terra's principal products produced and sold in North America. Terra produces
and sells principally ammonia and ammonium nitrate ("AN") in the U.K. A
significant portion of Terra's ammonia production is upgraded into other
nitrogen products, such as urea, UAN and AN. Other important products
manufactured by Terra include nitric acid and carbon dioxide.
Although these different nitrogen products are interchangeable to some
extent, each has its own characteristics. These characteristics make one product
or another preferable to Terra's end-user customers. These preferences vary
according to the crop planted, soil and weather conditions, regional farming
practices, relative prices, and the cost and availability of appropriate
storage, handling and application equipment. These products are described in
greater detail below:
Ammonia. Anhydrous ammonia is the simplest form of nitrogen fertilizer and
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is the feedstock for the production of most other nitrogen fertilizers,
including urea, UAN and AN. It is produced by natural gas reacting with steam
and air at high temperatures and pressures in the presence of catalysts. It has
a nitrogen content of 82% by weight and is generally the least expensive form of
fertilizer per pound of nitrogen. Ammonia has a distinctive odor and requires
refrigeration or pressurization for transportation and storage.
Urea. Urea is produced for both the animal feed and fertilizer market by
----
converting ammonia and carbon dioxide into liquid urea, which can be turned into
a solid form. Urea has a nitrogen content of 46% by weight, the highest level
for any solid nitrogen product. Terra produces both a granulated form of solid
urea, generally for the fertilizer market, and urea liquor (liquid) for animal
feed supplements.
UAN. Terra produces UAN at five of its six North American fertilizer
---
manufacturing facilities. Terra's Verdigris, Oklahoma facility is one of the
largest UAN production facilities in North America. UAN is produced by combining
liquid urea, liquid ammonium nitrate and water. The nitrogen content of UAN is
approximately 28% to 32% by weight. UAN is a liquid fertilizer and, unlike
ammonia, is generally odorless and does not need to be refrigerated or
pressurized for transportation or storage.
UAN may be applied separately or may be mixed with various crop protection
products, permitting the application of several materials simultaneously, and
thus reducing energy and labor costs and accelerating field preparation for
planting. In addition, UAN may be applied from ordinary tanks and trucks and can
be sprayed or injected into the soil, or applied through irrigation systems,
throughout the growing season. UAN is relatively expensive to transport and
store because of its high water content. Due to its stable nature, UAN may be
used for no-till row crops where fertilizer is spread on the surface of the soil
but may be subject to volatilization losses.
AN. Terra produces AN at its two facilities in the U.K. AN is produced by
--
combining nitric acid and ammonia into a liquid form which is then turned into a
solid. The nitrogen content of AN is 34.5% by weight.
2
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Terra's sales mix of its principal nitrogen products (based on product tons
sold), for each of the last three years (including Terra's U.K. business in 1998
and 1999 only) was approximately as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Ammonia 22% 21% 22%
Urea 9% 11% 12%
UAN 56% 55% 66%
AN 13% 13% N/A
</TABLE>
Plants. All of Terra's North American facilities (other than the Beaumont,
Texas location) are integrated facilities for the production of ammonia, liquid
urea and UAN. (The ammonia production loop at the Beaumont facility produces
only ammonia.) In addition, Terra's facilities in Blytheville, Arkansas and
Courtright, Ontario produce granular urea. Terra's two U.K. facilities are
integrated facilities for the production of ammonia, nitric acid, ammonium
nitrate and liquid carbon dioxide.
Terra's eight fertilizer manufacturing facilities are each designed to
operate continuously, except for planned shutdowns (usually biennial) for
maintenance and efficiency improvements. Capacity utilization (gross tons
produced divided by capacity tons at expected operating rates and on-stream
factors) of Terra's fertilizer manufacturing facilities (including Terra's U.K.
facilities in 1998 and 1999 only) was 96% in 1999, 102% in 1998 and 103% in
1997.
Terra owns all of its manufacturing facilities in fee, unless otherwise
stated below. (See "Methanol - Plants" for a description of leased facilities at
the Beaumont, Texas facility.) All Terra manufacturing facilities (including the
Beaumont facility) are subject to encumbrances in favor of lenders.
Located at the Verdigris, Oklahoma facility are two ammonia plants, two
nitric acid plants, two UAN plants and a port terminal. Terra owns the plants in
fee, while the port terminal is leased from the Tulsa-Rogers County Port
Authority. The leasehold interest on the port terminal is scheduled to expire in
April 2004, and Terra has an option to renew the lease for an additional five-
year term.
The Blytheville, Arkansas facility consists of an anhydrous ammonia plant,
a granular urea plant and a UAN plant. The ammonia plant is leased from the City
of Blytheville at a nominal annual rate The ammonia plant lease is scheduled to
expire in November 2004, and Terra has an option to extend the lease for eleven
successive terms of five years each at the same rental rate. Terra has an
unconditional option to purchase the plant for a nominal price at the end of the
lease term (including any renewal term). The urea plant is also leased from the
City of Blytheville. The urea plant lease is scheduled to expire in November
2005, and Terra has an option to extend the lease for three successive terms of
five years each at the same rental rate. Terra also has a similar, unconditional
option to purchase the urea plant for a nominal price.
In the first quarter of 2000, Terra completed a $57 million capital project
to add an ammonia production loop to its Beaumont, Texas facility. This project
has added 255,000 tons of annual ammonia production capacity, without reducing
the plant's capacity for producing methanol.
Marketing and Distribution. Terra's production facilities, combined with
--------------------------
significant storage capacity at about 60 locations throughout the Midwestern
United States and other major fertilizer consuming regions, position Terra to be
a major supplier of nitrogen fertilizers.
Terra's principal customers for its North American manufactured nitrogen
products are independent dealers, national retail chains, cooperatives and
industrial customers. In the U.K., revenues are virtually split evenly between
agricultural and industrial customers. Overall, industrial customers accounted
for approximately 21% of Terra's 1999 production, while they accounted for
approximately 23% of Terra's 1998 production.
As part of the sale of its farm service centers and distribution business
in the second quarter of 1999, Terra and Cenex/Land O'Lakes entered into a
nitrogen fertilizer supply agreement. Under this agreement, Cenex/Land O'Lakes
will for three years purchase from Terra approximately the quantity of product
that Terra supplied to both Terra's own distribution business and to Cenex/Land
O'Lakes before the sale of the distribution business. Prior to
3
<PAGE>
this transaction, Terra sold product to its distribution business equal to, on
an annualized basis, approximately 12% of Terra's 1999 production. In 1998, 12%
of Terra's production in North America was sold to the distribution business.
Under an agreement with Imperial Chemical Industries (ICI), Terra makes
payments to ICI based on the market price of ammonium nitrate in connection with
Terra's U.K. business. Over the term of this agreement, Terra must make a
payment for any year through 2002 in which the average ammonium nitrate price it
receives exceeds certain thresholds, subject to a maximum payment of (Pounds)58
million ($95.7 million at the time the agreement was signed). Because of these
payments, Terra will not benefit fully from the U.K. market price of ammonium
nitrate over certain thresholds during this agreement's term. Terra did not make
any payments to ICI under this agreement in 1999 or 1998.
Methanol
Terra possesses approximately 320 million gallons of annual methanol
production capacity, representing approximately 16% of total U.S. rated methanol
production capacity at the end of 1999.
Product. Methanol is a liquid petrochemical made primarily from natural
-------
gas. It is used as a feedstock in the production of other chemical products such
as formaldehyde, acetic acid and chemicals used in the building products
industry. Another major market for methanol is as a feedstock in the production
of MTBE, an oxygenate used as an additive in re-formulated gasoline and as an
octane enhancer in non-reformulated gasoline. The methanol manufacturing process
involves heating natural gas feedstock, mixing it with steam and passing it over
a nickel-based catalyst, which breaks it down into carbon monoxide, carbon
dioxide and water. This reformed gas is then cooled, compressed and passed over
a copper-zinc-based catalyst to produce crude methanol. Crude methanol consists
of approximately 80% methanol and 20% water. Crude methanol is distilled to
remove water and impurities in order to convert it to high-purity chemical-grade
methanol suitable for sale.
Plants. Terra's Woodward, Oklahoma facility produced 34 million, 38
------
million and 34 million gallons of methanol in 1997, 1998 in 1999, respectively.
Terra's Beaumont, Texas facility is among the largest methanol production plants
in the U.S., with approximately 280 million gallons of annual methanol
production capacity. This plant produced 276 million, 258 million and 207
million gallons of methanol in 1997, 1998 and 1999, respectively. This plant was
temporarily idled for two months in 1999 due to low methanol prices.
Terra owns the plant and processing equipment at the Beaumont facility. The
land is leased by Terra from E.I. du Pont de Nemours and Company for a nominal
annual rate under a lease agreement which expires in 2090. Because the Beaumont
facility is entirely contained within a complex owned and operated by Du Pont,
Terra depends on Du Pont for access to the facility. Terra depends on Du Pont
for access and certain essential services relating to wharf facilities located
on Du Pont property through which most of the finished methanol product is
shipped to customers. Lastly, Terra depends on Du Pont for access to the
pipelines used to transport methanol and to obtain natural gas, as well as for
certain utilities, wastewater treatment facilities and other essential services.
Marketing and Distribution; Contracts. Terra's methanol customers are
-------------------------------------
primarily large, domestic chemical or MTBE producers. Terra has a number of
long-term methanol sales contracts, the most significant of which is with Du
Pont. In 1999, Terra sold over 57% of its production under such contracts. At
December 31, 1999, Terra had contracted to sell over 49% of its 2000 scheduled
production at prices indexed to published sources. Most of these sales contracts
(other than the Du Pont contract noted below) cover fixed volumes and have terms
of up to three years.
Under the Du Pont contract, as amended, Du Pont has agreed to purchase from
Terra 54 million gallons of methanol each year through 2001 (representing 19% of
the Beaumont facility's annual production capacity). The price of the methanol
delivered under this contract is generally negotiated on the basis of the
relevant index and the previous month's price.
4
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Credit
Terra's credit terms are generally 30 days from date of shipment, but may
be extended for longer periods during certain sales seasons consistent with
industry practices. In the U.K., Terra's fertilizer sales for the second half of
the year are typically payable in December of that year, which is in accordance
with industry practice. Bad debt writeoffs have been less than $1 million
annually for each of the past three years.
Seasonality and Volatility
The fertilizer business is seasonal, based upon the planting, growing and
harvesting cycles. Inventories must be accumulated to allow for uninterrupted
production, requiring significant storage capacity. This seasonality also
generally results in higher fertilizer prices during peak periods, with prices
typically reaching their highest point in the spring, decreasing in the summer
and increasing in the fall (as depleted inventories are restored) through the
spring.
The fertilizer business can also be volatile as a result of a number of
other factors. The most important of these factors are:
. Weather patterns and field conditions (particularly during periods of
high fertilizer consumption);
. Quantities of fertilizers imported to and exported from North America;
and
. Current and projected grain inventories and prices, which are heavily
influenced by U.S. exports and worldwide grain markets.
U.S. governmental policies may directly or indirectly influence the number
of acres planted, the level of grain inventories, the mix of crops planted and
crop prices.
Nitrogen fertilizer price levels are influenced by the world supply and
demand balance for ammonia and nitrogen-based products. Long-term demand is
affected by population growth and rising living standards that determine food
consumption. Shorter-term demand is affected by world economic conditions and
international trade decisions, such as China's cessation of urea imports in
recent years. Supply is affected by worldwide capacity and the availability of
nitrogen product exports from major producing regions such as the former Soviet
Union, the Middle East and South America. During the mid to late 1990's
favorable nitrogen prices in the industry spurred capacity additions in the form
of new and expanded production facilities. More recently, depressed prices and
margins for nitrogen products have resulted in some curtailments or shutdowns of
capacity. Some of these shutdowns are expected to be permanent. Profit margins
will continue to be under pressure until either demand is sufficient to absorb
total supplies or additional marginal production capacity is shut down.
While most methanol sold in the U.S. is sold pursuant to long-term
contracts based on market index pricing and a fixed volume, as with any
commodity chemical, the spot market price of methanol can be volatile. The
industry has experienced cycles of oversupply, resulting in depressed prices and
idled capacity, followed by periods of shortage and rapidly rising prices. At
the end of 1998 and through 1999, methanol sales prices were below the low end
of their historic sales price range and there can be no assurance as to whether
or when prices may turn higher. Future demand for methanol will depend in part
on the regulatory environment with respect to reformulated gasoline. In 1999,
the State of California mandated a ban on MTBE starting in 2002. If this ban is
implemented, about 5% of the current global methanol supply will need to be
curtailed or redirected. Methanol is expected to be the primary energy source
for fuel cells used in various applications. The first commercial production of
fuel cell-powered automobiles is expected in 2005. Consequently, methanol demand
could change sharply over the next several years depending on MTBE use, the
scope and rate of fuel cell implementation and other factors.
Raw Materials
The principal raw material used to produce manufactured nitrogen products
and methanol is natural gas. Natural gas costs in 1999 comprised about 50% of
total costs and expenses for North American nitrogen products business, 28% of
total costs and expenses for the U.K. nitrogen products business, and 62% of
total costs and expenses associated with the Methanol segment. Terra believes
that there is a sufficient supply of natural gas for the foreseeable future and
has entered into firm contracts to minimize the risk of interruption or
curtailment of natural gas supplies during the heating season.
5
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Terra's natural gas procurement policy is to effectively fix or cap the
price of approximately 25% to 80% of its natural gas requirements for a one-year
period and up to 50% of its natural gas requirements for the subsequent two-year
period. This is accomplished through various supply contracts, financial
derivatives and other forward-pricing techniques. A significant portion of
global nitrogen products and methanol production is at facilities with access to
fixed-priced natural gas supplies. These facilities' natural gas costs have been
and could continue to be substantially lower than Terra's.
If natural gas prices increase, Terra may benefit from its use of forward-
pricing techniques. Conversely, if natural gas prices fall, Terra may incur
costs above the spot market price as a result of such techniques. The settlement
dates of forward-pricing contracts are scheduled to coincide with gas purchases.
These contracts are based on a designated price, which price is referenced to
market natural gas prices or appropriate NYMEX futures contract prices.
Transportation
Terra uses several modes of transportation to receive materials and
distribute product to customers, including railroad cars, common carrier trucks,
barges and common carrier pipelines. Terra uses approximately 83 liquid, dry and
anhydrous ammonia fertilizer terminal storage facilities in 21 states and one
Canadian province. Terra also has a methanol storage facility in Beaumont,
Texas. Terra transports products from this facility primarily by marine vessels
and via pipeline to selected customers.
Railcars are the major source of transportation at Terra's North American
manufacturing facilities. Terra leases approximately 2,350 railcars. Terra also
owns ten nitric acid railcars. In the U.K., Terra's AN production is transported
primarily by contract carriers' trucks and its ammonia production is transported
primarily by Terra-owned pipelines.
Terra transports purchased natural gas to its Woodward and Verdigris,
Oklahoma facilities via an intrastate pipeline. This pipeline is not an open-
access carrier, but Terra can transport natural gas from any Oklahoma source
that is connected to this widespread pipeline system. Terra also has limited
access to out-of-state natural gas supplies for these facilities. The Beaumont,
Texas facility purchases delivered natural gas via four intrastate pipelines.
The Courtright, Ontario facility purchases natural gas which is delivered by a
local utility. This natural gas is transported from western Canada and the U.S.
via the TransCanada Pipeline under various delivery contracts. Terra transports
purchased natural gas for its Blytheville, Arkansas facility which is delivered
by a natural gas pipeline company. Purchased natural gas is transported to the
Port Neal, Iowa facility via an interstate, open-access pipeline. To comply with
a Federal Energy Regulatory Commission order, Terra maintains direct access to
this interstate carrier. However, to maintain supply flexibility, Terra
maintains an alternative connection to a local natural gas utility. Purchased
natural gas is transported to Terra's Billingham and Severnside, England
facilities via a nationwide, open-access pipeline system.
Research and Development
Terra does not currently have any significant, ongoing research and
development efforts.
Competition
Nitrogen products are a global commodity, and Terra's customers include
growers and industrial end-users, dealers and other fertilizer producers.
Customers base purchasing decisions principally on the delivered price and
availability of the product. Terra competes with a number of U.S. and foreign
producers, including state-owned and government-subsidized entities. Some of
Terra's principal competitors may have greater total resources and may be less
dependent on earnings from nitrogen fertilizer sales than Terra. Some foreign
competitors may have access to lower cost or government-subsidized natural gas
supplies. Terra competes with other manufacturers of nitrogen fertilizer on
delivery terms and availability of products, as well as on price.
The methanol industry, like the fertilizer industry, is highly competitive
and such competition is based largely on price, reliability and deliverability
of this global commodity. The relative cost and availability of natural gas and
the
6
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efficiency of production facilities are important competitive factors.
Significant determinants of a methanol manufacturing plant's competitive
position are the natural gas acquisition and transportation contracts that a
plant negotiates with its major suppliers. Domestic competitors for methanol
include a number of large integrated petrochemical producers, many of which are
better capitalized than Terra.
Environmental and Other Regulatory Matters
Terra's operations are subject to various federal, state and local
environmental, safety and health laws and regulations, including laws relating
to air quality, hazardous and solid wastes and water quality. Terra's operations
in Canada are subject to various federal and provincial regulations regarding
such matters, including the Canadian Environmental Protection Act administered
by Environment Canada, and the Ontario Environmental Protection Act administered
by the Ontario Ministry of the Environment. Terra's U.K. operations are subject
to similar regulations under a variety of acts governing hazardous chemicals,
transportation and worker health and safety. Terra is also involved in the
manufacture, handling, transportation, storage and disposal of materials that
are or may be classified as hazardous or toxic by federal, state, provincial or
other regulatory agencies. Precautions are taken to reduce the likelihood of
accidents involving these materials. If such materials have been or are disposed
of at sites that are targeted for investigation and remediation by federal or
state regulatory authorities, Terra may be responsible under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") or analogous
laws for all or part of the costs of such investigation and remediation.
Terra has been designated as a potentially responsible party ("PRP") under
CERCLA and its state analogues with respect to various sites. Under such laws,
all PRPs may be held jointly and severally liable for the costs of investigation
and remediation of an environmentally damaged site regardless of fault or
legality of original disposal. After consideration of such factors as the number
and levels of financial responsibility of other PRPs, the existence of
contractual indemnities, the availability of defenses and the speculative nature
of the costs involved, Terra believes that its liability with respect to these
matters will not be material.
Terra retained a small number (less than 10%) of its retail locations after
the sale of its distribution business in the second quarter of 1999. Some of
these locations were the subject of environmental clean-up activities for which
Terra has retained liability. Terra does not believe that such environmental
costs and liabilities will have a material effect on its results of operations,
financial position or net cash flows.
With respect to the Verdigris facility and Blytheville facility, Freeport-
McMoRan Resource partners, Limited Partnership (a former owner and operator of
these facilities) retained liability for certain environmental matters. With
respect to the Beaumont facility, DuPont retains responsibility for certain
environmental costs and liabilities stemming from conditions or operations to
the extent such conditions or operations existed or occurred prior to the 1991
disposition by DuPont. Likewise, with respect to the Billingham and Severnside,
England facilities, the seller, ICI, indemnified Terra for pre-December 31, 1997
environmental contamination associated with the purchased assets.
