<PAGE>
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
(Mark One)
[X] 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 1-10877
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
TERRA NITROGEN COMPANY, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 73-1389684
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Terra Centre 51102-6000
600 Fourth Street (Zip Code)
P. O. Box 6000
Sioux City, Iowa (712) 277-1340
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Units Representing Limited New York Stock Exchange
Partner Interests Evidenced by Depositary
Receipts
Securities registered pursuant to section 12(g) of the Act: None
</TABLE>
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 statement
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 Common Units held by
nonaffiliates as of the close of business on January 31, 2000 was $23,307,814.
<PAGE>
TABLE OF CONTENTS
PART I
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Page
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Items 1 and 2. Business and Properties................................ 1
Item 3. Legal Proceedings...................................... 6
Item 4. Submission of Matters to a Vote of Unitholders......... 6
PART II
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Item 5. Market for Registrant's Units and Related Unitholder
Matters ............................................... 7
Item 6. Selected Financial Data................................ 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Item 8. Financial Statements and Supplementary Data............ 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 13
PART III
--------
Item 10. Directors and Executive Officers of the Registrant..... 14
Item 11. Executive Compensation................................. 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 18
Item 13. Certain Relationships and Related Transactions......... 20
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ........................................... 21
Signatures .............................................................. 25
Index to Financial Statement Schedules, Reports and Consents............. F-1
</TABLE>
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TERRA NITROGEN COMPANY, L.P.
FORM 10-K
PART I
Items 1 and 2. Business and Properties
General
Terra Nitrogen Company, L.P. ("TNCLP") is a Delaware limited partnership
that conducts its operations through an operating partnership subsidiary, Terra
Nitrogen, Limited Partnership (the "Operating Partnership"). Terra Nitrogen
Corporation ("TNC"), a Delaware corporation, is the general partner of both
TNCLP and the Operating Partnership (collectively the "Partnership," unless the
context otherwise requires) and owns a consolidated 2.0% interest in the
Partnership. TNC is an indirect, wholly-owned subsidiary of Terra Industries
Inc. ("Terra"), a Maryland corporation. 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.
Ownership of TNCLP is comprised of the general partner interest and the
limited partner interests. The limited partner interests consist of 18,501,576
Common Units. Terra and its subsidiaries owned 13,389,014 Common Units as of
December 31, 1999 and the balance are traded on the New York Stock Exchange
under the symbol "TNH." The Common Units are referred to herein individually as
a "Unit" and collectively as "Units."
Partnership Products
The Partnership is one of the largest U.S. producers and distributors of
nitrogen fertilizer products, which are used primarily by farmers to improve the
yield and quality of their crops. The Partnership's principal products include
ammonia, urea and urea ammonium nitrate solution ("UAN"). The Partnership's
product sales are heavily weighted toward UAN, and all of its products are sold
on a wholesale basis. Although, to some extent, the various nitrogen fertilizer
products are interchangeable, each has its own distinct characteristics that
result in agronomic preferences among end users. Farmers determine which type of
nitrogen fertilizer to apply depending on the crop, soil and weather conditions,
regional farming practices and relative nitrogen fertilizer prices.
The Partnership's sales mix for each of the years 1999, 1998 and 1997 was
(based on product tons sold):
1999 1998 1997
---- ---- ----
Ammonia 16% 15% 15%
Urea 13% 15% 15%
UAN 71% 70% 70%
--- --- ---
100% 100% 100%
Ammonia. The Partnership produces ammonia, the simplest form of nitrogen
fertilizer and the feedstock for the production of most other nitrogen
fertilizers, at its two facilities in Verdigris, Oklahoma and Blytheville,
Arkansas. Ammonia is produced by natural gas reacting with steam and air at high
temperatures and pressures in the presence of catalysts.
Ammonia has a nitrogen content of 82% by weight and is generally the least
expensive form of fertilizer per pound of nitrogen. However, because it is a gas
that must be kept under pressure and refrigerated, ammonia is more costly to
store, ship and apply than other nitrogen fertilizer products and must be
applied during a shorter period of the growing season. Ammonia must be injected
into the soil by specialized equipment, and soil conditions limit its
application.
1
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In addition, in certain areas, especially in lesser-developed countries,
dealers and farmers lack the equipment necessary to store, ship and apply
ammonia and are required to use other forms of nitrogen fertilizer. Ammonia can
be upgraded into solid or liquid fertilizers, like urea and UAN, which are
easier to transport, store and apply than ammonia.
Urea. The Partnership produces urea at the its Blytheville, Arkansas
facility by upgrading portions of its ammonia production. Solid urea is produced
by converting ammonia into liquid urea that is then dehydrated, turned into a
solid, and either prilled or granulated. Prilled materials are the most common
form of solid urea. The granular form made by the Partnership may command a
modest price premium in certain markets because the consistency in size of the
granules (relative to prills) results in a more controllable spreading pattern
and better blending characteristics.
Urea has a nitrogen content of 46% by weight, the highest level for any
solid nitrogen product. Dry urea is used both as a direct application fertilizer
and as an ingredient in the dry bulk blending of mixed fertilizer grades. Urea
is transported and stored in bulk or in bags and is often blended by
distributors into customized fertilizers containing other nutrients.
UAN. The Partnership produces UAN at its Verdigris, Oklahoma facility and
at the Blytheville, Arkansas facility by upgrading portions of its ammonia
production. Combining liquid urea and ammonium nitrate in water produces UAN.
UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not need to
be refrigerated or pressurized for transportation or storage.
The nitrogen content of UAN is typically 28% to 32% by weight. As a liquid,
UAN has many advantages over solid fertilizers and gaseous ammonia. UAN may be
applied more uniformly than non-liquid products and may be mixed with various
crop protection products or other nutrients, permitting the farmer to apply
several materials simultaneously, thus reducing energy and labor costs. In
addition, UAN, unlike ammonia, may be applied from ordinary tanks and trucks and
can be applied to the soil either through spraying, injecting or through
irrigation systems throughout the growing season. 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. The use of conservation
tilling, which reduces erosion, has increased in the United States over the past
decade, and the Partnership believes this trend, if continued, should increase
UAN demand.
Marketing and Distribution
The Partnership sells its products primarily in the Central and Southern
Plains and Cornbelt regions of the United States. The Partnership's two
facilities are located on waterways near the major crop producing and consuming
areas of the United States, where the Partnership has ready access to barge,
truck and rail transportation at both facilities. In addition, the Verdigris
facility has an ammonia pipeline to transport product to primary markets. The
Partnership's products are marketed and distributed through an organization
based in Sioux City, Iowa that provides combined services to the Partnership and
to Terra. For further information on the combined organizations of the General
Partner and its affiliates, see "Certain Relationships and Related
Transactions." In addition, the Partnership occasionally exports UAN through an
export marketing association comprised of four domestic UAN producers.
All of the Partnership's sales are at the wholesale level. The
Partnership's customers for fertilizer products are dealers, national farm
retail chains, distributors and other fertilizer producers and traders. National
farm retail chains have both distribution and application capabilities.
Distributors operate as wholesalers and sell directly to dealers and national
farm retail chains, which, in turn, sell directly to farmers. Many dealers
maintain year-round storage capacity for inventory as well as application
equipment. The majority of the Partnership's sales of nitrogen fertilizer is
made to dealers. For the year ended December 31, 1999, sales to Terra totaled
$16.1 million, or 7% of the Partnership's sales. For a description of the
Partnership's sales to affiliates of the General Partner, see "Certain
Relationships and Related Transactions." No single customer accounted for more
than 10% of the Partnership's 1999 sales.
As part of the sale by Terra 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 this
transaction, Terra sold product to its distribution business. In 1998, 12% of
Terra's production in North America was sold to its distribution business.
2
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Transportation. The Partnership transports product primarily via barge and
railcar. Additionally, the Partnership uses trucks to transport smaller
quantities of product, and the Verdigris facility distributes ammonia through a
common carrier pipeline. In addition, various supply terminals and
transportation equipment are generally available for the use and benefit of the
Partnership and affiliates of the General Partner. The Partnership has access to
significant storage capacity throughout the Midwestern U.S. through these supply
terminals and by its storing product in various retail service centers of Terra.
See "Certain Relationships and Related Transactions."
Production and Terminal Facilities
Production Facilities. The Partnership's two facilities produce nitrogen
fertilizer products. These facilities are located in or near the following
locations and have the following production capacities:
================================================================
Annual Capacity in Tons
Location
----------------------------------------------------------------
Ammonia/1/ Urea UAN-28
----------------------------------------------------------------
Blytheville, Arkansas 420,000 480,000 30,000
----------------------------------------------------------------
Verdigris, Oklahoma 1,050,000 2,180,000
----------------------------------------------------------------
Total 1,470,000 480,000 2,210,000
================================================================
1 Measured in gross tons of ammonia produced; net tons ll vary with
upgrading requirements.
The Partnership's two 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 the
Partnership's fertilizer manufacturing facilities was 97% in 1999, 107% in 1998
and 108% in 1997.
The Partnership owns all of its manufacturing facilities in fee, unless
otherwise stated below. All Partnership manufacturing facilities 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. The Partnership 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 the Partnership 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 the Partnership has an option to extend the lease
for eleven successive terms of five years each at the same rental rate. The
Partnership 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 the Partnership has an option to extend the
lease for three successive terms of five years each at the same rental rate. The
Partnership also has a similar, unconditional option to purchase the urea plant
for a nominal price.
Terminal Facilities. The Partnership owns and operates four terminals used
to store and distribute product to customers. The Partnership owns in fee a UAN
terminal located near Dublin, Indiana (Henry and Wayne Counties). The
Partnership owns a fee and a leasehold interest in an ammonia and UAN terminal
located near Blair, Nebraska (Washington County). A leasehold interest is held
by the Partnership in a UAN terminal located near Pekin, Illinois (Tazewell
County). Near Shattuc, Illinois (Clinton County) is another UAN terminal, owned
by the Partnership in fee, the leasehold portions of both the Blair, Nebraska
and the Pekin, Illinois terminals are leased from Conoco Inc. under a capital
lease which is scheduled to terminate on November 30, 2000. The Partnership has
an option to purchase these properties for a nominal price at the end of the
lease term. In addition, as of December 31, 1999, the Partnership had access to
leased space in 60 terminals located in numerous states.
3
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Credit
The Partnership'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. The Partnership's bad debt write-off's 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.
Raw materials
The principal raw material used to produce manufactured nitrogen products
is natural gas. Natural gas costs in 1999 comprised about 56% of total costs and
expenses for the Partnership's business. The Partnership believes 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.
The Partnership'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 production occurs 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 the Partnership's.
If natural gas prices increase, the Partnership may benefit from its use of
forward-pricing techniques. Conversely, if natural gas prices fall, the
Partnership 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 future 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.
4
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Transportation
The Partnership uses several modes of transportation to receive materials
and distribute product to customers, including railroad cars, common carrier
trucks, barges and common carrier pipelines. The Partnership uses approximately
13 liquid, dry and anhydrous ammonia fertilizer terminal storage facilities in
10 states and one Canadian province. Railcars are the major source of
transportation at the Partnership's manufacturing facilities. The Partnership
currently leases approximately 2,350 railcars. The Partnership also owns ten
nitric acid railcars.
