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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number: 1-8520
TERRA INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of
incorporation or organization)
52-1145429
(I.R.S. Employer
Identification No.)
TERRA CENTRE
600 FOURTH STREET
P. O. BOX 6000
SIOUX CITY, IOWA
(Address of principal executive offices)
51102-6000
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (712) 277-1340
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
TORONTO STOCK EXCHANGE
10-3/4% SENIOR NOTES DUE 2003 N/A
10-1/2% SENIOR NOTES DUE 2005 N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
______________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Registrant's voting stock held by non-
affiliates of Registrant, at December 31, 1995, was approximately $545,400,000.
On December 31, 1995, Registrant's outstanding voting stock consisted of
81,173,402 Common Shares, without par value.
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders of Registrant for the fiscal year ended December
31, 1995. Certain information therein is incorporated by reference into Part I,
Part II and Part IV hereof.
Proxy Statement for the Annual Meeting of Stockholders of Registrant to be held
on April 30, 1996. Certain information therein is incorporated by reference into
Part III hereof.
TABLE OF CONTENTS
PART I
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ITEMS 1 AND 2. BUSINESS AND PROPERTIES.................................... 1
ITEM 3. LEGAL PROCEEDINGS................................................ 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 11
EXECUTIVE OFFICERS OF THE COMPANY................................ 12
PART II
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ITEM 5. MARKET FOR TERRA INDUSTRIES' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................................. 13
ITEM 6. SELECTED FINANCIAL DATA.......................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................. 14
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.................. 14
ITEM 11. EXECUTIVE COMPENSATION........................................... 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 14
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 14
SIGNATURES................................................................. 20
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS............... S-1
PART I
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ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Terra Industries Inc., a Maryland corporation ("Terra" or the "Company"),
conducts its ongoing operations in North America primarily through its
subsidiaries. The Company's principal operating subsidiaries include Terra
International, Inc., an indirect wholly owned subsidiary ("Terra
International"), Terra International (Canada) Inc., a wholly owned subsidiary of
Terra International ("Terra Canada"), Beaumont Methanol, Limited Partnership, an
indirect wholly owned subsidiary ("BMLP"), Terra Nitrogen Corporation, an
indirect wholly owned subsidiary ("TNC"), and Terra Nitrogen, Limited
Partnership ("TNLP"). TNC is TNLP's sole general partner and owns, directly or
indirectly, approximately 60% of TNLP. Approximately 5% of TNLP is indirectly
owned by another wholly owned subsidiary of the Company and approximately 35% of
TNLP is indirectly owned by other limited partners in the form of publicly
traded Senior Preference Units of Terra Nitrogen Company, L.P. ("TNCLP"), the
99% limited partner of TNLP. Unless otherwise referred to herein or the context
otherwise requires, references to the "Company" or "Terra" shall mean Terra
Industries Inc., including, where the context so requires, its direct and
indirect subsidiaries. The principal corporate office of the Company is located
at Terra Centre, 600 Fourth Street, Sioux City, Iowa 51102-6000 and its
telephone number is 712-277-1340.
GENERAL
The Company is a leader in each of its three business segments: (i) the
distribution of crop production products and services, (ii) the manufacture of
nitrogen products and (iii) the manufacture of methanol. The Company owns and
operates the largest independent farm service center network in North America
and is the second largest supplier of crop production products in the United
States. The Company is also the third largest producer of anhydrous ammonia and
one of the two largest producers of nitrogen solutions in the United States and
Canada. In addition, the Company is one of the largest U.S. manufacturers and
marketers of methanol.
The Company's distribution network serves the United States and eastern region
of Canada and has grown over the last several years to include, as of December
31, 1995, approximately:
. 380 farm service centers;
. 90 fertilizer storage facilities; and
. 890 affiliated dealer locations.
The Company's production facilities are comprised of:
. five nitrogen fertilizer plants, which are located in Oklahoma (the
"Woodward Facility" and the "Verdigris Facility"), Iowa (the "Port
Neal Facility"), Ontario, Canada (the "Courtright Facility") and
Arkansas (the "Blytheville Facility");
. a methanol production plant, which is located in Texas (the "Beaumont
Facility") (the Woodward Facility also includes methanol production
capacity);
. a crop protection products formulation plant, which is located in
Arkansas (the "Blytheville Formulation Facility"); and
. seven additional liquid crop protection product formulation facilities.
For certain financial information regarding the Company's industry segments
(Distribution, Nitrogen Products and Methanol), see Note 20 to the Company's
Consolidated Financial Statements incorporated herein.
1
DISTRIBUTION
The Company's farm service center network is a distribution and marketing
system for a comprehensive line of fertilizers, crop protection products, seeds
and services. The Company's customers are primarily farmers and dealers located
in the midwestern and southern regions of the United States, and the eastern
region of Canada.
Products. The Company markets a comprehensive line of crop protection products
(herbicides, insecticides, fungicides, adjuvants, plant growth regulators,
defoliants, desiccants and other products), fertilizer (nitrogen, phosphates,
potash and micronutrients) and seed.
Although most crop protection products marketed by the Company are
manufactured by unaffiliated suppliers, the Company also markets its own
Riverside/(R)/ brand products. Riverside/(R)/ products represented approximately
15% of the Company's total crop protection product sales in 1995. As of December
31, 1995, the Riverside/(R)/ line includes approximately 145 products, of which
seven were added in 1995, and consists of herbicides, insecticides, fungicides,
adjuvants, seed treatments, plant growth regulators, defoliants and desiccants.
The majority of Riverside/(R)/ products are formulated or packaged in facilities
owned by the Company. The Riverside/(R)/ line includes several formulations
produced exclusively by the Company, but does not include proprietary
agricultural chemicals. Riverside/(R)/ products generally provide higher margins
for the Company than products manufactured by unaffiliated suppliers. The sale
of such products, however, involves additional indirect costs, including the
cost of maintaining inventory, disposing of excess inventory and potentially
greater liability for product defects. The Company possesses and processes the
registrations required by the EPA for Riverside/(R)/ pesticide products.
The Company markets several major seed brands and, in its United States
marketing area, is one of the largest independent seed distributors. The Company
focuses marketing efforts on its proprietary brand of corn hybrids, soybean,
wheat and cotton seed varieties, which provide higher margins. These products
represented approximately 14% of the Company's total seed sales in 1995. The
Company also has maintained in the past few years an exclusive retail storefront
marketing and distribution agreement for DEKALB brand seed in the Midwest, which
accounted for approximately 9% of the Company's total 1995 seed sales.
Services. In addition to selling products used to grow crops, the Company's
farm service centers offer a wide variety of services to grower customers. These
services include soil and plant tissue analysis, crop production program
recommendations, custom blending of fertilizers, field application services,
field inspections for pest control and crop program performance follow-up. The
farm service centers utilize the Company's Ag Analytical Services laboratory in
Elida, Ohio to analyze nutrient levels in soil and plant tissue samples.
Analytical results are down-loaded to a mainframe computer located at the
company headquarters in Sioux City, Iowa. These results are readily accessible
to most farm center locations through computer terminal links to the mainframe.
The results of these tests are used by the Company's proprietary CropMaster/R/
program to provide specific, localized soil fertility recommendations for
specific crops on a field-by-field basis. Recommendations can be made for
practically all crops grown in the Company's markets. The program also provides
"least cost" nutrient blending formula recommendations, makes seed variety
recommendations based on hybrid characteristics and other factors important to
the individual grower, and maintains crop input records for grower customers.