Terra may be required to install additional air and water quality control
equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and
continuous emission monitors, at certain of its facilities in order to maintain
compliance with Clean Air Act, Clean Water Act and similar requirements. These
equipment requirements are also typically applicable to competitors as well.
Terra estimates that the cost of complying with these existing requirements in
2000 and beyond will be less than $10 million.
Terra endeavors to comply (and has incurred substantial costs in connection
with such compliance) in all material respects with applicable environmental,
safety and health regulations. Because these regulations are expected to
continue to change and generally be more restrictive than current requirements,
the costs of compliance will likely increase. Terra does not expect its
compliance with such regulations to have a material adverse effect on its
results of operations, financial position or net cash flows.
7
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Employees
Terra had 1,351 full-time employees at December 31, 1999, with only the
U.K. employees being covered by anything equivalent to a collective bargaining
agreement.
Item 3. LEGAL PROCEEDINGS.
Various legal proceedings are pending against Terra and its subsidiaries.
Terra believes that the aggregate liability resulting from these proceedings
will not be material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of security holders of the Company during
the fourth quarter of 1999.
EXECUTIVE OFFICERS OF TERRA
The following paragraphs set forth the name, age and offices of each
present executive officer of Terra, the period during which each executive
officer has served as such and each executive officer's business experience
during the past five years:
<TABLE>
<CAPTION>
Present positions and offices with the Company
Name and age and principal occupations during the past five years
------------ ----------------------------------------------------
<S> <C>
Michael L. Bennett (46) Executive Vice President and Chief Operating Officer of Terra since February
1997; President and Chief Executive Officer of Terra Nitrogen Division since
June 1998; President of Terra Distribution Division from November 1995 to
February 1997; Senior Vice President of Terra from February 1995 to February
1997; Senior Vice President, Distribution of Terra International from October
1994 to February 1997; Vice President, Northern Division thereof from January
1992 to October 1994.
Burton M. Joyce (58) President and Chief Executive Officer of Terra since May 1991; Executive
Vice President and Chief Operating Officer thereof from February 1988 to
May 1991.
William R. Loomis, Jr. (51) Chairman of the Board of Terra since May 1996 and a director thereof since
February 1996; Managing Director of Lazard Freres & Co. LLC since June
1995 and General Partner in the Banking Group of Lazard Freres & Co. from
1984 to June 1995.
Francis G. Meyer (48) Senior Vice President and Chief Financial Officer of Terra since November
1995; Vice President and Chief Financial Officer thereof from November
1993 to November 1995.
W. Mark Rosenbury (52) Senior Vice President and Chief Administrative Officer of Terra since
August 1999; Vice President, European Operations of Terra and Managing
Director of Terra Nitrogen U.K. from January 1998 to August 1999; Vice
President, Business Development and Strategic Planning of Terra from
November 1995 to January 1998; President of Terra Nitrogen Corporation
from November 1994 to February 1996; Executive Vice President of Terra
from November 1993 to November 1995; Chief Operating Officer thereof from
November 1993 to November 1994.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Wynn S. Stevenson (45) Vice President, Taxes and Corporate Development of Terra since May 1998;
Vice President, Taxes of Terra from April 1996 to May 1998; Director,
Taxes thereof from June 1992 to April 1996.
George H. Valentine (51) Senior Vice President, General Counsel and Corporate Secretary of Terra
since November 1995; Vice President, General Counsel and Corporate
Secretary thereof from November 1993 to November 1995.
</TABLE>
There are no family relationships among the executive officers and
directors of Terra or arrangements or understandings between any executive
officer and any other person pursuant to which any executive officer was
selected as such. Officers of Terra are elected annually to serve until their
respective successors are elected and qualified.
PART II
-------
Item 5. MARKET FOR TERRA'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information with respect to the market for Terra's common equity and
related stockholder matters contained in Exhibit 13 hereto (primarily under the
headings "Quarterly Financial and Stock Market Data (Unaudited)" and
"Stockholders") is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA.
Information with respect to selected financial data contained in Exhibit 13
hereto (primarily under the heading "Financial Summary") is incorporated herein
by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information with respect to management's discussion and analysis of
financial condition and results of operations contained in Exhibit 13 hereto
(primarily under the heading "Financial Review") is incorporated herein by
reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to quantitative and qualitative disclosures about
market risk contained in Exhibit 13 hereto (primarily under the subheading "Risk
Management and Financial Instruments" of the "Financial Review" discussion) is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the notes thereto and
the report of independent auditors thereon, and the information set forth under
the heading "Quarterly Financial and Stock Market Data (Unaudited)" contained in
Exhibit 13 hereto are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
9
<PAGE>
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TERRA.
Information with respect to directors of Terra under the caption "Election
of Directors" in the Proxy Statement for the Annual Meeting of Stockholders of
Terra to be held on May 2, 2000, is incorporated herein by reference.
Information with respect to executive officers of Terra appears under the
caption "Executive Officers of Terra" in Part I hereof and is incorporated
herein by reference.
Item 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation under the caption
"Executive Compensation and Other Information" in the Proxy Statement for the
Annual Meeting of Stockholders of Terra to be held on May 2, 2000, is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management under the caption "Equity Security Ownership" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on May 2,
2000, is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on May 2,
2000, is incorporated herein by reference.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules.
1. Consolidated Financial Statements of Terra and its subsidiaries
(incorporated herein by reference to Exhibit 13 hereof).
Consolidated Statements of Financial Position at December 31, 1999
and 1998.
Consolidated Statements of Operations for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.
Notes to the Consolidated Financial Statements.
Independent Auditors' Report.
Quarterly Production Data (Unaudited).
Quarterly Financial and Stock Market Data (Unaudited).
Revenues (Unaudited).
10
<PAGE>
Volumes and Prices (Unaudited).
Stockholders.
Financial Summary.
2. Index to Financial Statement Schedules.
See Index to Financial Statement Schedules of Terra and its
subsidiaries at page S-1.
3. Other Financial Statements.
Individual financial statements of Terra's subsidiaries are omitted
because all such subsidiaries are included in the consolidated
financial statements being filed. Individual financial statements of
50% or less owned persons accounted for on the equity method have
been omitted because such 50% or less owned persons considered in
the aggregate, as a single subsidiary, would not constitute a
significant subsidiary.
(b) Executive Compensation Plans and Arrangements.
Exhibits 10.1.1 through 10.1.21 are incorporated herein by reference.
(c) Reports on Form 8-K
Terra did not file any reports of Form 8-K in the fourth quarter of 1999.
(d) Exhibits
3.1.1 Articles of Restatement of Terra Industries filed with the State of
Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra
Industries' Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
3.1.2 Articles of Amendment of Terra Industries filed with the State of
Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries'
Form 10-K for the year ended December 31, 1992, is incorporated
herein by reference.
3.1.3 Articles Supplementary of Terra Industries filed with the State of
Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra
Industries' Form 8-K/A dated November 3, 1994, is incorporated
herein by reference.
3.2 By-Laws of Terra Industries, as amended through August 7, 1991,
filed as Exhibit 3 to Terra Industries' Form 8-K dated September 30,
1991, is incorporated herein by reference.
4.1 Indenture dated as of October 15, 1993 among Terra Industries (as
successor by merger to Agricultural Minerals and Chemicals Inc.) and
Society National Bank, including form of Senior Note, filed as
Exhibit 99.2 to Terra Industries' Registration Statement on Form S-
3, as amended (File No. 33-52493), is incorporated herein by
reference.
4.2 Indenture dated as of June 22, 1995 between Terra Industries and
First Trust National Association, as trustee, including form of
Exchange Note, filed as Exhibit 4.1 to Terra Industries'
Registration Statement on Form S-4, as amended (File No. 33-60853),
is incorporated herein by reference.
11
<PAGE>
4.3 Amended and Restated Credit Agreement (the "1998 Credit Agreement")
dated as of March 31, 1998 among Terra Capital, Inc., Terra
Nitrogen, Limited Partnership, Certain Guarantors, Certain Lenders,
Certain Issuing Banks and Citibank, N.A. without exhibits or
schedules, filed as Exhibit 4.4 to Terra Industries' Form 10-Q for
the quarter ended March 31, 1998, is incorporated herein by
reference.
4.4 Amendment No. 1 dated as of September 30, 1998 to the 1998 Credit
Agreement, filed as Exhibit 4.5 to Terra Industries' Form 10-Q for
the quarter ended September 30, 1998, is incorporated herein by
reference.
Other instruments defining the rights of holders of long-term debt
are not being filed because the total amount of securities
authorized under any such instrument does not exceed 10 percent of
the total assets of Terra Industries and its subsidiaries on a
consolidated basis. Terra Industries agrees to furnish a copy of
any such instrument to the Commission upon request.
4.5 Limited Waiver dated as of March 22, 1999 to the 1998 Credit
Agreement, filed as Exhibit 4.5 to Terra Industries' Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by
reference.
4.6 Amended and Restated Credit Agreement dated June 25, 1999 among
Terra Capital, Inc., Certain Guarantors, Certain Lenders, Certain
Issuing Banks, Salomon Smith Barney Inc., as Arranger, and
Citibank, N.A., as Administrative Agent (without exhibits or
schedules), filed as Exhibit 4.6 to Terra Industries' Form 10-Q for
the quarter ended June 30, 1999, is incorporated herein by
reference.
4.7 Credit Agreement dated December 31, 1997 and Amended and Restated
June 25, 1999 among Terra International (Canada) Inc., Certain
Guarantors, Certain Lenders, Salomon Smith Barney Inc., as
Arranger, and Citibank, N.A., as Administrative Agent (without
exhibits or schedules), filed as Exhibit 4.7 to Terra Industries'
Form 10-Q for the quarter ended June 30, 1999, is incorporated
herein by reference.
10.1.1 Resolution adopted by the Personnel Committee of the Board of
Directors of Terra Industries with respect to supplemental
retirement benefits for certain senior executive officers of Terra
Industries, filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q
for the fiscal quarter ended March 31, 1991, is incorporated herein
by reference.
10.1.2 1992 Stock Incentive Plan of Terra Industries filed as Exhibit
10.1.6 to Terra Industries' Form 10-K for the year ended December
31, 1992, is incorporated herein by reference.
10.1.3 Form of Restricted Stock Agreement of Terra Industries under its
1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra
Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.1.4 Form of Incentive Stock Option Agreement of Terra Industries under
its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra
Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.1.5 Form of Nonqualified Stock Incentive Agreement of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to
Terra Industries' Form 10-K for the year ended December 31, 1992,
is incorporated herein by reference.
10.1.6 Excess Benefit Plan of Terra Industries, as amended effective as of
January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form
10-K for the year ended December 31, 1992, is incorporated herein
by reference.
10.1.7 Terra Industries Inc. Supplemental Deferred Compensation Plan
effective as of December 20, 1993 filed as Exhibit 10.1.9 to Terra
Industries' Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
12
<PAGE>
10.1.8 Amendment No. 1 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, filed as Exhibit 10.1.15 to Terra
Industries' Form 10-Q for the quarter ended September 30, 1995,
is incorporated herein by reference.
10.1.9 Revised Form of Performance Share Award of Terra Industries under
its 1992 Stock Incentive Plan, filed as Exhibit 10.1.11 to Terra
Industries' Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.
10.1.10 Revised Form of Incentive Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as Exhibit
10.1.12 to Terra Industries' Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference.
10.1.11 Revised Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as Exhibit
10.1.13 to Terra Industries' Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference.
10.1.12 1997 Stock Incentive Plan of Terra Industries, filed as Exhibit
10.1.14 to Terra Industries' Form 10-K for the year ended
December 31, 1996, is incorporated herein by reference.
10.1.13* Form of Incentive Stock Option Agreement of Terra Industries
under its 1997 Stock Incentive Plan.
10.1.14* Form of Nonqualified Stock Option Agreement of Terra Industries
under its 1997 Stock Incentive Plan.
10.1.15 Form of Performance Share Award of Terra Industries under its
1997 Stock Incentive Plan, filed as Exhibit 10.1.15 to Terra
Industries' Form 10-K for the year ended December 31, 1998, is
incorporated herein by reference.
10.1.16 Executive Retention Agreement for William R. Loomis, Jr., filed
as Exhibit 10.1.17 to Terra Industries' Form 10-K for the year
ended December 31, 1998, is incorporated herein by reference.
10.1.17 Executive Retention Agreement for Burton M. Joyce, filed as
Exhibit 10.1.18 to Terra Industries' Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
10.1.18 Form of Executive Retention Agreement for Other Executive
Officers, filed as Exhibit 10.1.19 to Terra Industries' Form 10-K
for the year ended December 31, 1998, is incorporated herein by
reference.
10.1.19 1999 Incentive Award Program for Officers and Key Employees of
Terra Industries, filed as Exhibit 10.1.20 to Terra Industries'
Form 10-K for the year ended December 31, 1998, is incorporated
herein by reference.
10.1.20 Form of Non-Employee Director Stock Option Agreement under the
1997 Stock Incentive Plan, filed as Exhibit 10.2.21 to Terra
Industries' Form 10-Q for the quarter ended September 30, 1999,
is incorporated herein by reference.
10.1.21* Amendment No. 1 dated as of February 20, 1997 to the 1997 Stock
Incentive Plan.
10.2 Agreement of Limited Partnership of TNCLP (formerly known as
Agricultural Minerals Company, L.P.) dated as of December 4,
1991, filed as Exhibit 99.3 to Terra Industries' Registration
Statement on Form S-3, as amended, (File No. 33-52493), is
incorporated herein by reference.
13
<PAGE>
10.3 Agreement of Limited Partnership of TNLP (formerly known as
Agricultural Minerals, Limited Partnership) dated as of December
4, 1991, filed as Exhibit 99.4 to Terra Industries' Registration
Statement on Form S-3, as amended, (File No. 33-52493), is
incorporated herein by reference.
10.4 General and Administrative Services Agreement Regarding Services
by Terra Industries Inc., filed as Exhibit 10.11 to Terra
Industries Inc. Form 10-Q for the quarter ended March 31, 1995,
is incorporated herein by reference.
10.5 General and Administrative Services Agreement Regarding Services
by Terra Nitrogen Corporation, filed as Exhibit 10.12 to Terra
Industries Inc. Form 10-Q for the quarter ended March 31, 1995,
is incorporated herein by reference.
10.6 Receivables Purchase Agreement dated as of August 20, 1996 among
Terra Funding Corporation, Terra Capital, Inc., Certain Financial
Institutions and Bank of America National Trust and Savings
Association filed as Exhibit 10.12 to the Terra Industries' Form
10-Q for the quarter ended September 30, 1996, is incorporated
herein by reference.
10.7 Purchase and Sale Agreement dated as of August 20, 1996 among
Terra International, Inc., Terra Nitrogen, Limited Partnership,
Beaumont Methanol, Limited Partnership, Terra Funding Corporation
and Terra Capital, Inc., filed as Exhibit 10.13 to the Terra
Industries' Form 10-Q for the quarter ended September 30, 1996,
is incorporated herein by reference.
10.8 Sale of Business Agreement dated November 20, 1997 between ICI
Chemicals & Polymers Limited, Imperial Chemical Industries PLC,
Terra Nitrogen (U.K.) Limited (f/k/a Terra Industries Limited)
and Terra Industries Inc. filed as Exhibit 2 to Terra Industries'
Form 8-K/A dated December 31, 1997, is incorporated herein by
reference.
10.9 Ammonium Nitrate Agreement dated December 31, 1997 between Terra
International (Canada) Inc and ICI Chemicals & Polymers Limited
filed as Exhibit 99 to Terra Industries' Form 8-K/A dated
December 31, 1997, is incorporated herein by reference.
10.10** Second Amended and Restated Agreement of Limited Partnership of
Beaumont Methanol, Limited Partnership dated March 31, 1998 by
and among Terra Methanol Corporation, BMC Holdings, Inc. and Nova
Products LLC, filed as Exhibit 10.11 to Terra Industries' Form
10-Q for the quarter ended March 31, 1998, is incorporated herein
by reference.
10.11 Amendment No. 1 dated as of September 30, 1998 to the Second
Amended and Restated Agreement of Limited Partnership of Beaumont
Methanol, Limited Partnership, filed as Exhibit 10.12 to Terra
Industries' Form 10-Q for the quarter ended September 30, 1998,
is incorporated herein by reference.
10.12 Asset Sale and Purchase Agreement dated as of May 3, 1999 by and
between Terra Industries Inc. and Cenex/Land O'Lakes Agronomy
Company, filed as Exhibit 10.12 to Terra Industries' Form 8-K
dated May 3, 1999, is incorporated herein by reference.
13* Financial Review and Consolidated Financial Statements as
contained in the Annual Report to Stockholders of Terra
Industries for the fiscal year ended December 31, 1999.
21* Subsidiaries of Terra Industries.
24* Powers of Attorney.
27* Financial Data Schedule. [EDGAR filing only]
- --------------------------------------------------------------------------------
* Filed herewith.
** Confidential treatment requested.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TERRA INDUSTRIES INC.
Date: March 28, 2000 By: /s/ FRANCIS G. MEYER
--------------------
Francis G. Meyer
Senior Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title
- --------- -----
* Chairman of the Board
____________________________
William R. Loomis, Jr.
* Director, President and Chief
- ----------------------------
Executive Officer (Principal Executive Officer)
Burton M. Joyce
* Senior Vice President and Chief
- ----------------------------
Financial Officer (Principal Financial Officer)
Francis G. Meyer
* Director
- ----------------------------
Edward G. Beimfohr
* Director
- ----------------------------
Carole L. Brookins
* Director
- ----------------------------
Edward M. Carson
* Director
- ----------------------------
Thomas H. Claiborne
* Director
- ----------------------------
Eric K. Diack
* Director
- ----------------------------
David E. Fisher
* Director
- ----------------------------
John R. Norton III
* Director
- ----------------------------
Henry R. Slack
Date: March 28, 2000 *By: /s/ GEORGE H. VALENTINE
------------------------
George H. Valentine
Attorney-in-Fact
15
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS
------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Deloitte & Touche LLP on Financial Statement Schedules........... S-2
Consent of Deloitte & Touche LLP........................................... S-2
Schedule No.