The Partnership transports purchased natural gas to its Verdigris, Oklahoma
facility via an intrastate pipeline. This pipeline is not an open-access
carrier, but the Partnership can transport natural gas from any Oklahoma source
that is connected to this widespread pipeline system. The Partnership also has
limited access to out-of-state natural gas supplies for this facility. The
Partnership transports purchased natural gas for its Blytheville, Arkansas
facility, which is delivered by a natural gas pipeline company.
Research and Development
The Partnership does not currently have any significant, ongoing research
and development efforts.
Competition
Nitrogen products are a global commodity, and the Partnership's customers
include industrial end-users, dealers and other fertilizer producers. Customers
base purchasing decisions principally on the delivered price and availability of
the product. The Partnership competes with a number of U.S. and foreign
producers, including state-owned and government-subsidized entities. Some of the
Partnership's principal competitors may have greater total resources and may be
less dependent on earnings from nitrogen fertilizer sales than the Partnership.
Some foreign competitors may have access to lower cost or government-subsidized
natural gas supplies. The Partnership competes with other manufacturers of
nitrogen fertilizer on delivery terms and availability of products, as well as
on price.
Environmental and Other Regulatory Matters
The Partnership'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. The
Partnership is also involved in the manufacture, handling, transportation,
storage and disposal of materials that are or may be classified as hazardous or
toxic by federal, state, provincial or other regulatory agencies. Precautions
are taken to reduce the likelihood of accidents involving these materials. If
such materials have been or are disposed of at sites that are targeted for
investigation and remediation by federal or state regulatory authorities, the
Partnership 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.
The Partnership has been designated as a potentially responsible party
("PRP") under CERCLA and its state analogues with respect to various sites.
Under such laws, all PRPs may be held jointly and severally liable for the costs
of investigation and remediation of an environmentally damaged site regardless
of fault or legality of original disposal. After consideration of such factors
as the number and levels of financial responsibility of other PRPs, the
existence of contractual indemnities, the availability of defenses and the
speculative nature of the costs involved, the Partnership believes that its
liability with respect to these matters will not be material.
Freeport-McMoRan Resource partners, Limited Partnership (a former owner
and operator of the Partnership's production facilities) has retained liability
for certain environmental matters originating prior to the acquisition of these
facilities by the Partnership.
The Partnership 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. The Partnership estimates that the cost of complying with
these existing requirements in 2000 and beyond will be less than $5 million.
5
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The Partnership 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 to be more restrictive than current
requirements, the costs of compliance will likely increase. The Partnership 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.
Employees
The Partnership does not have any employees, officers or directors.
The General Partner is responsible for the management of the Partnership.
As of December 31, 1999, the General Partner had 337 employees. None of the
General Partner's employees that work in connection with the Partnership's
business are subject to collective bargaining agreements. The General Partner
considers its labor relations to be good.
Limited Call Right
If at any time less than 25% of the issued and outstanding Units are held
by non-affiliates of the General Partner, the General Partner or its affiliates
may elect to acquire all such outstanding Units held by non-affiliated persons.
The General Partner and its affiliates owned 72.4% of the Common Units at
December 31, 1999. If the 75% ownership threshold is met and the General Partner
elects to acquire all outstanding Units, TNCLP is required to 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 (a) the average of the
previous 20 trading days closing prices as of the date five days before the
purchase is announced or (b) 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.
Item 3. LEGAL PROCEEDINGS
There is no pending or threatened litigation to the knowledge of the
Partnership that would have a material adverse effect on the business or
financial condition of the Partnership.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
Not applicable.
6
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PART II
Item 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS
The high and low sales prices of the Common Units for each quarterly period
for 1999 and 1998, as reported on the New York Stock Exchange Composite Tape,
were as follows:
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<CAPTION>
1999 1998
-------------------------------- -------------------------------
Quarter High Low High Low
<S> <C> <C> <C> <C>
1st $12.1250 $8.0000 $30.6250 $26.8125
2nd 12.3750 8.3750 31.0000 22.3125
3rd 10.0625 4.5000 21.0625 18.1250
4th 6.0000 3.0000 18.6875 9.3750
</TABLE>
Based on information received from TNCLP's transfer and servicing agent,
the number of registered unitholders as of February 22, 2000 is 512. TNC owned
11,172,414 Common Units as of December 31, 1999.
The quarterly cash distributions paid to the Units and the General Partner
in 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Amount Per
Common Amount Distributed
Unit to General Partner
----------------- ----------------------
1999
----
<S> <C> <C>
First Quarter - 0
Second Quarter - 0
Third Quarter - 0
Fourth Quarter - 0
1998
----
First Quarter $1.17 $3,431,000
Second Quarter - 0
Third Quarter 1.72 9,895,000
Fourth Quarter - 0
</TABLE>
Cash distributions are based on Available Cash for the quarter as defined
in TNCLP's limited partnership agreement. Available Cash is defined generally as
all cash receipts less all cash disbursements, adjusted for changes in certain
reserves established as the General Partner determines in its reasonable
discretion to be necessary. There are a number of factors which affect the
amount of taxable income reported to unitholders including Partnership earnings,
capital spending and cash distributions.
Item 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth the Partnership's historical financial and
operating data for each of the five years ended December 31, 1999. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this report.
7
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<TABLE>
<CAPTION>
Selected Historical Financial and Operating Data
-----------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ --------- --------- --------- ---------
(Dollars in Thousands, except Income per Unit and Average Realized Prices)
Income Statement Data:
<S> <C> <C> <C> <C>
Revenues $ 226,941 $ 249,434 $ 333,959 $ 362,730 $373,325
Other income 787 1,326 1,353 408 650
------------ ----------- --------- --------- --------
Total revenues 227,728 250,760 335,312 363,138 373,975
Cost of goods sold 226,731 201,981 219,486 177,502 187,615
------------ ----------- --------- --------- --------
Gross profit 997 48,779 115,826 185,636 186,360
Operating expenses 7,797 9,179 12,147 13,035 16,840
------------ ----------- --------- --------- --------
Operating income (6,800) 39,600 103,679 172,601 169,520
Interest expense (1,947) (2,288) (2,201) (1,210) (1,748)
Interest income 649 1,463 3,660 6,242 4,696
------------ ----------- --------- --------- --------
Net income (loss) $ (8,098) $ 38,775 $ 105,138 $ 177,633 $172,468
============ =========== ========= ========= ========
Net income (loss) per limited
partner unit $ (0.43) $ 1.60 $ 4.17 $ 6.35 $ 6.55
============ =========== ========= ========= ========
Balance Sheet Data (at period end):
Net property, plant and equipment $ 157,275 $ 164,689 $ 169,533 $ 172,771 $177,358
Total assets 242,424 236,077 253,828 306,668 338,123
Long-term debt and capital lease
obligations, including current
maturities 847 8,965 10,036 4,198 5,702
Partners' capital 170,657 178,755 206,775 243,744 286,356
Operating Data:
Production (000's tons): (a)
Ammonia-net of upgrades 452 485 487 397 427
UAN 2,114 2,270 2,299 2,286 2,158
Urea 395 492 496 447 453
------------ ----------- --------- --------- --------
Total production 2,961 3,247 3,282 3,130 3,038
Sales Volume (000's tons): (a)
Ammonia 479 456 475 394 451
UAN 2,191 2,151 2,249 2,324 2,133
Urea 417 453 496 419 455
------------ ----------- --------- --------- --------
Total sales 3,087 3,060 3,220 3,137 3,039
Average realized prices ($/ton)
Ammonia $ 117 $ 129 $ 183 $ 186 $ 199
UAN 60 64 79 92 93
Urea 93 115 139 179 187
</TABLE>
(a) Sales volume differs from production due to the purchase and resale by the
Partnership of ammonia, UAN and Urea as well as changes in the quantities of
inventory of each of the products of the Partnership.
8
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Factors That Affect Operating Performance
Factors that may affect the Partnership's future operating results include:
the relative balance of supply and demand for nitrogen fertilizers, the
availability and cost of natural gas, the number of planted acres - which is
affected by both worldwide demand and government policies - and the types of
crops planted, general weather patterns on timing and duration of field work
for crop planting and harvesting, impact of environmental legislation's
affecting the demand for the Partnership's products, and interruption 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.
Weather can have a significant effect on demand for the Partnership's
products. Weather conditions that delay or intermittently disrupt field work
during the planting season may result in fewer nitrogen applications. 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 reduce fertilizer purchases.
The principal raw material used in the production of nitrogen fertilizers
is natural gas. Natural gas costs in 1999 accounted for approximately 56% of the
Partnership's total costs and expenses. It is the policy of the Partnership to
effectively fix or cap the price of 25%-80% of its natural gas requirements for
a one-year period, and up to 50% of its requirements for the subsequent two-year
period, through the use of various supply contracts, financial derivatives and
other forward pricing techniques. Changes in the market value of these
instruments have a high correlation to changes in the spot price of natural gas.
The fair value of these instruments is estimated based on quoted market prices
from brokers and computations prepared by the Partnership. Annual procurement
requirements for natural gas are approximately 56 million MMbtu. The Partnership
has hedged 27.1% of its 2000 requirements. Market risk is estimated as the
potential loss in fair market value resulting from a hypothetical 10% adverse
change in price. As of December 31, 1999, the Partnership's market risk exposure
related to future natural gas requirements being hedged was $3.7 million based
on the sensitivity analysis. This hypothetical adverse impact on natural gas
derivative instruments would be more than offset by lower costs for natural gas
purchases.
The Partnership's business is highly seasonal with the majority of its
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, the Partnership and its customers build inventories
during the first quarter of the year to ensure timely product availability
during the peak sales season. For its current level of sales, the Partnership
requires lines of credit to fund inventory increases and to support customer
credit terms. The Partnership believes that its credit facilities are adequate
for expected sales levels in 2000.
The Partnership's operations may be subject to significant interruption if
one or more of its facilities were to experience a major accident or other
natural disaster. The Partnership currently maintains insurance (including
business interruption insurance) and expects that it will continue to do so in
an amount that is sufficient to allow the Partnership to withstand major damage
to any of its facilities.
9
<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 the Partnership due to adverse
changes in financial and commodity market prices and rates. The Partnership uses
derivative financial instruments to manage risk in the area of changes in
natural gas prices.
The Partnership's general policy is to avoid unnecessary risk and to limit,
to the extent practical, risks associated with operating activities. Management
of the Partnership may not engage in activities that expose the Partnership to
speculative or non-operating risks. Management is expected to limit risks to
acceptable levels. The use of derivative financial instruments is consistent
with the overall business objectives of the Partnership. Derivatives are used to
manage operating risk within the limits established by the Partnership's Board
of Directors, and in response to identified exposures, provided they qualify as
hedge activities. As such, derivative financial instruments are used to hedge
firm commitments and forecasted commodity purchase transactions.