Terra has made a strong commitment to their customers by taking an active role
in "precision agriculture". Precision agriculture utilizes technological
advances which allow growers to view and treat individual, site-specific areas
within their fields versus whole field applications, thus allowing for more
efficient utilization of their input dollars. The Company has invested in
hardware, software and people to meet the demand of Precision in Agriculture/TM/
In connection with product sales to dealers, the Company provides warehousing
and delivery services. For selected dealer customers, the Company offers a
service package called MarketMaster/TM/. The package includes environmental and
safety audits, business management and agronomic training courses, access to the
Company's Ag Analytical Services
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laboratory, use of the CropMaster/R/ program and other services. The Company has
504 MarketMaster/TM/ dealer sites as of December 31, 1995.
Marketing and Distribution. The Company markets its products primarily to
agricultural customers, including both dealers and growers. For 1995,
approximately 70% of the Company's distribution revenues were attributable to
grower sales through farm service center locations and approximately 30% were
attributable to sales to dealers.
The Company also markets its products through its Professional Products/(R)/
group to non-farm customers, including turf growers, nurseries, golf courses,
parks, athletic facilities and utility companies. The Company offers these
customers herbicides, insecticides, fungicides, fertilizer, adjuvants, plant
growth regulators, seed and agronomic services. The Professional Products/(R)/
personnel generally utilize the Company's farm service centers, for delivery,
billing and other systems and services.
The Company's distribution operations are organized into Northern and Southern
Divisions, which include thirteen separate geographical regions. Field personnel
receive regular training through Terra University/(R)/, a series of courses
designed to develop skills in agronomy, management, sales, environmental
responsibility, personal safety and field application. The field salespeople are
supported by the Ag Analytical Services laboratory, a staff of technical service
representatives and research stations where the efficacy of various crop
protection products and the performance of numerous seed varieties are tested.
Properties. The Company's farm service centers are located on a combination of
owned and leased properties and a majority of the buildings and other
improvements thereon are owned in fee. The leases have varying expiration dates
through the year 2007.
Product Formulations. The Company's Blytheville Formulation Facility
formulates dry flowable ("DF") crop protection products and liquid crop
protection products in separate production lines at the same location. DF
formulations are dry, water-dispersible granules that are mixed with water
before application. Because of their dry form, granules have several benefits
compared with liquid formulations including: easier package disposal, easier
cleanup of accidental spills, absence of toxic solvents, no fumes, less weight,
less space required for storage, and no product loss from freezing temperatures
or settling. The Blytheville Formulation Facility is one of thirteen plants in
the U.S. and formulates seven DF products and nine liquid products.
Approximately 65% of the plant's volume in 1995 was attributable to the
Company's own Riverside/(R)/ brand product line. The Company has developed
several DF formulations which are not available from any other producer or
formulator. The Company has also developed DF formulations for a number of
companies that contract all or portions of their production at the Blytheville
Formulation Facility. The Blytheville Formulation Facility is owned in fee.
NITROGEN PRODUCTS
Nitrogen is one of three primary nutrients essential for plant growth.
Nitrogen fertilizer products must be reapplied each year in areas of extensive
agricultural usage because of absorption by crops and leaching from the soil.
There are currently no substitutes for nitrogen fertilizer in the cultivation of
high-yield crops.
The Company is a major producer and distributor of nitrogen products,
principally fertilizers. The Company's principal nitrogen products are ammonia,
urea and urea ammonium nitrate solution ("UAN"). A significant portion of the
Company's ammonia production is upgraded into other nitrogen fertilizer products
such as urea and UAN.
Products. Although, to some extent, the various nitrogen fertilizer products
are interchangeable, each has its own distinct characteristics which produce
agronomic preferences among end users. Farmers decide which type of nitrogen
fertilizer to apply based on the crop planted, soil and weather conditions,
regional farming practices, relative nitrogen fertilizer prices and the cost and
availability of appropriate storage, handling and application equipment.
3
Ammonia. Anhydrous ammonia is the simplest form of nitrogen fertilizer and
is the feedstock for the production of most other nitrogen fertilizers,
including urea and UAN. It is produced by natural gas reacting with steam and
air at high temperatures and pressures in the presence of catalysts. It has a
nitrogen content of 82% by weight and is generally the least expensive form of
fertilizer per pound of nitrogen. Ammonia has a distinctive odor and requires
refrigeration or pressurization for transportation and storage.
Urea. Urea is produced for both the feed and fertilizer market by converting
ammonia into liquid urea, which can be turned into a solid form. Urea has a
nitrogen content of 46% by weight, the highest level for any solid nitrogen
product. The Company produces both solid urea in the granulated form, generally
for the fertilizer market, and urea liquor for feed supplements.
UAN Solution. The Company produces UAN at all five of its fertilizer
manufacturing facilities. The Verdigris Facility in Oklahoma is the largest UAN
production facility in the United States. UAN is produced by combining liquid
urea and ammonium nitrate in water. The nitrogen content of UAN is typically 28%
to 32% by weight. UAN is a liquid fertilizer and, unlike ammonia, is generally
odorless and does not need to be refrigerated or pressurized for transportation
or storage.
UAN may be applied separately or may be mixed with various crop protection
products, permitting the application of several materials simultaneously, and
thus reducing energy and labor costs and accelerating field preparation for
planting. In addition, UAN may be applied from ordinary tanks and trucks and
can be sprayed or injected into the soil, or applied through irrigation systems,
throughout the growing season. UAN is relatively expensive to transport and
store because of its high water content. Due to its stable nature, UAN may be
used for no-till row crops where fertilizer is spread upon the surface but may
be subject to volatilization losses. The use of conservation tilling, which
reduces erosion, is increasing in the United States, and the Company believes
this trend, if continued, should increase UAN demand.
The Company's sales mix of its three principal nitrogen products (including
TNLP on a pro forma basis) for the years ended December 31, 1995, 1994 and 1993
was approximately (based on tons sold):
1995 1994 1993
---- ---- ----
Ammonia 25% 25% 23%
Urea 14% 16% 16%
UAN 61% 59% 61%
Plants. All of the Company's Facilities are integrated facilities for the
production of ammonia, liquid urea and UAN and other nitrogen products. In
addition, the Courtright Facility and Blytheville Facility produce solid urea.
The
4
total annual gross ammonia production capacity of the following nitrogen
fertilizer facilities operated by the Company is currently 2.7 million short
tons:
Gross Annual
Ammonia Production Year when Terra first Year facility
Capacity (tons) acquired interest built
-------------------- --------------------- -------------
Port Neal Facility (Iowa) 345,000 1965 1967 *
Woodward Facility (Oklahoma) 390,000 1976 1978
Courtright Facility (Canada) 480,000 1993 1966
Verdigris Facility (Oklahoma) 1,050,000 1994
First ammonia and UAN plant 1975
Second ammonia plant 1977
Second UAN plant 1979
Blytheville Facility (Arkansas) 420,000 1994
Ammonia plant 1967
Urea plant 1975
* This facility is being substantially rebuilt.
Each of the Company's five fertilizer manufacturing facilities is designed
to operate continuously, except for planned biennial shutdowns for maintenance
and installation of efficiency improvements. Capacity utilization (gross tons
produced divided by capacity tons at expected operating rates and on stream
factors) of the Company's fertilizer manufacturing facilities for the years
ended December 31, 1995, 1994 and 1993, in the aggregate, was approximately 97%,
95%, and 102%, respectively.
The Port Neal Facility was the site of a major explosion on December 13,
1994. An investigative committee formed by the Company, which included
independent experts, determined that the explosion was primarily caused by a
defect in the design of the nitric acid sparger in the neutralizer vessel of the
ammonium nitrate plant at the Port Neal Facility. The Company undertook to
repair the facility and began producing ammonia again at the Port Neal Facility
in late December 1995. The Company expects the urea and nitrogen solution
upgrading facilities to be fully operational in the second quarter of 1996.
Property damage and business interruption insurance payments received thus far
have been used to finance, in part, the plant repair and to recover lost
profits. The Company is in discussions with its insurers as to additional
insurance proceeds to which the Company believes it should be entitled. In the
meantime, the Company expects to continue to receive interim progress payments
from its insurers. Terra has invested additional funds for other enhancements
and improvements at the Port Neal Facility.
