-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pl0GaDFP0di8bdssa3zwe28gzOZRr5yReTVw1jPXLk7CSKh76BJivmg0rIakK3RI oT04AzOu1PRt0ywgb6suKg== 0000950131-97-003417.txt : 19970515 0000950131-97-003417.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950131-97-003417 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERRA INDUSTRIES INC CENTRAL INDEX KEY: 0000722079 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 521145429 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08520 FILM NUMBER: 97604670 BUSINESS ADDRESS: STREET 1: TERRA CENTRE 600 4TH ST STREET 2: P.O. BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 BUSINESS PHONE: 7122771340 MAIL ADDRESS: STREET 1: TERRA CENTER STREET 2: 600 4TH ST P O BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 FORMER COMPANY: FORMER CONFORMED NAME: INSPIRATION RESOURCES CORP DATE OF NAME CHANGE: 19920517 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 1-8520 TERRA INDUSTRIES INC. (Exact name of registrant as specified in its charter) Maryland 52-1145429 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Terra Centre P.O. Box 6000 600 Fourth Street 51102-6000 Sioux City, Iowa (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (712) 277-1340 ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of April 30, 1997, the following shares of the registrant's stock were outstanding: Common Shares, without par value 73,827,976 shares ================================================================================ PART I. FINANCIAL INFORMATION TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands) (unaudited)
March 31, December 31, March 31, 1997 1996 1996 ---------- ------------ ---------- ASSETS Cash and short-term investments $ 44,585 $ 100,742 $ 34,109 Accounts receivable, less allowance for doubtful accounts of $11,845, $11,391 and $11,795 207,364 81,606 217,817 Inventories 576,779 422,938 553,434 Other current assets 61,652 107,008 116,683 - ----------------------------------------------------------------------------------------------------------------- Total current assets 890,380 712,294 922,043 - ----------------------------------------------------------------------------------------------------------------- Equity and other investments 17,119 16,579 14,104 Property, plant and equipment, net 848,404 846,353 747,001 Excess of cost over net assets of acquired businesses 287,583 291,645 305,538 Deferred tax asset 15,189 15,311 --- Partnership distribution reserve fund --- --- 18,480 Other assets 81,777 87,183 67,755 - ----------------------------------------------------------------------------------------------------------------- Total assets $2,140,452 $1,969,365 $2,074,921 ================================================================================================================= LIABILITIES Debt due within one year $ 115,440 $ 118,937 $ 45,419 Accounts payable 314,200 198,273 276,123 Accrued and other liabilities 290,415 207,927 314,982 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 720,055 525,137 636,524 - ----------------------------------------------------------------------------------------------------------------- Long-term debt 403,501 404,707 405,837 Deferred tax liability -- non-current 135,018 134,523 115,377 Other liabilities 120,714 125,013 143,887 Minority interest 170,413 173,893 182,843 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 1,549,701 1,363,273 1,484,468 - ----------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Capital stock Common Shares, authorized 133,500 shares; outstanding 73,940, 75,010 and 81,433 shares 126,545 127,614 134,219 Paid-in capital 537,045 550,850 633,891 Cumulative translation adjustment (2,812) (1,430) (310) Accumulated deficit (70,027) (70,942) (177,347) - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity 590,751 606,092 590,453 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,140,452 $1,969,365 $2,074,921 =================================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 2 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per-share amounts) (unaudited)
Three Months Ended March 31, -------------------------- 1997 1996 -------- -------- REVENUES Net sales $423,683 $388,312 Other income, net 10,027 6,429 - ------------------------------------------------------------------------------------------------- 433,710 394,741 - ------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 338,052 277,517 Selling, general and administrative expense 68,309 62,080 Equity in loss of unconsolidated affiliates 1,023 1,081 Interest income (710) (2,331) Interest expense 13,484 11,565 Minority interest 6,910 13,169 - ------------------------------------------------------------------------------------------------- 427,068 363,081 - ------------------------------------------------------------------------------------------------- Income before income taxes and extraordinary items 6,642 31,660 Income tax provision 2,740 13,260 - ------------------------------------------------------------------------------------------------- Net income $ 3,902 $ 18,400 ================================================================================================= Net income per share $ 0.05 $ 0.23 ================================================================================================= Weighted average number of shares outstanding 74,709 81,477 ================================================================================================= Cash dividends declared per share $ 0.04 $ 0.03 =================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 3 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Three Months Ended March 31, ---------------------------- 1997 1996 ---------- ---------- OPERATING ACTIVITIES Net income $ 3,902 $ 18,400 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 22,621 17,102 Deferred income taxes 2,939 (1,178) Minority interest in earnings 6,910 13,169 Other non-cash items 1,375 1,333 Changes in current assets and liabilities, excluding working capital purchased: Accounts receivable (125,295) (37,169) Inventories (152,964) (177,433) Other current assets 45,912 (7,946) Accounts payable 115,927 70,397 Accrued and other liabilities 77,757 79,646 Unreimbursed Port Neal casualty ---- (16,822) Other (7,367) (3,646) - --------------------------------------------------------------------------------------------------- Net cash used in operating activities (8,283) (44,147) - --------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Acquisitions, net of cash acquired (5,708) (4,910) Port Neal plant construction (381) (38,376) Purchase of property, plant and equipment (15,058) (15,568) Other 848 291 - --------------------------------------------------------------------------------------------------- Net cash used in investing activities (20,299) (58,563) - --------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net short-term borrowings (3,367) 14,996 Principal payments on long-term debt (1,336) (1,327) Stock (repurchase) issuance, net (14,871) 145 Distributions to minority interests (3,632) (13,227) Dividends (2,987) (2,436) - --------------------------------------------------------------------------------------------------- Net cash used in financing activities (26,193) (1,849) - --------------------------------------------------------------------------------------------------- Foreign exchange effect on cash and short-term investments (1,382) (39) - --------------------------------------------------------------------------------------------------- Decrease in cash and short-term investments (56,157) (104,598) Cash and short-term investments at beginning of period 100,742 138,707 - --------------------------------------------------------------------------------------------------- Cash and short-term investments at end of period $ 44,585 $ 34,109 ===================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 4 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (in thousands) (unaudited)
Cumulative Common Paid-In Translation Accumulated Shares Capital Adjustment Deficit Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $133,970 $631,195 $ (271) $(193,311) $571,583 Exercise of stock options 35 153 --- --- 188 Stock repurchase (3) (40) --- --- (43) Issuance of common shares 215 2,580 --- --- 2,795 Stock incentive plan 2 3 --- --- 5 Translation adjustment --- --- (39) --- (39) Dividends --- --- --- (2,436) (2,436) Net income --- --- --- 18,400 18,400 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1996 $134,219 $633,891 $ (310) $(177,347) $590,453 =================================================================================================================================== Cumulative Common Paid-In Translation Accumulated Shares Capital Adjustment Deficit Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $127,614 $550,850 $(1,430) $ (70,942) $606,092 Exercise of stock options 2 11 --- --- 13 Repurchase of common shares (1,071) (13,816) --- --- (14,887) Translation adjustment --- --- (1,382) --- (1,382) Dividends --- --- --- (2,987) (2,987) Net income --- --- --- 3,902 3,902 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 $126,545 $537,045 $(2,812) $ (70,027) $590,751 ===================================================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 5 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments necessary to summarize fairly the financial position of Terra Industries Inc. and all majority-owned subsidiaries (the "Corporation") and the results of the Corporation's operations for the periods presented. Because of the seasonal nature of the Corporation's operations and effects of weather-related conditions in several of its marketing areas, results of operations of any single reporting period should not be considered as indicative of results for a full year. Certain reclassifications have been made to prior years' financial statements to conform with current year presentation. These statements should be read in conjunction with the Corporation's 1996 Annual Report to Stockholders. 2. Per-share data are based on the weighted average number of Common Shares outstanding and the dilutive effect of the Corporation's outstanding restricted shares and stock options. Fully diluted earnings per share is considered to be the same as primary earnings per share, since the effect of certain dilutive securities was not significant. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share." SFAS 128 specifies the computation, presentation and disclosure requirements for earnings per share. The impact on earnings per share computed using SFAS 128 is insignificant, in comparison with net income per share disclosed in the Consolidated Statements of Operations. 3. Inventories consisted of the following:
March 31, December 31, March 31, (in thousands) 1997 1996 1996 ------------------------------------------------------- Raw materials $ 40,177 $ 39,782 $ 35,673 Finished goods 536,602 383,156 517,761 ------------------------------------------------------- Total $576,779 $422,938 $553,434 =======================================================