Results of operations: 1999 compared with 1998
The Partnership's sales volumes and prices for 1999 and 1998 follow
(quantities in thousands of tons):
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
Sales Volume Avg. Unit Price Sales Volume Avg. Unit Price
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Ammonia 479 $117 456 $129
UAN 2,191 60 2,151 64
Urea 417 93 453 115
</TABLE>
Revenues for 1999 declined $23.0 million, or 9%, primarily due to lower
sales prices for all products. The selling price decline of $24 million was
caused by a global oversupply of nitrogen fertilizer products.
Cost of goods sold increased to $226.7 million for 1999 or $24.8 million
over 1998 cost of sales due to higher natural gas costs, lower production rates
and higher freight and distribution costs. The Partnership's natural gas costs
increased 10% in 1999, or $11.1 million, compared with 1998. The Partnership's
forward pricing activities produced $2.5 million in cost savings compared with
spot market natural gas prices during 1999.
Operating expenses decreased $1.4 million, or 15%, due to lower
administrative and overhead expense allocations from TNC and Terra Industries,
Inc ("Terra").
Interest expense decreased slightly in 1999 compared to 1998 as the
outstanding balance of $7 million under the Operating Partnership's $25 million
revolving credit facility was repaid June 30, 1999.
Interest income declined $0.8 million during 1999 due to lower levels of
cash and short-term investments, the result of decreased profitability and
termination of the accounts receivable securitization program during the second
quarter of 1999.
Net income per limited partner unit is computed by dividing net income,
less an approximate 2% and 24% share allocable to the General Partner for 1999
and 1998, respectively, by 18,501,576 limited partner units. According to the
Agreement of Limited Partnership of TNCLP, net income is allocated to the
General Partner and the Limited Partners in each taxable year in the same
proportion that Available Cash for such taxable year was distributed to the
General Partner and the Limited Partners. Distributions of Available Cash are
made 98% to the Limited Partners and 2% to the General Partner, except that the
General Partner is entitled, as an incentive, to larger percentage interests to
the extent that distributions of Available Cash exceed specified target levels.
There was no Available Cash for 1999 due primarily to lower net income.
10
<PAGE>
Results of operations: 1998 compared with 1997
The Partnership's sales volumes and prices for 1998 and 1997 follow
(quantities in thousands of tons):
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ------------------------------------
Sales Volume Avg. Unit Price Sales Volume Avg. Unit Price
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Ammonia 456 $129 475 $183
UAN 2,151 64 2,249 79
Urea 453 115 496 139
</TABLE>
Revenues for 1998 declined $84.5 million, or 25%, primarily due to lower
sales prices for all products and to a lesser degree, lower sales volumes.
Nitrogen prices fell during 1998 due to lower worldwide demand for urea,
increased nitrogen production capacity and erratic weather patterns in the
Partnership's markets.
Cost of goods sold as a percentage of revenues increased to 81% for 1998
from 65% in 1997 due to lower sales prices somewhat offset by lower natural gas
costs. The Partnership's natural gas costs decreased 5% in 1998 compared with
1997. The Partnership's forward pricing activities produced $5.9 million in cost
savings compared with spot market natural gas prices during 1998.
Operating expenses decreased $3.0 million, or 25%, due to lower pension,
administrative and overhead expense allocations from TNC and Terra.
Interest expense was essentially unchanged in 1998 compared to 1997.
Interest income declined $2.2 million during 1998 due to lower levels of
cash and short-term investments as a result of decreased profitability.
Net income per limited partner unit is computed by dividing net income,
less an approximate 24% and 26% share allocable to the General Partner for 1998
and 1997, respectively, by 18,501,576 limited partner units. Available Cash for
1998 decreased $103.6 million from 1997 due primarily to lower net income in
1998.
Capital resources and liquidity
Net cash used by operating activities for 1999 was $27.0 million compared
to 1998 cash provided by operating activities of $45 million, a decrease of
$72.2 million from 1998, principally due to funding working capital needs and
lower net income. Working capital used $28.0 million of cash in 1999 primarily
due to an increase in accounts receivable, largely from the termination of the
accounts receivable securitization facility, and payment of affiliate payables.
Cash used by operating activities and other cash needs were funded through an
increase of $39.6 million in short-term debt payable to affiliates.
Capital expenditures of $5.6 million during 1999 were primarily to fund
replacement and stay-in-business additions to plant and equipment.
The Partnership's principal needs for funds are for support of its working
capital and capital expenditures. The Partnership intends to fund its needs
primarily from net cash provided by operating activities, and, to the extent
required, from funds borrowed from others, including borrowings from Terra
Capital, Inc., the parent of the General Partner. The Partnership believes that
such sources of funds will be adequate to meet the Partnership's working capital
needs and fund the Partnership's capital expenditures for at least the next
twelve months.
At December 31, 1999, the Partnership had $39.6 million of borrowings
payable to Terra Capital. Terra Capital's sources of funds include a $63 million
revolving credit agreement that management believes is adequate to meet the
needs of Terra Capital and the Partnership. Terra Capital's credit agreement is
subject to certain earnings requirements that are primarily dependent on future
prices for nitrogen products.
11
<PAGE>
Quarterly distributions to the partners of TNCLP are based on Available
Cash for the quarter as defined in the TNCLP Agreement of Limited Partnership.
Available Cash is defined generally as all cash receipts less all cash
disbursements, adjusted for changes in certain reserves established as the
General Partner determines in its reasonable discretion to be necessary. There
were no distributions paid to the partners in 1999 and $66.8 million was paid in
1998.
Distributions of Available Cash are made 98% to the Limited Partners and 2%
to the General Partner, except that the General Partner is entitled, as an
incentive, to larger percentage interests to the extent that distributions of
Available Cash exceed specified target levels. The target levels are increased
by the amount quarterly distributions to holders of Common Units are less that
$0.605 per unit. As of December 31, 1999, the cumulative shortfall on quarterly
distributions to holders of Common Units that must be paid before the General
Partner receives an incentive payment was $55.0 million, or $3.025 per unit.
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 the Effective
Date of FASB Statement No. 133." The Partnership will adopt SFAS 133 effective
January 1, 2001. At this time, the Partnership has not determined the impact of
SFAS 133 on its results of operations, financial position, or cash flows.
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 pricing pressures (principally, sales prices of nitrogen 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.
Item 7A. QUANTITATIVE AND QUALTITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to quantitative and qualitative disclosures about
market risk contained in Item 7 above hereto (primarily under the subheading
"Risk Management and Financial Instruments" discussion) is incorporated herein
by reference.
12
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Partnership together with the
report thereon of Deloitte & Touche LLP, independent auditors, appears on pages
F-2 through F-14 of this report. See Index to Financial Statements on page F-1.
QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data are as follows (in thousands,
except per unit amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999
----
<S> <C> <C> <C> <C>
Revenues $ 54,073 $ 68,564 $ 44,352 $ 60,739
Gross profit 310 4,525 (4,733) 895
Net income (loss) (2,039) 2,421 (7,004) (1,476)
Net income (loss) per limited partnership unit (0.11) 0.13 (0.37) (0.08)
1998
----
Revenues $ 48,916 $ 100,831 $ 33,608 $ 67,405
Gross profit 8,321 31,501 6,758 2,199
Net income 5,801 28,166 4,672 136
Net income per limited partnership unit 0.31 1.09 0.19* 0.01
</TABLE>
* The 1998 third quarter net income per unit has been restated to correct
for the allocation of income between the general partner and the
limited partners to be in accordance with the partnership agreement.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
TNC, in its capacity as General Partner, manages and controls the
activities of TNCLP and the Operating Partnership. Unitholders do not direct or
participate in the management or control of either TNCLP or the Operating
Partnership. The General Partner does not intend to establish any advisory board
or similar body to which the Unitholders would be entitled to elect
representatives.
The Partnership has no directors or executive officers. Set forth below is
certain information concerning the directors and executive officers of the
General Partner. The sole stockholder of the General Partner elects the
directors of the General Partner. All directors hold office until their
successors are duly elected and qualified or their earlier resignation or
removal. All officers of the General Partner serve at the discretion of the
directors.
<TABLE>
<CAPTION>
Directors: Age Position with the General Partner (Position with Terra Industries Inc.)
<S> <C>
Michael L. Bennett...............46 Director and President (Executive Vice President and Chief Operating Officer, Terra
Industries Inc.)
Burton M. Joyce..................58 Chairman of the Board (President and Chief Executive Officer, Terra Industries Inc.)
Dennis B. Longmire...............55 Director
Francis G. Meyer.................48 Director and Vice President (Senior Vice President and Chief Financial Officer, Terra
Industries Inc.)
Robert W. Todd...................72 Director
Principal Operating Executive Officers:
Michael L. Bennett...............46 Director and President (Executive Vice President and Chief Operating Officer, Terra
Industries Inc.)
Burton M. Joyce..................58 Chairman of the Board (President and Chief Executive Officer, Terra Industries Inc.)
Steven A. Savage.................55 Senior Vice President-Manufacturing
Other Executive Officers:
Francis G. Meyer.................48 Director and Vice President (Senior Vice President and Chief Financial Officer, Terra
Industries Inc.)
George H. Valentine..............51 Vice President and General Counsel (Senior Vice President, General Counsel and Corporate
Secretary, Terra Industries Inc.)
</TABLE>
The Audit Committee of the Board of Directors of TNC is composed of Messrs.
Longmire and Todd. The Audit Committee has authority to review policies and
practices of TNC dealing with various matters relating to the financial
condition and auditing procedures of TNC, the Partnership and the Operating
Partnership.
Mr. Bennett has been President of TNC since June 1998 and a director since
March 1995. He has been Executive Vice President and Chief Operating Officer of
Terra since February 1997, President of Terra Distribution Division from
November 1995 to February 1997 and Senior Vice President of Terra from February
1995 to February 1997. He was Senior Vice President, Distribution of Terra
International from October 1994 to February 1997. He was Vice President,
Northern Division thereof from January 1992 to October 1994.
Mr. Joyce has been Chairman of the Board of Directors of TNC since June
1998. He has been President and Chief Executive Officer of Terra since May 1991.
Mr. Longmire has been a director since April 1997. He has been Chairman of
the Board and Chief Executive Officer of McCauley Bros., Inc. since September,
1999; Chairman of the Board and Chief Executive Officer of Darling
International, Inc. from 1994 to 1999; and Group Vice President of Central Soya
Food from 1990 to 1993.
14
<PAGE>
Mr. Meyer has been Vice President of TNC since December 1994 and a director
since March 1995. He has been Senior Vice President and Chief Financial Officer
of Terra since November 1995. He was Vice President and Chief Financial Officer
of Terra from November 1993 to November 1995.
Mr. Todd has been a director since March 1995. He was Vice President,
Chemical Industry Services for Citibank, N.A. until retiring in June 1990.
Mr. Savage has been Senior Vice President, Manufacturing since April 1995.
He was Vice President, Engineering and Plant Manager, Verdigris facility from
February 1990 to April 1995.
Mr. Valentine has been Vice President and General Counsel of TNC since
December 1994 and Senior Vice President, General Counsel and Corporate Secretary
of Terra since November 1995. He was Vice President, General Counsel and
Corporate Secretary of Terra from November 1993 to November 1995.