The Company owns in fee the real estate on which the Port Neal Facility is
located and has a 75% ownership interest in the related improvements after
transfering the improvements in September 1995 to a subsidiary that was
structured to finance and complete the reconstruction of such facility.
The Courtright Facility's liquid urea and granulation capacities are
increasing as a result of a plant upgrade project expected to be completed in
1996. Part of the liquid urea upgrade has been operating since late 1995. The
upgrade project will enable the replacement of up to 65,000 tons of annual
ammonia sales with urea and UAN sales. The final project cost is expected to be
approximately $32 million, funded principally through lease financing.
5
The lease financing agreement for the Courtright Facility expires in April
1997 and requires annual lease payments. The Company has a purchase option
during the term of the lease and at expiration for approximately $72 million
(Cdn). If, at the end of the lease term, the purchase option is not exercised,
the Company must pay to the lessor approximately $61 million (Cdn), subject to
reimbursement based on the proceeds realized upon the sale of the facility by
the lessor.
Located at the Verdigris Facility are two ammonia plants, two nitric acid
plants and two UAN solution plants and the Port Terminal. The plants are owned
in fee by TNLP, while the Port Terminal is leased from the Tulsa-Rogers County
Port Authority. The leasehold interest is scheduled to expire in April 1999, and
TNLP has the option to renew the lease for two additional, consecutive terms of
five years each.
The Blytheville Facility consists of an anhydrous ammonia plant, a granular
urea plant and a UAN solution plant. The UAN plant began production in late
1994. The ammonia plant at the Blytheville Facility is leased from the City of
Blytheville at a nominal annual rental. The lease term is scheduled to expire in
November 1999, and TNLP has the option to extend the lease for twelve successive
terms of five years each at the same rental rate. TNLP has the unconditional
right 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 lease is scheduled to expire in November 1999, and TNLP has the
option to renew the lease for four successive periods of five years each at a
nominal annual rental. TNLP also has an option to purchase the property for a
nominal price.
The Woodward Facility is owned in fee.
Marketing and Distribution. The Company's principal customers for its
manufactured nitrogen products are large independent dealers, national retail
chains, cooperatives and industrial customers. Industrial customers accounted
for approximately 18% of the Company's total sales of its manufactured nitrogen
products. In 1995, approximately 8% of the Company's fertilizer production was
supplied to its farm service center locations for sale to growers, while the
rest was sold to outside customers. In 1995, no outside customer accounted for
greater than 10% of total manufactured nitrogen fertilizer sales.
The Company has production facilities and significant storage capacity
throughout the Midwestern U.S. and in other major fertilizer consuming regions
which allow it to be a major supplier of nitrogen fertilizers.
METHANOL
The Company substantially increased its participation in the methanol
industry in October 1994 with the acquisition of the Beaumont Facility as part
of the acquisition of AMCI. The Company has approximately 320 million gallons of
annual methanol production capacity, representing approximately 15% of the total
United States rated capacity in production at the end of 1995.
Product. Methanol is a liquid petrochemical made primarily from natural gas.
It is used as a feedstock in the production of other chemical products such as
formaldehyde, acetic acid and chemicals used in the building products industry.
Methanol is also used as a feedstock in the production of MTBE, an oxygenate
used as an additive in reformulated gasoline and an octane enhancer used in non-
reformulated gasoline. Reformulated gasoline has lower volatility and is less
aromatic than non-reformulated gasoline. The methanol manufacturing process
involves heating the natural gas feedstock, mixing it with steam and passing it
over a nickel-based catalyst, which breaks it down into carbon monoxide, carbon
dioxide and hydrogen. This reformed gas is then cooled, compressed and passed
over a copper-zinc based catalyst to produce crude methanol. Crude methanol
consists of approximately 80% methanol and 20% water. In order to convert it to
high-purity chemical grade methanol suitable for sale, the crude methanol is
distilled to remove the water and other impurities.
6
Plants. During the first half of 1994, the Company completed the capital
improvements necessary for optional production of methanol instead of ammonia
for about 30% of the Woodward Facility's ammonia capacity. The design of the
Woodward Facility enabled this conversion to be accomplished for approximately
$16 million of capital spending, which the Company believes is approximately
half the capital cost required to convert most other ammonia plants to methanol
production. The Company has approximately 40 million gallons of annual methanol
capacity at the Woodward Facility. This facility is owned by the Company in fee.
The Beaumont Facility is the largest methanol production plant in the United
States, with approximately 280 million gallons of annual methanol capacity. The
plant and processing equipment at the Beaumont Facility are owned by BMLP, and
the land is leased from E.I. du Pont de Nemours and Company ("DuPont"), for a
nominal annual rental under a lease agreement which expires in 2090. Because the
Beaumont Facility is entirely contained in a complex owned and operated by
DuPont (the ''Beaumont Complex''), BMLP depends on DuPont for access to the
Beaumont Facility. BMLP also relies on DuPont for access and certain essential
services relating to the wharf located at the Beaumont Complex through which
most of the finished methanol product is shipped to customers, and the pipelines
used to transport methanol and to obtain natural gas, as well as for certain
utilities and waste water treatment facilities and other essential services.
Marketing and Distribution. Effective February 2, 1995, BMLP terminated a
marketing services agreement pursuant to which the marketing of methanol from
the Beaumont Facility had been conducted for over a year on an exclusive basis
by Trammochem, a division of Transammonia, Inc. The services provided by
Trammochem included analysis of market conditions for methanol, marketing and
sales on a contract basis and sales on a spot basis, arrangement of
transportation of methanol to customers and customer relations activities. BMLP
retained responsibility for the invoicing and collection of payments from
customers and for loading transportation equipment in accordance with customer
requirements. BMLP paid Trammochem a fee based on the Beaumont Facility's
earnings and sales. Company employees have assumed all functions previously
provided by Trammochem.
Methanol customers are primarily large chemical or MTBE producers located in
the United States; however, some sales have been made to customers in Central
and South America.
Methanol Contracts. BMLP has a number of long-term methanol sales contracts,
the most significant of which is with DuPont. In 1995, BMLP sold approximately
60% of its production under such contracts. For 1996, BMLP has contracted to
sell approximately 75% of its production at prices indexed to published sources.
Most of the these sales contracts (other than the DuPont Contract) cover fixed
volumes and have terms of up to three years.
Under the DuPont contract, as amended, DuPont has agreed to purchase 108
million gallons of methanol through 1997 and 54 million gallons of methanol each
year thereafter until 2001 (representing 39% and 19%, respectively, of the
Beaumont Facility capacity). The price for the methanol delivered under the
DuPont contract is generally indexed to a published source. The DuPont contract
will continue in effect after the initial term unless terminated by either party
on two year's notice.
Under a methanol hedging agreement, BMLP received a $4 million lump sum
payment in exchange for agreeing to make payments based on the market prices of
methanol and natural gas for the periods October 20, 1994 to December 31, 1995,
calendar year 1996 and calendar year 1997. Payments are generally due five
business days after the end of the applicable period. No payment was due for the
initial period. BMLP will be required to make additional payments under the
methanol hedging agreement if methanol prices are high relative to natural gas
prices as compared with historical price levels. Through the Beaumont Facility
and the Company's other methanol production capabilities, the Company will
benefit from such market price differences at any time it is required to make
payments under such agreement. As a result of making such payments, however,
BMLP will not benefit fully from increases in the price of methanol during the
term of the methanol hedging agreement.
7
CREDIT
A substantial portion of the Company's sales to its grower and dealer
customers is made on credit terms customary in the industry. The Company also
maintains a grower financing program to provide secured, interest-bearing
financing to qualified grower customers for their operating and crop input
requirements on extended payment terms. The Company provided approximately $65
million in 1994 and $88 million in 1995 in credit lines to grower customers
under this program. Although there is additional credit risk associated with the
grower finance program, it is mitigated through a well defined application,
screening and approval process. The Company has not experienced and does not
expect to experience significant bad debts in its grower finance program.