4. The Corporation and certain of its subsidiaries are involved in various legal actions and claims, including environmental matters, arising during the normal course of business. Although it is not possible to predict with any certainty the outcome of such matters, it is the opinion of management that these matters will not have a material adverse effect on the results of operations, financial position or cash flows of the Corporation. 5. The Corporation entered into a methanol hedging agreement (the "Methanol Hedging Agreement") whereby, the Corporation agreed to make payments to the extent that average methanol prices exceed the sum of $0.65 per gallon plus 0.113 times the average spot price index, in cents per MMBtu for natural gas during 1997. The amount due, if any, is dependent upon average methanol and natural gas prices during 1997. The quantity subject to the agreement is 130 million gallons. The Corporation's methanol production facilities have a capacity of 320 million gallons of methanol per year. Approximately $939,000, pursuant to the Methanol Hedging Agreement was deferred at March 31, 1997 and will be recognized as income over the remaining term of the agreement. No amounts have been paid or are presently accrued under the terms of the agreement. The estimated fair value of the agreement, representing the amount that the Corporation would expect to pay at March 31, 1997 to liquidate the agreement for its remaining term, is less than $1 million. 6. On December 13, 1994, the Corporation's Port Neal facility in Iowa was extensively damaged as a result of an explosion. Insurance was in force to cover the Corporation's property damage, business interruption and 6 third party liability claims. Estimated lost profits recoverable under the business interruption policy were included in income. Insurance proceeds received under the Corporation's property damage claim are being deferred pending final settlement of the claim. The Corporation has invested additional funds for enhancements and improvements at the Port Neal facility. As of March 31, 1997, the Corporation has received $203 million in insurance payments. The Corporation presented documentation to the insurance carriers supporting expenditures in excess of $350 million to rebuild the plant and to compensate for the property damage and business interruption losses. The Corporation filed a complaint in April 1997 in federal court against its property insurance carriers alleging the carriers have failed to act in a timely manner to handle the claim or to acknowledge their obligations to pay the amounts owed. The complaint seeks, among other things, monetary damages in excess of $150 million. The Corporation expects to record a substantial non-recurring gain, representing the difference between the property insurance settlement on the Port Neal facility with the Corporation's insurers and the carrying value of the facility at the time of the explosion. The amount of the gain will be dependent on the final settlement reached with the Corporation's insurance carriers. In September 1995, the Corporation transferred the Port Neal facility to Port Neal Holdings Corp. ("PNH"). PNH was structured to finance and complete the reconstruction of the Port Neal facility through its wholly owned subsidiary, Port Neal Corporation ("PNC"). PNH issued to unrelated third parties $25 million of non-convertible preferred stock. The preferred stock represents 25% of the voting rights of PNH and accrues dividends commensurate with market interest rates. 7. The Corporation's natural gas procurement policy is to effectively fix or cap the price of between 40% and 80% of its natural gas requirements for a one-year period and up to 50% of its natural gas requirements for the subsequent two-year period through supply contracts, financial derivatives and other forward pricing techniques. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical prices are frequently based on the Henry Hub Louisiana price, but natural gas supplies for the Corporation's six production facilities are physically purchased for each plant location which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the change in the price of physical gas. The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period. The Corporation has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies. Additionally, the Corporation has entered into forward pricing positions for a substantial portion of its natural gas requirements for the remainder of 1997, 1998 and 1999, consistent with its policy. As a result of its policies, the Corporation has reduced the potential adverse financial impact of natural gas price increases during the forward pricing period, but conversely, if natural gas prices were to fall, the Corporation will incur higher costs. Unrealized gains from forward pricing positions totaled $23.0 million and $45.6 million as of March 31, 1997 and 1996, respectively. The amount recognized by the Corporation will be dependent on prices in effect at the time of settlement. For the first three months of 1997 and 1996, natural gas hedging activities produced cost savings of approximately $21.6 million and $23.1 million, respectively, compared with spot prices. 8. The Corporation has revolving credit facilities of up to $355 million for domestic working capital needs and other corporate purposes. There was $103.0 million outstanding at March 31, 1997. Interest on borrowings under this line is charged at current market rates. 