None of the executive officers or directors of TNC is related by blood,
marriage or adoption to any other executive officer or director of TNC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Partnership's executive officers, directors and greater than ten percent
beneficial owners to file initial reports of ownership and reports of changes in
beneficial ownership with the Securities and Exchange Commission ("SEC") and the
New York Stock Exchange. Executive officers and directors are required by SEC
regulations to furnish the Partnership with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Partnership and written representations from the Partnership's executive
officers and directors, all of the Partnership's officers, directors and greater
than ten percent beneficial owners made all required filings.
Item 11. EXECUTIVE COMPENSATION
TNCLP and the Operating Partnership have no executive officers or
employees. The following table sets forth certain summary information concerning
the combined compensation of the named executive officers of TNC, including
compensation from Terra (a portion of which is allocated to the Partnership).
These executive officers are those in office as of December 31, 1999 and are
collectively referred to below as the "named executive officers." Compensation
information is provided for the years 1999, 1998 and 1997.
15
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term-Compensation
-------------------------------------------
Annual Compensation
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
Restricted Securities All Other
Name and Other Annual Stock Underlying LTIP Compen-
Principal Position Year Salary/1// Bonus/2// Compensation/3// Award(s)/4// Options Payouts sation/5//
- - - -
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Burton M. Joyce 1999 $612,020 -- -- -- 415,000 -- $10,000
Chairman of the Board 1998 686,347 -- $5,863 $575,000 -- -- 30,169
1997 614,539 $375,000 4,154 -- 162,000 -- 26,424
Michael L. Bennett 1999 322,346 -- -- -- 160,000 -- 50,477
President 1998 339,616 -- 2,320 287,500 -- -- 14,922
1997 270,346 120,063 2,120 -- 56,000 -- 11,602
Francis G. Meyer 1999 235,124 -- -- -- 100,000 -- 45,458
Vice President 1998 255,655 -- 1,830 287,500 -- -- 10,379
1997 239,115 71,224 1,830 -- 36,000 -- 9,478
George H. Valentine 1999 215,231 -- -- -- 90,000 -- 10,000
Vice President and 1998 231,424 -- 1,348 201,250 -- -- 9,394
General Counsel 1997 209,116 82,049 2,120 -- 36,000 -- 8,289
Steven A. Savage 1999 197,904 -- -- -- 50,000 -- 37,707
Sr. Vice President, 1998 199,513 -- 4,609 -- -- -- 7,910
Manufacturing 1997 172,605 43,401 -- -- 12,500 -- 6,818
</TABLE>
/1// For 1999 "Salary" includes 26 biweekly payments and for all years includes
- amounts deferred at the election of the named executive officer under
Terra's Employees' Savings and Investment Plan and Supplemental Deferred
Compensation Plan.
/2// "Bonus" includes, for the applicable year of service, amounts awarded
- under Terra's Incentive Award Program for Officers and Key Employees and
includes portions thereof deferred at the election of the named executive
officer under Terra's Supplemental Deferred Compensation Plan. Bonuses
earned in one year are paid in the following year. Each year shown
therefore indicates the salary earned and paid in that year and any bonus
earned in that year and paid in the next year.
/3// "Other Annual Compensation" includes tax reimbursements or "gross-ups"
- with respect to certain perquisites provided to the named executive
officers. While the named executive officers receive certain other
perquisites, such perquisites do not exceed the lesser of $50,000 or 10%
of such officer's salary and bonus.
/4// The number of shares of restricted Terra common stock held, and the value
- thereof (shown in parenthesis), at December 31, 1999 by each of the named
executive officers is: Mr. Joyce: 100,000 ($156,250); Mr. Bennett: 62,000
($96,875); Mr. Meyer: 62,000 ($96,875); Mr. Valentine: 45,000 ($70,313)
and Mr. Savage: 13,000 ($20,313). During the restricted period, a holder
of restricted shares is entitled to all benefits incidental to ownership
of Terra common stock, including voting such shares and receiving such
dividends as from time to time may be declared by the Board of Directors.
/5// "All Other Compensation" includes amounts contributed, allocated or
accrued for the named executive officers under Terra's Employees' Savings
and Investment Plan and Supplemental Deferred Compensation Plan.
16
<PAGE>
Option Exercises and Year-End Value Table
The following table provides information concerning the exercise of stock
options during 1999 and the number and value of unexercised options to purchase
Terra common stock granted under Terra's stock incentive plans.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Number of Securities Value of Unexercised
shares acquired Value Underlying Unexercised Options in-the-Money Options at
Name on exercise in Realized at December 31, 1999 December 31, 1999 /1//
--------------------------------------------------------------
1999 Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Burton M. Joyce -0- $-0- 643,000 594,000 $-0- $-0-
Michael L. Bennett -0- -0- 67,334 178,666 -0- -0-
Francis G. Meyer -0- -0- 61,000 112,000 -0- -0-
George H. Valentine -0- -0- 52,000 102,000 -0- -0-
Steven A. Savage -0- -0- 19,634 54,166 -0- -0-
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1// Based on the closing price on the NewYork Stock Exchange-Composite
-
Transaction of Terra common stock on December 31, 1999 ($1,56260).
Pension Plan
The following table shows for employees retiring in 1999 the estinated
annual retirement benefit payable on a straight life annuity basis under the
Employees' Retirement Plan of Terra (the "Retirement Plan") and Terra's Excess
Benefit Plan (the "Excess Benefit Plan"), on a non-contributory basis, which
covers Mr. Joyce and a limited number of other employees, at various levels of
accrued service and compensation.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEARS OF CREDITED SERVICE
Remuneration 5 10 15 20 25 30
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$150,000 $12,133 $24,266 $36,400 $48,533 $60,666 $72,799
250,000 20,883 41,766 62,650 83,533 104,416 125,299
500,000 42,758 85,516 128,275 171,033 213,791 256,549
750,000 64,633 129,266 193,900 258,533 323,166 387,799
1,000,000 86,508 173,016 259,525 346,033 432,541 519,049
===================================================================================================================================
</TABLE>
"Compensation" under the Retirement Plan includes all salaries and wages
paid to a participant, including bonuses, overtime, commissions and amounts the
participant elects to defer under Terra's Employee's Savings and Investment
Plan. Covered earnings are limited by Section 401(a)(17) of the Internal Revenue
Code (the "Code") to $160,000 in 1999. The above benefits are subject to the
limitations of Section 415 of the Code, which provided for a maximum annual
payment of approximately $130,000 in 1999. Under the Excess Benefit Plan,
however, Terra will supplement those benefits so that the amount the participant
will receive will be equal to the amount that would have been received under the
Retirement Plan but for such limitations. "Compensation" under the Excess
Benefit Plan also includes amounts deferred under the Supplemental Deferred
Compensation Plan. Eligible compensation for Mr. Joyce as of December 31, 1999
is $612,020 and the estimated years of service for Mr. Joyce is 13.
Certain Terra executive officers and certain other employees are entitled
to the estimated annual retirement benefit under the Retirement Plan and Excess
Benefit Plan as set forth in the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
YEARS OF CREDITED SERVICE
Remuneration 5 10 15 20 25 30
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$150,000 $10,633 $21,266 $31,900 $42,533 $53,166 $63,799
250,000 18,383 36,766 55,150 73,533 91,916 110,299
500,000 37,758 75,516 113,275 151,033 188,791 226,549
750,000 57,133 114,266 171,400 228,533 285,666 342,799
1,000,000 76,508 153,016 229,525 306,033 382,541 459,049
====================================================================================================================================
</TABLE>
17
<PAGE>
Eligible compensation for the following named executive officers as of the
end of the last calendar year is: Mr. Bennett: $322,346; Mr. Meyer: $235,124;
Mr. Valentine $215,231 and Mr. Savage: $197,904. The estimated years of service
for each such officer is as follows: Mr. Bennett: 26; Mr. Meyer: 17; Mr.
Valentine: 6 and Mr. Savage: 12.
Eligible compensation for each of the named executive officers includes the
salary paid in 1999 to each of the named executive officers plus the bonus paid
in 1999, if any, to such executive officers for service in 1998. Amounts
reported in the table entitled "Summary Compensation Table" for 1999 include the
salary paid to each of the named executive officers in 1999 plus the bonus paid
to such executive officers in 2000, if any, for service in 1999.
Employee Contracts and Termination of Employment and Change in Control
Arrangements
Each of the named executive officers is party with Terra to an executive
retention agreement. Each such agreement provides the executive with certain
benefits if his employment is terminated under specified conditions. To receive
benefits, the executive must be terminated within two years (three years for Mr.
Joyce) of a change in control (as defined in the agreement) of Terra. In
addition, such termination must be made either by Terra or a successor entity
without cause, or by the executive for good reason.
Benefits under the executive retention agreements include (a) continuation
of base salary and bonus for two years (three years in the case of Mr. Joyce);
(b) continuation of medical and dental benefits for two years (three years in
the case of Mr. Joyce); (c) payment of accrued but unpaid compensation; (d)
automatic vesting in Terra's Excess Benefit Plan with an addition of two years
(a maximum of eight years in the case of Mr. Joyce) to the credited service
level and the age of the participant for purposes of computing the accrued
benefits under the Excess Benefit Plan; (e) certain outplacement services; and
(f) office space and secretarial support for one year for Mr. Joyce. Such
benefits are in lieu of any other severance benefits that may otherwise be
payable. Compensation earned from other employment shall not reduce the amounts
otherwise payable by Terra. Terra also agreed to reimburse each such officer on
an after-tax basis for any excise tax incurred as a result of the "excess
parachute payment" provisions on the Internal Revenue Code.
Board of Directors Compensation
Independent directors of TNC receive an annual retainer fee of $15,000 for
their directorship, plus a fee of $1,000 for each TNC Board meeting attended and
each Audit Committee meeting attended. No other director of TNC receives any
compensation for serving as a director.
Compensation Committee Interlocks and Insider Participation
TNC does not have a compensation committee. The Personnel Committee of the
Board of Directors of Terra has made executive officer compensation decisions
with respect to those TNC executive officers who are also key employees of
Terra. None of the members of such Personnel Committee are employees of Terra or
its subsidiaries.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
TNC owns the entire general partner interest in both TNCLP and the
Operating Partnership. TNC's principal executive offices are located at 600
Fourth Street, Sioux City, Iowa 51101. Terra Capital, Inc. owns all the
outstanding capital stock of TNC, and is an indirect, wholly-owned subsidiary of
Terra. The stock of TNC is pledged as security under the Credit Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 to the Financial Statements. Terra and its affiliates
owned, as of December 31, 1999, 2,216,600 Common Units of TNCLP. Terra and its
subsidiaries are engaged in certain transactions with the Partnership described
under the caption "Certain Relationships and Related Transactions" below.
The capital stock of Terra is owned, as of December 31, 1998, in part as
follows: 51.1% by Taurus International S.A. and 5.3% by Taurus Investments S.A.