SEASONALITY AND VOLATILITY
The agricultural crop production products business is seasonal, based upon
the planting, growing and harvesting cycles. Inventories must be accumulated to
be available for seasonal sales, requiring significant storage capacity.
Inventory accumulations are financed by suppliers or short-term borrowings,
which are retired with the proceeds of the sales of such inventory. In times of
lower demand, the Company can reduce purchases of crop inputs for the
distribution portion of its business, thereby decreasing inventory carrying
costs. In the past, over half of the Company's sales generally occurred during
the second quarter of each year. 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, increasing in the
fall (as depleted inventories are restored) through the spring.
The agricultural crop production products business can also be volatile as a
result of a number of other factors, the most important of which, for U.S.
markets, are weather patterns and field conditions (particularly during periods
of high fertilizer consumption), quantities of fertilizers imported to and
exported from North America, current and projected grain inventories and prices,
and the U.S. government's agricultural policy. Among the governmental policies
that influence the markets for fertilizer are those directly or indirectly
influencing the number of acres planted, the level of grain inventories, the mix
of crops planted and crop prices. Because of these factors which are outside of
the Company's control, there can be no assurance that the relatively high
nitrogen fertilizer price levels achieved in 1995 will continue.
As with any commodity chemical, the price of methanol can be volatile. The
industry has experienced cycles of oversupply, resulting in depressed prices and
idled capacity, followed by periods of shortage and rapidly rising prices.
Methanol prices by mid-1995 returned to historical levels after reaching
uncharacteristically high prices in late 1994 and early 1995. During 1994,
several factors combined to create a tight market and dramatically increased
prices: increased world demand for methanol, a large number of plant shutdowns
and turnarounds in the industry and the phase-in of federally mandated standards
for reformulated gasoline. In part, future demand for methanol will depend on
the regulatory environment with respect to reformulated gasoline. Most methanol
sold in the U.S. is sold pursuant to long-term contracts based on market index
pricing and a fixed volume.
RAW MATERIALS
The principal raw material used to produce nitrogen fertilizer and methanol
is natural gas. The Company estimates that natural gas costs comprised nearly
50% of the total costs and expenses associated with the Company's manufactured
fertilizer operations in 1995. The Company estimates that the purchase and
transportation of natural gas represents over 50% of the costs and expenses
associated with its methanol operations. A significant increase in the price of
natural gas that could not be recovered through an increase in nitrogen
fertilizer or methanol prices could have a material adverse effect on the
Company's profitability and cash flow. The Company's natural gas procurement
policy is to effectively fix or cap the price of approximately 40% to 80% of its
natural gas requirements for the upcoming 12 months using supply contracts,
financial derivatives and other forward pricing techniques. Depending on market
conditions, the Company may also effectively fix or cap the price for a portion
of its natural gas requirements for longer periods of time. In the first quarter
of 1995, the Company extended its forward pricing positions for natural gas due
to the decline in natural gas prices
8
and favorable outlook for its manufactured products. The settlement dates are
scheduled to coincide with gas purchases during such future periods. The Company
believes that there is sufficient supply to allow stable costs for the
foreseeable future and has entered into firm contracts to minimize the risk of
interruption or curtailment of natural gas supplies. As of December 31, 1995,
the Company had effectively fixed or capped prices for approximately 78% of its
natural gas requirements for 1996 and 46% for 1997. Liquidation of these open
financial derivatives based on December 31, 1995 market prices would have
resulted in an unrealized gain of $14.9 million. Realized gains on closed
contracts of $11.4 million relating to future periods have been deferred as of
December 31, 1995.
Reliable sources for supply of crop inputs at competitive prices are
critical to the distribution portion of the Company's business. The Company's
sources for fertilizer, agricultural chemicals and seed are typically
manufacturers of the products without an internal capability to distribute
products to the North American grower.
TRANSPORTATION
The Company uses several modes of transportation to receive and distribute
products to customers and its own locations, including railroad cars, common
carrier trucks, barges, common carrier pipelines and Company-owned or leased
vehicles. The Company utilizes approximately 90 liquid, dry and anhydrous
ammonia fertilizer terminal storage facilities in numerous states and in
Ontario, Canada. The Company also has varying amounts of warehouse space at each
of its farm service centers and has one methanol storage facility in Beaumont,
Texas.
Through Terra Express, Inc. ("Terra Express"), a wholly owned truck
transportation subsidiary of Terra International, the Company provides
transportation services to its own facilities and customers as a contract
carrier. Terra Express uses approximately 72 owner-operators and 15 Company
drivers to deliver fertilizer, crop protection products, seed, feed ingredients
and other products to its own facilities and customers. At its manufacturing
facilities, Blytheville Formulation Facility and liquid fertilizer storage
locations, the Company utilizes railcars as the major method of transportation.
The Company leases approximately 1,800 railcars and owns ten nitric acid
railcars.
The Company transports purchased natural gas for the Woodward Facility and
the Verdigris Facility through an intrastate pipeline that is not an open access
carrier; however, the Company is able to transport gas supplies from any in-
state source connected to the widespread pipeline system, and has limited access
to supplies outside the state. For the Beaumont Facility, the Company transports
products primarily by marine transport via the Neches River to the Intercoastal
Canal and the Gulf of Mexico and via pipeline to selected customers. Access to
the wharf and the pipeline used at the Beaumont Facility is provided through
agreements with DuPont. The Courtright Facility utilizes local gas storage
service provided by a local utility, and purchased gas is transported from
western Canada through the TransCanada Pipeline under various delivery
contracts. The Company transports purchased natural gas for the Blytheville
Facility through a natural gas pipeline company under an agreement that extends
through September 1998. Purchased natural gas is transported to the Port Neal
Facility via an interstate pipeline operating as an open access natural gas
transporter. Under a Federal Energy Regulatory Commission order, the Company
maintains facilities for direct access to its interstate pipeline shipper;
however, the Company has retained its alternative connection to a local utility
service to preserve some flexibility.
RESEARCH AND DEVELOPMENT
The Company owns and operates a 70-acre agronomy research station near its
Port Neal Facility for program development and product testing, and routinely
conducts product evaluation and testing on property leased from others and with
growers and universities. The Company also develops DF and other chemical
formulations for its Riverside/(R)/ product line and for basic chemical products
at its Blytheville Formulation Facility.
9
COMPETITION
The market for the fertilizer, crop protection products and seed distributed
by the Company is highly competitive. In 1995, sales attributable to the
Company's farm service centers accounted for roughly 5% of total crop production
products sold in the U.S. Within the specific market areas served by its farm
service centers, however, the Company's share of the market was substantially
higher in most instances. The Company's competitors include cooperatives,
divisions of diversified agribusiness companies, regional distributors and
independent dealers, some of which have substantially greater financial and
other resources than the Company. The Company competes in its Distribution
business primarily by providing a comprehensive line of products and what the
Company believes to be superior services to growers and dealers, as well as on
price.
Nitrogen fertilizer is a global commodity and the Company's customers
include end-users, dealers and other fertilizer producers. Customers base their
purchasing decisions principally on the delivered price and availability of the
product. The Company competes with a number of U.S. producers and producers in
other countries, including state-owned and government-subsidized entities. Some
of the Company's principal competitors may have greater total resources and may
be less dependent on earnings from nitrogen fertilizer sales than the Company.
Some foreign competitors may have access to lower cost or government-subsidized
natural gas supplies. The Company believes that it competes with other
manufacturers of nitrogen fertilizer on delivery terms and availability of
products, as well as on price.
The methanol industry, like the fertilizer industry, is highly competitive
and such competition is based largely on price, reliability and deliverability.