- -----------------
I Condensed Financial Information of Registrant..................... S-3
II Valuation and Qualifying Accounts:
Years Ended December 31, 1999, 1998 and 1997...................... S-7
</TABLE>
Financial statement schedules not included in this report have been omitted
because they are not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
-------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited the consolidated financial statements of Terra Industries
Inc. and subsidiaries as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, and have issued our report thereon
dated March 10, 2000, such financial statements and report are included in the
1999 Annual Report to Stockholders of Terra Industries Inc. and are incorporated
herein by reference. Our audits also included the Financial Statement Schedules
of Terra Industries Inc. listed in Item 14(a) of this Form 10-K. These Financial
Statement Schedules are the responsibility of the management of Terra Industries
Inc. Our responsibility is to express an opinion based on our audits. In our
opinion, such Financial Statement Schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 10, 2000
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statements
Nos. 333-32869, 33-46735, 33-46734, 33-30058 and 33-4939 of Terra Industries
Inc. and subsidiaries on Form S-8 and Registration Statements Nos. 333-31769,
2-90808, 2-84876 and 2-84669 of Terra Industries Inc. and subsidiaries on
Form S-3 of our reports dated March 10, 2000, appearing and incorporated by
reference in the Annual Report on Form 10-K of Terra Industries Inc. and
subsidiaries for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 29, 2000
S-2
<PAGE>
SCHEDULE I
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL POSITION
- ------------------------------------------------------------------------------------------------------
(in thousands) December 31,
- ------------------------------------------------------------------------------------------------------
1999 1998
------------------------------
<S> <C> <C>
Assets
Cash and short-term investments $ 8 $ 6,041
Accounts receivable, net 0 1,349
Deferred tax asset - current 0 12,131
Other current assets 3,972 312
----------------------------------------------------------------------------------------------------
Total current assets 3,980 19,833
Investment in and advances to subsidiaries 1,125,591 1,232,611
Other assets 7,425 12,892
----------------------------------------------------------------------------------------------------
Total assets $1,136,996 1,265,336
======================================================================================================
Liabilities
Income taxes payable $ 0 18,441
Accrued and other liabilities 5,209 3,266
- ------------------------------------------------------------------------------------------------------
Total current liabilities 5,209 21,707
Long-term debt 358,755 358,755
Deferred income taxes 78,705 104,718
Other liabilities 27,475 18,147
----------------------------------------------------------------------------------------------------
Total liabilities 470,144 503,327
- ------------------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 127,890 127,887
Paid-in capital 552,903 552,893
Retained earnings (13,941 81,229)
----------------------------------------------------------------------------------------------------
Total stockholders' equity 666,852 762,009
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,136,996 $1,265,336
======================================================================================================
</TABLE>
See accompanying Notes to the Condensed Financial Statements.
S-3
<PAGE>
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except per-share amounts) For the Year Ended December 31,
- ----------------------------------------------------------------------------------
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Income (Loss)
Equity in earnings (loss) of subsidiaries $(52,479) $ (4,185) $250,064
Interest and other income 729 32 294
- ----------------------------------------------------------------------------------
Total income (loss) (51,750) (4,153) 250,358
- ----------------------------------------------------------------------------------
Expenses
Selling, general and administrative expense 5,521 4,874 4,843
Interest expense 38,966 38,861 39,507
Infrequent items --- --- 10,000
Income tax benefit (26,139) (21,639) (13,874)
- ----------------------------------------------------------------------------------
Total expenses 18,348 22,096 40,476
- ----------------------------------------------------------------------------------
Income (loss) before extraordinary items and
discontinued operations (70,098) (26,249) 209,882
Extraordinary loss on early retirement of debt (9,264) --- (2,995)
Loss from discontinued operations (10,525) --- ---
- ----------------------------------------------------------------------------------
Net income (loss) (89,887) (26,249) 206,887
Cash dividends paid to common stockholders (5,283) (14,986) (13,481)
Retained earnings (deficit) - beginning of year 81,229 122,464 (70,942)
- ----------------------------------------------------------------------------------
Retained earnings (deficit) - end of year $(13,941) 81,229 $122,464
==================================================================================
Basic Earnings (Loss) Per Share:
Income (loss) before extraordinary items $ (1.14) $ (0.35) $ 2.84
Extraordinary loss on early retirement of debt (0.06) --- (0.04)
- ----------------------------------------------------------------------------------
Net income (loss) $ (1.20) (0.35) $ 2.80
==================================================================================
Diluted Earnings (Loss) Per Share:
Income (loss) before extraordinary items $ (1.14) (0.35) $ 2.80
Extraordinary loss on early retirement of debt (0.06) --- (0.04)
- ----------------------------------------------------------------------------------
Net income (loss) $ (1.20) (0.35) $ 2.76
==================================================================================
</TABLE>
See accompanying Notes to the Condensed Financial Statements.
S-4
<PAGE>
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands) For the Year Ended December 31,
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $(89,887) $(26,249) $ 206,887
Adjustments to reconcile net income
to net cash used by operations:
Equity in earnings (loss) of subsidiaries 52,479 4,185 (250,064)
Extraordinary loss on early retirement of debt 9,264 --- 2,995
Loss from discontinued operations 10,524 (17,082) (30,367)
Deferred income taxes (13,882) (5,817) (13,543)
Other non-cash items 286 556 10,556
Change in working capital components (18,809) (1,716) 23,529
Other 19,367 19,590 27,497
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (30,658) (26,533) (22,510)
- ---------------------------------------------------------------------------------------------------
Financing Activities
Dividends (5,283) (14,986) (13,481)
Stock (repurchase) issuance - net 13 286 (21,264)
Advances from (to) subsidiaries - net 29,895 32,281 65,941
- ---------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities 24,625 17,581 31,196
- ---------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash (6,033) (8,952) 8,686
Cash and Investments at Beginning of Year 6,041 14,993 6,307
- ---------------------------------------------------------------------------------------------------
Cash and Investments at End of Year $ 8 $ 6,041 $ 14,993
===================================================================================================
Interest Paid $ 38,966 $ 38,862 $ 39,505
===================================================================================================
Income Taxes Paid (Received) $(21,278) $(17,244) $ 20,698
===================================================================================================
</TABLE>
See accompanying Notes to the Condensed Financial Statements.
S-5
<PAGE>
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Basis of Presentation
The Condensed Financial Statements include the Registrant only and reflect the
equity method of accounting for its beneficially owned subsidiaries, Terra
Capital, Inc., Terra International, Inc., Terra Nitrogen Corporation, Beaumont
Methanol Limited Partnership and Terra Funding Corporation.
2. Long-Term Debt
Long-term debt consisted of the following at December 31:
(in thousands) 1999 1998
- ----------------------------------------------------------
Senior Notes, 10.5%, due 2005 $ 200,000 $ 200,000
Senior Notes, 10.75%, due 2003 158,755 158,755
- ----------------------------------------------------------
358,755 358,755
Less current maturities --- ---
- ----------------------------------------------------------
Total $ 358,755 $ 358,755
==========================================================
In 1995, the Registrant issued $200 million unsecured 10.5% Senior Notes due in
full June 15, 2005. The 10.5% Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after June 15, 2000, initially
at 105.250% of their principal amount, plus accrued interest, declining to
102.625% on or after June 15, 2001, and declining to 100% on or after June 15,
2002. The 10.5% Senior Notes Indenture contains certain restrictions, including
the issuance of additional debt, payment of dividends, issuance of capital
stock, certain transactions with affiliates, incurrence of liens, sale of
assets, and sale-leaseback transactions.
The 10.75% unsecured Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after September 30, 1998,
initially at 105.375% of their principal amount, plus accrued interest,
declining to 102.688% on or after September 30, 1999, and declining to 100% on
or after September 30, 2000. The 10.75% Senior Notes Indenture contains
restrictions similar to those in the 10.5% Senior Notes Indenture.
3. Commitments and Contingencies
The Registrant is contingently liable for retiree medical benefits of employees
of coal mining operations sold on January 12, 1993. Under the purchase
agreement, the purchaser agreed to indemnify the Registrant against its
obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50
percent or more of any company liable for such benefits as of certain specified
dates becomes liable for such benefits if the company directly liable is unable
to pay them. As a result, if the purchaser becomes unable to pay its retiree
medical obligations assumed pursuant to the sale, the Registrant may have to pay
such amount. The Registrant has provided reserves adequate to cover the
estimated present value of these liabilities at December 31, 1999.
4. Income Taxes
The Registrant files a consolidated U.S. federal tax return. Beginning in 1995,
the Registrant adopted tax sharing agreements, under which all domestic
operating subsidiaries provide for and remit income taxes to the Registrant
equal to their pretax accounting income, adjusted for permanent differences
between pretax accounting income and taxable income. The tax sharing agreements
allocate the benefits of operating losses and temporary differences between
financial reporting and tax basis income to the Registrant.
S-6
<PAGE>
SCHEDULE II
TERRA INDUSTRIES INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998, and 1997
---------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Additions Less Write-offs,
Balance at Charged to and Transfers, Balance
Beginning Costs and Net of at End
Description of Period Expenses Recoveries of Period
<S> <C> <C> <C> <C>
Year Ended December 31, 1999:
- -----------------------------
Allowance for Doubtful Accounts
Continuing operations $ 938 $ 104 $ (551) $ 491
Discontinued operations -
Included in other current assets 14,196 4,582 (6,245) 12,533
$ 15,134 $ 4,686 $ (6,796) $ 13,024
Year Ended December 31, 1998:
- ----------------------------
Allowance for Doubtful Accounts $ 13,154 $ 9,633 $ (7,653) $ 15,134
Year Ended December 31, 1997:
- ----------------------------
Allowance for Doubtful Accounts $ 11,391 $ 7,090 $ (5,327) $ 13,154
</TABLE>
S-7
<PAGE>
EXHIBIT 10.1.13
INCENTIVE STOCK OPTION AGREEMENT
Date of Grant: August 3, 1999
Number of Shares: ______
Exercise Price Per Share: $_____
Dear:
We are pleased to inform you that, as a key employee of Terra
Industries Inc. (the "Corporation") or a Subsidiary thereof, you have been
granted, under the Terra Industries Inc. 1997 Stock Incentive Plan, an Incentive
Stock Option (the "Option"), evidenced by this letter, to purchase up to a total
of the number of Common Shares set forth above at the price per share set forth
above and on the terms and conditions set forth below. The Option is intended
(but not warranted) to be an incentive stock option within the meaning of
section 422 of the Internal Revenue Code.
1. The Option cannot be exercised unless you sign your name in the space
provided on the copy of this letter enclosed with this letter and deliver
it to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth
Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on September
15, 1999. If the Corporate Secretary does not have your properly executed
copy of this letter before such time, then, anything in this letter to the
contrary notwithstanding, this award shall terminate and be of no effect.
Your signing and delivering a copy of this letter will not commit you to
purchase any of the shares that are subject to the Option, but will
evidence your acceptance of the Option upon the terms and conditions herein
stated.
2. Subject to the provisions of this letter, the Option shall be exercisable,
in whole at any time or in part from time to time, in integral multiples of
100 shares each (to the maximum extent possible), during the period set
forth in this Section 2.
a. The Option shall be exercisable with respect to _________ Shares
evidenced by this letter beginning on the first business day following
the first anniversary of the Date of Grant.
b. The Option shall be exercisable with respect to _________ Shares
evidenced by this letter beginning on the first business day following
the second anniversary of the Date of Grant.
c. The Option shall be exercisable with respect to the final _________
Shares evidenced by this letter beginning on the first business day
following the third anniversary of the Date of Grant.
1
<PAGE>
d. The Option shall be exercisable with respect to all of the Number of
Shares evidenced by this letter beginning on the day any one of the
following occurs: (i) any person or group of persons acting in concert
(other than Anglo American plc, a company incorporated under the laws
of the United Kingdom, and its affiliates or a group consisting solely
of such persons (the "Anglo American Affiliates")) acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission promulgated under the Securities Exchange Act of
1934) of the outstanding securities (the "Voting Shares") of the
Corporation in an amount having, or convertible into securities
having, 25% or more of the ordinary voting power for the election of
directors of the Corporation, provided that this 25% beneficial
ownership trigger shall apply only when the Anglo American Affiliates
no longer own 50% or more of the Voting Shares; (ii) during a period
of not more than 24 months, a majority of the Board of Directors of
the Corporation ceases to consist of the existing membership or
successors nominated by the existing membership or their similar
successors; (iii) all or substantially all of the individuals and
entities who were the beneficial owners of the Corporation's
outstanding securities entitled to vote do not own more than 60% of
such securities in substantially the same proportions following a
shareholder approved reorganization, merger, or consolidation; or (iv)
shareholder approval of either (A) a complete liquidation or
dissolution of the Corporation or (B) a sale or other disposition of
all or substantially all of the assets of the Corporation, or a
transaction having a similar effect.
e. The Option shall in all events terminate at the close of business on
the last business day preceding the tenth anniversary of the Date of
Grant, but shall be subject to earlier termination as provided in
Section 4 hereof.
3. The Option shall not be transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, the Option
shall be exercisable only by you.
4. If your employment with the Corporation and all Subsidiaries terminates
during the term of this agreement, the Option shall automatically terminate
and cease to be exercisable, except the term for vesting and exercise shall
be extended (subject to Section 2e) as follows:
a. If your employment terminates by reason of your death, the Option
shall terminate and cease to be exercisable one year from the date of
death.
b. If your employment terminates by reason of Total Disability or
Retirement, the Option shall terminate and cease to be exercisable
three years from the date of Total Disability or Retirement.
c. If your employment terminates on or within two years subsequent to the
circumstances contemplated in Section 2d, the Option shall terminate
and cease to be exercisable three months from the date of such
termination of employment.
2
<PAGE>
d. Notwithstanding the foregoing, in cases of special circumstances the
Committee may, in its sole discretion when it finds that a waiver
would be in the best interests of the Corporation, extend the term of
this Option with respect to all or a portion of the Number of Shares
set forth above for such period of time as the Committee deems
appropriate.
5. The Corporation shall not be obligated to deliver any shares until they
have been listed (or authorized for listing upon official notice of
issuance) upon each stock exchange upon which are listed outstanding shares
of the same class as that of the shares at the time subject to the Option
and until there has been compliance with such laws or regulations as the
Corporation may deem applicable. The Corporation agrees to use its best
efforts to effect such listing and compliance. No fractional shares will be
delivered.
6. For the purposes of this Agreement: (a) a transfer of your employment from
the Corporation to a Subsidiary or vice versa, or from one Subsidiary to
another, without an intervening period, shall not be deemed a termination
of employment, and (b) if you are granted in writing a leave of absence,
you shall be deemed to have remained in the employment of the Corporation
or a Subsidiary during such leave of absence.
7. In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the number or kind of shares that are subject to the Option
immediately prior to such event shall be proportionately and appropriately
adjusted without increase or decrease in the aggregate option price to be
paid therefor upon exercise of the Option. The determination of the
Committee as to the terms of any such adjustment shall be binding and
conclusive upon you and any other person or persons who are at any time
entitled to exercise the Option.
8. Neither you nor any other person shall have any rights of a stockholder as
to shares under the Option until, after proper exercise of the Option, such
shares shall have been recorded on the Corporation's official stockholder
records as having been issued or transferred.
9. Subject to the terms and conditions of this Agreement, the Option may be
exercised in whole at any time or in part from time to time in integral
multiples of 100 shares each (to the maximum extent possible) by a written
notice on a form approved by the Committee that (i) is signed by the person
or persons exercising the Option, (ii) is delivered to the Corporate
Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City,
Iowa 51101 (or at such other place that the Corporate Secretary may specify
by written notice to you), (iii) signifies election to exercise the Option,
(iv) states the number of shares as to which it is being exercised, and (v)
is accompanied by payment in full of the option price of such shares. If a
properly executed notice of exercise of the Option is not delivered to and
in the hands of the Corporate Secretary of the Corporation by the
applicable expiration date or dates of this Option, such notice will be
deemed null and void and of no effect. If notice of exercise of the Option
is given by a person or persons other than you, the Corporation may require
as a condition to
3
<PAGE>
exercise of the Option the submission to the Corporation of appropriate
proof of the right of such person or persons to exercise the Option.
Certificates for shares so purchased will be issued and delivered as soon
as practicable.
10. Payment of the exercise price for shares may be made in cash, by the
delivery of or certification of ownership of Common Shares that have been
held by you for a period of at least six months with a Fair Market Value
equal to the exercise price, or by a combination of cash and such shares
that have been held by you for a period of at least six months.
11. You agree to notify the Corporate Secretary of the Corporation in the event
the shares acquired by you on exercise of the Option are sold or otherwise
disposed of within one year from the date of exercise or two years from the
date the Option was granted.
The Option is issued pursuant to the Plan and is subject to its terms.
Capitalized terms used in this letter have the same meanings as defined in the
Plan. A copy of the Plan is being furnished to you with this letter and also is
available on request from the Corporate Secretary of the Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By: ______________________________________
President and Chief Executive Officer
By: ______________________________________
Senior Vice President, General Counsel
and Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1997 Stock Incentive Plan and the Prospectus covering shares
issued under that plan.
________________________________
Signature of Employee
4
<PAGE>
EXHIBIT 10.1.14
NONQUALIFIED STOCK OPTION AGREEMENT
Date of Grant: August 3, 1999
Number of Shares: _____
Exercise Price Per Share: $_____
Dear
We are pleased to inform you that, as a key employee of Terra
Industries Inc. (the "Corporation") or a Subsidiary thereof, you have been
granted, under the Terra Industries Inc. 1997 Stock Incentive Plan, a
Nonqualified Stock Option, evidenced by this letter, to purchase up to a total
of the number of Common Shares set forth above at the exercise price per share
set forth above and on the terms and conditions set forth below. The Option is
not intended to be an incentive stock option within the meaning of section 422
of the Internal Revenue Code.
1. The Option cannot be exercised unless you sign your name in the space
provided on the copy of this letter enclosed with this letter and deliver
it to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth
Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on September
15, 1999. If the Corporate Secretary does not have your properly executed
copy of this letter before such time, then, anything in this letter to the
contrary notwithstanding, this award shall terminate and be of no effect.
Your signing and delivering a copy of this letter will not commit you to
purchase any of the shares that are subject to the Option, but will
evidence your acceptance of the Option upon the terms and conditions herein
stated.
2. Subject to the provisions of this letter, the Option shall be exercisable,
in whole at any time or in part from time to time, in integral multiples of
100 shares each (to the maximum extent possible), during the period set
forth in this Section 2.
a. The Option shall be exercisable with respect to _________ Shares
evidenced by this letter beginning on the first business day following
the first anniversary of the Date of Grant.
b. The Option shall be exercisable with respect to _________ Shares
evidenced by this letter beginning on the first business day following
the second anniversary of the Date of Grant.
c. The Option shall be exercisable with respect to the final _________
Shares evidenced by this letter beginning on the first business day
following the third anniversary of the Date of Grant.
1
<PAGE>
d. The Option shall be exercisable with respect to all of the Number of
Shares evidenced by this letter beginning on the day any one of the
following occurs: (i) any person or group of persons acting in concert
(other than Anglo American plc, a company incorporated under the laws
of the United Kingdom, and its affiliates or a group consisting solely
of such persons (the "Anglo American Affiliates")) acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission promulgated under the Securities Exchange Act of
1934) of the outstanding securities (the "Voting Shares") of the
Corporation in an amount having, or convertible into securities
having, 25% or more of the ordinary voting power for the election of
directors of the Corporation, provided that this 25% beneficial
ownership trigger shall apply only when the Anglo American Affiliates
no longer own 50% or more of the Voting Shares; (ii) during a period
of not more than 24 months, a majority of the Board of Directors of
the Corporation ceases to consist of the existing membership or
successors nominated by the existing membership or their similar
successors; (iii) all or substantially all of the individuals and
entities who were the beneficial owners of the Corporation's
outstanding securities entitled to vote do not own more than 60% of
such securities in substantially the same proportions following a
shareholder approved reorganization, merger, or consolidation; or (iv)
shareholder approval of either (A) a complete liquidation or
dissolution of the Corporation or (B) a sale or other disposition of
all or substantially all of the assets of the Corporation, or a
transaction having a similar effect.
e. The Option shall in all events terminate at the close of business on
the last business day preceding the tenth anniversary of the Date of
Grant, but shall be subject to earlier termination as provided in
Section 4 hereof.