Both of these companies are incorporated under the laws of Luxembourg as a
societe anonyme and are wholly-owned subsidiaries of Anglo American plc ("Anglo
American"), a company incorporated under the laws of England and Wales as a
public limited company. Each of Taurus International S.A. and Taurus Investments
S.A. is a company incorporated under the laws of Luxembourg as a societe anonyme
and is wholly owned by Anglo American. Anglo American is a company incorporated
under the laws of England and Wales as a public limited company and with its
subsidiaries and associates is a world leader in gold, platinum group metals,
diamonds and coal, with significant interests in base and ferrous metals,
industrial minerals and forest products. The
18
<PAGE>
capital stock of Anglo American is owned in part as follows: approximately
28.7%, directly or through subsidiaries, by De Beers Consolidated Mines Limited
("De Beers"), a publicly-held mining and investment company, and approximately
6.67%, directly or through subsidiaries, by De Beers Centenary AG ("Centenary"),
a publicly-held Swiss diamond mining and investment company. Anglo American owns
approximately 28.59% of the capital stock of Centenary and approximately 32.24%
of the capital stock of De Beers, directly or through subsidiaries. De Beers
owns approximately 11.33% of Centenary.
Mr. Nicholas F. Oppenheimer, Deputy Chairman and a director of Anglo
American, Chairman and a director of Centenary and De Beers, has an indirect
partial interest in approximately 7.2% of the outstanding shares of Anglo
American.
The following table shows the ownership of TNCLP Common Units and Terra
common stock as of December 31, 1999 by (a) each person known to TNC to be a
beneficial owner of more than 5% of the TNCLP Common Units (based on information
reported to TNC by or on behalf of such persons); (b) each director of TNC; and
(c) each of the named executive officers of TNC; and by all directors and
executive officers of TNC as a group.
<TABLE>
<CAPTION>
Number of Terra
Number of Percent of Common Shares Percent of
Name Units Class Beneficially Owned/1// Class
---- ----- ----- ------------------- -----
<S> <C> <C> <C> <C>
Terra Nitrogen Corporation/2// 11,172,414 60.4% -- --
-
600 Fourth Street
Sioux City, Iowa 51101
Terra Capital, Inc. 2,216,600 12% -- --
600 Fourth Street
Sioux City, Iowa 51101
Michael L. Bennett -- -- 186,371/3// *
Burton M. Joyce -- -- 1,042,994/3// 1%
Dennis B. Longmire -- -- -- --
Francis G. Meyer -- -- 195,322/3// *
Steven A. Savage 4,000 * 36,284/3// *
Robert W. Todd -- -- -- --
George H. Valentine -- -- 185,934/3// *
All directors and executive 4,000 * 1,558,878/3// 2%
officers as a group (9 persons)
</TABLE>
* Represents less than 1% of class.
/1// Each person has sole voting and investment power of all the securities
- indicated. The shares of Terra common stock shown include ownership of
restricted common stock, which is subject to certain performance-related
vesting conditions, and shares held under Terra's Employees' Savings and
Investment Plan, in each case as of December 31, 1999.
/2// Terra Nitrogen Corporation also owns the entire general partner interests
- in the Partnership. Each of Terra Nitrogen Corporation and Terra Capital,
Inc. is an indirect, wholly-owned subsidiary of Terra Industries Inc.
/3// The shares of Terra common stock shown include shares subject to employee
- stock options that can be exercised on or before May 2, 2000. Upon such
exercise, the option holder(s) would acquire beneficial ownership of
shares as follows: Mr. Bennett (67,334); Mr. Joyce (643,000); Mr. Meyer
(61,000); Mr. Savage (19,634); and Mr. Valentine (52,000) and all
directors and executive officers as a group (842,968).
19
<PAGE>
Item 13. Certain Relationships and Related Transactions
The General Partner does not receive a management fee or similar
compensation in connection with its management of the Partnership. Pursuant to
TNCLP's limited partnership agreement and the Operating Partnership's limited
partnership agreement, the General Partner receives:
(a) distributions in respect of its 2% General Partner interest on a
combined basis in TNCLP and the Operating Partnership (See "Market for
Registrant's Units and Related Unitholders Matters");
(b) distributions in respect of its ownership of limited partner interests
of TNCLP;
(c) incentive distributions payable to the General Partner out of TNCLP's
Available Cash (as defined) in the event quarterly distributions exceed
specified target levels; and
(d) reimbursement for all direct and indirect costs and expenses incurred
on behalf of the Partnership, all general and administrative expenses
incurred by the General Partner or its affiliates for or on behalf of
the Partnership and all other expenses necessary or appropriate to the
conduct of the business of, and reasonably allocable to, the
Partnership.
Such reimbursement includes the costs of compensation and employee benefit
plans properly allocable to the Partnership. For the years ended December 31,
1999, 1998 and 1997, the General Partner was entitled to reimbursement in the
amount of $18.2 million, $17.9 million and $17.7 million, respectively, for
costs and expenses related to the compensation and employee benefit plans
arising from Partnership activities.
The General Partner is also reimbursed for costs and expenses directly
related to the Partnership's use of natural gas inventories purchased during
off-season periods and out-of-pocket costs for materials and property taxes
related to Partnership activities and assets. For the years ended December 31,
1999, 1998 and 1997, the General Partner was reimbursed $8.7 million, $13.0
million and $2.0 million, respectively, for these items.
TNC and Terra are parties to an agreement whereby TNC provides certain
sales, supply management and distribution services for certain Terra affiliates.
Certain costs and expenses incurred by TNC for providing such services are
charged (based on cost) to such affiliates, including the Partnership. Such
expenses charged to the Partnership were $4.1, $5.4 million and $7.2 million for
1999, 1998 and 1997, respectively.
Under another agreement between TNC and Terra, certain management and other
services, including advertising, accounting, legal, human resources, insurance
and risk management, safety and environmental, and corporate relations are
provided by Terra or certain of its affiliates (other than TNC) and charged to
Terra affiliates, including the Partnership, as appropriate. Expenses under this
agreement charged to the Partnership were $3.4, $3.7 million and $5.0 million
for 1999, 1998 and 1997, respectively.
Certain supply terminals and transportation equipment are generally
available for use by the Partnership and other Terra affiliates. The costs
associated with the operation of such terminals and transportation equipment and
related freight costs incurred to ship product to the various sales points in
the distribution system are centralized. The Partnership and other Terra
affiliates are charged based on usage of such assets and freight costs incurred.
Amounts charged to the Partnership for 1999, 1998 and 1997 were $32.4, $26.1
million and $23.3 million, respectively.
The Partnership sells product to affiliates of the General Partner at
market prices and terms. During 1999, 1998 and 1997 the Partnership sold $16.1
million, $26.3 million and $41.0 million, respectively, of nitrogen fertilizer
products to affiliates of the General Partner at market prices and terms.
The Partnership has demand deposit and demand note arrangements with a
Terra subsidiary to allow for excess Partnership cash to be deposited with or
funds to be borrowed from such affiliate. The balance is due on demand and bears
interest based on the Eurodollar rate under the Credit Agreement (9.75 % and
7.3% at December 31, 1999 and 1998, respectively). Interest income recorded by
the Partnership on the demand deposit was $0.6 million and $1.5 million for 1999
and 1998, respectively.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as a part of this annual report:
(1) Financial Statements
(2) Financial Statement Schedules: See Index to Financial Statements on
page F-1 for financial statements and financial statement schedules
filed as part of this annual report.
(3) The exhibits listed below are filed as part of this annual report.
3.1 Agreement of Limited Partnership of TNCLP, filed as Exhibit
3.1 to the TNCLP Form 10-K (file No. 1-10877) for the year
ended December 31, 1991 and incorporated herein by reference.
3.2 Certificate of Limited Partnership of TNCLP, filed as Exhibit
3.2 to the TNCLP Registration Statement No. 33-43007, dated
September 27, 1991 and incorporated herein by reference.
4.1 Deposit Agreement among TNCLP, the Depositary and Unitholders,
filed as Exhibit 4.1 to the TNCLP Form 10-K (file No. 1-10877)
for the year ended December 31, 1991 and incorporated herein
by reference.
4.3 Form of Depositary Receipt for Common Units (included as
Exhibit B to the Deposit Agreement filed as Exhibit 4.1
hereto), filed as Exhibit 4.3 to the TNCLP Form 10-K (file No.
1-10877) for the year ended December 31, 1991 and incorporated
herein by reference.
4.4 Form of Transfer Application (included in Exhibit A to the
Deposit Agreement filed as Exhibit 4.1 hereto), filed as
Exhibit 4.4 to the TNCLP Form 10-K (file No. 1-10877) for the
year ended December 31, 1991 and incorporated herein by
reference.
4.5 Certificate of Limited Partnership of the Operating
Partnership, filed as Exhibit 4.5 to the TNCLP Registration
Statement No. 33-43007, dated September 27, 1991 and
incorporated herein by reference.
10.1 Agreement of Limited Partnership of the Operating Partnership,
filed as Exhibit 10.1 to the TNCLP Form 10-K (file No.
1-10877) for the year ended December 31, 1991 and incorporated
herein by reference.
**10.2 Master Agreement dated October 11, 1989, among ONEOK Inc.,
Oklahoma Natural Gas Company, ONG Western Inc., ONG Red Oak
Transmission Company, ONG Transmission Company, Agrico
Chemical Company and Freeport-McMoRan Resource Partners,
Limited Partnership.
**10.3 Lease Agreement dated October 11, 1989, among ONEOK Inc.,
Oklahoma Natural Gas Company, ONG Western Inc., ONG Red Oak
Transmission Company, ONG Transmission Company, Agrico
Chemical Company and Freeport-McMoRan Resource Partners,
Limited Partnership.
10.4 Gas Service Agreement dated October 11, 1989, between Oklahoma
Natural Gas Company and Agrico Chemical Company, filed as
Exhibit 10.4 to the TNCLP Registration Statement No. 33-43007,
dated September 27, 1991 and incorporated herein by reference.
**10.5 Transportation Service Agreement dated as of September 1,
1988, among Reliant Energy Gas Transmission Company and Agrico
Chemical Company, as supplemented by Letter Agreements dated
September 2, 1988, and November 1, 1990, and Consent to
Assignment dated March 9, 1990.
10.6 Transportation Service Agreement effective January 1, 1990,
between MAPCO Ammonia Pipeline, Inc. and Agrico Chemical
Company, and Consent to Assignment dated January 22, 1991,
filed as Exhibit 10.6 to the TNCLP Registration Statement No.
33-43007, dated September 27, 1991 and incorporated herein by
reference.
10.8 Car Service Contract dated as of March 2, 1990, between
General American Transportation Corporation and TNC, and
Consent to Assignment dated February 22, 1990, filed as
Exhibit 10.8 to the TNCLP Registration Statement No. 33-43007,
dated September 27, 1991 and incorporated herein by reference.
21
<PAGE>
10.9 Lease Agreement dated as of December 22, 1988, between PLM
Investment Management, Inc. and Agrico Chemical Company, and
Consent to Assignment dated February 23, 1990, and Assignment
and Assumption effective as of March 1, 1990, filed as Exhibit
10.9 to the TNCLP Registration Statement No. 33-43007, dated
September 27, 1991 and incorporated herein by reference.
10.10 Lease and Agreement dated December 1, 1964, between City of
Blytheville, Arkansas, and Continental Oil Company, as
supplemented, filed as Exhibit 10.10 to the TNCLP Registration
Statement No. 33-43007, dated September 27, 1991 and
incorporated herein by reference.