The relative cost and availability of natural gas and the efficiency of
production facilities are important competitive factors. Significant
determinants of a plant's competitive position are the natural gas acquisition
and transportation contracts that a plant negotiates with its major suppliers.
Domestic competitors for methanol include a number of large integrated
petrochemical producers, many of which are better capitalized than the Company.
In addition, the production and trade of methanol has become increasingly
global, and a number of foreign competitors produce methanol primarily for the
export market.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's operations are subject to various federal, state and local
environmental, safety and health laws and regulations, including laws relating
to air quality, hazardous and solid wastes and water quality. Terra Canada's
operations are subject to various federal and provincial regulations regarding
such matters, including the Canadian Environmental Protection Act administered
by Environment Canada, and the Ontario Environmental Protection Act administered
by the Ontario Ministry of the Environment. The Company 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 Company may be responsible under CERCLA or
analogous state laws for all or part of the costs of such investigation and
remediation.
Terra International 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 Company's management believes that
its liability with respect to these matters will not be material.
Certain state regulatory agencies have enacted requirements to provide
secondary containment for crop protection product storage facilities present at
the Company's farm service centers and terminals. It is expected that other
states will adopt similar requirements pursuant to federal mandate. The Company
has commenced construction of these facilities at
10
its farm service centers and terminals, and estimates that the future cost of
complying with these regulations in 1996 and beyond will be approximately $6
million.
With respect to the Verdigris Facility and Blytheville Facility, Freeport-
McMoRan Resource Partners, Limited Partnership ("FMRP") (a former owner and
operator of such facilities) retains liability for certain environmental
matters. With respect to the Beaumont Facility, DuPont retains responsibility
for certain environmental costs and liabilities stemming from conditions or
operations to the extent such conditions or operations existed or occurred prior
to the 1991 disposition by DuPont. The Company does not believe that such
environmental costs and liabilities, whether or not retained by FMRP or DuPont,
will have a material effect on the Company's financial condition or results of
operations.
Insulation and other construction or building materials at certain Company
plants contain asbestos. Over 400 suits have been filed by contractors'
employees against DuPont based on exposure to asbestos-containing material at
the complex in which the Beaumont Facility is located. At least nine of these
are directly related to the Beaumont Facility. An estimate of potential
liability associated with these suits is not available. DuPont retains
responsibility for all claims based on exposure to hazardous materials,
including asbestos, occurring prior to the 1991 disposition by DuPont. Although
no suit relating to asbestos exposure has been filed against the Company to
date, the possibility exists that liability could be incurred in the future for
claims based on exposure to asbestos-containing material after such acquisition.
The Company 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 and Clean Water Act requirements. These
equipment requirements are also typically applicable to competitors as well. The
Company estimates that the cost of complying with these requirements will total
approximately $11 million to $13 million through 1997.
The Company endeavors to comply (and has incurred substantial costs in
connection with such compliance) in all material respects with applicable
environmental, safety and health regulations. The Company does not expect its
continued compliance with such regulations to have a material adverse effect on
its earnings or competitive position.
EMPLOYEES
The Company had approximately 3,500 full-time employees at December 31,
1995, none of whom were covered by a collective bargaining agreement. The
Company also hires temporary employees on a seasonal basis, and hired
approximately 1,600 temporary employees during its spring selling season in
1995.
ITEM 3. LEGAL PROCEEDINGS.
Various legal proceedings are pending against the Company and its
subsidiaries. Management of the Company considers that the aggregate liability
resulting from these proceedings will not be material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of security holders of the Company during
the fourth quarter of 1995.
11
EXECUTIVE OFFICERS OF THE COMPANY
The following paragraphs set forth the name, age and offices of each present
executive officer of Terra, the period during which each executive officer has
served as such and each executive officer's business experience during the past
five years:
Present positions and offices with the Company
Name and age and principal occupations during the past five years
----------- ----------------------------------------------------
Michael L. Bennett (42) President of Terra Distribution Division since November 1995; Senior Vice
President of Terra since February 1995; Senior Vice President, Distribution
of Terra International since October 1994; Vice President, Northern
Division thereof from January 1992 to October 1994; Vice President,
Wholesale Fertilizer Division thereof from January 1990 to January 1992.
John S. Burchfield (55) Vice President, Human Resources of Terra since March 1992; Vice
President, Human Resources of AON Corporation from January 1989 to
November 1991.
Lawrence S. Hlobik (51) President of Terra Nitrogen Division and Senior Vice President of Terra
since February 1996; Senior Vice President, Marketing of Terra Nitrogen
Corporation from February 1995 to February 1996; Vice President,
Marketing of Arcadian Corporation from 1989 to February 1995.
Burton M. Joyce (54) President and Chief Executive Officer of Terra since May 1991; Executive
Vice President and Chief Operating Officer thereof from February 1988 to
May 1991.
Francis G. Meyer (44) Senior Vice President and Chief Financial Officer of Terra since November
1995; Vice President and Chief Financial Officer of Terra from November
1993 to November 1995; Controller thereof from August 1991 to
November 1993; Vice President, Controller of Terra International from
June 1986 to August 1991.
Paula C. Norton (50) Vice President, Corporate and Investor Relations of Terra since February
1995; Director, Corporate Relations of Terra from January 1993 to
February 1995; Director, Corporate Communication of Universal Foods
Corp. prior thereto.
Reuben F. Richards (66) Chairman of the Board of Terra since December 1982; Chief Executive
Officer thereof from December 1982 to May 1991 and President thereof
from July 1983 to May 1991; Director of Engelhard Corporation since
prior to 1990 and Chairman of the Board thereof from May 1985 to
December 1994; Chairman of the Board of Minorco USA since May 1990
and Chief Executive Officer and President thereof since February 1994.
12
Present positions and offices with the Company
Name and age and principal occupations during the past five years
----------- ----------------------------------------------------
W. Mark Rosenbury (48) Vice President, Business Development and Strategic Planning of Terra
since November 1995; President of Terra Nitrogen Corporation from
November 1994 to February 1996; Executive Vice President of Terra from
November 1993 to November 1995; Chief Operating Officer thereof from
November 1993 to November 1994; Vice President and Chief Financial
Officer thereof from August 1991 to November 1993; Vice President and
Corporate Controller thereof from January 1987 to August 1991.
Robert E. Thompson (44) Vice President, Controller of Terra since November 1994; Vice President,
Finance and Controller of Ameritech Custom Business Services from April
1993 to June 1994; Controller of Ameritech Services, Inc. from October
1990 to April 1993; Controller of Ameritech Applied Technologies prior
thereto.
George H. Valentine (47) Senior Vice President, General Counsel and Corporate Secretary of Terra
since November 1995; Vice President, General Counsel and Corporate
Secretary of Terra from November 1993 to November 1995; Assistant
General Counsel of Household International, Inc. from February 1986 to
November 1993.
There are no family relationships among the executive officers and directors
of Terra or arrangements or understandings between any executive officer and any
other person pursuant to which any executive officer was selected as such.
Officers of Terra are elected annually to serve until their respective
successors are elected and qualified.
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information with respect to the market for the Company's common equity and
related stockholder matters contained in Terra's 1995 Annual Report to
Stockholders under the captions "Quarterly Financial and Stock Market Data
(Unaudited)" and "Stockholders and Dividends" is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
Information with respect to selected financial data contained in Terra's
1995 Annual Report to Stockholders under the caption "Financial Summary" is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information with respect to management's discussion and analysis of
financial condition and results of operations contained in Terra's 1995 Annual
Report to Stockholders under the caption "Financial Review" is incorporated
herein by reference.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the notes thereto and
the report of independent auditors thereon, and the information set forth under
the caption "Quarterly Financial and Stock Market Data (Unaudited)" contained in
Terra's 1995 Annual Report to Stockholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information with respect to directors of the Company under the caption
"Election of Directors" in the Proxy Statement for the Annual Meeting of
Stockholders of Terra to be held on April 30, 1996, is incorporated herein by
reference. Information with respect to executive officers who are not also
directors of the Company appears under the caption "Executive Officers of the
Company" in Part I hereof and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation under the caption
"Executive Compensation and Other Information" in the Proxy Statement for the
Annual Meeting of Stockholders of Terra to be held on April 30, 1996, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management under the caption "Equity Security Ownership" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
30, 1996, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
30, 1996, is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
1. Consolidated Financial Statements of Terra and its subsidiaries
(incorporated herein by reference to Terra's 1995 Annual Report to
Stockholders).