3. The Option shall not be transferable by you otherwise than by will or by
the laws of descent and distribution. During your lifetime, the Option
shall be exercisable only by you.
4. If your employment with the Corporation and all Subsidiaries terminates
during the term of this agreement, the Option shall automatically terminate
and cease to be exercisable, except the term for vesting and exercise shall
be extended (subject to Section 2e) as follows:
a. If your employment terminates by reason of death, the Option shall
terminate and cease to be exercisable one year from the date of death.
b. If your employment terminates by reason of Total Disability or
Retirement, the Option shall terminate and cease to be exercisable
three years from the date of Total Disability or Retirement.
c. If your employment terminates on or within two years subsequent to the
circumstances contemplated in Section 2d, the Option shall terminate
and cease to be exercisable three months from the date of such
termination of employment.
2
<PAGE>
d. Notwithstanding the foregoing, in cases of special circumstances the
Committee may, in its sole discretion when it finds that a waiver
would be in the best interests of the Corporation, extend the term of
this Option with respect to all or a portion of the Number of Shares
set forth above for such period of time as the Committee deems
appropriate.
5. The Corporation shall not be obligated to deliver any shares until they
have been listed (or authorized for listing upon official notice of
issuance) upon each stock exchange upon which are listed outstanding shares
of the same class as that of the shares at the time subject to the Option
and until there has been compliance with such laws or regulations as the
Corporation may deem applicable. The Corporation agrees to use its best
efforts to effect such listing and compliance. No fractional shares will be
delivered.
6. For the purposes of this Agreement: (a) a transfer of your employment from
the Corporation to a Subsidiary or vice versa, or from one Subsidiary to
another, without an intervening period, shall not be deemed a termination
of employment, and (b) if you are granted in writing a leave of absence,
you shall be deemed to have remained in the employment of the Corporation
or a Subsidiary during such leave of absence.
7. In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the number or kind of shares that are subject to the Option
immediately prior to such event shall be proportionately and appropriately
adjusted without increase or decrease in the aggregate option price to be
paid therefor upon exercise of the Option. The determination of the
Committee as to the terms of any such adjustment shall be binding and
conclusive upon you and any other person or persons who are at any time
entitled to exercise the Option.
8. Neither you nor any other person shall have any rights of a stockholder as
to shares under the Option until, after proper exercise of the Option, such
shares shall have been recorded on the Corporation's official stockholder
records as having been issued or transferred.
9. Subject to the terms and conditions of this Agreement, the Option may be
exercised in whole at any time or in part from time to time in intregal
multiples of 100 shares each (to the maximum extent possible) by a written
notice on a form approved by the Committee that (i) is signed by the person
or persons exercising the Option, (ii) is delivered to the Corporate
Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City,
Iowa 51101 (or at such other place that the Corporate Secretary may specify
by written notice to you), (iii) signifies election to exercise the Option,
(iv) states the number of shares as to which it is being exercised, and (v)
is accompanied by payment in full of the exercise price of such shares. If
a properly executed notice of exercise of the Option is not delivered to
and in the hands of the Corporate Secretary of the Corporation by the
applicable expiration date or dates of this Option, such notice will be
deemed null and void and of no effect. If notice of exercise of the Option
is given by a person or persons other than you, the Corporation may require
as a condition to exercise of the Option the submission to the Corporation
of
3
<PAGE>
appropriate proof of the right of such person or persons to exercise the
Option. Certificates for shares so purchased will be issued and delivered
as soon as practicable.
10. Payment of the exercise price for shares may be made in cash, by the
delivery of or certification of ownership of Common Shares that have been
held by you for a period of at least six months with a Fair Market Value
equal to the exercise price, or by a combination of cash and such shares
that have been held by you for a period of at least six months.
11. You hereby agree to pay to the Corporation, or otherwise make arrangements
satisfactory to the Corporation regarding payment of, any federal, state or
local taxes required or authorized by law to be withheld with respect to
the award of this Option or its exercise (the "Withholding Taxes"). The
Corporation shall have, to the extent permitted by law, the right to deduct
from any payment of any kind otherwise due to the Employee, any Withholding
Taxes and to condition the delivery of the Common Shares after the exercise
of the Option on the payment to the Corporation of the Withholding Taxes.
In lieu of the payment of such amounts in cash, you may pay all or a
portion of the Withholding Taxes by (i) the delivery of Common Shares not
subject to any Restriction Period or (ii) having the Corporation withhold a
portion of the Common Shares otherwise to be delivered upon exercise of the
Option.
The Option is issued pursuant to the Plan and is subject to its terms.
Capitalized terms used in this letter have the same meanings as defined in the
Plan. A copy of the Plan is being furnished to you with this letter and also is
available on request from the Corporate Secretary of the Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By: __________________________________________
President and Chief Executive Officer
By: __________________________________________
Senior Vice President, General Counsel and
Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1997 Stock Incentive Plan and the Prospectus covering shares
issued under that Plan.
______________________________
Signature of Employee
4
<PAGE>
EXHIBIT 10.1.21
AMENDMENT NO. 1 TO THE
TERRA INDUSTRIES INC.
1997 STOCK INCENTIVE PLAN
Terra Industries Inc. desires to amend its 1997 Stock Incentive Plan that
was approved by the Board of Directors and stockholders and made effective as of
February 20, 1997 (the "Plan"), all on the terms and conditions herein.
Accordingly, the Plan shall be amended as follows:
(a) Section 2(j) of the Plan shall be amended effective as of December 14,
1998 by adding the following sentence at the end thereof to read as
follows:
"The term "Key Employee" also includes all members of the Board of
Directors, whether or not such directors are employees of the
Corporation."
(b) Except as herein provided, the Plan shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by
its duly authorized officer as of the 3rd day of August, 1999.
Terra Industries Inc.
By: /s/ George H. Valentine
Its: Senior Vice President, General
Counsel and Corporate Secretary
<PAGE>
Exhibit 13
TERRA INDUSTRIES INC.
1999 ANNUAL REPORT
FINANCIAL SECTION
FINANCIAL TABLE OF CONTENTS
Financial Review
Consolidated Statements of Financial Position
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders'
Equity
Notes to the Consolidated Financial Statements
Responsibility for Financial Statements
Independent Auditors' Report
Quarterly Production Data
Quarterly Financial and Stock Market Data
Revenues
Volumes and Prices
Stockholders
Financial Summary
<PAGE>
FINANCIAL REVIEW
OVERVIEW OF CONSOLIDATED RESULTS
Terra Industries Inc. (Terra) reported a 1999 net loss of $90 million compared
with a net loss of $26 million in 1998 and net income of $207 million in 1997
with diluted earnings (loss) per share of $(1.20), $(0.35) and $2.76,
respectively, and basic earnings (loss) per share of $(1.20), $(0.35) and $2.80,
respectively. Revenues from continuing operations totaled $774 million in 1999,
$846 million in 1998 and $798 million in 1997.
During 1999,Terra sold its Distribution business segment which generated a 1999
loss of $10.5 million compared to the segment's net income of $17.1 million in
1998 and $30.4 million in 1997. In addition, net income in 1999 and 1997 was
reduced $9.3 million ($0.12 per share) and $3.0 million ($0.04 per share),
respectively, due to the write-off of deferred financing fees in connection with
the early retirement of debt.
The net loss from continuing operations was $70.1 million in 1999 and $43.3
million in 1998. Reduced prices for nitrogen products manufactured and sold by
Terra significantly reduced Terra's 1999 results. Net income from continuing
operations was $179.5 million in 1997 including a gain of $98 million, after
income taxes, ($1.31 per diluted share) on settlement of insurance claims
related to the Port Neal plant rebuild.
FINANCIAL COMPARABILITY
On June 30, 1999 Terra sold its Distribution business segment as of March 31,
1999 for net proceeds of $335.1 million as discussed further at Note 2 to the
Consolidated Financial Statements. Sale proceeds were used primarily to repay
seasonal debt and redeem outstanding minority preferred limited interest in a
partnership that operates Terra's methanol plant in Beaumont, Texas. The
Consolidated Financial Statements for prior years contain certain
reclassifications to reflect the historical assets and operations of the
Distribution business segment as discontinued operations.
On December 31, 1997, Terra acquired the United Kingdom fertilizer business
assets of Imperial Chemical Industries plc ("ICI") for almost $338 million. In
connection with the acquisition, Terra issued $125 million of long-term debt and
sold a $225 million minority preferred limited partnership interest that was
redeemed
2
<PAGE>
during 1999. The acquisition had no effect on 1997 operations except to reduce
income tax expense by $8 million.
FACTORS THAT AFFECT OPERATING RESULTS
Factors that may affect Terra's future operating results include: the relative
balance of supply and demand for nitrogen fertilizers and methanol, the
availability and cost of natural gas, the number of planted acres - which is
affected by both worldwide demand and governmental policies - and the types of
crops planted, the effects general weather patterns have on the timing and
duration of field work for crop planting and harvesting, the effect of
environmental legislation on demand for Terra's products, the availability of
financing sources to fund seasonal working capital needs, and the potential for
interruption to operations due to accident or natural disaster.
Prices for nitrogen products are influenced by the world supply and demand
balance for ammonia and nitrogen-based products. Long-term demand is affected
by population growth and rising living standards that determine food
consumption. Short-term demand is affected by world economic conditions and
international trade decisions such as China's cessation of urea imports in
recent years. Supply is affected by worldwide capacity and the availability of
nitrogen product exports from major producing regions such as the former Soviet
Union, the Middle East and South America. Due to several years of favorable
economics in the industry, capacity additions in the form of new and expanded
production facilities have been undertaken. Consequently, new nitrogen
fertilizer supplies came on-stream and profit margins have been under pressure.
More recently, depressed prices and margins for nitrogen products have resulted
in some curtailments or shutdowns of capacity. Some of these shutdowns are
expected to be permanent. Profit margins will continue to be under pressure
until demand is sufficient to absorb the new supplies or marginal production
capacity is shut down.
Methanol is used as a raw material in the production of formaldehyde, methyl
tertiary butyl ether (MTBE), acetic acid and numerous other chemical
derivatives. The price of methanol is strongly influenced by the supply and
demand in each of these markets, in particular MTBE, an oxygenate used in
reformulated gasoline and an octane enhancer used in non-reformulated gasoline.
Currently, the methanol industry is experiencing low prices due to oversupply
conditions caused by increased worldwide production and decreased worldwide
demand.
The principal raw material used to produce nitrogen products and methanol is
natural gas. Natural gas costs in 1999 comprised about 50% of total costs and
expenses for North American nitrogen products, 28% of
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<PAGE>
total costs and expenses for the U.K. nitrogen products business and 62% of
total costs and expenses associated with the Methanol segment. Terra's natural
gas procurement policy is to effectively fix or cap the price of 25% to 80% of
its natural gas requirements for a one-year period and up to 50% of its natural
gas requirements for the subsequent two-year period through various supply
contracts, financial derivatives and other forward pricing techniques. Terra
believes that there is a sufficient supply to allow acceptable costs for the
foreseeable future and has entered into firm contracts to minimize the risk of
interruption or curtailment of natural gas supplies during the heating season. A
significant portion of global nitrogen products and methanol production is at
facilities with access to fixed priced natural gas supplies. These facilities'
natural gas costs have been and could continue to be substantially lower than
Terra's.
Weather significantly affect on Terra's operations. Weather conditions that
delay or disrupt field work during the planting and growing seasons may shift
demand from or to forms of nitrogen fertilizer that are more or less favorable
to Terra. Similar conditions following harvest may delay or eliminate
opportunities to apply fertilizer in the fall. Weather can also have an adverse
effect on crop yields, which lowers the income of growers and could impair their
ability to pay for crop inputs purchased from Terra's dealer customers.
Terra's Nitrogen business segment is seasonal, with the majority of products
used during the second quarter in conjunction with spring planting. Due to the
seasonality of the business and the brief periods during which products can be
used by customers, Terra and its customers build inventories during the second
half of the year in order to ensure product availability during the peak sales
season. For its current level of sales, Terra requires lines of credit to fund
inventory increases and to support customer credit terms. Terra believes that
its credit facilities are adequate for expected production levels in 2000.
Terra's manufacturing operations may be subject to significant interruption if
one or more of its facilities were to experience a major accident or damage
caused by severe weather or other natural disaster. Terra currently maintains
insurance, including business interruption insurance, and expects that it will
continue to do so in an amount which it believes is sufficient to allow Terra to
withstand major damage to any of its facilities.
Most of the same factors which affect Terra's North American nitrogen products
business also impact the nitrogen products business in the United Kingdom.
4
<PAGE>
RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of Terra due to adverse changes in financial
and commodity market prices and rates. Terra uses derivative financial
instruments to manage risk in the areas of (a) foreign currency fluctuations,
(b) changes in natural gas prices and (c) changes in interest rates. See Note 14
to the Consolidated Financial Statements for additional information on the use
of derivative financial instruments.
Terra's general policy is to avoid unnecessary risk and to limit, to the extent
practical, risks associated with operating activities. Terra management may not
engage in activities that expose Terra to speculative or non-operating risks.
Management is expected to limit risks to acceptable levels. The use of
derivative financial instruments is consistent with Terra's overall business
objectives. Derivatives are used to manage operating risk within the limits
established by Terra's Board of Directors, and in response to identified
exposures, provided they qualify as hedge activities. As such, derivative
financial instruments are used to manage exposure to interest rate fluctuations,
to hedge specific assets and liabilities denominated in foreign currency, to
hedge firm commitments and forecasted natural gas purchase transactions, and to
protect against foreign exchange rate movements between different currencies
that impact revenue and earnings expressed in U.S. dollars.
Foreign Currency Fluctuations
Terra's policy is to manage risk associated with foreign currency fluctuations
by entering into exchange forward and option contracts covering specific
currency obligations or net foreign currency operating requirements. Such
hedging is limited to the amounts and duration of the specific obligations being
hedged and, in the case of operating requirements, no more than 75% of the
forecast requirements, which include firm commitments to purchase natural gas,
for a twelve-month period. The primary currencies to which Terra is exposed are
the Canadian dollar and the British pound. At December 31, 1999, Terra had no
forward positions in any foreign currency.
Natural Gas Prices - North American Operations
Terra's policy is to hedge 25%-80% of its natural gas requirements for the
upcoming 12 months and up to 50% of its requirements for the following 13-36
month period. Natural gas is the principal raw material used to manufacture
nitrogen and methanol. Natural gas market prices are volatile and Terra manages
this volatility through the use of derivative commodity instruments. Annual
procurement requirements for
5
<PAGE>
natural gas are approximately 138 million MMBtu. Terra has forward priced 33% of
its 2000 requirements and none of its requirements beyond December 31, 2000. The
fair value of these instruments is estimated based on quoted market prices from
brokers, and computations prepared by Terra. Market risk is estimated as the
potential loss in fair value resulting from a hypothetical 10% adverse change in
price. As of December 31, 1999, Terra's market risk exposure related to future
natural gas requirements being hedged was $8.9 million based on a sensitivity
analysis. Changes in the market value of these derivative instruments have a
high correlation to changes in the spot price of natural gas. This hypothetical
adverse impact on natural gas derivative instruments would be more than offset
by lower costs for natural gas purchases.
Natural Gas Prices - United Kingdom Operations
To meet natural gas production requirements at Terra's United Kingdom production
facilities, Terra enters into one- or two-year gas supply contracts with fixed
prices for 25%-80% of total volume requirements. As of December 31, 1999 Terra
had contracts for 66% of 2000 natural gas requirements and 22% of its 2001
natural gas requirements. Terra does not use derivative commodity instruments
for its United Kingdom natural gas needs.
Interest Rate Fluctuations
It is the policy of Terra to limit the extent of uncapped, variable rate debt to
no more than 50% of its total outstanding debt. Terra manages interest rate risk
to reduce the potential volatility of earnings that may arise from changes in
interest rates. The table below provides information about Terra's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including debt obligations and interest rate swaps.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by expected maturity dates. Notional amounts are used to calculate contractual
payments to be exchanged under the contract.
6
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
(in millions) Expected Maturity Date
------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
------ ------ ------ ------ ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
Senior Notes, fixed rate ($US) $ - $ - $ - $ - $ - $200.0 $200.0 $197.5
Average interest rate 10.50% 10.50% 10.50% 10.50% 10.50% 10.50%
Senior Notes, fixed rate ($US) - - - 158.8 - - 158.8 154.0
Average interest rate 10.75% 10.75% 10.75% 10.75%
Bank Term Notes, LIBOR based ($US) 7.8 7.8 - 93.8 - - 109.4 109.4
Average interest rate 9.75% 9.75% 9.75% 9.75%
IDR Bonds, various rates ($US) 0.4 0.4 0.4 0.5 0.5 5.9 8.1 8.5
Average interest rate 6.76% 6.77% 6.78% 6.78% 6.77% 6.75%
Other Debt, various rates ($US) 3.0 0.2 0.2 0.8 - - 4.2 4.2
Average interest rate 7.82% 7.85% 7.29% 7.31%
------------------------------------------------------------------------------
Total Long-Term Debt $ 11.2 $ 8.4 $ 0.6 $253.9 $ 0.5 $205.9 $480.5 $473.6
==============================================================================
Short-Term Borrowings
Revolving credit facility, notional amount ($US) $ 62.8 $ 50.6 $ 30.6 $ 6.0 $ 6.0
Variable interest rate: LIBOR based 10.25% 10.25% 10.25%
Interest Rate Swap
Variable to fixed, notional amount ($US) $125.0 $125.0 $125.0 $ 2.4
Average pay rate 6.06% 6.06% 6.06%
Average receive rate LIBOR LIBOR LIBOR
==============================================================================
</TABLE>
RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED WITH 1998
Consolidated Results
Terra reported a 1999 net loss from continuing operations of $70.1 million on
revenues of $774 million compared with a net loss of $43.3 million on revenues
of $846 million in 1998. Basic and diluted loss per share for 1999 was $0.94
compared with $0.58 for 1998. 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 1999.
Terra classifies its operations into two business segments: Nitrogen Products
and Methanol. The Nitrogen Products segment represents the sale of nitrogen
products produced at Terra's ammonia manufacturing and upgrading facilities.
The Methanol segment represents sales of methanol produced at Terra's two
methanol manufacturing facilities.