10.11 Lease dated November 1, 1975, between the City of Blytheville,
Arkansas, and The Williams Companies, Inc., as supplemented,
filed as Exhibit 10.11 to the TNCLP Form 10-K (file No. 1-
10877) for the year ended December 31, 1991 and incorporated
herein by reference.
10.12 Lease dated September 6, 1977, between Tulsa-Rogers County
Port Authority and Agrico Chemical Company, as supplemented,
filed as Exhibit 10.12 to the TNCLP Registration Statement No.
33-43007, dated September 27, 1991 and incorporated herein by
reference.
10.13 Lease dated February 1, 1972, between Continental Oil Company
and Agrico Chemical Company, as supplemented, filed as Exhibit
10.13 to the TNCLP Registration Statement No. 33-43007, dated
September 27, 1991 and incorporated herein by reference.
10.14 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 (file no. 1-8520), is incorporated herein by
reference.
10.15 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 (file no. 1-8520), is incorporated herein by
reference.
10.16 Receivables and 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 Inc. Form 10-Q for the period ended September 30,
1996 (File No. 1-8520), is incorporated herein by reference.
10.17 Purchase and Sale Agreement dated as of August 20, 1996 among
Terra International, Inc., Terra Nitrogen, Limited
Partnership, Beaumont Methanol, Limited Partnership, filed as
Exhibit 10.13 to the Terra Industries Inc. Form 10-Q for the
period ended September 30, 1996 (File No. 1-8520), is
incorporated herein by reference.
10.18 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 (file no. 1-8520), is incorporated herein by
reference.
10.19 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
(file no. 1-8520), is incorporated herein by reference.
10.20 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 (file no. 1-8520), is incorporated herein by reference.
10.21 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 (file no. 1-8520), is incorporated
herein by reference.
10.22 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 (file no. 1-8520), is incorporated herein by reference.
10.23 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
(file no. 1-8520), is incorporated herein by reference.
22
<PAGE>
10.24 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
(file no. 1-8520), is incorporated herein by reference.
10.25 Revised Form of Performance Share Award of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.11
to the Terra Industries Inc. Form 10-K for the year ended
December 31, 1996 (File No. 1-8520), is incorporated herein by
reference.
10.26 Revised Form of Incentive Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.12 to the Terra Industries Inc. Form 10-K for the
year ended December 31, 1996 (File No. 1-8520), is
incorporated herein by reference.
10.27 Revised Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.13 to the Terra Industries Inc. Form 10-K for the
year ended December 31, 1996 (File No. 1-8520), is
incorporated herein by reference.
10.28 1997 Stock Incentive Plan of Terra Industries, filed as
Exhibit 10.1.14 to the Terra Industries Inc. Form 10-K for the
year ended December 31, 1996 (File No. 1-8520), is
incorporated herein by reference.
10.29 Amended Demand Deposit Agreement, dated as of August 20, 1996,
between Terra Nitrogen Limited Partnership and Terra Capital,
Inc. filed as Exhibit 10.62 to TNCLP's Form 10-K for the year
ended December 31, 1996, is incorporated herein by reference.
10.30 Demand Promissory Note dated August 26, 1998 from Terra
Nitrogen L.P., as Payor, to Terra Capital Inc. filed as
Exhibit 10.69 to TNCLP's Form 10-Q for the quarter ended
September 30, 1998, is incorporated herein by reference.
10.31 Amended and Restated Credit Agreement dated March 31, 1998
(the "1998 Credit Agreement") 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 Inc. Form 10-Q for the quarter ended March 31, 1998
(File No. 1-8520), is incorporated herein by reference.
10.32 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 (File
No. 1-8520), is incorporated herein by reference.
10.33 Form of Incentive Stock Option Agreement of Terra Industries
under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.13
to the Terra Industries Inc. Form 10-K for the year ended
December 31, 1999 (File No. 1-8520), is incorporated herein by
reference.
10.34 Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1997 Stock Incentive Plan, filed as
Exhibit 10.1.14 to the Terra Industries Inc. Form 10-K for the
year ended December 31, 1999 (File No. 1-8520), is
incorporated herein by reference.
10.35 Form of Performance Share Award of Terra Industries under its
1997 Stock Incentive Plan filed as Exhibit 10.1.15 to the
Terra Industries Inc. Form 10-K for the year ended December
31, 1998 (File No. 1.8520), is incorporated herein by
reference.
10.36 1998 Incentive Award Program for Officers and Key Employees of
Terra Industries, filed as Exhibit 10.1.16 to the Terra
Industries Inc. Form 10-Q for the quarter ended March 31, 1998
(File No. 1.8520), is incorporated herein by reference.
10.37 Executive Retention Agreement for Burton M. Joyce filed as
Exhibit 10.1.18 to the Terra Industries Inc. Form 10-K for the
year ended December 31, 1998 (File No. 1.8520), is
incorporated herein by reference.
10.38 Form of Executive Retention Agreement for Other Executive
Officers filed as Exhibit 10.1.19 to the Terra Industries Inc.
Form 10-K for the year ended December 31, 1998 (File No.
1.8520), is incorporated herein by reference.
10.39 1999 Incentive Award Program for Officers and Key Employees of
Terra Industries filed as Exhibit 10.1.20 to the Terra
Industries Inc. Form 10-K for the year ended December 31, 1998
(File No. 1.8520), is incorporated herein by reference.
23
<PAGE>
10.40 Limited Waiver dated as of March 2, 1999 to the 1998 Credit
Agreement, filed as Exhibit 4.5 to the Terra Industries Inc.
Form 10-Q for the quarter ended March 31, 1999 (File No.
1-8520), is incorporated herein by reference.
10.41 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 Inc. Form 10-Q for the quarter ended June 30, 1999
(File No. 1-8520), is incorporated herein by reference.
10.42 Credit Agreement dated December 31, 1997 and Amended and
Restated June 25, 1999 among Terra International (Canada)
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 Inc. Form 10-Q for
the quarter ended June 30, 1999 (File No. 1-8520), is
incorporated herein by reference.
*27 Financial Data Schedule (EDGAR only).
99.1 Conversion Statement dated December 31, 1996, filed as Exhibit
99.1 to the TNCLP Form 10-Q for the quarter ended March 31,
1997, is incorporated herein by reference.
* Filed Herewith
** Confidential treatment has been granted for portions of the
exhibit.
Executive Compensation Plans and Other Arrangements
Exhibits 10.18 through 10.28 and 10.33 through 10.39 are incorporated
herein by reference.
Reports on Form 8-K:
None.
24
<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 Nitrogen Company, L.P.
By: Terra Nitrogen Corporation,
as General Partner
By: /s/ Francis G. Meyer
--------------------
Francis G. Meyer
Vice President
(Principal Financial
Officer)
Dated: March 24, 2000
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 as of March 17, 2000 and in the capacities indicated.
Signature Title
/s/ Burton M. Joyce Chairman of the Board
- -------------------------------
(Burton M. Joyce) of Terra Nitrogen Corporation
/s/ Michael L. Bennett Director and President
- -------------------------------
(Michael L. Bennett) of Terra Nitrogen Corporation
/s/ Dennis B. Longmire Director of Terra Nitrogen
- -------------------------------
(Dennis B. Longmire) Corporation
/s/ Francis G. Meyer Director and Vice President of
- -------------------------------
(Francis G. Meyer) Terra Nitrogen Corporation
/s/ Robert W. Todd Director of Terra Nitrogen
- -------------------------------
(Robert W. Todd) Corporation
25
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES,
REPORTS AND CONSENTS
Consolidated Financial Statements and Schedules
of Terra Nitrogen Company, L.P.
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................... F-3
Consolidated Statements of Operations for the Years ended December 31, 1999, 1998 and 1997................. F-4
Consolidated Statements of Partners' Capital for the Years ended December 31, 1999, 1998 and 1997.......... F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 1999, 1998 and 1997................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
All financial statement schedules are omitted because they are either not
required, not applicable or the information is shown in the financial statements
or in the notes to financial statements.
F-1
<PAGE>
Independent Auditors' Report
To the Partners
Terra Nitrogen Company, L.P.
We have audited the accompanying consolidated balance sheets of Terra Nitrogen
Company, L.P. (a limited partnership) as of December 31, 1999 and 1998 and the
related consolidated statements of income, partners' capital, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements present fairly, in all material
respects, the financial position of Terra Nitrogen Company, L.P. 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
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Omaha, Nebraska
March 10, 2000
F-2
<PAGE>
Terra Nitrogen Company, L.P.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At December 31,
- -------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13 $ 12
Demand deposit with affiliate - 1,082
- -------------------------------------------------------------------------------------------------------------
13 1,094
- -------------------------------------------------------------------------------------------------------------
Receivables:
Trade 28,772 4,695
Other 1,074 1,968
Inventory:
Finished products 25,611 32,644
Materials and supplies 13,501 17,811
Prepaid expenses and other current assets 1,583 2,440
- -------------------------------------------------------------------------------------------------------------
Total current assets 70,554 60,652
Property, plant, and equipment, net 157,275 164,689
Other assets 14,595 10,736
- -------------------------------------------------------------------------------------------------------------
Total assets $ 242,424 $ 236,077
=============================================================================================================
Liabilities and partners' capital
Current Liabilities:
Note payable to affiliate $ 39,601 $ -
Accounts payable 16,096 14,459
Payable to affiliates - 23,587
Accrued liabilities 3,518 4,513
Customer prepayments 6,389 482
Current portion of capital lease obligations 847 1,119
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 66,451 44,160
- -------------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations - 7,846
Long-term payable to affiliates 5,316 5,316
Partners' capital:
Limited partners' interests - common unitholders 180,837 188,773
General partners' interest (10,180) (10,018)
- -------------------------------------------------------------------------------------------------------------
Total partners' capital 170,657 178,755
- -------------------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $ 242,424 $ 236,077
=============================================================================================================
</TABLE>
See Notes to the Consolidated Financial Statements
F-3
<PAGE>
Terra Nitrogen Company, L.P.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per-unit amounts) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $ 226,941 $ 249,434 $ 333,959
Other income, net 787 1,326 1,353
- --------------------------------------------------------------------------------------------------------------
227,728 250,760 335,312
- --------------------------------------------------------------------------------------------------------------
Cost of goods sold 226,731 201,981 219,486
- --------------------------------------------------------------------------------------------------------------
Gross profit 997 48,779 115,826
- --------------------------------------------------------------------------------------------------------------
Operating expenses 7,797 9,179 12,147
- --------------------------------------------------------------------------------------------------------------
Income (loss) from operations (6,800) 39,600 103,679
Interest expense (1,947) (2,288) (2,201)
Interest income 649 1,463 3,660
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (8,098) $ 38,775 $ 105,138
==============================================================================================================
Net income (loss) allocable to limited partners' interest $ (7,936) $ 29,577 $ 77,545
==============================================================================================================
Net income (loss) per limited partnership unit $ (0.43) $ 1.60 $ 4.17
==============================================================================================================
</TABLE>
See Notes to the Consolidated Financial Statements
F-4
<PAGE>
Terra Nitrogen Company, L.P.