Consolidated Statements of Financial Position at December 31, 1995 and
1994.
Consolidated Statements of Income for the years ended December 31,
1995, 1994 and 1993.
14
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993.
Notes to the Consolidated Financial Statements.
Independent Auditors' Report.
Quarterly Production Data (Unaudited).
Quarterly Financial and Stock Market Data (Unaudited).
Revenues.
Stockholders and Dividends.
Volumes and Prices (Unaudited).
Financial Summary.
2. Index to Financial Statement Schedules
See Index to Financial Statement Schedules of Terra and its
subsidiaries at page S-1.
3. Other Financial Statements
Individual financial statements of Terra's subsidiaries are omitted
because all such subsidiaries are included in the consolidated
financial statements being filed. Individual financial statements of
50% or less owned persons accounted for on the equity method have been
omitted because such 50% or less owned persons considered in the
aggregate, as a single subsidiary, would not constitute a significant
subsidiary.
(b) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
1. Amended and Restated Deferred Compensation Agreement made as of May 1,
1991, by and between Terra Industries and R. F. Richards filed as
Exhibit 10 to Terra Industries' Form 8-K dated September 30, 1991.
2. Resolution adopted by the Personnel Committee of the Board of Directors
of Terra Industries with respect to supplemental retirement benefits
for certain senior executive officers of Terra Industries, filed as
Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal quarter
ended March 31, 1991.
3. 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.
4. 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.
5. 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.
15
6. 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.
7. 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.
8. Restricted Stock Agreement of Burton M. Joyce dated May 1, 1991, filed
as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended
December 31, 1992.
9. Terra Industries 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.
10. Amendment No. 1 to the Terra Industries Supplemental Deferred
Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries' Form
10-Q for the quarter ended September 30, 1995.
11. 1995 Incentive Award Program for Officers and Key Executives of Terra
Industries filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for
the year ended December 31, 1994.
12. 1996 Incentive Award Program for Officers and Key Executives of Terra
Industries filed as Exhibit 10.1.12 to Terra Industries' Form 10-K for
the year ended December 31, 1995.
(c) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1995.
(d) EXHIBITS
3.1.1 Articles of Restatement of Terra Industries filed with the State of
Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra
Industries' Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
3.1.2 Articles of Amendment of Terra Industries filed with the State of
Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries'
Form 10-K for the year ended December 31, 1992, is incorporated herein
by reference.
3.1.3 Articles Supplementary of Terra Industries filed with the State of
Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra
Industries' Form 8-K/A dated November 3, 1994, is incorporated herein by
reference.
3.2 By-Laws of Terra Industries, as amended through August 7, 1991, filed as
Exhibit 3 to Terra Industries' Form 8-K dated September 30, 1991, is
incorporated herein by reference.
4.1 Indenture dated as of October 15, 1993 among Terra Industries (as
successor by merger to Agricultural Minerals and Chemicals Inc.) and
Society National Bank, including form of Senior Note, filed as Exhibit
99.2 to Terra Industries' Registration Statement on Form S-3, as
amended, (File No. 33-52493), is incorporated herein by reference.
4.2 Indenture, dated as of June 22, 1995 between the Company and First Trust
National Association, as trustee, including form of Exchange Note, filed
as Exhibit 4.1 to Terra Industries' Registration Statement on Form S-4,
as amended (File No. 33-60853), is incorporated herein by reference.
16
4.3 Amended and Restated Credit Agreement dated as of December 14, 1995
among Terra Industries Inc., Terra Capital, Inc., Terra Nitrogen,
Limited Partnership, Certain Guarantors, Certain Lenders, Certain
Issuing Banks and Citibank, N.A. without exhibits or schedules.
Other instruments defining the rights of holders of long-term debt of
Terra Industries and its subsidiaries are not being filed because the
total amount of securities authorized under any such instrument does
not exceed 10 percent of the total assets of Terra Industries and its
subsidiaries on a consolidated basis. Terra Industries agrees to
furnish a copy of any such instrument to the Securities and Exchange
Commission upon request.
10.1.1 Amended and Restated Deferred Compensation Agreement made as of May 1,
1991, by and between Terra Industries and R. F. Richards filed as
Exhibit 10 to Terra Industries' Form 8-K dated September 30, 1991, is
incorporated herein by reference.
10.1.2 Resolution adopted by the Personnel Committee of the Board of Directors
of Terra Industries with respect to supplemental retirement benefits
for certain senior executive officers of Terra Industries, filed as
Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal quarter
ended March 31, 1991, is incorporated herein by reference.
10.1.3 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6
to Terra Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.1.4 Form of Restricted Stock Agreement of Terra Industries under its 1992
Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form
10-K for the year ended December 31, 1992, is incorporated herein by
reference.
10.1.5 Form of Incentive Stock Option Agreement of Terra Industries under its
1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries'
Form 10-K for the year ended December 31, 1992, is incorporated herein
by reference.
10.1.6 Form of Nonqualified Stock Incentive Agreement of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra
Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.1.7 Terra Industries Inc. Supplemental Deferred Compensation Plan effective
as of December 20, 1993 filed as Exhibit 10.1.9 to Terra Industries'
Form 10-K for the year ended December 31, 1993, is incorporated herein
by reference.
10.1.8 Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred
Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries' Form
10-Q for the quarter ended September 30, 1995, is incorporated herein
by reference.
10.1.9 Excess Benefit Plan of Terra Industries, as amended effective as of
January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form
10-K for the year ended December 31, 1992, is incorporated herein by
reference.
10.1.10 Restricted Stock Agreement of Burton M. Joyce dated May 1, 1991, filed
as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10.1.11 1995 Incentive Award Program for Officers and Key Executives of Terra
Industries filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for
the year ended December 31, 1994, is incorporated herein by reference.
17
10.1.12 1996 Incentive Award Program for Officers and Key Executives of Terra
Industries.
10.2 Asset Sale and Purchase Agreement among Inspiration Consolidated Copper
Company and Cyprus Miami Mining Corporation and Cyprus Christmas Mine
Corporation dated as of June 30, 1988, filed as Exhibit 10.19 to Terra
Industries' Form 10-K for the year ended December 31, 1988, is
incorporated herein by reference.
10.3.1 Stock Purchase Agreement, dated as of June 14, 1991, among Minorco,
Kirkdale Investments Limited, Terra Industries and Hudson Holdings
Corporation, filed as Exhibit 2 to Terra Industries' Form 8-K dated
June 14, 1991, is incorporated herein by reference.
10.3.2 Amended and Restated Stock Purchase Agreement, dated as of July 31,
1991, among Minorco, Kirkdale Investments Limited, Terra Industries and
Hudson Holdings Corporation, filed as Exhibit 1 to Terra Industries
Form 8-K dated July 31, 1991, is incorporated herein by reference.
10.3.3 Option Agreement, dated as of June 14, 1991, among Kirkdale Investments
Limited and Terra Industries, filed as Exhibit 3 to Terra Industries'
Form 8-K dated June 14, 1991, is incorporated herein by reference.
10.3.4 Amendment to Stock Option Agreement, dated July 31, 1991, among
Minorco, Kirkdale Investments Limited and Terra Industries, filed as
Exhibit 2 to Terra Industries' Form 8-K dated July 31, 1991, is
incorporated herein by reference.