7
<PAGE>
Total revenues and operating income (loss) by segment for the years ended
December 31, 1999 and 1998 follow:
(in thousands) 1999 1998
- ---------------------------------------------------------------
REVENUES:
Nitrogen Products $686,767 $751,597
Methanol 85,178 96,547
Other - net of intercompany eliminations 2,364 (2,593)
- ---------------------------------------------------------------
$774,309 $845,551
======== ========
OPERATING INCOME (LOSS):
Nitrogen Products $(43,909) $ 39,329
Methanol (15,210) (7,891)
Other expense - net (3,923) (21,224)
- ---------------------------------------------------------------
$(63,042) $ 10,214
======== ========
Nitrogen Products
Volumes and prices for 1999 and 1998 follow:
<TABLE>
<CAPTION>
Volumes and Prices
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ammonia 1,417 $ 122 1,349 $ 143
Nitrogen solutions 3,682 62 3,548 66
Urea 563 99 631 118
Ammonium nitrate 833 113 809 134
- ------------------------------------------------------------------------------
</TABLE>
Nitrogen products revenues declined by $64.8 million to $686.8 million for 1999
compared with 1998 primarily as a result of lower prices for all products.
Ammonia, nitrogen solutions, urea and ammonium nitrate prices declined by 15%,
7%, 16% and 16%, respectively, causing a $71.5 million reduction to revenues.
Continued excess worldwide nitrogen production capacity created excess nitrogen
supplies and caused prices to fall. Ammonia and nitrogen solutions 1999 sales
volumes increased from the prior year as the result of increased demand during
the 1999 second half in response to the permanent shutdown of competitor
facilities in Terra's market area and increased customer confidence that
nitrogen prices had established a floor going into the 2000 planting season.
The nitrogen products segment reported operating income (loss) of $(43.9)
million and $39.3 million for 1999 and 1998, respectively. Operating income
declined by $71.5 million for 1999 as the result of lower prices. In addition,
natural gas costs increased by 8% from 1998 which reduced 1999 operating income
8
<PAGE>
$21.1 million from the prior year. These factors were partially offset by lower
operating expenses which declined by 3% compared with 1998 and higher sales
volumes. Terra's use of financial derivatives to forward price a portion of its
natural gas needs resulted in cost savings of $5.2 million compared with 1999
spot prices.
Methanol
Methanol revenues were $85 million compared with $97 million for the years ended
December 31, 1999 and 1998, respectively. Average methanol sales prices were
$0.35 per gallon and $0.34 per gallon for 1999 and 1998, respectively. Methanol
sales volumes declined by 14% to 245 million gallons for 1999 compared with 1998
primarily as the result of a two-month shutdown at the Beaumont plant during the
1999 first quarter in response to market prices that were less than the cash
cost of production.
The methanol segment reported an operating loss of $15.2 million for 1999 and
$7.9 million for 1998. The increased operating loss was primarily a result of
higher natural gas costs which increased 17% and reduced 1999 operating results
by $8.5 million. The increase in natural gas costs is after giving effect to
Terra's use of forward pricing instruments to fix natural gas costs which
resulted in $1.2 million of savings when compared to spot prices.
Other Expense - Net
Terra had $3.9 million of other operating expenses in 1999 compared to $21.2
million in 1998. Allocations of shared service expenses to discontinued
Distribution operations sold 1999 amounted to $3.5 million and $13.8 million in
1999 and 1998, respectively. Other expenses also included $6.1 million in 1998
for vesting of restricted stock grants and professional fees related to efforts
to sell Terra's outstanding common stock.
Interest Expense - Net
Net interest expense was $44.7 million in 1999 compared with $50.8 million in
1998. The decline to net interest expense is primarily related to interest
income of $6.3 million realized in connection with the sale of the Distribution
business segment.
9
<PAGE>
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 charges totaled $8.3 million in 1999 and $27.5 million in 1998.
Minority interest charges for the limited partnership interest in BMLP was $9.4
million in 1999 and $17.9 million in 1998. The Corporation redeemed the third-
party's BMLP interests on June 30, 1999 and thereby eliminated subsequent
charges to earnings related to the BMLP partnership interest.
Minority interest charges relating to TNCLP totaled $(1.1) million in 1999 and
$9.6 million in 1998. The reduced 1999 charge is directly related to lower TNCLP
earnings as the result of declining nitrogen prices.
Income Taxes
Income tax expense was recorded at an effective rate of 39.6% for 1999 compared
with 36.4% in 1998 which were reflective of statutory rates in effect for Terra
during both periods.
10
<PAGE>
RESULTS OF CONTINUING OPERATIONS - 1998 COMPARED WITH 1997
Consolidated Results
Terra reported a net loss from continuing operations of $43.3 million on
revenues of $846 million for 1998 compared with net income of $179.5 million on
revenues of $798 million in 1997. Basic earnings (loss) from continuing
operations per share for 1998 was $(0.58) compared with $2.43 for 1997. Diluted
earnings (loss) per share was $(0.58) and $2.39, respectively, for 1998 and
1997. The 1997 results reflect a gain of $1.31 per diluted share for the
settlement of insurance claims related to the rebuild of the Port Neal plant.
Total revenues and operating income (loss) by segment for the years ended
December 31, 1998 and 1997 follow:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
REVENUES:
Nitrogen Products $751,597 $621,410
Methanol 96,547 180,646
Other - net of intercompany eliminations (2,593) (4,409)
- ---------------------------------------------------------------
$845,551 $797,647
======== ========
OPERATING INCOME (LOSS):
Nitrogen Products $ 39,329 $150,270
Methanol (7,891) 63,662
Other expense - net (21,224) (17,157)
- ---------------------------------------------------------------
$ 10,214 $196,775
======== ========
</TABLE>
Nitrogen Products
Volumes and prices for the years ended December 31, 1998 and 1997 follow:
<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 1,349 $143 1,182 $ 187
Nitrogen solutions 3,548 66 3,440 82
Urea 631 118 671 145
Ammonium nitrate 809 134 45 149
- -----------------------------------------------------------------------------------
</TABLE>
Nitrogen products revenues increased by $130.2 million to $751.6 million for
1998 compared with 1997. Revenue for 1998 at Terra's U.K. plants, acquired
December 31, 1997, amounted to $279.4 million.
11
<PAGE>
Revenue for 1998 at the North American plants declined by $149.2 million
compared with 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 27%, 20% and 19%, respectively, causing revenues to decline by
$131.1 million. Lower worldwide demand for urea and increased worldwide nitrogen
production capacity created excess nitrogen supplies and caused prices to fall.
The nitrogen products segment reported operating income of $39.3 million and
$150.3 million for 1998 and 1997, respectively. U.K. operations contributed
$300,000 towards operating income. North American operating income declined by
$111.2 million for 1998 compared with 1997 due to lower nitrogen prices. The
effect of lower prices was partially offset by lower operating expenses and
lower natural gas costs. Terra's use of financial derivatives to forward price a
portion of its natural gas needs resulted in cost savings of $11.9 million
compared with 1998 spot prices.
Methanol
Methanol revenues were $96.5 million compared with $180.6 million for the years
ended December 31, 1998 and 1997, respectively. Average methanol sales prices
declined to $0.34 per gallon in 1998 from $0.58 per gallon in 1997 as the result
of reduced industrial demand, particularly as the result of unstable financial
conditions in the Far East, and increased worldwide production capacity.
Methanol sales volumes declined by 8% to 286 million gallons for 1998 compared
with 1997 as Terra reduced methanol production in the 1998 third quarter due to
market conditions. The decline in prices resulted in a revenue decline of $69.3
million while the volume decrease accounted for $14.8 million of the decline.
The methanol segment reported an operating loss of $7.9 million for 1998 and
operating income of $63.7 million for 1997. The decline in prices and volumes
discussed above accounted for the decline in operating income. Partially
offsetting these was a 6% decline in the cost of natural gas. During 1998,
natural gas hedging activities reduced Terra's natural gas costs by $3.5 million
compared with spot prices.
Other Expense - Net
Terra had $21.2 million of other operating expenses in 1998 compared to $17.2
million in 1997.
12
<PAGE>
Allocations of shared service expenses to discontinued Distribution operations
sold during 1999 amounted to $13.8 million and $15.9 million in 1998 and 1997,
respectively. Other 1998 expenses also included $6.1 million in 1998 for vesting
of restricted stock grants and professional fees related to a proposed sale of
Terra's outstanding common stock.
Interest Expense - Net
Net interest expense was $50.8 million in 1998 compared with $48.2 million in
1997. Interest expense increased as a result of additional borrowings used to
fund the U.K. acquisition.
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 $27.5 million for 1998 compared with $27.6 million in 1997.
Minority interest declined $18.0 million due to lower 1998 earnings from TNCLP
operations, but was offset by $17.9 million of 1998 charges for the BMLP
minority interest issued on December 31, 1997.
Income Taxes
Income tax expense was recorded at an effective rate of 36.4% for 1998 compared
with 36.8% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Terra's primary uses of funds will be to fund its working capital requirements,
make payments on its debt and other obligations, and make capital expenditures.
The principal sources of funds will be cash flow from operations and borrowings
under available bank facilities.
Cash used in continuing operations in 1999 was $154 million, representing $191
million to fund working capital increases offset by $37 million of cash provided
from continuing operations. The primary use of cash to fund working capital
increases was due to termination of Terra's accounts receivable securitization
program which used $136 million of cash to repay outstanding December 31, 1998
balances. Cash provided from continuing operations was $65 million lower than
1998 operating income primarily as a result of the 1999 decline to operating
income due to lower prices for nitrogen products.
13
<PAGE>
At December 31, 1999, Terra had a $63 million revolving credit facility
available to fund seasonal working capital needs and for other corporate
purposes. There was $6 million outstanding under the revolving credit facility
at December 31, 1999 with an additional $14.2 million used to support
outstanding letters of credit.
Terra believes cash from operations and existing financing facilities will be
sufficient to meet expected operating and capital cash requirements through
2000. It will be necessary for Terra's 2000 operating income to increase from
1999 levels in order to attain certain earnings covenants contained in its
revolving credit facility and $109 million bank term loan. Terra expects to
attain the minimum earnings levels required under those financing agreements.
Failure to meet these covenants would require Terra to incur additional costs to
amend the bank facilities and could result in termination of the facilities.
Terra is in discussion with lending institutions concerning alternative
refinancing packages that would replace existing bank facilities, increase
liquidity sources and reduce the risk of failing to maintain earnings covenants.
On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land
O'Lakes Agronomy Company for $485 million. Sales proceeds, net of increases to
Distribution working capital balances and capital expenditures since December
31, 1998, other operating cash items and selling costs, contributed $335.1
million to 1999 cash flows. Net sales proceeds were used to redeem the
outstanding minority interest in BMLP for $225 million, fund termination of the
accounts receivable securitization program and repay outstanding borrowings
under Terra's revolving credit facility.
Terra funded plant and equipment purchases of $51.9 million which included $31.7
million to complete construction of a $61.7 million ammonia production loop at
the Beaumont, Texas methanol plant. The facility was placed in operation during
February 2000. Terra expects 2000 plant and equipment purchases to approximate
$25 million, consisting of the expenditures for routine replacement of equipment
at manufacturing facilities.
During 1998 Terra distributed a preferred return of $9.4 million to BMLP's
minority partner, and paid a dividend of $0.07 per Common Share which totaled
$5.3 million. Terra redeemed the BMLP minority interest on June 30, 1999 and
thereby eliminated future cash requirements to fund payments to the BMLP
minority partner. On August 3, 1999, the Board of Directors suspended Terra's
payment of a regular quarterly dividend on common stock.
On December 17, 1997 Terra announced that it was resuming purchases of common
units of TNCLP on the open
14
<PAGE>
market and through privately negotiated transactions. Under an existing
authorization of the Board of Directors, Terra may acquire up to five million
common units. Terra acquired 609,200 and 632,500 common units during 1999 and
1998, respectively, bringing its total number of common units acquired under
this authorization to 2.2 million units.
Cash balances at December 31, 1999 were $9.8 million, of which none is used to
collateralize letters of credit.
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, 2000, as amended by SFAS 137 "Accounting for Derivative
Instruments and Hedging activities - Deferral of the Effective Date of FASB
Statement No. 133". Terra has reviewed SFAS 133 and intends to implement the
standard on January 1, 2001. At this time, Terra has not determined the impact
SFAS 133 will have on its financial position, results of operations or cash
flows.
PENDING CHANGE OF CONTROL
Anglo American plc, through its wholly-owned subsidiaries, owns 56% of Terra's
outstanding shares. Anglo American has announced its intention to dispose of
its interest in Terra with the timing based on market and other considerations.
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 this discussion.
15
<PAGE>
Consolidated Statements of Financial Position
================================================================================
<TABLE>
<CAPTION>
At December 31,
- ------------------------------------------------------------------------------------------------
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments $ 9,790 $ 141,643
Accounts receivable, less allowance for doubtful
accounts of $491 and $938 102,776 97,113
Inventories 133,634 145,088
Net current assets of discontinued operations --- 45,769
Other current assets 47,482 37,900
- ------------------------------------------------------------------------------------------------
Total current assets 293,682 467,513
- ------------------------------------------------------------------------------------------------
Property, plant and equipment, net 997,801 1,017,885
Excess of cost over net assets of acquired businesses 253,162 272,553
Net long-term assets of discontinued operations --- 193,854
Other assets 56,800 85,963
- ------------------------------------------------------------------------------------------------
Total assets $1,601,445 $2,037,768
================================================================================================
Liabilities
Debt due within one year $ 17,152 $ 9,470
Accounts payable 88,413 98,082
Accrued and other liabilities 35,158 97,678
- ------------------------------------------------------------------------------------------------
Total current liabilities 140,723 205,230
- ------------------------------------------------------------------------------------------------
Long-term debt 469,309 487,560
Deferred income taxes 163,733 197,951
Other liabilities 67,409 62,671
Minority interest 103,269 336,504
Commitments and contingencies (Note 13)
- ------------------------------------------------------------------------------------------------
Total liabilities 944,443 1,289,916
- ------------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock
Common Shares, authorized 133,500 shares;
75,309 and 75,465 shares outstanding 127,890 127,887
Paid-in capital 552,903 552,893
Accumulated other comprehensive loss (9,852) (14,157)
Retained earnings (deficit) (13,939) 81,229
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 657,002 747,852
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,601,445 $2,037,768
================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
16
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
=====================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $ 765,858 $ 840,509 $ 797,058
Other income, net 8,451 5,042 589
- ---------------------------------------------------------------------------------------------------------------------
774,309 845,551 797,647
- ---------------------------------------------------------------------------------------------------------------------
Cost and Expenses
Cost of sales 781,927 772,369 549,817
Selling, general and administrative expense 55,424 62,968 51,055
- ---------------------------------------------------------------------------------------------------------------------
837,351 835,337 600,872
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (63,042) 10,214 196,775
Insurance recovery - damaged facility --- --- 163,427
Interest income 8,361 326 208
Interest expense (53,076) (51,122) (48,400)
Minority interest (8,341) (27,510) (27,633)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes (116,098) (68,092) 284,377
Income tax provision (benefit) (46,000) (24,761) 104,862
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (70,098) (43,331) 179,515
Income (loss) from discontinued operations:
Income (loss) from operations, net of income taxes (5,800) 17,082 30,367
Loss on disposition, net of income taxes (4,724) --- ---
Extraordinary loss on early retirement of debt, net of income taxes (9,265) --- (2,995)
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (89,887) $ (26,249) $ 206,887
=====================================================================================================================
Basic Earnings (Loss) Per Share:
Continuing operations $ (0.94) $ (0.58) $ 2.43
Discontinued operations (0.14) 0.23 0.41
Extraordinary loss on early retirement of debt (0.12) -- (0.04)
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1.20) $ (0.35) $ 2.80
=====================================================================================================================
Diluted Earnings (Loss) Per Share:
Continuing operations $ (0.94) $ (0.58) $ 2.39
Discontinued operations (0.14) 0.23 0.41
Extraordinary loss on early retirement of debt (0.12) --- (0.04)
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1.20) $ (0.35) $ 2.76
=====================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
17
<PAGE>
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ (89,887) $ (26,249) $ 206,887
Adjustments to reconcile net income from
continuing operations to net cash
flows from operating activities:
(Income) loss from discontinued operations 10,524 (17,082) (30,367)
Extraordinary loss on early retirement of debt 9,265 --- 2,995
Insurance recovery - damaged facility --- --- (163,427)
Depreciation and amortization 101,588 101,053 72,314
Deferred income taxes 2,805 11,319 66,342
Minority interest in earnings 8,341 27,510 27,633
Other non-cash items --- (2,197) (7,381)
Change in current assets and liabilities, excluding
working capital purchased:
Accounts receivable (5,663) (22,937) 14,483
Account receivable securitization (136,000) (14,000) 18,000
Inventories 11,454 (37,460) 40,034
Other current assets 1,329 4,044 43,981
Accounts payable (9,669) (32,017) (74,621)
Accrued and other liabilities (62,520) (6,368) (19,994)
Reimbursed Port Neal casualty expenses --- 14,314 7,629
Other 4,573 (7,015) (1,607)
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities (153,860) (7,085) 202,901
- --------------------------------------------------------------------------------------------------------------------------
Investing Activities
Acquisitions, net of cash acquired --- --- (338,000)
Purchase of property, plant and equipment (51,899) (55,327) (48,417)
Discontinued operations 335,129 96,766 54,886
Insurance proceeds from plant casualty --- --- 95,057
Other (4,531) 3,371 (3,467)
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Flows From Investing Activities 278,699 44,810 (239,941)
- --------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net short-term borrowings 6,000 --- (116,332)
Proceeds from issuance of long-term debt --- --- 132,867
Principal payments on long-term debt (16,569) (9,538) (33,611)
Stock (repurchase) issuance - net 13 286 (21,264)
Distributions to minority interests (9,429) (35,052) (34,402)
Repurchase of TNCLP common units (5,994) (16,523) ---
Redemption of preferred stock --- --- (24,950)
Sale (redemption) of minority interest in subsidiary (225,000) --- 225,000
Dividends (5,281) (14,986) (13,481)
Other --- --- 2,673
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Flows From Financing Activities (256,260) (75,813) 116,500
- --------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (432) (331) (140)
Increase (Decrease) in Cash and Short-Term Investments (131,853) (38,419) 79,320
Cash and Short-Term Investments at Beginning of Year 141,643 180,062 100,742
- --------------------------------------------------------------------------------------------------------------------------
Cash and Short-Term Investments at End of Year $ 9,790 $ 141,643 $ 180,062
==========================================================================================================================
Interest Paid $ 55,379 $ 61,907 $ 61,446
==========================================================================================================================
Income Taxes Paid (Received) $ (20,285) $ (7,085) $ 18,519
==========================================================================================================================
Noncash Investing and Financing Activities:
Stock issuance for distribution locations acquisition $ --- $ --- $ 19,112
==========================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
18
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Accumulated
Other Retained
Comprehensive Capital Stock Paid-In Comprehensive Earnings
---------------------
(in thousands) (Loss) Shares Amount Capital Loss (Deficit) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 75,010 $ 127,614 $ 550,850 $ (1,430) $ (70,942) $ 606,092
Comprehensive Income
Net income $ 206,887 --- --- --- --- 206,887 206,887
Foreign currency
translation adjustments (7,058) --- --- --- (7,058) --- (7,058)
----------
Total $ 199,829
==========
Issuance of Common Shares 1,499 1,499 17,613 --- --- 19,112
Repurchase of Common Shares (1,673) (1,673) (20,759) --- --- (22,432)
Exercise of stock options, net 141 141 1,068 --- --- 1,209
Dividends --- --- --- --- (13,481) (13,481)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 74,977 $ 127,581 $ 548,772 $ (8,488) $ 122,464 $ 790,329
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net loss $ (26,249) --- --- --- --- (26,249) (26,249)
Foreign currency
translation adjustments (5,669) --- --- --- (5,669) --- (5,669)
----------
Total $ (31,918)
==========
Exercise of stock options, net 43 43 243 --- --- 286
Stock Incentive Plan 445 263 3,878 --- --- 4,141
Dividends --- --- --- --- (14,986) (14,986)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 75,465 $ 127,887 $ 552,893 $ (14,157) $ 81,229 $ 747,852
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net income $ (89,887) --- --- --- --- (89,887) (89,887)
Foreign currency
translation adjustments 4,305 --- --- --- 4,305 --- 4,305
----------
Total $ (85,582)
==========
Exercise of stock options, net 3 3 10 --- --- 13
Stock Incentive Plan (159) --- --- --- --- ---
Dividends --- --- --- --- (5,281) (5,281)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 75,309 $ 127,890 $ 552,903 $ (9,852) $ (13,939) $ 657,002
====================================================================================================================================
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
19
<PAGE>
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation:
The Consolidated Financial Statements include the accounts of Terra Industries
Inc. and all majority owned subsidiaries (Terra). All significant intercompany
accounts and transactions have been eliminated.