Consolidated Statements of Partners' Capital
<TABLE>
<CAPTION>
Limited Partners' Interests
---------------------------
(in thousands, except for Units) Senior General Total
Preference Common Partner's Partners'
Unitholders Unitholders Interest Capital
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Partners' capital at December 31, 1996 $ 207,483 $ 30,636 $ 5,625 $ 243,744
Net income 160 77,385 27,593 105,138
Distributions (372) (96,023) (39,108) (135,503)
Conversion of Senior Preference Units to
Common Units (200,667) 200,667 --- ---
Redemption of Senior Preference Units (6,604) --- --- (6,604)
- ---------------------------------------------------------------------------------------------------------------
Partners' capital at December 31, 1997 --- 212,665 (5,890) 206,775
Net income --- 29,577 9,198 38,775
Distributions --- (53,469) (13,326) (66,795)
- ---------------------------------------------------------------------------------------------------------------
Partners' capital at December 31, 1998 --- 188,773 (10,018) 178,755
Net loss --- (7,936) (162) (8,098)
- ---------------------------------------------------------------------------------------------------------------
Partners' capital at December 31, 1999 $ --- $ 180,837 $ (10,180) $ 170,657
Limited partner units issued and outstanding
at December 31, 1999 18,501,576
==========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
Terra Nitrogen Company, L.P.
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) $ (8,098) $ 38,775 $ 105,138
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 12,974 12,387 11,916
Changes in operating assets and liabilities:
Receivables (23,183) (2,656) 7,047
Inventory 11,343 (19,777) (980)
Prepaid expenses and other current assets 857 (129) 42
Accounts payable 1,637 (410) (10,290)
Payable to affiliates (23,587) 15,027 (5,038)
Accrued liabilities and customer prepayments 4,912 (2,846) (7,522)
Change in other assets (3,859) 5,295 9,519
Other --- (431) 1,170
- --------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities (27,004) 45,235 111,002
- --------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (5,560) (7,543) (8,928)
Proceeds from sale of property, plant and equipment --- --- 221
- --------------------------------------------------------------------------------------------------------------
Net cash flows from investing activiti es (5,560) (7,543) (8,707)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Net changes in short-term borrowings 39,601 --- ---
Redemption of Senior Preference Units --- --- (6,604)
Borrowings under revolving line of credit --- --- 7,000
Repayment of long-term debt (8,118) (1,071) (1,162)
Proceeds from elimination of distribution reserve fund --- --- 18,480
Partnership distributions paid --- (66,795) (135,503)
- ---------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 31,483 (67,866) (117,789)
- ---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,081) (30,174) (15,494)
Cash and Cash Equivalents at Beginning of Year 1,094 31,268 46,762
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 13 $ 1,094 $ 31,268
==============================================================================================================
</TABLE>
See Notes to the Consolidated Financial Statements
F-6
<PAGE>
Notes to Consolidated Financial Statements
1. Organization
Terra Nitrogen Company, L.P. ("TNCLP") is a Delaware limited partnership
that owns a 99% limited partner interest as the sole limited partner in Terra
Nitrogen, Limited Partnership (the "Operating Partnership"; collectively with
TNCLP, the "Partnership," unless the context otherwise requires). Terra Nitrogen
Corporation ("TNC"), the General Partner, exercises full control over all
business affairs of the Partnership. TNC owns, as general partner, a
consolidated 2.0% interest in both the Partnership and Operating Partnership.
TNC has agreed not to voluntarily withdraw as the General Partner of the
Partnership, subject to certain limited exceptions, prior to January 1, 2002.
TNC is an indirect wholly-owned subsidiary of Terra Industries Inc.
("Terra"), a Maryland corporation. 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, as well as 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.
Ownership of TNCLP is represented by the general partner interest and the
limited partner interests. The limited partner interests consist of 18,501,576
Common Units. Terra and its subsidiaries owned 13,389,014 Common Units as of
December 31, 1999 and the balance are traded on the New York Stock Exchange
under the symbol "TNH."
The Partnership primarily evaluates performance and determines the
allocation of resources on an entity-wide basis.
2. Significant Accounting Policies
Description of Business - The Partnership manufactures and sells fertilizer
products, including ammonia, urea and urea ammonium nitrate solution ("UAN"),
which are principally used by farmers to improve the yield and quality of their
crops. The Partnership sells products primarily throughout the United States on
a wholesale basis. The Partnership's customers vary in size and are primarily
related to the agriculture industry and to a lesser extent to the chemical
industry. Credit is extended based on an evaluation of the customer's financial
condition, and collateral generally is not required.
Basis of Presentation - The consolidated financial statements reflect the
combined assets, liabilities and operations of the Partnership and the Operating
Partnership. All significant intercompany accounts and transactions have been
eliminated. Income is allocated to the General Partner and the Limited Partners
in accordance with the provisions of the TNCLP Agreement of Limited Partnership
that provides for allocations of income between the Limited Partners and the
General Partner in the same proportion as cash distributions declared during the
year.
Reclassifications - Certain reclassifications have been made to prior years
financial statements to conform with current year presentation.
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 revenue and expenses during the reporting
period. Actual results could differ from these estimates.
Cash and Cash Equivalents - TNCLP considers liquid debt instruments with an
original maturity of three months or less to be cash equivalents. In prior
years, the Partnership had a demand deposit with an affiliate that represented
excess Partnership cash deposited with Terra Capital, Inc. The deposit was due
on demand and bore interest based on the Eurodollar rate under the credit
agreement (7.3% at December 31, 1998). Interest income recorded by TNCLP on
this deposit was $.6 million and $1.5 million for 1999 and 1998, respectively.
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.
F-7
<PAGE>
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 3 to 20 years. Maintenance, other than plant
turnaround and catalyst replacement, and repair costs are expensed as incurred.
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 9 - Derivative Financial
Instruments).
Plant Turnaround and Catalyst Replacement Costs - Costs related to the
periodic scheduled major maintenance of continuous process production facilities
(plant turnarounds) are deferred and charged to product costs on a straight-line
basis, until the next scheduled turnaround generally over two years. Included
in other non-current assets at December 31, 1999 and 1998 is $12.8 million and
$8.8 million, respectively, of unamortized plant turnaround and catalyst
replacement costs.
Income Taxes - The Partnership is not subject to income taxes and the
income tax liability of the individual partners is not reflected in the
consolidated financial statements of the Partnership. The reported amount of net
assets of the Partnership exceeded the tax basis of the net assets by
approximately $142 million and $143 million at December 31, 1999 and 1998,
respectively.
Per-unit Results and Allocations - Net income per limited partner unit is
computed by dividing net income, less an approximate 2%, 24% and 26% share
allocable to the General Partner for the years ended December 31, 1999, 1998 and
1997, respectively, by 18,501,576 limited partner units for the years ended
December 31, 1999, 1998 and 1997. According to the Agreement of Limited
Partnership of TNCLP, net income is allocated to the General Partner and the
Limited Partners in each taxable year in the same proportion that Available Cash
for such taxable year was distributed to the General Partner and the Limited
Partners.
New 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 and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133." The Partnership will adopt SFAS 133
effective January 1, 2001. At this time, the Partnership has not determined the
impact of SFAS 133 on its results of operations, financial position, or cash
flows.
3. Agreement of Limited Partnership
The Partnership makes quarterly cash distributions to Unitholders and the
General Partner in an amount equal to 100% of Available Cash, as defined. The
General Partner receives a combined minimum 2% of total cash distributions and
as an incentive, the General Partner's participation increases if cumulative
cash distributions exceed specified target levels.
Until December 31, 1996, distributions of Available Cash were subject to
the rights of Senior Preference Units (SPUs) to receive $.605 per unit per
quarter, plus any arrearages for minimum payments for prior quarters before any
distributions to Common Unitholders. SPUs and Common Units participated equally
in distributions after each class of Units received the Minimum Quarterly
Distribution ("MQD"), subject to the General Partner's right to receive cash
distributions.
After December 31 1996, SPUs did not participate with Common Units in
distribution in excess of the MQD. For a 90-day period that commenced on
December 31, 1996, the holders of all SPUs had the right to elect to convert
their SPUs into Common Units on a one-for-one basis, effective December 31,
1996, by delivering to the General Partner a conversion notice. Any SPUs for
which a conversion notice was not received during the 90-day period remained
SPUs. Holders of 13,329,162 SPUs converted their units to Common Units and
307,202 units remained SPUs. Remaining SPU's were redeemed by the Partnership
during 1997. The Common Units began trading on the New York Stock Exchange on
April 1, 1997 under the symbol TNH.
F-8
<PAGE>
The quarterly cash distributions paid to the Units and the General Partner
in 1999, 1998, and 1997 follow:
<TABLE>
<CAPTION>
Senior
Preference Common General
Units Units Partner
----------------------- -------------------------- -------------------------
Total $ Per Total $ Per Total $ Per
($000s) Unit ($000s) Unit ($000s) Unit
--------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter - - - - - -
Second Quarter - - - - - -
Third Quarter - - - - - -
Fourth Quarter - - - - - -
1998
First Quarter - - 21,647 1.17 3,431 -
Second Quarter - - - - - -
Third Quarter - - 31,822 1.72 9,895 -
Fourth Quarter - - - - - -
First Quarter 186 * .605 27,752 1.50 10,477 -
Second Quarter 186 * .605 18,871 1.02 1,836 -
Third Quarter - - 44,034 2.38 26,686 -
Fourth Quarter - - 5,366 .29 109 -
</TABLE>
* The distributions paid in 1997 to the holders of the SPUs represented an
amount equal to the MQD for each quarter.
If at any time less than 25% of the issued and outstanding Units are held
by non-affiliates of the General Partner, the General Partner or its affiliates
may elect to acquire all such outstanding Units held by non-affiliated persons.
The General Partner and its affiliates owned 72.4% of the Common Units at
December 31, 1999. If the 75% ownership threshold is met and the General Partner
elects to acquire all outstanding Units, TNCLP is required to 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 (a) the average of the
previous 20 trading days closing prices as of the date five days before the
purchase is announced or (b) 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.
4. Related Party Transactions
The Partnership has no employees. Pursuant to the provisions of the TNCLP
Agreement of Limited Partnership, TNC, as General Partner, is paid for all
direct and indirect expenses or payments it makes on behalf of the Partnership
and for that portion of TNC's or its affiliates' administrative and overhead
expenses and all other expenses necessary or appropriate to the conduct of the
Partnership's business and reasonably allocable to the Partnership. Costs and
expenses incurred by TNC for providing such services are charged to the
Partnership. For the years ended December 31, 1999, 1998 and 1997, expenses
charged to the Partnership by TNC amounted to $32.5 million, $40.0 million and
$24.7 million, respectively, including $18.2 million, $17.9 million and $17.7
million, respectively, for payroll and payroll-related expenses including
pension costs.