10.4 Asset and Share Purchase Agreement, dated as of April 8, 1993, by and
between Terra International, Inc., Terra International (Canada) Inc.
and ICI Canada Inc., filed as Exhibit A to Terra Industries' Form 8-K
dated April 8, 1993, is incorporated herein by reference.
10.5 Asset Purchase Agreement, dated as of December 30, 1993, by and between
Terra International, Inc., The Upjohn Company and Asgrow Florida
Company, filed as Exhibit A to Terra Industries' Form 8-K dated
December 31, 1993, is incorporated herein by reference.
10.6 Merger Agreement dated as of August 8, 1994 among Terra Industries
Inc., AMCI Acquisition Corp. and Agricultural Minerals and Chemicals
Inc. without exhibits or schedules, filed as Exhibit 2 to Terra
Industries' Registration Statement on Form S-3, as amended, (File No.
33-52493), is incorporated herein by reference.
10.7 Methanol Hedging Agreement among BMLP (as successor by merger to
Beaumont Methanol Corporation) and The Morgan Stanley Leveraged Equity
Fund II, L.P. as Counterparty, form of which filed as Exhibit 99.1 to
Terra Industries' Registration Statement on Form S-3, as amended, (File
No. 33-52493), is incorporated herein by reference.
10.8 Agreement of Limited Partnership of TNCLP (formerly known as
Agricultural Minerals Company, L.P.) dated as of December 4, 1991,
filed as Exhibit 99.3 to Terra Industries' Registration Statement on
Form S-3, as amended, (File No. 33-52493), is incorporated herein by
reference.
10.9 Agreement of Limited Partnership of TNLP (formerly known as
Agricultural Minerals, Limited Partnership) dated as of December 4,
1991, filed as Exhibit 99.4 to Terra Industries' Registration Statement
on Form S-3, as amended, (File No. 33-52493), is incorporated herein by
reference.
10.10 General and Administrative Services Agreement Regarding Services by
Terra Industries Inc., filed as Exhibit 10.11 to Terra Industries Inc.
Form 10-Q for the quarter ended March 31, 1995, is incorporated herein
by reference.
18
10.11 General and Administrative Services Agreement Regarding Services by
Terra Nitrogen Corporation, filed as Exhibit 10.12 to Terra Industries
Inc. Form 10-Q for the quarter ended March 31, 1995, is incorporated
herein by reference.
13 Financial Review and Consolidated Financial Statements as contained in
the Annual Report to Stockholders of Terra Industries for the fiscal
year ended December 31, 1995.
21 Subsidiaries of Terra Industries.
24 Powers of Attorney.
27 Financial Data Schedule. [EDGAR filing only]
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TERRA INDUSTRIES INC.
By: /S/Francis G. Meyer
-------------------------------------------------
Francis G. Meyer
Senior Vice President and Chief Financial Officer
Date: March 15, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
* Chairman of the Board March 15, 1996
- --------------------------
Reuben F. Richards
* Chief Executive Officer, President March 15, 1996
- -------------------------- and Director
Burton M. Joyce (Principal Executive Officer)
* Senior Vice President and Chief Financial Officer March 15, 1996
- -------------------------- (Principal Financial Officer)
Francis G. Meyer
* Vice President, Controller March 15, 1996
- -------------------------- (Principal Accounting Officer)
Robert E. Thompson
* Director March 15, 1996
- --------------------------
Edward G. Beimfohr
* Director March 15, 1996
- --------------------------
Carol L. Brookins
* Director March 15, 1996
- --------------------------
Edward M. Carson
* Director March 15, 1996
- --------------------------
David E. Fisher
20
* Director March 15, 1996
- --------------------------
Basil T.A. Hone
* Director March 15, 1996
- --------------------------
Anthony W. Lea
* Director March 15, 1996
- --------------------------
William R. Loomis, Jr.
* Director March 15, 1996
- --------------------------
John R. Norton III
* Director March 15, 1996
- --------------------------
Henry R. Slack
*By: /S/George H. Valentine
-----------------------
George H. Valentine
Attorney-in-Fact
21
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS
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Page
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Report of Deloitte & Touche LLP on Financial Statement Schedules.......... S-2
Consent of Deloitte & Touche LLP.......................................... S-2
Schedule No.
- ------------
I Condensed Financial Information of Registrant............. S-3
II Valuation and Qualifying Accounts:
Years Ended December 31, 1995, 1994 and 1993.............. S-8
Financial statement schedules not included in this report have been omitted
because they are not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
S-1
INDEPENDENT AUDITORS' REPORT ON
-------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited the consolidated financial statements of Terra Industries
Inc. as of December 31, 1995 and 1994 and for each of the three years in the
period ended December 31, 1995, and have issued our report thereon dated
February 2, 1996; such financial statements and report are included in the 1995
Annual Report to Stockholders of Terra Industries Inc. and are incorporated
herein by reference. Our audits also included the Financial Statement
Schedules of Terra Industries Inc. listed in Item 14(a) of this Form 10-K.
These Financial Statement Schedules are the responsibility of the management of
Terra Industries Inc. Our responsibility is to express an opinion based on our
audits. In our opinion, such Financial Statement Schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 2, 1996
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Registration Nos.
33-46735, 33-46734, 33-30058 and 33-4939) and Registration Statements on Form
S-3 (Registration Nos. 2-90808, 2-84876 and 2-84669) of Terra Industries Inc.
of our report dated February 2, 1996, included in the 1995 Annual Report to
Stockholders of Terra Industries Inc. which is incorporated by reference in
this Form 10-K. We also consent to the incorporation by reference in such
Prospectuses of our report on the Financial Statement Schedules, appearing
above.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 13, 1996
S-2
SCHEDULE I
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
STATEMENTS OF FINANCIAL POSITION
- ------------------------------------------------------------------------------
(in thousands) December 31,
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
ASSETS
Cash and short-term investments $ 10,700 $ 10,511
Accounts receivable, net 1,721 3,069
Deferred tax asset - current 23,768 43,992
Other current assets 82 4,516
- ------------------------------------------------------------------------------
Total current assets 36,271 62,088
Investment in and advances to Terra Capital, Inc. 1,021,406 530,327
Other assets 14,073 13,769
- ------------------------------------------------------------------------------
Total assets $1,071,750 $ 606,184
==============================================================================
LIABILITIES
Income taxes payable $ 15,897 $ 1,914
Accrued and other liabilities 14,865 12,901
- ------------------------------------------------------------------------------
Total current liabilities 30,762 14,815
Long-term debt 358,755 158,755
Deferred income taxes 105,437 6,235
Other liabilities 4,942 6,691
- ------------------------------------------------------------------------------
Total liabilities 499,896 186,496
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 133,970 133,770
Paid-in capital 631,195 630,111
Accumulated deficit (193,311) (344,193)
- ------------------------------------------------------------------------------
Total stockholders' equity 571,854 419,688
- ------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,071,750 $ 606,184
==============================================================================
See accompanying Notes to the Condensed Financial Statements.
S-3
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
- ------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts) For the Year Ended December 31,
- ------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------
INCOME
Equity in earnings of Terra Capital, Inc. $ 186,048 $ 64,065 $ 26,691
Interest and other income 1,367 (49) 140
- ------------------------------------------------------------------------------------------------
Total income 187,415 64,016 26,831
- ------------------------------------------------------------------------------------------------
EXPENSES
Selling, general and administrative expense 3,328 3,788 5,929
Interest expense 29,183 6,382 5,853
Income tax benefit (8,978) (5,329) (7,796)
- ------------------------------------------------------------------------------------------------
Total expenses 23,533 4,841 3,986
- ------------------------------------------------------------------------------------------------
Income before extraordinary items and
cumulative effect of accounting changes 163,882 59,175 22,845
Extraordinary loss on early retirement of debt (4,338) (2,614) ---
- ------------------------------------------------------------------------------------------------
Net income 159,544 56,561 22,845
Cash dividends paid to common stockholders (8,662) (5,837) (1,386)
Accumulated deficit - beginning of year (344,193) (394,917) (416,376)
- ------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT - END OF YEAR $(193,311) $(344,193) $(394,917)
================================================================================================
INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary items $ 2.01 $ 0.81 $ 0.33
Extraordinary loss on early retirement of debt (0.05) (0.03) ---
- ------------------------------------------------------------------------------------------------
NET INCOME $ 1.96 $ 0.78 $ 0.33
================================================================================================
See accompanying Notes to the Condensed Financial Statements.