7 9. On April 30, 1996, the Board of Directors of the Corporation authorized the repurchase of up to 8.5 million Common Shares on the open market and through privately negotiated transactions over the ensuing fifteen months. As of March 31, 1997 the Corporation had repurchased 7,898,000 shares for $106.7 million. 10. In August 1996, the Corporation, through Terra Funding Corporation ("TFC"), a beneficially owned subsidiary of the Corporation and a limited purpose corporation, entered into an agreement with a large financial institution to sell an undivided interest in its accounts receivable. Under the agreement, which expires August 1999, the Corporation may sell without recourse an undivided interest in a designated pool of its accounts receivable and receive up to $150 million in proceeds. Undivided interests in new receivables may be sold as amounts are collected on previously sold interests. As of March 31, 1997, the proceeds of the uncollected balance of accounts receivable sold totaled $93 million. TFC is a separate legal entity whose creditors have received security interests in its assets. 11. Pursuant to the provisions of the Terra Nitrogen Company, L.P. (TNCLP) Agreement of Limited Partnership, the holders of all Senior Preference Units (SPUs) had the right, through March 31, 1997, to convert their SPUs into Common Units on a one-for-one basis. As of March 31, 1997, approximately 13.3 million of the 13.6 million previously issued and outstanding SPUs converted to Common Units. The Common Units began trading on the New York Stock Exchange on April 1, 1997 under the symbol TNH. The 307,202 SPUs which did not convert to Common Units will be redeemed by TNCLP on May 27, 1997 for $22.105 per unit, which includes a $0.605 distribution per unit for the first quarter of 1997. On April 22, 1997, TNCLP announced a cash distribution for the quarter ended March 31, 1997 of $1.02 per Common Unit to holders of record as of May 5, 1997, payable on May 27, 1997. The cash distribution for the first quarter will include $18.5 million from the elimination of the reserve amount required to support four quarters of minimum quarterly distributions on the SPUs. Due to the redemption of the SPUs on May 27, 1997, this reserve amount is no longer required to be maintained. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS --------------------- QUARTER ENDED MARCH 31, 1997 COMPARED WITH QUARTER ENDED MARCH 31, 1996 Consolidated Results The Corporation reported net income of $3.9 million, or $0.05 per share, on revenues of $433.7 million for the first quarter of 1997 compared with net income of $18.4 million, or $0.23 per share, on revenues of $394.7 million in 1996. The decline in 1997 net income reflected significant increases to natural gas costs and a slow start to the spring planting season. The Corporation classifies its operations into three business segments: Distribution, Nitrogen Products and Methanol. The Distribution segment includes sales of products purchased from manufacturers, including the Corporation, and resold by the Corporation. Distribution revenues are derived primarily from grower and dealer customers through sales of crop protection products, fertilizers, seed and services. The Nitrogen Products segment represents only those operations directly related to the wholesale sales of nitrogen products from the Corporation's ammonia manufacturing and upgrading facilities. The Methanol segment represents wholesale sales of methanol from the Corporation's two methanol manufacturing facilities. Total revenues and operating income (loss) for the three-month periods ended March 31, 1997 and 1996 were as follows:
(in thousands) 1997 1996 - --------------------------------------------------------------------- REVENUES: Distribution $ 260,543 $ 222,913 Nitrogen Products 135,918 153,067 Methanol 42,998 28,896 Other - net of intercompany eliminations (5,749) (10,135) - --------------------------------------------------------------------- $ 433,710 $ 394,741 ===================================================================== OPERATING INCOME (LOSS): Distribution $ (24,557) $ (23,409) Nitrogen Products 38,541 74,334 Methanol 13,158 (4,029) Other expense - net (816) (891) - --------------------------------------------------------------------- 26,326 54,063 Interest expense - net (12,774) (9,234) Minority interest (6,910) (13,169) - --------------------------------------------------------------------- Total from operations $ 6,642 $ 31,660 =====================================================================
9 Volumes and prices for the three month periods ended March 31, 1997 and 1996 were as follows:
VOLUMES AND PRICES (excludes the Distribution segment) 1997 1996 - ------------------------------------------------------------------------------------------------ Sales Average Sales Average (quantities in thousands) Volumes Unit Price Volumes Unit Price - ------------------------------------------------------------------------------------------------ Ammonia (tons) 225 $ 203 256 $ 188 Nitrogen solutions (tons) 621 92 666 99 Urea (tons) 157 178 150 209 Methanol (gallons) 74,129 0.58 75,259 0.38 - ------------------------------------------------------------------------------------------------