Effective January 1, 1995, under a general and administrative service
agreement between TNC and Terra, certain services including accounting, legal,
risk management, investor relations and certain employee benefit and other
employee-related expenses are provided by Terra to TNC. The portion of these
expenses allocated to TNC that relate to TNC's activities as General Partner are
charged to the Partnership. Expenses under this agreement charged to the
Partnership were $3.4 million, $3.7 million and $5.0 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-9
<PAGE>
Certain supply terminals and transportation equipment are generally
available for use by the Partnership and other Terra affiliates. The costs
associated with the operation of such terminals and transportation equipment and
related freight costs incurred to ship product to the various sales points in
the distribution system are centralized. The Partnership or Terra is charged
based on usage of such assets and freight costs incurred. Amounts charged to the
Partnership for the years ended December 31, 1999, 1998 and 1997 were $32.4
million, $26.1 million and $23.3 million, respectively.
TNC's employees are members of the Terra Industries Inc. Employees'
Retirement Plan (the Terra Retirement Plan), a noncontributory defined benefit
pension plan. The accumulated benefits and plan assets of the Terra Retirement
Plan are not determined separately for TNC employees. TNC recorded pension costs
of $.7 million, $.8 million and $1.2 million ($.5 million, $.6 million and $1.0
million of which was charged to the Partnership) in 1999, 1998 and 1997,
respectively, as its allocated share of the total periodic pension cost for the
Terra Retirement Plan. Benefits are based on years of service and average final
compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974.
Terra maintains a qualified savings plan that allows employees who meet
specified service requirements to contribute a percentage of their total
compensation, up to a maximum defined by the plan. Each employee's contribution,
up to a specified maximum, may be matched by TNC based on a specified percentage
of employee contributions. Employee contributions vest immediately, while
Terra's contributions vest over five years. Expenses associated with TNC's
contribution to the Terra qualified savings plan charged to the Partnership for
the years ended December 31, 1999, 1998 and 1997 were $620,000, $627,000 and
$706,000, respectively.
TNC has an incentive compensation plan covering certain key employees which
is based on Terra Nitrogen Division (which consists of the Partnership and the
Nitrogen Manufacturing business represented by Terra's plants located in
Woodward, Oklahoma; Port Neal, Iowa; and Courtright, Ontario) annual earnings
before interest, taxes and minority interest. Expenses for the incentive
compensation plan charged to the Partnership was $1.5 million in 1997.
The Partnership sold $16.1 million, $26.3 million and $41.0 million of
nitrogen fertilizer products to Terra at market prices and terms during the
years ended December 31, 1999, 1998 and 1997, respectively. In June, 1999, Terra
sold its Distribution business and no longer purchases product from the
Partnership.
Under certain circumstances an affiliate of the Partnership may advance
funds to the Partnership under a demand note.
5. Accounts Receivable Securitization
On August 20, 1996, TNCLP and certain affiliates of the General Partner,
through Terra Funding Corporation ("TFC"), an affiliate of the General Partner
and a limited purpose corporation, entered into an agreement with a financial
institution to sell an undivided interest in their accounts receivable. Under
the agreement, which expired during 1999, undivided interests in new receivables
were sold as amounts were collected on previously sold amounts. The discount on
TNCLP's portion of accounts receivable sold in 1999, 1998 and 1997 was $.5
million, $1.5 million and $1.6 million, respectively, and is included in
interest expense in the Consolidated Statements of Income.
F-10
<PAGE>
6. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following at December
31,
<TABLE>
<CAPTION>
(in thousands) 1999 1998
----------- -----------
<S> <C> <C>
Assets owned:
Land and improvements $ 5,091 $ 5,091
Plant and equipment 266,127 261,186
Terminals and transportation equipment 8,482 7,863
----------- -----------
279,700 274,140
Assets under capital lease:
Plant and equipment 9,262 9,262
----------- -----------
288,962 283,402
Less accumulated depreciation and amortization (131,687) (118,713)
----------- -----------
Total $ 157,275 $ 164,689
----------- -----------
</TABLE>
.
7. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consisted of the following at
December 31,
<TABLE>
<CAPTION>
(in thousands) 1999 1998
----------- -----------
<S> <C> <C>
Revolver borrowings $ - $ 7,000
Capitalized lease obligations 847 1,965
----------- -----------
847 8,965
Less current maturities (847) (1,119)
----------- -----------
Total $ - $ 7,846
----------- -----------
</TABLE>
The Partnership's revolving credit agreement was terminated during 1999 and
outstanding balances repaid in full. Interest paid on long-term debt by the
Partnership was $302,000, $578,000 and $605,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
8. Commitments and Contingencies
The Operating Partnership is committed to various non-cancelable capital
and operating leases for land, buildings and equipment. Total minimum rental
payments follow:
<TABLE>
<CAPTION>
Capital Operating
(in thousands) Leases Leases Total
-------------- ------------------ -----------------
<S> <C> <C> <C>
2000 $ 890 $ 10,716 $ 11,606
2001 - 9,343 9,343
2002 - 8,051 8,051
2003 - 7,369 7,369
2004 - 6,032 6,032
2005 and thereafter - 8,529 8,529
-------------- ------------------ -----------------
Total minimum lease payments 890 50,040 50,930
Less amount representing interest (43) - (43)
-------------- ------------------ -----------------
Net minimum lease payments $ 847 $ 50,040 $ 50,887
-------------- ------------------ -----------------
</TABLE>
Included above is the lease of the Port Terminal at the Verdigris facility.
The leasehold interest is scheduled to expire on April 30, 2004, and the
Partnership has the option to renew the lease for an additional term of five
years.
F-11
<PAGE>
The above amounts include the leases for the ammonia and urea facilities at
the Blytheville Plant. The lease term for the ammonia facility is scheduled to
expire on November 30, 2004 and the Partnership has the option to extend the
lease for eleven successive terms of five years each at the same rental rate.
The urea facility lease is scheduled to expire November 1, 2005, and the
Partnership has the option to renew the lease for three successive periods of
five years. The Partnership has the right to purchase the ammonia and the urea
facilities at the end of the respective lease terms (including any renewal
terms).
Rent expense under non-cancelable operating leases amounted to
approximately $8.5 million, $9.0 million and $9.1 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
The Partnership 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 the Partnership.
9. Derivative Financial Instruments
Since 1997, the Partnership has recorded hedging gains and losses related
to natural gas supply requirements based on a pooled resources concept with
Terra. Under the pooled resources concept, hedging gains and losses are
allocated to each manufacturing plant based on gas usage for such plant.
The Partnership is subject to risks undertaken by Terra in its policy of
using derivative financial instruments to manage the risk associated with
changes in natural gas supply prices. 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 as
recognized by a national rating agency. Terra will not enter into a transaction
with a 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.
Market risk related to derivative financial instruments should be
substantially offset by changes in the valuation of the underlying item being
hedged.
The Partnership classifies a derivative financial instrument as a hedge if
all of the following conditions are met:
1. The item to be hedged must expose the enterprise to price risk.
2. It must be probable that the results of the hedge position
substantially offset the effects of price changes on the hedged item
(e.g., there is a high correlation between the hedge position and
changes in market value of the hedged 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 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. The Partnership 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, the Partnership carries forward the
accumulated change in value of the contract and includes it in the measurement
of the related transaction.
Natural gas supplies to meet production requirements at the Operating
Partnership's production facilities are purchased at market prices. Natural gas
market prices are volatile and the Partnership effectively fixes prices for a
portion of its natural gas production requirements and inventory through the use
of futures contracts, swap agreements and purchased options. These contracts
reference physical natural gas prices
F-12
<PAGE>
or appropriate NYMEX futures contract prices. Contract physical prices are
frequently based on prices at the Henry Hub in Louisiana, the most common and
financially liquid location of reference for financial derivatives related to
natural gas. However, natural gas supplies for the Partnership's two 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 with 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 required payments to or from the Partnership 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
is no initial cash requirements related to the swap and basis swap agreement.
The following summarizes open natural gas contracts allocated to the
Partnership at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ----------------------------------
Contract Unrealized Contract Unrealized
(in thousands) MMbtu Gain (Loss) MMbtu Gain (Loss)
---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Futures - $ - 502 $ (19)
Swaps 15,278 36,184 (4,890)
Options 15,160 - 6,889
(23)
---------------- -------------- -------------- --------------
30,438 $ 2,428 43,575 $ (4,932)
---------------- -------------- -------------- --------------
</TABLE>
The Partnership's annual procurement requirements are approximately 56
million MMbtu's of natural gas. The Partnership had in place at December 31,
1999 hedge contracts and firm purchase commitments to cover 27.1% of 2000
natural gas requirements. 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 to which the hedged transaction relates. The risk and reward of
outstanding natural gas positions are directly related to increases or decreases
in natural gas prices in relation to the underlying NYMEX natural gas contract
prices. Realized losses of $0.3 million on closed contracts relating to January
2000 were deferred by the Partnership at December 31, 1999. Realized losses of
$1.6 million on closed contracts relating to January 1999 were deferred by the
Partnership at December 31, 1998. Cash flows related to natural gas hedging are
reported as cash flows from operating activities.
During 1999, 1998 and 1997, natural gas forward pricing activities reduced
the Partnership's natural gas costs by $2.5 million, $5.9 million and $25.6
million, respectively, compared with spot market natural gas prices.
10. Other Financial Information
Fair values of financial instruments - The following methods and
assumptions were used by the Partnership in estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents - The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate their fair values.
Long-term debt and capital lease obligations - The carrying amounts of the
Partnership's borrowings under long-term debt agreements and capital lease
obligations approximate fair value.
Off-balance-sheet instruments - Fair values for the Partnership's natural
gas swaps and options are based on contract prices in effect at December 31,
1999 and December 31, 1998. The unrealized gain (loss) on these contracts is
disclosed in Note 9.
F-13
<PAGE>
Concentration of credit risk - The Partnership is subject to credit risk
through trade receivables and short-term investments. Although a substantial
portion of its debtors ability to pay is dependent upon the agribusiness
economic sector, credit risk with respect to trade receivables is minimized due
to a large customer base and its geographic dispersion.
Short-term cash investments, held as a demand deposit with an affiliate,
may be placed with well-capitalized, high quality financial institutions and in
short duration corporate and government debt securities funds or utilized for
other corporate purposes.
Major customers - For the years ended December 31, 1999, 1998 and 1997,
sales to Terra totaled $16.1 million, $26.3 million and $41.0 million, or 7.1%,
10.5% and 12.3%, respectively, of the Partnership's sales. In June, 1999, Terra
sold its Distribution business and no longer purchases product from the
Partnership.
F-14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TERRA
NITROGEN COMPANY, L.P. 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> 13
<SECURITIES> 0
<RECEIVABLES> 29,846
<ALLOWANCES> 0
<INVENTORY> 39,112
<CURRENT-ASSETS> 70,554
<PP&E> 288,962
<DEPRECIATION> 131,687
<TOTAL-ASSETS> 242,424
<CURRENT-LIABILITIES> 66,451
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 170,657
<TOTAL-LIABILITY-AND-EQUITY> 242,424
<SALES> 226,941
<TOTAL-REVENUES> 227,728
<CGS> 226,731
<TOTAL-COSTS> 226,731
<OTHER-EXPENSES> 7,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,298
<INCOME-PRETAX> (8,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (8,098.00)
<EPS-DILUTED> 0.00
</TABLE>