S-4
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) For the Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 159,544 $ 56,561 $ 22,845
Adjustments to reconcile net income to
net cash used by operations:
Equity in earnings of subsidiaries (186,048) (64,065) (26,691)
Loss on early retirement of debt 4,338 2,614 ---
Deferred income taxes 44,293 15,291 (4,494)
Other non-cash items 672 48 81
Change in working capital components 16,071 (9,538) (4,062)
Other 785 344 (7,256)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 39,655 1,255 (19,577)
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from asset sales and
discontinued operations 5,832 541 40,205
Capital contributions to subsidiaries --- (113,000) (30,000)
Proceeds from investments --- 500 ---
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,832 (111,959) 10,205
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net short-term debt decrease --- (82,395) ---
Net long-term debt increase 200,000 --- ---
Loss on early retirement of debt --- (2,533) ---
Debt issuance costs (3,666) (2,873) ---
Issuance of common shares --- 113,000 ---
Dividends (8,662) (5,837) (1,386)
Stock issuance/repurchase - net 1,187 4,666 513
Advances from (to) subsidiaries - net (234,157) 72,938 (50,001)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (45,298) 96,966 (50,874)
----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 189 (13,738) (60,246)
CASH AND INVESTMENTS AT BEGINNING OF YEAR 10,511 24,249 84,495
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND INVESTMENTS AT END OF YEAR $ 10,700 $ 10,511 $ 24,249
===================================================================================================================================
Interest Paid $ 27,521 $ 6,285 $ 6,229
==================================================================================================================================
TAXES PAID $ 21,651 $ 16,065 $ 3,320
==================================================================================================================================
See accompanying Notes to the Condensed Financial Statements.
S-5
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
---------------------------------------------
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The Condensed Financial Statements include the Registrant only and reflect the
equity method of accounting for its beneficially owned subsidiaries, Terra
Capital, Inc., Terra International, Inc. (TII), Terra Nitrogen Corporation (TNC)
and Beaumont Methanol, Limited Partnership (BMLP). Net income in 1995 and 1994
was reduced by $4.3 million and $2.6 million, or $0.05 and $0.03 per share,
respectively, due to the write-off of deferred financing fees in connection with
the early retirement of debt.
2. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
(in thousands) 1995 1994
- ---------------------------------------------------------------------------
Senior Notes, 10.5%, due 2005 $200,000 $ ---
Senior Notes, 10.75%, due 2003 158,755 158,755
- ---------------------------------------------------------------------------
358,755 158,755
Less current maturities --- ---
- ---------------------------------------------------------------------------
Total $358,755 $158,755
===========================================================================
In 1995, the Registrant issued $200 million unsecured 10.5% Senior Notes due in
full June 15, 2005. The 10.5% Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after June 15, 2000, initially
at 105.250% of their principal amount, plus accrued interest, declining to
102.625% on or after June 15, 2001, and declining to 100% on or after June 15,
2002. The 10.5% Senior Notes Indenture contains certain restrictions, including
the issuance of additional debt, payment of dividends, issuance of capital
stock, certain transactions with affiliates, incurrence of liens, sale of
assets, and sale-leaseback transactions. Net proceeds of $28.8 million were used
to acquire 974,900 of the outstanding Senior Preference Units (SPUs) of TNCLP.
The remaining net proceeds were used to repay bank term loans.
The 10.75% unsecured Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after September 30, 1998,
initially at 105.375% of their principal amount, plus accrued interest,
declining to 102.688% on or after September 30, 1999, and declining to 100% on
or after September 30, 2000. In addition, at any time prior to September 30,
1996, the Registrant may, at its option, redeem up to $61.25 million aggregate
principal amount out of the proceeds of one or more public offerings of equity
securities at a redemption price of 110% of their principal amount, plus accrued
interest. The 10.75% Senior Notes Indenture contains restrictions similar to
those in the 10.5% Senior Notes Indenture.
3. COMMITMENTS AND CONTINGENCIES
The Registrant is committed to a non-cancelable office lease expiring in 1998.
Total minimum rental payments are: 1996, $3.2 million; 1997, $3.3 million and
1998, $1.7 million. These amounts are not reduced by sublease rentals, which in
1995 were $2.1 million.
The Registrant is contingently liable for retiree medical benefits of employees
of coal mining operations sold on January 12, 1993. Under the purchase
agreement, the purchaser agreed to indemnify the Registrant against its
obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50
percent or more of any company liable for such benefits as of certain specified
dates becomes liable for such
S-6
benefits if the company directly liable is unable to pay them. As a result, if
the purchaser becomes unable to pay its retiree medical obligations assumed
pursuant to the sale, the Registrant may have to pay such amount. The Registrant
has estimated that the present value of liabilities for which it retains
contingent responsibility approximates $9 million at December 31, 1995. In the
event the Registrant would be required to assume this liability, mineral
reserves associated with the sold coal subsidiary would revert to the
Registrant.
The Registrant had letters of credit outstanding totaling $8.9 million at
December 31, 1995 and $9.7 million at December 31, 1994, guaranteeing various
insurance and financing activities. Short-term investments of $8.9 million at
December 31, 1995 and $9.6 million at December 31, 1994 are restricted to
collateralize certain of the letters of credit.
4. INCOME TAXES
The Registrant files a consolidated U.S. federal tax return. Beginning in 1995,
the Registrant adopted tax sharing agreements, under which all domestic
operating subsidiaries provide for and remit income taxes to the Registrant
equal to their pretax accounting income, adjusted for permanent differences
between pretax accounting income and taxable income. The tax sharing agreements
allocate the benefits of operating losses and temporary differences between
financial reporting and tax basis income to the Registrant.
S-7
SCHEDULE II
TERRA INDUSTRIES INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994, and 1993
---------------------------------------------
(in thousands)
Additions
Balance at Charged to Less Write- Balance
Beginning Costs and offs, Net of at End
Description of Period Expenses Recoveries of Period
- ------------------------------------------------------------------------------------
Year Ended December 31, 1995:
- -----------------------------
Allowance for Doubtful Accounts $8,224 $7,798 $(5,396) $10,626
Year Ended December 31, 1994:
- -----------------------------
Allowance for Doubtful Accounts $5,788 $2,231 $ 205 $ 8,224
Year Ended December 31, 1993:
- -----------------------------
Allowance for Doubtful Accounts $6,427 $1,758 $(2,397) $ 5,788
S-8
EXHIBIT INDEX
4.3 Amended and Restated Credit Agreement dated as of December 14, 1995
among Terra Industries Inc., Terra Capital, Inc., Terra Nitrogen,
Limited Partnership, Certain Guarantors, Certain Lenders, Certain
Issuing Banks and Citibank, N.A. without exhibits or schedules.
10.1.12 1996 Incentive Award Program for Officers and Key Executives of Terra
Industries.
13 Financial Review and Consolidated Financial Statements as contained in
the Annual Report to Stockholders of Terra Industries for the fiscal
year ended December 31, 1995.
21 Subsidiaries of Terra Industries.
24 Powers of Attorney.
27 Financial Data Schedule. [EDGAR filing only]
S-9