Distribution Distribution revenues for the 1997 first quarter increased $37.6 million or 16.9% to $260.5 million compared with 1996 results. Expansion of the distribution network from 389 locations to 403 locations in 1997 contributed $8.2 million to the revenue increase. Higher sales of crop protection products primarily to dealer customers contributed $29.1 million to 1997 sales. The operating loss for the Distribution segment was $24.6 million in 1997 compared with $23.4 million in 1996. This segment traditionally generates an operating loss during the first quarter. New locations generated a first quarter 1997 operating loss of $.5 million. Selling expense increases due to an expanded sales force and additional equipment in anticipation of the 1997 spring planting season exceeded gross profit increases by $.7 million. Nitrogen Products Nitrogen Products revenues were $135.9 million and $153.1 million for the three months ended March 31, 1997 and 1996, respectively. The decrease in 1997 revenues compared with 1996 was due to lower sales volumes and prices. Ammonia and nitrogen solutions sales volumes declined 12% and 7%, respectively, in the 1997 period compared with the prior year. Additionally, nitrogen solutions and urea prices decreased, contributing to price declines of $5.0 million. The decline in sales volumes and prices was attributable to cold, wet weather and higher inventory levels at dealer locations. Operating income for the Nitrogen Products segment was $38.5 million in the first quarter of 1997 compared with $74.3 million for the first quarter of 1996. The decline in operating income was due to significantly higher natural gas costs and lower sales prices. Natural gas costs, which comprised almost 45% of total 1996 annual costs and expenses, increased 68% due to the December 1996 spike in gas prices from cold weather which continued into the first quarter of 1997. Methanol Methanol revenues increased $14.1 million during the first quarter of 1997 in comparison with the same period in 1996. The increase was due to higher methanol sales prices reflecting tight market conditions caused by production outages, delayed startup of foreign plants and increased worldwide demand. Methanol operating income for the three months ended March 31, 1997 and 1996 was $13.2 million and $4.0 million, respectively. The increase in methanol sales prices outpaced the 45% increase in the average cost of natural gas and accounted for the increase in operating income. Natural gas costs comprised over 60% of the total 1996 annual cost and expense of methanol operations. 10 Other Operating Expense - Net Other operating expense was $.8 million and $.9 million for the first quarter of 1997 and 1996, respectively. Other operating expense includes expenses not directly related to specific business segments, including certain insurance coverage, corporate finance fees and other costs. Interest Expense - Net Interest expense, net of interest income, was $12.8 million for the first quarter of 1997, compared with $9.2 million for the prior year period. Net interest expense increased due to increased short-term borrowings to fund current operations. Income Taxes Income taxes for the first quarter of 1997 were recorded at an effective tax rate of 41%, comparable to the effective tax rate for the 1996 first quarter. Minority Interest Minority interest, representing primarily third party unitholder interest in the earnings of Terra Nitrogen Company, L.P. (TNCLP), was $6.9 million for the first quarter 1997 compared with $13.2 million in 1996. Minority interest declined primarily due to lower earnings from TNCLP operations. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Corporation's primary uses of funds will be to fund its working capital requirements, make payments on its indebtedness and other obligations, make quarterly distributions to minority interests, disburse quarterly dividends on common stock, make capital expenditures and acquisitions, and fund repurchases of its common stock. The principal sources of funds will be cash flow from operations and borrowings under available bank facilities. The Corporation believes that cash from operations and available financing sources will be sufficient to meet anticipated cash requirements. Cash used for operations in the first three months of 1997 was $8.3 million. Working capital balances increased $38.7 million for the first three months of 1997 due to the seasonal nature of the Corporation's operations. The Corporation has available a $355 million revolving credit facility for domestic working capital needs. As of March 31, 1997, $103.0 million was outstanding under this facility. Cash used for investing activities was $20.3 million in the first three months of 1997, $15.4 million funded investments in plant and equipment. Cash used for acquisitions ($5.7 million) represents amounts paid to acquire new locations for the Corporation's distribution network. The rebuild of the Port Neal manufacturing plant was substantially complete in 1996. The Corporation began construction in the third quarter of 1996 on a $23 million nitric acid plant at Port Neal with the facility expected to be fully operational by the end of 1997. The Corporation expects 1997 capital expenditures, exclusive of expenditures related to the Port Neal nitric acid plant and the acquisition of retail distribution locations, to approximate $67 million consisting of the expansion of existing service centers, routine replacement of equipment, and efficiency improvements at manufacturing facilities. On April 30, 1996, the Board of Directors of the Corporation authorized the repurchase of up to 8.5 million Common Shares on the open market and through privately negotiated transactions over the ensuing fifteen months. As of March 31, 1997, the Corporation had repurchased 7.9 million shares for $106.7 million. 