Description of business:
Terra produces nitrogen products for agricultural dealers and industrial users,
and methanol for industrial users.
Foreign exchange:
Results of operations for the foreign subsidiaries are translated using average
currency exchange rates during the period; assets and liabilities are translated
using current rates. Resulting translation adjustments are recorded as foreign
currency translation adjustments in accumulated other comprehensive income in
stockholders' equity. These translation adjustments are the only component of
accumulated other comprehensive income.
Cash and short-term investments:
Terra considers short-term investments with an original maturity of three months
or less to be cash equivalents which are reflected at their approximate fair
value.
Inventories:
Inventories are stated at the lower of average cost or estimated net realizable
value. The cost of inventories is determined using the first-in, first-out
method.
Property, plant and equipment:
Expenditures for plant and equipment additions, replacements and major
improvements are capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives ranging from 15 to 20 years for
buildings and 3 to 18 years for plant and equipment. Maintenance and repair
costs are expensed as incurred.
Excess of costs over net assets of acquired businesses:
Terra amortizes costs in excess of fair value of net assets of businesses
acquired using the straight-line method over periods ranging from 15 to 18
years. Management periodically determines the recoverability of this asset
through an assessment of expected cash flows from future operations.
Plant turnaround costs:
20
<PAGE>
Costs related to the periodic scheduled major maintenance of continuous process
production facilities (plant turnarounds) are deferred and charged to product
costs on a straight-line basis during the period until the next scheduled
turnaround, generally two years.
Hedging transactions:
Realized gains and losses from hedging activities and premiums paid for option
contracts are deferred and recognized in the month to which the hedged
transactions relate (see Note 14 - Derivative Financial Instruments).
Stock-based compensation:
Terra recognizes compensation costs for stock-based employee compensation plans
based on the difference, if any, between the quoted market price of the stock at
date of grant and the amount an employee pays to acquire the stock.
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to prior years' financial statements to
conform with current year presentation.
21
<PAGE>
Per-share results:
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.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for fiscal years
beginning after June 15, 2000, as amended by SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No. 133". Terra will adopt SFAS 133 effective January 1, 2001.
At this time, Terra has not determined the impact of SFAS 133 on its results of
operations, financial position or cash flows.
2. Discontinued Operations
On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land O'
Lakes Agronomy Company ("Buyer") for $335.1 million, net of seasonal working
capital increases from December 31, 1998, and closing costs. In the sales
transaction, the Buyer acquired all rights to the Distribution business'
earnings from April 1, 1999 forward. Included in the sale were Terra's
approximately 400 retail farm service centers in the U.S. and Canada, and its
50% ownership position in the Omnium chemical formulation plants. Terra
retained ownership of approximately $25 million in accounts receivable and
approximately 40 storage or retail sites associated with Distribution
operations. Reserves for doubtful accounts of approximately $15 million were
recorded to value the retained accounts receivable at estimated net realizable
value at closing. The retained sites had a zero net book value at December 31,
1999, as costs of disposal are estimated to approximate sales proceeds.
The accompanying consolidated statements of operations, financial position and
cash flows have been restated for prior periods to segregate results of
operations and net assets associated with the discontinued Distribution business
segment. Net current assets of discontinued operations represent accounts
receivable, inventory and other current assets net of accounts payable and
accrued and other liabilities directly identifiable with the Distribution
22
<PAGE>
business. Net long-term assets of discontinued operations are comprised of
property, plant and equipment, goodwill and other long-term assets of the
Distribution business that were transferred in the sales transaction.
The results of discontinued operations for the years ended December 31, 1999,
1998 and 1997 follow:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue $ 228,991 $ 1,706,467 $ 1,744,722
Cost of sales (186,647) (1,378,787) (1,416,025)
Selling, general and
administrative expense (64,711) (308,229) (290,277)
Equity in earnings of affiliates 696 1,936 2,266
- ------------------------------------------------------------------------------------
Operating income (loss) as reported (21,671) 21,387 40,686
Allocated general and
administrative expense 3,466 13,756 15,855
- ------------------------------------------------------------------------------------
Operating income (loss) - restated (18,205) 35,143 56,541
Gain on sale of unconsolidated
affiliate 9,804 --- ---
Interest income 938 4,227 6,317
Interest expense (2,202) (12,527) (14,753)
Income taxes 3,865 (9,761) (17,738)
- ------------------------------------------------------------------------------------
Income (loss) from
discontinued operations (5,800) 17,082 30,367
Loss on disposition, net of taxes (4,724) --- ---
- ------------------------------------------------------------------------------------
Net income (loss) from
discontinued operations $ (10,524) $ 17,082 $ 30,367
- ------------------------------------------------------------------------------------
</TABLE>
Distribution revenues and cost of sales are net of intercompany sales from
Terra's Nitrogen business segment of $8.9 million, $27.8 million and $42.0
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Interest income and expense allocated to the Distribution business represents
interest earned or expensed from short-term investments or borrowings caused by
seasonal fluctuations to Distribution working capital balances. None of Terra's
long-term interest expense was allocated to earnings from discontinued
operations.
23
<PAGE>
The buyer and Terra have also entered into a three-year nitrogen fertilizer
supply agreement through which the Buyer will purchase approximately the
quantity that Terra's Nitrogen Products segment supplied to both the
Distribution business and the Buyer.
3. Acquisitions
On December 31, 1997, a wholly owned subsidiary of the Terra, Terra
International (Canada) Inc. (Terra Canada) acquired two nitrogen fertilizer
manufacturing plants in the United Kingdom from Imperial Chemical Industries PLC
(ICI) for $338 million. The plants, located in Billingham and Severnside,
England, produce nitrogen products for sale in the agricultural and industrial
markets in the U.K. and western Europe. The acquisition has been accounted for
using the purchase method of accounting. Terra funded the acquisition with $125
million from a five-year term loan provided by a bank group and secured by the
assets of Terra Canada, $175 million as part of a contribution to Terra for a
$225 million minority preferred limited interest in its Beaumont Methanol,
Limited Partnership subsidiary, and the balance with available cash. The excess
of the purchase price over the fair value of the assets acquired of $31 million
is being amortized on a straight line basis over 18 years which is estimated to
be the average remaining useful life of the manufacturing plants acquired.
Under an ammonium nitrate agreement with ICI, related to the acquisition, which
covers 500,000 metric tons per year, Terra has agreed to make payments based on
the market price of ammonium nitrate in connection with Terra's U.K. business.
Terra will be required to make a payment for each year through 2002 if average
ammonium nitrate prices exceed certain thresholds during any year, subject to
maximum payments of (Pounds)58 million ($95.7 million USD at the time of
signing) over the term of the agreement. As a result of making any such
payments, Terra will not benefit fully from the U.K. price of ammonium nitrate
over certain thresholds during the term of this agreement. No payments were due
under this agreement in 1999 or 1998.
24
<PAGE>
4. Earnings Per Share
The following table provides a reconciliation between Basic and Diluted Earnings
(Loss) Per Share.
<TABLE>
<CAPTION>
(in thousands, except per-share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings (loss) per share computation:
Earnings (loss) from continuing operations $(70,098) $(43,331) $179,515
Earnings (loss) from discontinued operations (10,524) 17,082 30,367
- ----------------------------------------------------------------------------------------
Earnings (loss) available before extraordinary item (80,622) (26,249) 209,882
Extraordinary loss on debt retirement (9,265) ---- (2,995)
- ----------------------------------------------------------------------------------------
Earnings (loss) available to common shareholders $(89,887) $(26,249) $206,887
========================================================================================
Basic weighted average shares outstanding 74,703 73,954 73,830
========================================================================================
Earnings (loss) per share from continuing operations $ (0.94) $ (0.58) $ 2.43
Earnings (loss) per share from discontinued operations (0.14) 0.23 .41
- ----------------------------------------------------------------------------------------
Earnings (loss) per share before extraordinary item (1.08) (0.35) 2.84
Extraordinary loss per share (0.12) --- (0.04)
- ----------------------------------------------------------------------------------------
Basic earnings (loss) per share $ (1.20) $ (0.35) $ 2.80
========================================================================================
Diluted earnings (loss) per share computation:
Earnings (loss) from continuing operations $(70,098) $(43,331) $179,515
Earnings (loss) from discontinued operations (10,524) 17,082 30,367
- ----------------------------------------------------------------------------------------
Earnings (loss) available before extraordinary item (80,622) (26,249) 209,882
Extraordinary loss on debt retirement (9,265) --- (2,995)
- ----------------------------------------------------------------------------------------
Earnings (loss) available to common shareholders $(89,887) $(26,249) $206,887
========================================================================================
Basic weighted average shares outstanding 74,703 73,954 73,830
Stock options --- --- 513
Restricted shares --- --- 346
Contingent shares --- --- 336
- ----------------------------------------------------------------------------------------
Diluted weighted average shares outstanding 74,703 73,954 75,025
========================================================================================
Earnings (loss) per share from continuing operations $ (0.94) $ (0.58) $ 2.39
Earnings (loss) per share from discontinued operations (0.14) 0.23 .41
- ----------------------------------------------------------------------------------------
Earnings (loss) per share before extraordinary item (1.08) (0.35) 2.80
Extraordinary loss per share (0.12) --- (0.04)
- ----------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (1.20) $ (0.35) $ 2.76
========================================================================================
</TABLE>
5. Accounts Receivable
Terra, through Terra Funding Corporation (TFC), a beneficially owned subsidiary
of Terra, a limited purpose corporation, had an agreement with a financial
institution to sell an undivided interest in its accounts receivable. Under the
agreement, which expired June 30, 1999, Terra was able to sell without recourse
an undivided interest in a designated pool of its accounts receivable and
receive up to $150 million in proceeds.
25
<PAGE>
6. Inventories
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 57,772 $ 60,676
Finished goods 75,862 84,412
- -------------------------------------------------------------------------
Total $ 133,634 $ 145,088
=========================================================================
</TABLE>
7. Other Current Assets
Other current assets consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset - current $ 5,548 $ 15,307
Income taxes recoverable 10,278 813
Accounts receivable of discontinued operations,
less allowance for doubtful accounts of $12,533 6,238 ---
Other current assets 25,418 21,780
- -------------------------------------------------------------------------
Total $ 47,482 $ 37,900
=========================================================================
</TABLE>
8. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 53,875 $ 55,381
Plant and equipment 1,170,541 1,143,635
Construction in progress 98,406 69,945
- -------------------------------------------------------------------------
1,322,822 1,268,961
Less accumulated depreciation and amortization (325,021) (251,076)
- -------------------------------------------------------------------------
Total $ 997,801 $1,017,885
=========================================================================
</TABLE>
9. Port Neal Casualty
On December 13, 1994, Terra's Port Neal facility in Iowa was extensively damaged
as a result of an explosion. Insurance was in force to cover Terra's property
damage, business interruption and third-party liability claims. During 1997,
Terra reached a settlement with its insurance carriers, who agreed to pay Terra
a total claim of $321 million. The rebuild of the Port Neal plant required the
recognition of a new cost basis for the facility, which resulted in recording a
substantial gain in 1997 representing the difference between the property
insurance settlement received on the Port Neal plant and the carrying value of
the facility at the time of the explosion less uninsured expenses. Terra
capitalized $249 million related to the rebuild of the Port Neal manufacturing
facility.
26
<PAGE>
10. Debt Due Within One Year
Debt due within one year consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings $ 6,000 $ ---
Current maturities of long-term debt 11,152 9,470
- --------------------------------------------------------------------------
Total $ 17,152 $ 9,470
==========================================================================
Weighted average short-term borrowings $ 10,699 $ 15,534
==========================================================================
Weighted average interest rate 10.0% 8.0%
==========================================================================
</TABLE>
Terra has a credit agreement to provide revolving credit facilities of up to
$62.8 million for seasonal working capital needs and other corporate purposes.
At December 31, 1999, $6 million was outstanding and $14.2 million was reserved
to support outstanding letters of credit for recorded liabilities. Interest on
borrowings under this line is charged at current market rates. Beginning June
30, 2000, the revolving credit facility principal amount declines up to $12.2
million per year, net of any prepayments on Bank Term Notes described at Note
12.
Under the credit agreement, Terra has agreed, among other things, to maintain
certain financial covenants including minimum net worth and interest coverage
ratios and maximum debt to cash flow ratios, and to adhere to certain
limitations on additional debt, capital expenditures, acquisitions, liens, asset
sales, investments, prepayment of subordinated indebtedness, changes in lines of
business and transactions with affiliates. The revolving credit facilities
expire December 31, 2002. A commitment fee is charged on the unused portion of
the facilities under the credit agreement, currently 1/2 percent adjustable
based on Terra's most recent quarter debt to cash flow ratio. The credit
agreement is secured by the stock of certain principal subsidiaries of Terra as
well as substantially all the property of certain subsidiaries.
11. Accrued and Other Liabilities
Accrued and other liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Customer deposits $ 10,346 $ 4,833
Payroll and benefit costs 3,220 22,816
Income taxes - state 1,360 3,498
Other 20,232 66,531
- --------------------------------------------------------------------------
Total $ 35,158 $ 97,678
==========================================================================
</TABLE>
27
<PAGE>
12. Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Senior Notes, 10.5%, due 2005 $200,000 $200,000
Senior Notes, 10.75%, due 2003 158,755 158,755
Bank Term Notes, due 2003 109,375 117,187
Industrial Development Revenue Bonds bearing interest at an
average 6.85% with increasing payments from 1999 to 2011 8,130 8,405
Other 4,201 12,683
- ---------------------------------------------------------------------------------
480,461 497,030
Less current maturities 11,152 9,470
- ---------------------------------------------------------------------------------
Total $469,309 $487,560
=================================================================================
</TABLE>
Scheduled principal payments for each of the five years 2000 through 2004 are
$11.2 million, $8.4 million, $0.6 million, $253.7 million and $0.5 million,
respectively.
The 10.5% Unsecured Senior Notes are redeemable at the option of Terra, in whole
or part, at any time on or after June 15, 2000, initially at 105.250% of their
principal amount, plus accrued interest, declining to 102.625% on or after June
15, 2001, and declining to 100% on or after June 15, 2002. The 10.5% Senior
Notes Indenture contains certain restrictions, including the issuance of
additional debt, payment of dividends, issuance of capital stock, certain
transactions with affiliates, incurrence of liens, sale of assets, and sale-
leaseback transactions.
The 10.75% unsecured Senior Notes are redeemable at the option of Terra, in
whole or part, at any time at 102.688% of their principal amount, plus accrued
interest declining to 100% on or after September 30, 2000. The 10.75% Senior
Notes Indenture contains restrictions similar to those in the 10.5% Senior Notes
Indenture.
The Bank Term Notes are secured by substantially all assets of Terra Canada, a
beneficially owned subsidiary of Terra. The Notes require specified annual
payments with the balance due January 2, 2003. The Notes bear interest at a
rate based on current market rates, currently 9.75%. The Notes include
covenants similar to the credit agreement described in Note 10 - Debt Due Within
One Year.
28
<PAGE>
The Industrial Development Revenue Bonds due in 2011 are secured by a letter of
credit guaranteed by Terra and, along with certain other long-term debt due in
2003, by Terra's headquarters building located in Sioux City, Iowa.
13. Commitments and Contingencies
Terra and its subsidiaries are committed to various non-cancelable operating
leases for equipment, railcars and production, office and storage facilities
expiring on various dates through 2017. Total minimum rental payments are as
follows:
<TABLE>
<CAPTION>
(in thousands)
- -------------------------------------------------------------------
<S> <C>
2000 $18,866
2001 15,273
2002 12,272
2003 10,367
2004 and thereafter 26,077
- -------------------------------------------------------------------
Total $82,855
===================================================================
</TABLE>
Total rental expense for continuing operations under all leases, including
short-term cancelable operating leases, was approximately $20.6 million, $20.8
million and $19.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
Terra is liable for retiree medical benefits of employees of coal mining
operations sold in 1993, under the Coal Industry Retiree Health Benefit Act of
1992, which mandated certain retiree medical benefits for union coal miners.
Terra has provided reserves adequate to cover the estimated present value of
these liabilities at December 31, 1999.
Terra is involved in various legal actions and claims, including environmental
matters, arising from the normal course of business. It is the opinion of
management that the ultimate resolution of these matters will not have a
material adverse effect on the results of operations, financial position or net
cash flows of Terra.
14. Derivative Financial Instruments
Terra manages risk using derivative financial instruments (a) changes in natural
gas supply prices and (b) interest rate fluctuations. Derivative financial
instruments have credit risk and market risk.
To manage credit risk, Terra enters into derivative transactions only with
counter-parties who are currently rated BBB or better or equivalent as
recognized by a national rating agency. Terra will not enter into transactions
with a
29
<PAGE>
counter-party if the additional transaction will result in credit exposure
exceeding $20 million. The credit rating of counter-parties may be modified
through guarantees, letters of credit or other credit enhancement vehicles.
Terra classifies a derivative financial instrument as a hedge if all of the
following conditions are met:
1. The item to be hedged must expose Terra to currency, interest or price
risk.
2. It must be probable that the results of the hedge position substantially
offset the effects of currency, interest or price changes on the hedged
item (e.g., there is a high correlation between the hedge position and
changes in market value of the hedge item).
3. The derivative financial instrument must be designated as a hedge of the
item at the inception of the hedge.
A change in the market value of a derivative financial instrument is recognized
as a gain or loss in the period of the change unless the instrument meets the
criteria to qualify as a hedge. If the hedge criteria are met, the accounting
for the derivative financial instrument is related to the accounting for the
hedged item so that changes in the market value of the derivative financial
instrument are recognized in income when the effects of related changes in the
currency rate, interest rate or price of the hedged item are recognized.
A change in the market value of a derivative financial instrument that is a
hedge of a firm commitment is included in the measurement of the transaction
that satisfies the commitment. Terra accounts for a change in the market value
of a derivative financial instrument that hedges an anticipated transaction in
the measurement of the subsequent transaction. If a derivative financial
instrument that has been accounted for as a hedge is closed before the date of
the anticipated transaction, Terra carries forward the accumulated change in
value of the contract and includes it in the measurement of the related
transaction.
Natural Gas Prices - United Kingdom Operations - To meet natural gas production
requirements at the Terra's United Kingdom production facilities, Terra enters
into one- or two-year term gas supply contracts with fixed prices for 25-80% of
total volume requirements. As of December 31, 1999, Terra had contracts for 66%
of 2000 natural gas requirements and 22% of its 2001 natural gas requirement.
Accordingly, Terra does not use derivative financial instruments for its United
Kingdom natural gas needs.
30
<PAGE>
Natural Gas Prices - North American Operations - Natural gas supplies to meet
production requirements at Terra's production facilities are purchased at market
prices. Natural gas market prices are volatile and Terra effectively fixes
prices for a portion of its natural gas production requirements and inventory
through the use of futures contracts, swaps and options. These contracts
reference physical natural gas prices or appropriate NYMEX futures contract
prices. 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 Terra's six 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.
A swap is a contract between Terra and a third party to exchange cash based on a
designated price. Option contracts give the holder the right to either own or
sell a futures or swap contract. The futures contracts require maintenance of
cash balances generally 10% to 20% of the contract value and option contracts
require initial premium payments ranging from 2% to 5% of contract value. Basis
swap contracts require payments to or from Terra for the amount, if any, that
monthly published gas prices from the source specified in the contract differ
from prices of NYMEX natural gas futures during a specified period. There are
no initial cash requirements related to the swap and basis swap agreements.
The following summarizes open natural gas contracts at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------------
Contract Unrealized Contract Unrealized
MMBtu Gain (Loss) MMBtu Gain (Loss)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Futures --- $ --- 1,200 $ (46)
Swaps 36,570 5,810 86,565 (11,698)
Options 36,095 --- 16,480 (55)
- -----------------------------------------------------------------------
72,665 $ 5,810 104,245 $ (11,799)
=======================================================================
Basis swaps 14,470 $ 458 19,165 $ 2,213
=======================================================================
</TABLE>
Annual production requirements are approximately 138 million MMBtu. Contracts
and firm purchase commitments were in place at December 31, 1999 to cover 33% of
2000 natural gas requirements.
31
<PAGE>
Gains and losses on settlement of these contracts and premium payments on option
contracts are credited or charged to cost of sales in the month in which the
hedged transaction closes. The risk and reward of outstanding natural gas
positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices. There were no
realized losses on closed contracts relating to future periods as of December
31, 1999. Cash flows related to natural gas hedging are reported as cash flows
from operating activities.
During 1999, 1998 and 1997, natural gas hedging activities reduced Terra's
natural gas costs by approximately $6.4 million, $15.4 million and $57.6
million, respectively, compared with spot prices.
Interest Rate Fluctuations -Terra has entered into interest rate swap agreements
to fix the interest rate on $125 million of its floating rate obligations at an
average rate of approximately 6.06% per annum. The interest rate swap
agreements are designated as hedges. The agreements expire December 31, 2002.
The differential paid or received on interest rate swap agreements is recognized
as an adjustment to interest expense. Cash flows for the interest rate swap
agreements are classified as cash flows from operations.
The following table presents the carrying amounts and estimated fair values of
Terra's derivative financial instruments at December 31, 1999 and 1998. SFAS
107, "Disclosures about Fair Value of Financial Instruments" defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Natural gas $ 0.6 $ 5.7 $ (3.9) $ (13.5)
Interest rate --- 2.4 --- (11.2)
- ---------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of derivative financial instrument:
32
<PAGE>
Natural gas futures, swaps, options and basis swaps: Estimated based on quoted
market prices from brokers, and computations prepared by Terra.
Interest rate swap agreements: Estimated based on quotes from the market makers
of these instruments.
15. Financial Instruments and Concentrations of Credit Risk
The following table presents the carrying amounts and estimated fair values of
Terra's financial instruments at December 31, 1999 and 1998. SFAS 107 defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and short-term investments $ 9.8 $ 9.8 $ 141.6 $141.6
Receivables 102.7 102.7 138.8 138.8
Equity and other investments 1.8 1.8 25.3 26.8
Other assets 7.1 7.1 9.3 9.3
Financial Liabilities
Short-term borrowings 6.0 6.0 -- --
Long-term debt 480.4 474.6 497.0 506.9
=======================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
Equity and other investments: Investments in untraded companies are valued on
the basis of management's estimates and, when available, comparisons with
similar companies whose shares are publicly traded.
Other assets: The amounts reported relate to notes receivable obtained from
sale of previous operating assets. The fair value is estimated based on current
interest rates and repayment terms of the individual notes.
Short-term borrowings and long-term debt: The fair value of Terra's short-term
borrowings and long-term debt is estimated based on the quoted market price of
these or similar issues or by discounting expected cash flows at the rates
currently offered to Terra for debt of the same remaining maturities.
33
<PAGE>
Concentration of Credit Risk - Terra is subject to credit risk through trade
receivables and short-term investments. Although a substantial portion of its
debtors' ability to pay is dependent upon the agribusiness economic sector,
credit risk with respect to trade receivables generally is minimized due to a
large customer base and its geographic dispersion. Short-term cash investments
are placed in short duration corporate and government debt securities funds with
well capitalized, high quality financial institutions. By policy, Terra limits
the amount of credit exposure in any one type of investment instrument.
Financial Instruments - At December 31, 1999, Terra had letters of credit
outstanding totaling $22.6 million, guaranteeing various insurance and financing
activities.
16. Stockholders' Equity
Terra allocates $1.00 per share upon the issuance of Common Shares to the Common
Share capital account. At December 31, 1999, 1.3 million Common Shares were
reserved for issuance upon award of restricted shares and exercise of employee
stock options.
Terra has authorized 16,500,000 Trust Shares for issuance. There was no
activity related to the Trust Shares from December 31, 1996 to December 31, 1999
and no Trust Shares were outstanding at December 31, 1999.
17. Stock-Based Compensation
Terra accounts for its stock-based compensation under the provisions of
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", which utilizes the intrinsic value method. Compensation cost
related to stock-based compensation was $.9 million, $4.2 million and $1.2
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Terra's 1997 Stock Incentive Plan authorized granting directors and key
employees awards in the form of options, rights, performance units or restricted
stock. The aggregate number of Common Shares that may be subject to awards
under the plan may not exceed 3.8 million shares. There were no outstanding
rights or performance units at December 31, 1999. Options generally may not be
exercised prior to one year or more than ten years from the date
34
<PAGE>
of grant. Stock options and restricted shares vest over specified periods, or in
some cases upon the attainment, prior to a termination date, of pre-established
market price objectives for Terra's Common Shares. The restricted shares are
entitled to normal voting rights and earn dividends as declared during the
performance periods. At December 31, 1999, 1.3 million Common Shares were
available for grant under the 1997 Plan.
A summary of Terra's stock-based compensation activity related to stock options
for the years ended December 31 follows:
<TABLE>
<CAPTION>
(options in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 2,151 $10.35 2,428 $10.47 1,719 $ 9.44
Granted 1,522 3.32 35 8.47 871 12.23
Expired/terminated 655 10.45 269 11.75 21 14.49
Exercised 3 4.11 43 6.69 141 8.23
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 3,015 $ 6.76 2,151 $10.35 2,428 $10.47
====================================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
(options in thousands)
- -----------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 3.99 1,545 9.49 years $ 3.32 23 $ 3.38
4.00 7.99 401 2.62 5.20 386 5.10
8.00 14.99 1,069 6.65 12.31 1,055 12.43
- -----------------------------------------------------------------------------------------------------------------------
Total 3,015 7.57 $ 6.76 1,464 $10.34
=======================================================================================================================
</TABLE>
There were 1,312,000 and 1,073,000 options exercisable at December 31, 1998 and
1997, respectively.
The weighted average fair value of options granted was $1.54 per option for
1999, $2.83 per option for 1998 and $3.58 per option for 1997. The fair value of
options granted was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.95% 5.52% 5.77%
Dividend yield 1.37% 2.30% 1.40%
Expected volatility 57.00% 42.00% 28.00%
Expected life (years) 4.0 4.0 4.6
==========================================================================
</TABLE>
35
<PAGE>
There were no restricted shares granted during 1999. There were 610,000
restricted shares granted during 1998 with a weighted average fair value of
$5.75 per share and 20,000 restricted shares granted during 1997 with a weighted
average fair value of $14.63 per share.
The restricted shares granted in 1998 became fully vested in 1999 and restricted
shares granted in 1997 became fully vested in 1998 and are included as increases
to stockholders' equity.
The pro forma impact on net income and diluted earnings per share of accounting
for stock-based compensation using the fair value method required by SFAS 123,
"Accounting for Stock-Based Compensation" follows:
<TABLE>
<CAPTION>
(in thousands, except per-share data) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
As reported $(89,887) $(26,249) $206,887
Pro forma (90,754) (28,270) 205,626
Diluted earnings (loss) per share
As reported $ (1.20) $ (0.35) $ 2.76
Pro forma (1.20) (0.38) 2.74
===============================================================================
</TABLE>
The pro forma impact takes into account only stock-based compensation grants
since January 1, 1995 and is likely to increase in future years as additional
awards are granted and amortized ratably over the vesting period.
18. Retirement Benefit Plans
Terra and its subsidiaries maintain pension plans that cover substantially all
salaried and hourly employees. Benefits are based on a final pay formula for the
salaried plans and a flat benefit formula for the hourly plans. The plans'
assets consist principally of equity securities and corporate and government
debt securities. Terra and its subsidiaries also have certain non-qualified
pension plans covering executives, which are unfunded. Terra accrues pension
costs based upon annual independent actuarial valuations for each plan and funds
these costs in accordance with statutory requirements. The components of net
periodic pension expense, including $10.6 million of curtailment benefits which
are included in discontinued operations, follow:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 9,185 $ 8,319 $ 5,394
Interest cost 11,325 9,689 6,651
Expected return on plan assets (13,243) (13,523) (6,344)
Amortization of prior service cost 42 79 84
Amortization of actuarial (gain) loss 1,471 (64) 42
Amortization of net (asset) obligation (306) (307) (306)
Curtailment benefit (10,556) --- ---
- -----------------------------------------------------------------------------
Pension expense (credit) $ (2,082) $ 4,193 $ 5,521
=============================================================================
</TABLE>
36
<PAGE>
The following table reconciles the plans' funded status to amounts included in
the Consolidated Statements of Financial Position at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation
Benefit Obligation-beginning of year $173,925 $ 94,593
Acquisition --- 52,035
Service cost 9,185 8,319
Interest cost 11,325 9,689
Participants' contributions 435 322
Curtailment gain (9,381) ----
Actuarial (gain) loss (9,753) 12,871
Foreign currency exchange rate changes (842) (805)
Benefits paid (4,015) (3,099)
- ---------------------------------------------------------------------------
Benefit Obligation-end of year 170,879 173,925
- ---------------------------------------------------------------------------
Change in Plan Assets
Fair value plan assets-beginning of year 147,565 87,357
Acquisition --- 59,759
Actual return on plan assets 21,526 (2,113)
Foreign currency exchange rate changes (705) (876)
Employer contribution 3,370 6,215
Participants' contributions 391 322
Benefits paid (4,014) (3,099)
- ---------------------------------------------------------------------------
Fair value plan assets-end of year 168,133 147,565
- ---------------------------------------------------------------------------
Funded status (2,745) (26,360)
Unrecognized net actuarial loss 715 19,377
Unrecognized prior service cost 232 238
Unrecognized net transition asset (985) (1,292)
- ---------------------------------------------------------------------------
Accrued benefit cost $ (2,783) $ (8,037)
===========================================================================
</TABLE>
The non-qualified pension plans are unfunded and have an Accumulated Benefit
Obligation of $4.8 million at December 31, 1999.
The assumptions used to determine the actuarial present value of benefit
obligations and pension expense during each of the years in the three-year
period ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.1% 6.7% 7.3%
Long-term per annum compensation increase 4.1% 4.2% 4.0%
Long-term return on plan assets 8.9% 8.9% 9.5%
========================================================================
</TABLE>
As of December 31, 1997, Terra acquired two fertilizer manufacturing plants in
the United Kingdom from Imperial Chemical Industries PLC (ICI). Employees of
these plants became employees of Terra. These employees were
37
<PAGE>
eligible to transfer their ICI pension to Terra's pension plans in 1998. The
transfer of U.K. employees' pension was fully funded by ICI.
Terra also sponsors a qualified savings plan covering most full-time North
American employees. Contributions made by participating employees are matched
based on a specified percentage of employee contributions up to 6% of the
employees' pay base. The cost of Terra's matching contribution to the savings
plan totaled $2.9 million in 1999, $4.9 million in 1998 and $4.6 million in
1997.
19. Post-Retirement Benefits
Terra also provides health care benefits for eligible retired employees of one
of its wholly owned subsidiaries. Participants generally become eligible after
reaching retirement age with ten years of service. The plan pays a stated
percentage of most medical expenses reduced for any deductible and payments made
by government programs. The plan is unfunded. Employees hired prior to January
1, 1990 are eligible for participation in the plan. Participant contributions
and co-payments are subject to escalation.
The following table indicates the components of the post-retirement medical
benefits obligation included in Terra's Consolidated Statements of Financial
Position at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation
Benefit Obligation-beginning of year $ 4,372 $ 5,298
Service cost 85 118
Interest cost 295 372
Participants' contributions 235 172
Amendments --- (464)
Actuarial gain (916) (547)
Foreign currency exchange rate changes 27 (32)
Curtailment gain (18) ---
Benefits paid (833) (545)
- ----------------------------------------------------------------------------
Benefit Obligation-end of year 3,247 4,372
- ----------------------------------------------------------------------------
Change in Plan Assets
Fair value plan assets-beginning of year --- ---
Employer contribution 599 373
Participants' contributions 234 172
Benefits paid (833) (545)
- ----------------------------------------------------------------------------
Fair value plan assets-end of year --- ---
- ----------------------------------------------------------------------------
Funded status (3,247) (4,372)
Unrecognized net actuarial gain (2,101) (1,713)
Unrecognized prior service cost (446) (908)
- ----------------------------------------------------------------------------
Accrued benefit cost $(5,794) $(6,993)
============================================================================
</TABLE>
38
<PAGE>
Net periodic post-retirement medical benefit income consisted of the following
components:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 85 $ 118 $ 409
Interest cost 295 372 644
Amortization of prior service cost (525) (236) (169)
Amortization of actuarial gain (429) (403) (170)
Effect of curtailment benefit (9) ---- (7,004)
- --------------------------------------------------------------------
Post-retirement medical benefit income $(583) $(149) $(6,290)
====================================================================
</TABLE>
During 1997, Terra amended its retiree medical plan to eliminate retiree medical
benefits for eligible employees who do not retire and elect participation on or
before January 1, 2002. The impact of the amendment was a $7.0 million decrease
to post-retirement medical benefit expense.
Terra limits its future obligation for post-retirement medical benefits by
capping at 5% the annual rate of increase in the cost of claims it assumes under
the plan. The weighted average discount rate used in determining the
accumulated post-retirement medical benefit obligation was 7.5% in 1999, 7.00%
in 1998, and 7.25% in 1997. The assumed annual health care cost trend rate was
6.0% in 1999 and is assumed to decrease to 5.00% in 2000 and remain at that
level thereafter. A 1% increase in the assumed health care cost trend rate
would increase total service and interest cost by $1,000 while a 1% decline
would decrease cost by $6,000. The impact on the benefit obligation of a 1%
increase in the assumed health care cost trend rate would be $9,000 while a 1%
decline in the rate would decrease the benefit obligation by $58,000.
20. Income Taxes
Components of the income tax provision (benefit) applicable to continuing
operations are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(18,659) $(35,106) $ 30,476
Foreign --- 981 2,352
State (2,355) (1,955) 5,692
- ------------------------------------------------------------------------
(21,014) (36,080) 38,520
- ------------------------------------------------------------------------
Deferred:
Federal (20,843) 8,586 43,938
Foreign (2,940) 2,464 16,923
State (1,203) 269 5,481
- ------------------------------------------------------------------------
(24,986) 11,319 66,342
- ------------------------------------------------------------------------
Total income tax provision (benefit) $(46,000) $(24,761) $104,862
========================================================================
</TABLE>
39
<PAGE>
The following table reconciles the income tax provision (benefit) per the
Consolidated Statements of Operations to the federal statutory provision:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from operations before taxes:
Domestic $(102,707) $(78,508) $233,745
Foreign (13,391) 10,416 50,632
- -------------------------------------------------------------------------------
$(116,098) $(68,092) $284,377
===============================================================================
Statutory income tax provision (benefit):
Domestic $ (35,947) $(27,844) $ 80,910
Foreign (4,306) 4,100 19,240
- -------------------------------------------------------------------------------
(40,253) (23,744) 100,150
Purchased Canadian tax benefit 215 (4,344) (8,144)
Non-deductible expenses, primarily goodwill 6,152 6,884 6,632
State and local income taxes (2,688) (700) 9,225
Benefit of loss carryforwards --- (442) (975)
Other (9,399) (2,415) (2,026)
- -------------------------------------------------------------------------------
Income tax provision (benefit) $ (46,000) $(24,761) $104,862
===============================================================================
</TABLE>
Current deferred tax assets totaled $5.5 million and $15.3 million at December
31, 1999 and 1998, respectively, while deferred tax liabilities totaled $163.7
million and $198.0 million, respectively. The tax effect of net operating loss
(NOL) and tax credit carryforwards and significant temporary differences between
reported and taxable earnings that gave rise to net deferred tax (liabilities)
assets were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Depreciation $(182,556) $(181,788)
Investments in partnership (25,994) (27,514)
Unfunded employee benefits 10,826 17,177
Discontinued business costs 18,846 9,677
Valuation allowance (4,825) (6,695)
NOL, capital loss and tax credit carryforwards 32,073 4,786
Inventory valuation 406 2,636
Accrued liabilities 4,832 (1,590)
Other (2,178) 667
- --------------------------------------------------------------------------
$(148,570) $(182,644)
==========================================================================
</TABLE>
During 1996, after receiving a favorable ruling from Revenue Canada, Terra
refreshed its tax basis in plant and equipment at its Canadian subsidiary by
entering into a transaction with a Canadian subsidiary of Anglo American, plc,
resulting in a deferred tax asset for Terra. Anglo American, plc, through its
beneficial ownership of Common Shares, owned approximately 56% of the equity of
Terra at December 31, 1999. The ultimate realization of the deferred tax asset
will require future taxable income in Canada. Terra assessed its past earnings
history and trends
40
<PAGE>
and established a valuation allowance of $4.8 million related to the transaction
as of December 31, 1999. Terra will continue to review this valuation allowance
and make adjustments as appropriate.