11 During the first three months of 1997, the Corporation distributed $.61 per unit, or $3.2 million, to minority Senior Preference Unitholders, paid a dividend rate of 7.50%, or $.5 million, to minority preferred stock shareholders, and paid a dividend of $0.04 per Common Share which totaled $3.0 million. Pursuant to the provisions of the Terra Nitrogen Company, L.P. (TNCLP) Agreement of Limited Partnership, the holders of all Senior Preference Units (SPUs) had the right, through March 31, 1997, to convert their SPUs into Common Units on a one-for-one basis. As of March 31, 1997, approximately 13.3 million of the 13.6 million previously issued and outstanding SPUs converted to Common Units. The 307,202 SPUs which did not convert to Common Units will be redeemed by TNCLP on May 27, 1997 for $22.105 per unit, which includes a $0.605 distribution per unit for the first quarter of 1997. On April 3, 1997 TNCLP announced a cash distribution of $.90 per Common Unit to holders of record as of April 18, 1997, payable on April 30, 1997. This distribution represents the balance of available cash for the fourth quarter of 1996. On April 22, 1997, TNCLP announced a cash distribution for the quarter ended March 31, 1997 of $1.02 per Common Unit to holders of record as of May 5, 1997, payable on May 27, 1997. The cash distribution for the first quarter will include $18.5 million from the elimination of the reserve amount required to support four quarters of minimum quarterly distributions on the SPUs. Due to the redemption of the SPUs on May 27, 1997, this reserve amount is no longer required to be maintained. Cash balances at March 31, 1997 were $44.6 million of which $5.4 million is used to collateralize letters of credit supporting recorded liabilities. 12 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The 1997 Annual Meeting of stockholders was held on April 29, 1997, in Sioux City, Iowa. At the meeting, a total of 71,692,388 votes were cast by stockholders. The following directors were elected to hold office until the next Annual Meeting or until their successors are duly elected and qualified, and received the votes set forth opposite their respective name:
NAME FOR WITHHELD ---- --- -------- Edward G. Beimfohr 70,273,944 1,418,444 Carol L. Brookins 70,270,307 1,422,081 Edward M. Carson 70,271,504 1,420,884 David E. Fisher 70,268,670 1,423,718 Burton M. Joyce 70,271,909 1,420,479 Anthony W. Lea 70,268,614 1,423,774 William R. Loomis, Jr. 70,246,844 1,445,544 John R. Norton III 70,271,246 1,421,142 Henry R. Slack 69,792,369 1,900,019
The stockholders approved the adoption by the Corporation's Board of Directors of the 1997 Stock Incentive Plan of the Corporation. The number of votes cast for such proposal was 61,425,899, the number against was 5,934,991 and the number of abstentions was 251,670. Broker non-votes for this proposal was 4,079,828. In addition, the stockholders ratified the selection by the Corporation's Board of Directors of Deloitte & Touche LLP as independent accountants for the Corporation for 1997. The number of votes cast for such proposal was 71,394,524, the number against was 245,126 and the number of abstentions was 52,738. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 4.7 Amendment No. 4 dated as of March 13, 1997 to the 1995 Credit Agreement 27 Financial Data Schedule [EDGAR filing only] (b) Reports on Form 8-K Current Report on Form 8-K dated February 27, 1997 reporting the promotion of Michael L. Bennett to Executive Vice President and Chief Operating Officer. Current Report on Form 8-K dated April 14, 1997 reporting the Corporation's filing of a lawsuit against certain of its insurers. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERRA INDUSTRIES INC. Date: May 14, 1997 /s/ Francis G. Meyer -------------------- Francis G. Meyer Senior Vice President and Chief Financial Officer and a duly authorized signatory 14 EX-4.7 2 CREDIT AGREEMENT [CONFORMED COPY] AMENDMENT NO. 4 AMENDMENT NO. 4 (this "Agreement") dated as of March 13, 1997 among: TERRA CAPITAL, INC., a Delaware corporation (the "Company"); TERRA NITROGEN, LIMITED PARTNERSHIP, a Delaware limited partnership ("TNLP" and, together with the Company, the "Borrowers); each of the entities listed on the signature pages hereof under the caption "GUARANTORS" (each such entity, and each of the Borrowers, an "Obligor" and, collectively, the "Obligors"); each of the lenders (the "Lenders") and issuing banks (the "Issuing Banks") listed on the signature pages hereof; and CITIBANK, N.A., as agent for the Lenders and Issuing Banks under the Credit Agreement referred to below (in such capacity, the "Agent"). The Obligors, the Lenders, the Issuing Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 14, 1995 (as from time to time amended, the "Credit Agreement"). The Company has requested the Lenders to amend the Credit Agreement in certain respects, and the Lenders are willing to so amend the Credit Agreement, all on the terms and conditions set forth herein. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 4, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the Agent's receipt of this Agreement, duly executed by each of the Obligors, the Required Lenders and the Agent, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. General. References in the Credit Agreement to "this Agreement" (including indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. B. Definitions. Section 1.01 of the Credit Agreement is amended by inserting the following definitions (or, in the case of any definition for a term that is defined in the Credit Agreement before giving effect to this Amendment No. 4, by amending and restating such definition to read as set forth below): "BFI" means Britz Fertilizer, Inc., a California corporation. "Britz Documents" means the Britz LLC Agreement and the Britz JV Agreement. Amendment No. 4 - 2 - "Britz JV Agreement" means the Joint Venture Agreement among TI, BFI, Britz LLC and certain other Persons pursuant to which TI will acquire ownership interests in Britz LLC, as amended from time to time. "Britz LLC" means Britz Fertilizer, L.L.C., a Delaware limited liability company, as the same may be renamed from time to time. "Britz LLC Agreement" means the limited liability company management agreement for Britz LLC, as the same may be in effect from time to time. "Specified Acquisitions" means Investments (including, without limitation, Investments arising by reason of any merger or consolidation permitted under Section 5.02(d)(i)(y) but excluding Investments contemplated by the Port Neal Transaction) consisting of acquisitions of ownership interests in one or more entities engaged in the same or allied line or lines of business as Terra and its Subsidiaries, taken as a whole. For purposes hereof, the amount of Specified Acquisitions made during any period shall include, without duplication, the aggregate amount of Investments in Britz LLC (other than those referred to in Section 5.02(f)(xvi)) made during such period and the aggregate amount of payments made during such period by Terra and its Subsidiaries in respect of the Obligations referred to in clauses (xv), (xvi) and (xvii) of Section 5.02(b). C. Transactions with Affiliates. Section 5.01(m) of the Credit Agreement shall be amended by deleting the "and" at the end of clause (v) thereof, by substituting "; and" for the period at the end of clause (vi) thereof and by adding the following new clause (vii) thereto: "(vii) Investments in Britz LLC to the extent permitted hereunder and general and administrative and purchasing services for Britz LLC (including inventory purchasing arrangements, whether for inventory manufactured and/or produced by Terra or any of its Subsidiaries or Amendment No. 4 - 3 - purchased from third parties, vendors or suppliers and including leasing and subleasing of furnishings, fixtures and equipment)." D. Debt. Section 5.02(b) of the Credit Agreement shall be amended by deleting the "and" at the end of clause (xiii) thereof, by substituting a semicolon for the period at the end of clause (xiv) thereof and by adding the following new clauses (xv), (xvi) and (xvii) thereto: "(xv) if at any time Britz LLC is a Subsidiary of Terra, Capital Lease Obligations owing by Britz LLC to BFI with respect to fixtures, furniture, equipment and other Property in an aggregate principal amount presently contemplated to be approximately $25,400,000 but in no event exceeding $30,000,000, and (regardless of whether Britz LLC is a Subsidiary of Terra) the Guarantee of such Obligations by Terra or one or more of its Subsidiaries; (xvi) Debt of Terra (or one or more of its Subsidiaries) in a principal amount (presently contemplated to be approximately $20,000,000, subject to adjustment in connection with increases or decreases in BFI's capital account in Britz LLC) as required under the put/call provisions of the Britz JV Agreement, but in any event not exceeding $30,000,000, owing under one or more promissory notes payable by Terra or one or more of its Subsidiaries to BFI and/or one or more of BFI's Affiliates as consideration for the transfer by BFI to TI or one or more of its Subsidiaries of the membership interests in Britz LLC not theretofore held by TI and its Subsidiaries, and the Guarantee of such Debt by Terra or one or more of its Subsidiaries; and (xvii) Obligations of TI in a maximum amount not exceeding $5,000,000 owing to BFI and/or one or more of BFI's Affiliates under one or more consulting or service agreements, and the Guarantee of such Obligations by Terra or one or more of its Subsidiaries." E. Sales, Etc., of Assets. Section 5.02(e) of the Credit Agreement shall be amended by deleting the "and" at the end of clause (vii) thereof, by substituting "; and" for the period at the end of clause (viii) thereof and by adding the following new clause (ix) thereto: "(ix) sales, transfers and other dispositions of assets to Britz LLC so long as such transactions are (if at the time Britz LLC is not a wholly owned Subsidiary of the Amendment No. 4 - 4 - Company) in the ordinary course of business and on ordinary business terms." F. Investments. Section 5.02(f) of the Credit Agreement shall be amended by deleting the "and" at the end of clause (xiv) thereof, by substituting "; and" for the period at the end of clause (xv) thereof and by adding the following new clause (xvi) thereto: "(xvi) (x) working capital advances or loans made by Terra or one or more of its Subsidiaries to Britz LLC from time to time to the extent required or permitted pursuant to the terms of the Britz Documents; and (y) loans, advances and capital contributions made by Terra or one or more of its Subsidiaries to Britz LLC from time to time to finance the purchase by Britz LLC of furnishings, fixtures and equipment, real estate and/or equity interests in entities engaged in the same or allied lines of business in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding." Section 3. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Lenders that: (a) the representations and warranties contained in each Loan Document are correct on and as of the date hereof, as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (b) no event has occurred and is continuing that constitutes a Default or an Event of Default. Section 4. Miscellaneous. Except as herein provided, the Credit Agreement and each of the other Loan Documents shall remain unchanged and in full force and effect. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 4 - 5 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWERS ------------- TERRA CAPITAL, INC. By /s/ F. G. Meyer ----------------------------- Title: Vice President TERRA NITROGEN, LIMITED PARTNERSHIP By Terra Nitrogen Corporation, its General Partner By /s/ Robert E. Thompson -------------------------- Title: Vice President GUARANTORS ---------- TERRA INDUSTRIES INC. By /s/ F. G. Meyer ----------------------------- Title: Senior Vice President TERRA NITROGEN CORPORATION By /s/ Robert E. Thompson ----------------------------- Title: Vice President BEAUMONT METHANOL, LIMITED PARTNERSHIP By Terra Methanol Corporation, its General Partner By /s/ G. H. Valentine -------------------------- Title: Vice President Amendment No. 4 -6- TERRA METHANOL CORPORATION By /s/ G. H. Valentine --------------------------- Title: Vice President BMC HOLDINGS, INC. By /s/ G. H. Valentine --------------------------- Title: Vice President TERRA CAPITAL HOLDINGS, INC. By /s/ F. G. Meyer --------------------------- Title: Vice President THE AGENT --------- CITIBANK, N.A. By /s/ Judith Fishlow Minter --------------------------- Title: Attorney-in-Fact COMMITMENTS THE LENDERS ----------- ----------- Terra Commitment CITIBANK, N.A. - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Mary W. Corkran --------------------------- Title: Vice President Terra Commitment THE CHASE MANHATTAN BANK - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Peter M. Ling --------------------------- Title: Vice President Amendment No. 4 -7- Terra Commitment ARAB BANKING CORPORATION - ---------------- $15,620,000.00 TNLP Commitment - --------------- $ 1,100,000.00 By /s/ Grant E. McDonald --------------------------- Title: Vice President Terra Commitment BANK OF AMERICA ILLINOIS - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ M. H. Claggett --------------------------- Title: Vice President Terra Commitment THE BANK OF NOVA SCOTIA - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ F. C. H. Ashby --------------------------- Title: Senior Manager Loan Operations Terra Commitment CAISSE NATIONAL DE CREDIT AGRICOLE - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Dean Balice --------------------------- Title: Senior Vice President Branch Manager Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN- - ---------------- BOERENLEEBANK, B.A. "RABOBANK $14,980,000.00 NEDERLAND", NEW YORK BRANCH TNLP Commitment - --------------- $ 1,054,929.57 By /s/ W. Jeffrey Vollack --------------------------- Title: Vice President, Manager By /s/ Angela R. Reilly --------------------------- Title: Vice President Amendment No. 4 -8- Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Julie T. Kanak --------------------------- Title: Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Julie T. Kanak --------------------------- Title: Authorized Signature Terra Commitment DRESDNER BANK AG, CHICAGO AND GRAND - ---------------- CAYMAN BRANCHES $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Robert Grella --------------------------- Title: Vice President By /s/ B. Craig Erickson --------------------------- Title: Vice President Terra Commitment FIRST BANK NATIONAL ASSOCIATION - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ David Y. Kopolow --------------------------- Title: Vice President Terra Commitment THE FUJI BANK, LIMITED - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Peter L. Chinnici --------------------------- Title: Joint General Manager Terra Commitment MELLON BANK, N.A. - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ John K. Walsh --------------------------- Title: Vice President Amendment No. 4 -9- Terra Commitment NATIONSBANK OF TEXAS, N.A. - ---------------- $26,980,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Suzanne B. Smith --------------------------- Title: Vice President Terra Commitment UNION BANK OF SWITZERLAND, NEW YORK - ---------------- BRANCH $15,620,000.00 TNLP Commitment - --------------- $ 1,100,000.00 By /s/ Douglas Edwards --------------------------- Title: Vice President By /s/ Mary V. Turnbach --------------------------- Title: Assistant Treasurer Terra Commitment BOATMEN'S NATIONAL BANK - ---------------- $ 7,000,000.00 TNLP Commitment - --------------- $ 492,957.75 By /s/ Mark Johnsrud --------------------------- Title: Vice President Terra Commitment BANQUE NATIONAL DE PARIS - ---------------- $ 5,000,000.00 TNLP Commitment - --------------- $ 352,112.68 By /s/ Arnaud Collin du Bocage --------------------------- Title: Executive Vice President and General Manager Amendment No. 4 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated statement of financial position of Terra Industries, Inc. as of March 31, 1997 and the related consolidated statement of income for the three months then ended and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 36,863 7,722 219,209 (11,845) 576,779 890,380 1,076,559 (228,155) 2,140,452 720,055 403,501 0 0 126,545 464,206 2,140,452 423,683 433,710 338,052 338,052 0 794 13,484 6,642 2,740 3,902 0 0 0 3,902 0.05 0
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