Components of income tax provision (benefit) included in net income other than
from continuing operations are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(10,655) $9,761 $15,794
State (3,070) --- (87)
- ----------------------------------------------------------------------------
$(13,725) $9,761 $15,707
============================================================================
</TABLE>
41
<PAGE>
21. Industry Segment Data
Terra operates in two principal industry segments - Nitrogen Products and
Methanol. The Nitrogen Products business produces and distributes ammonia,
urea, nitrogen solutions and ammonium nitrate to agricultural and industrial
users. The Methanol business manufactures and distributes methanol, which is
principally used as a raw material in the production of a variety of chemical
derivatives and in the production of methyl tertiary butyl ether (MTBE), an
oxygenate and an octane enhancer for gasoline. Management evaluates performance
based on operating earnings of each segment. Terra does not allocate interest,
income taxes or infrequent items to the business segments. Intersegment
revenues have been recorded at amounts approximating market. Included in Other
are general corporate activities not attributable to a specific industry segment
and eliminations of intersegment activity. The following summarizes additional
information about Terra's industry segments:
<TABLE>
<CAPTION>
Nitrogen
(in thousands) Products Methanol Other Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 686,767 $ 85,178 $ 2,364 $ 774,309
Operating loss (43,909) (15,210) (3,923) (63,042)
Total assets 1,413,225 175,151 13,069 1,601,445
Depreciation and amortization 75,082 12,701 13,805 101,588
Capital expenditures 40,626 1,422 9,851 51,899
Equity earnings 787 --- --- 787
Equity investments 1,822 --- --- 1,822
Minority interest in earnings (1,088) 9,429 --- 8,341
================================================================================
1998
Revenues $ 751,597 $ 96,547 $ (2,593) $ 845,551
Operating earnings (loss) 39,329 (7,891) (21,224) 10,214
Total assets 1,332,765 176,197 528,806 2,037,768
Depreciation and amortization 81,933 12,821 6,299 101,053
Capital expenditures 53,908 1,354 65 55,327
Equity earnings 1,236 --- --- 1,236
Equity investments 1,985 --- --- 1,985
Minority interest in earnings 9,633 17,877 --- 27,510
================================================================================
1997
Revenues $ 621,410 $180,646 $ (4,409) $ 797,647
Operating earnings (loss) 150,270 63,662 (17,157) 196,775
Total assets 1,322,413 189,088 576,059 2,087,560
Depreciation and amortization 55,501 13,027 3,786 72,314
Capital expenditures 43,890 2,428 2,099 48,417
Equity earnings --- --- --- ---
Equity investments 1,929 --- --- 1,929
Minority interest in earnings 27,633 --- --- 27,633
================================================================================
</TABLE>
42
<PAGE>
The following summarizes geographic information about Terra:
<TABLE>
<CAPTION>
Revenues Long-lived Assets
----------------------------- ------------------------------------
(in thousands) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $488,707 $516,103 $746,113 $ 938,365 $1,184,793 $1,215,824
Canada 39,734 50,050 51,534 56,897 70,404 87,347
United Kingdom 245,868 279,398 --- 312,501 315,058 317,804
- ------------------------------------------------------------------------------------
$774,309 $845,551 $797,647 $1,307,763 $1,570,255 $1,620,975
====================================================================================
</TABLE>
22. Agreements of Limited Partnerships
Terra Nitrogen Company, L.P. (TNCLP)
In accordance with the TNCLP limited partnership agreement, quarterly
distributions to unitholders and TNC are made in an amount equal to 100% of its
available cash, as defined in the partnership agreement. The General Partner
receives a combined minimum 2% of total cash distributions, and as an incentive,
the general partner's participation increases if cash distributions exceed
specified target levels.
If at any time less than 25% of the issued and outstanding units are held by
non-affiliates of the general partner, TNCLP may call, or assign to the general
partner or its affiliates its right to acquire, all such outstanding units held
by non-affiliated persons. Terra owned 72.4% of the Common Units at December
31, 1999. If, and when the 75% ownership threshold is met, TNCLP shall give at
least 30 but not more than 60 days notice of its decision to purchase the
outstanding units. The purchase price per unit will be the greater of (1) the
average of any previous twenty trading days' closing prices as of the date five
days before the purchase is announced or (2) the highest price paid by the
general partner or any of its affiliates for any unit within the 90 days
preceding the date the purchase is announced.
Beaumont Methanol, Limited Partnership (BMLP)
BMLP sold a 42% limited interest for $225 million to Nova Investors LLC (Nova),
an entity not otherwise affiliated with Terra, in December 1997. BMLP used $175
million of proceeds to partially fund the U.K. acquisition. The remaining $50
million was being used to fund construction of the ammonia loop at the Beaumont
plant.
43
<PAGE>
Terra repurchased Nova's interest in BMLP on June 30, 1999, with proceeds from
sale of the Distribution business. Nova had received a first priority return
from BMLP approximating an annual rate of LIBOR plus 3.17% on its $225 million
investment.
The publicly held TNCLP Common Units and the BMLP limited interest are reflected
in the financial statements as minority interest.
23. Pending Change of Control
Anglo American PLC, through its wholly-owned subsidiaries, owns approximately
56% of Terra's outstanding shares. Anglo American has made public its intention
to dispose of its interest in Terra with the timing based on market and other
conditions.
44
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Terra Industries Inc. and
its subsidiaries have been prepared in conformity with generally accepted
accounting principles appropriate in the circumstances. The integrity and
objectivity of data in these financial statements and supplemental data,
including estimates and judgments related to matters not concluded by year end,
are the responsibility of management.
Terra has a system of internal accounting controls that provides management with
reasonable assurance that transactions are recorded and executed in accordance
with its authorizations, that assets are properly safeguarded and accounted for,
and that financial records are maintained to permit preparation of financial
statements in accordance with generally accepted accounting principles. This
system includes written policies and procedures, an organizational structure
that segregates duties, and a comprehensive program of periodic audits by the
internal auditors. Terra also has instituted policies and guidelines that
require employees to maintain the highest level of ethical standards.
The Audit Committee of the Board of Directors is responsible for the review and
oversight of the financial statements and reporting practices used, as well as
the internal audit function. The Audit Committee meets periodically with
management, internal auditors and the independent accountants. The independent
accountants and internal auditors have access to the Audit Committee and,
without management present, have the opportunity to discuss the adequacy of
internal accounting controls and to review the quality of financial reporting.
The Consolidated Financial Statements contained in this Annual Report have been
audited by our independent accountants. Their audits included a review of
internal accounting controls to establish a basis for reliance thereon in
determining the nature, extent and timing of audit tests applied in their audits
of the Consolidated Financial Statements.
Burton M. Joyce Francis G. Meyer
President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Terra Industries Inc:
We have audited the accompanying consolidated statements of financial position
of Terra Industries Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Terra Industries Inc. and
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 10, 2000
46
<PAGE>
Quarterly Production Data (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter Year
Ended Ended Ended Ended Ended
March 31 June 30 Sept. 30 Dec. 31 Dec. 31
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Net Production (tons):
Anhydrous ammonia 389,693 391,912 327,153 332,991 1,441,749
Nitrogen solutions (28% basis) 918,003 803,190 836,685 967,742 3,525,620
Urea 135,472 149,434 101,711 143,651 530,268
Ammonium nitrate 288,676 237,010 190,073 183,088 898,847
Methanol (million gallons) 24.3 68.7 68.1 73.7 234.8
- -------------------------------------------------------------------------------------
1998 Net Production (tons):
Anhydrous ammonia 303,365 371,928 356,316 344,807 1,376,416
Nitrogen solutions (28% basis) 904,776 960,590 925,535 1,004,696 3,795,597
Urea 159,805 169,139 173,801 148,226 650,971
Ammonium nitrate 246,070 217,297 244,616 227,430 935,413
Methanol (million gallons) 85.1 57.4 77.7 75.7 295.9
=====================================================================================
</TABLE>
Quarterly Financial and Stock Market Data (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except
per-share data and stock prices) March 31, June 30, Sept. 30, Dec. 31,
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total revenues $185,667 $226,257 $173,478 $188,907
Operating loss (22,244) (4,098) (17,860) (18,840)
Loss from continuing operations (23,402) (9,135) (16,907) (20,654)
Loss before extraordinary item (29,202) (13,858) (16,907) (20,654)
Net loss (29,202) (21,153) (16,907) (22,625)
Per Share:
Loss from continuing operations $ (0.32) $ (0.12) $ (0.23) (0.27)
Loss before extraordinary item: (0.39) (0.19) (0.23) (0.27)
Net loss: (0.39) (0.29) (0.23) (0.30)
Dividends 0.05 0.02 --- ---
Common Share Price:
High $ 7.50 $ 5.38 $ 4.06 $ 2.50
Low 4.44 3.38 1.63 .94
1998
Total revenues $198,082 $278,045 $171,544 $197,880
Operating income (loss) 14,921 17,515 (886) (21,336)
Loss from continuing operations (2,101) (2,721) (7,544) (30,965)
Net income (loss) (18,280) 50,618 (21,824) (36,763)
Per Share:
Income (loss) from continuing operations $ (0.02) $ (0.04) $ (0.10) $ (0.42)
Net income (loss) per share (0.24) 0.68 (0.29) (0.50)
Dividends 0.05 0.05 0.05 0.05
Common Share Price:
High $ 13.13 $ 11.75 $ 9.06 $ 8.06
Low 10.94 8.75 3.88 4.88
=============================================================================================
</TABLE>
47
<PAGE>
Volumes & Prices (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
Sales Realized Sales Realized
(quantities in thousands) Volumes Price/unit Volumes Price/unit
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anhydrous ammonia (tons) 1,417 $ 122 1,349 $ 143
Nitrogen solutions (tons) 3,682 62 3,548 66
Urea (tons) 563 99 631 118
Ammonium nitrate (tons) 833 113 809 134
Methanol (gallons) 245,821 0.35 285,958 0.34
================================================================================
</TABLE>
STOCKHOLDERS
- --------------------------------------------------------------------------------
Terra's Common Shares are traded principally on the New York Stock Exchange. At
December 31, 1999, 75 million Common Shares were outstanding and held by 4,003
stockholders.
48
<PAGE>
Financial Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except
per-share and employee data) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position
Working capital $ 152,959 $ 262,283 $ 302,724 $ 187,157 $ 307,873
Total assets 1,601,445 2,037,768 2,177,157 1,740,547 1,661,079
Long-term debt 480,461 497,030 506,568 407,312 411,573
Stockholders' equity 657,002 747,852 790,329 606,092 571,583
Results of Operations
Revenues $ 774,309 $ 845,551 $ 797,647 $ 781,451 $ 817,412
Costs and expenses (837,351) (835,337) (600,872) (527,636) (499,162)
Infrequent item --- --- 163,427 --- ---
Interest income 8,361 326 208 1,231 5,961
Interest expense (53,076) (51,122) (48,400) (43,623) (56,740)
Minority interest (8,341) (27,510) (27,633) (44,485) (47,234)
Income tax benefit (provision) 46,000 24,761 (104,862) (53,916) (91,049)
- -------------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations (70,098) (43,331) 179,515 113,022 129,188
Income (loss) from
discontinued operations (10,524) 17,082 30,367 20,929 34,694
Extraordinary item (9,265) --- (2,995) ---- (4,338)
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ (89,887) $ (26,249) $ 206,887 $ 133,951 $ 159,544
=======================================================================================================
Basic Earnings (Loss) Per Share:
Continuing operations $ (0.94) $ (0.58) $ 2.43 $ 1.47 $ 1.60
Discontinued operations (0.14) 0.23 0.41 0.27 0.43
Extraordinary item (0.12) --- (0.04) --- (0.05)
- -------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1.20) $ (0.35) $ 2.80 $ 1.74 $ 1.98
=======================================================================================================
Diluted Earnings (Loss) Per Share:
Continuing operations $ (0.94) $ (0.58) $ 2.39 $ 1.45 $ 1.58
Discontinued operations (0.14) 0.23 0.41 0.27 0.43
Extraordinary item (0.12) --- (0.04) ---- (0.05)
- -------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1.20) $ (0.35) $ 2.76 $ 1.72 $ 1.96
=======================================================================================================
Dividends Per Share $ 0.07 $ 0.20 $ 0.18 $ 0.15 $ 0.10
=======================================================================================================
Capital Expenditures $ 51,899 $ 55,327 $ 48,417 $ 158,339 $ 161,598
=======================================================================================================
Full-time employees
at end of period 1,351 4,185 4,435 3,575 3,415
=======================================================================================================
</TABLE>
49
<PAGE>
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
December 31, 1999
Exhibit 21
<TABLE>
<CAPTION>
Percentage Percentage
Name of Company Held by TRA Held by Sub Jurisdiction
- --------------- ----------- ----------- ------------
<S> <C> <C> <C>
I. El Rancho Rock & Sand, Inc. 100 California
II. Inspiration Coal Inc. 100 Delaware
III. Inspiration Coal Development Company 100 Delaware
which owns
----------
A. Ashland Mining Corporation 100 W. Virginia
B. Briarwood Mining Inc. 100 Virginia
C. Plateau Fuels, Inc. 100 Kentucky
D. Southern Floyd Coal, Inc. 100 Kentucky
IV. Inspiration Consolidated Copper Company 100 Maine
which owns
----------
A. Black Pine Mining Company 100 Montana
B. Inspiration Development Company 100 Delaware
V. Inspiration Gold Incorporated 100 Delaware
VI. Terra Capital Holdings, Inc. 100 Delaware
which owns
----------
A. Terra Capital, Inc. 100 Delaware
which owns
----------
1. Terra Methanol Corporation 100 Delaware
2. Terra International, Inc. 100 Delaware
which owns
----------
a. Farmbelt Chemicals, Inc. 100 Delaware
b. Farmers Agricultural Credit Corporation 100 Iowa
c. Northern Agricultural Credit Corporation 100 Minnesota
d. Terra International (Oklahoma) Inc. 100 Delaware
e. Terra Real Estate Corporation 100 Iowa
f. Terra Real Estate Development Corporation 100 Iowa
g. Terra Express, Inc. 100 Delaware
</TABLE>
<PAGE>
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
December 31, 1999
Exhibit 21
<TABLE>
<CAPTION>
Percentage Percentage
Name of Company Held by TRA Held by Sub Jurisdiction
- --------------- ----------- ----------- ------------
<S> <C> <C> <C>
A. Terra Capital, Inc. (continued)
-----------------------------------
2. Terra International, Inc. (continued)
h. Terra International (Canada) Inc. 100 Ontario, Canada
which owns
----------
1. Terra Nitrogen (U.K.) Limited 100 England
i. Port Neal Corporation 100 Delaware
3. BMC Holdings, Inc. 100 Delaware
which owns
----------
a. Beaumont Holdings Corporation 100 Delaware
b. Beaumont Methanol, Limited Partnership/1/ 100 Delaware
which owns
----------
1. Terra (U.K.) Holdings Inc. 100 Delaware
which owns
----------
a. Beaumont Ammonia Inc. 100 Delaware
4. Terra Nitrogen Corporation 100 Delaware
which owns
----------
a. Terra Nitrogen Company, L.P./2/ 74 Delaware
which owns
----------
1. Terra Nitrogen, Limited Partnership/3/ 100 Delaware
a. Oklahoma Co\\2\\ Partnership 50 Oklahoma
5. Terra Capital Funding LLC/4/ 99 Delaware
a. Terra Funding Corporation/5/ 100 Delaware
</TABLE>
__________________________
/1/Terra Methanol Corporation is 1% General Partner and Limited Partner
interests are owned by TMC, BMCH and Beaumont Holdings Corp.
/2/Terra Nitrogen Corporation's interest includes 1.0101% as General Partner
and some of TNCLP is owned directly by Terra Capital, Inc.
/3/Terra Nitrogen Corporation is 1% General Partner.
/4/Terra Capital Holdings, Inc. has a 1% interest.
/5/An outside investor owns one share of Class SV Preferred Shares with limited
voting rights.
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD G. BEIMFOHR
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 12th day of February, 2000.
/s/ Edward G. Beimfohr
-------------------------------------
EDWARD G. BEIMFOHR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
CAROLE L. BROOKINS
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 10th day of February, 2000.
/s/ Carole L. Brookins
---------------------------------------
CAROLE L. BROOKINS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD M. CARSON
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 17th day of February, 2000.
/s/ Edward M. Carson
---------------------------------------
EDWARD M. CARSON
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
THOMAS H. CLAIBORNE
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 15/th/ day of February, 2000.
/s/ Thomas H. Claiborne
----------------------------------
THOMAS H. CLAIBORNE
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
ERIC K. DIACK
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 25/th/ day of February, 2000.
/s/ Eric K. Diack
--------------------------------------
ERIC K. DIACK
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
DAVID E. FISHER
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 16th day of February, 2000.
/s/ David E. Fisher
--------------------------------------
DAVID E. FISHER
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
BURTON M. JOYCE
hereby constitute and appoint George H. Valentine and Francis G. Meyer, or each
of them, with full power of substitution and resubstitution, my true and lawful
attorney, for me and in my name, place and stead, to sign my name as a director
of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and any amendments or
supplements thereto, and to file said Annual Report and any amendment or
supplement thereto, with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 11/th/ day of February, 2000.
/s/ Burton M. Joyce
---------------------------------------
BURTON M. JOYCE
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
JOHN R. NORTON III
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 16/th/ day of February, 2000.
/s/ John R. Norton, III
--------------------------------------
JOHN R. NORTON III
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
HENRY R. SLACK
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 15/th/ day of February, 2000.
/s/ Henry R. Slack
----------------------------
HENRY R. SLACK
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
FRANCIS G. MEYER
hereby constitute and appoint George H. Valentine and Burton M. Joyce, or each
of them, with full power of substitution and resubstitution, my true and lawful
attorney, for me and in my name, place and stead, to sign my name as Senior
Vice President and Chief Financial Officer of Terra Industries Inc. (the
"Company") to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and any amendments or supplements thereto, and to file said
Annual Report and any amendment or supplement thereto, with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 12/th/ day of February, 2000.
/s/ Francis G. Meyer
--------------------------------------------
FRANCIS G. MEYER
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
WILLIAM R. LOOMIS, JR.
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 12th day of February, 2000.
/s/ William R. Loomis, Jr.
-------------------------------------
WILLIAM R. LOOMIS, JR.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TERRA
INDUSTRIES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,378
<SECURITIES> 412
<RECEIVABLES> 103,267
<ALLOWANCES> (491)
<INVENTORY> 133,634
<CURRENT-ASSETS> 293,682
<PP&E> 1,322,822
<DEPRECIATION> 325,021
<TOTAL-ASSETS> 1,601,445
<CURRENT-LIABILITIES> 40,723
<BONDS> 469,309
0
0
<COMMON> 127,890
<OTHER-SE> 529,112
<TOTAL-LIABILITY-AND-EQUITY> 1,601,445
<SALES> 765,858
<TOTAL-REVENUES> 774,309
<CGS> 781,927
<TOTAL-COSTS> 781,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,686
<INTEREST-EXPENSE> 53,076
<INCOME-PRETAX> (116,098)
<INCOME-TAX> (46,000)
<INCOME-CONTINUING> (70,098)
<DISCONTINUED> (10,524)
<EXTRAORDINARY> (9,265)
<CHANGES> 0
<NET-INCOME> (89,887)
<EPS-BASIC> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
