-----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, QyAOnBzx+MxMpIspaCEGxlQGZJxbq1vO09DjkndY0sb1YeHd+55rOcjx/NTac2CJ jdSkIMt6/pFsYBjGzkxKIw== 0000950131-97-001810.txt : 19970317 0000950131-97-001810.hdr.sgml : 19970317 ACCESSION NUMBER: 0000950131-97-001810 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NYSE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08520 FILM NUMBER: 97556930 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-K405 1 FORM 10-K ================================================================================ 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, 1996 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, 1996, was approximately $470,000,000. On December 31, 1996, Registrant's outstanding voting stock consisted of 75,010,076 Common Shares, without par value. ================================================================================ DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders of Registrant for the fiscal year ended December 31, 1996. 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 29, 1997. Certain information therein is incorporated by reference into Part III hereof. TABLE OF CONTENTS PART I ------ 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 ------- 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 ------- 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 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 units of Terra Nitrogen Company, L.P. ("TNCLP"). TNCLP is 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 and marketing of nitrogen products and (iii) the manufacture and marketing 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 one of the largest producers of anhydrous ammonia and 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 includes, as of December 31, 1996: . 393 farm service centers and . 840 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 21 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, seed 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 14% of the Company's total crop protection product sales in 1996. As of December 31, 1996, the Riverside(R) line included approximately 170 products, of which 13 were added in 1996. The Riverside(R) line of products 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 patented 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 proprietary Terra brand corn hybrids, soybean, wheat and cotton seed varieties, which generally provide higher margins. These products represented approximately 15% of the Company's total seed sales in 1996. The Company also features DEKALB brand seed in the Midwest. 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 its customers by taking an active role in "precision agriculture". Precision agriculture relies on global positioning satellites to identify site-specific locations in a field where soil sampling shows that specific nutrients are needed. Variable rate applicators and yield monitors apply crop inputs and record yields using the same satellite data. The Company has invested in hardware, software and people to meet the demand of its Precision in Agriculture/TM/ program. 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 2 Analytical Services laboratory, use of the CropMaster(R) program and other services. The Company had 464 MarketMaster/TM/ dealer sites as of December 31, 1996. Marketing and Distribution. The Company markets its products primarily to agricultural customers, including both dealers and growers. For 1996, approximately 73% of the Company's distribution revenues were attributable to grower sales through farm service center locations and approximately 27% 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, Southern and Western Divisions, which as of December 31, 1996 are divided into 12 separate geographical regions for management purposes. 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 crop inputs 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. The Company also leases or, in some cases, owns a number of additional fertilizer storage facilities and various rolling stock equipment. Product Formulations. The Company's Blytheville Formulation Facility formulates dry flowable ("DF") crop protection products and liquid crop protection products in separate production processes at the same location. DF formulations are dry, water-dispersible granules that are mixed with water before application. Liquid formulations are water based or solvent based products that are also mixed with water before application. As of December 31, 1996, the Blytheville Formulation Facility formulated five DF products and eight liquid products. Approximately 30% of the plant's volume in 1996 was attributable to the Company's own Riverside(R) brand product line. 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. 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 3 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. The Company produces UAN at all five of its fertilizer manufacturing facilities. The Verdigris Facility in Oklahoma is the largest UAN production facility in North America. UAN is produced by combining liquid urea and liquid 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 for the years ended December 31, 1996, 1995 and 1994 (including TNLP on a pro forma basis) was approximately (based on tons sold):
1996 1995 1994 ---- ---- ---- Ammonia 23% 25% 25% Urea 13% 14% 16% UAN 64% 61% 59%
Plants. All the Company's plants are integrated facilities for the production of ammonia, liquid urea and UAN. In addition, the Blytheville Facility produces granular urea and the Courtright Facility produces solid ammonium nitrate and granular urea. The following nitrogen fertilizer facilities are operated by the Company:
Gross Annual Ammonia Year when Terra first Year facility Production Capacity (tons) acquired interest built -------------------------- ----------------- ----- Port Neal Facility (Iowa) 345,000 1965 1967* Woodward Facility (Oklahoma) 390,000** 1976 1978 Courtright (Canada) 480,000 1993 1985 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 TOTAL 2,685,000
* This facility was substantially rebuilt in 1995 and 1996. ** Ammonia capacity depends, in part, on desired rate of methanol production at this facility. 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 4 tons produced divided by capacity tons at expected operating rates and on stream factors) of the Company's fertilizer manufacturing facilities for each of the years ended December 31, 1996, 1995 and 1994, in the aggregate, was approximately 101%, 97% and 95%, 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 caused primarily by a defect in the design of the nitric acid sparger in the neutralizer vessel of the ammonium nitrate plant. The Company repaired the facility, with ammonia production resuming in December 1995 and the urea and UAN upgrading facilities production resuming in May 1996. Property damage and business interruption insurance payments received thus far have been used, in part, for 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. Terra has invested additional funds for other enhancements and improvements at the Port Neal Facility. In August 1996, the Company announced a $23 million capital project to increase annual nitric acid production which will increase UAN production to 810,000 tons from 490,000 tons at the Port Neal Facility. The project is currently expected to be operational by the end of 1997. 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 transferring the improvements in September 1995 to a subsidiary, Port Neal Holdings, Inc., that was structured to finance and complete the reconstruction of such facility through its wholly owned subsidiary, Port Neal Corporation. Various agreements between the Company and certain subsidiaries were entered into with Port Neal Holdings, Inc. and/or Port Neal Corporation in connection with this series of transactions, including intercompany debt obligations and lease arrangements. The Woodward Facility is owned in fee. The Courtright Facility's liquid urea and granulation capacities increased as a result of a $32 million plant upgrade project substantially completed in early 1996 and fully completed in July 1996. The project enables the upgrade of up to 65,000 tons of ammonia annually into urea and UAN. The Company owns the Courtright Facility in fee after exercising a $55 million purchase option under its lease financing agreement in late 1996. Located at the Verdigris Facility are two ammonia plants, two nitric acid plants and two UAN 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 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 urea plant for a nominal price. Marketing and Distribution. The Company's principal customers for its manufactured nitrogen products are independent dealers, national retail chains, cooperatives and industrial customers. Industrial customers accounted for approximately 12.5% of the Company's 1996 total tons of its manufactured nitrogen products. In 1996, approximately 11% of the Company's fertilizer production tonnage was supplied to its farm service center locations for sale to growers, while the rest was sold to outside customers. In 1996, no outside customer accounted for greater than 10% of total manufactured nitrogen fertilizer revenues. 5 The Company's production facilities, combined with significant storage capacity in about 60 locations, throughout the Midwestern U.S. and in other major fertilizer consuming regions 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. The Company has approximately 320 million gallons of annual methanol production capacity, representing approximately 13% of the total United States rated capacity in production at the end of 1996. 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. Plants. During the first half of 1994, the Company completed the capital improvements necessary for optional production of methanol, offsetting up to about 25% 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 up to about 40 million gallons of annual methanol capacity at the Woodward Facility and this facility produced 25 million, 36 million and 31 million gallons in each of 1994, 1995 and 1996, respectively. 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. This facility produced 286 million, 263 million and 280 million gallons in each of 1994, 1995 and 1996, respectively. 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. BMLP also depends on DuPont for access to 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; Contracts. Methanol customers are primarily large chemical or MTBE producers located in the United States; however, some product is exported to, for example, Central and South America. BMLP has a number of long-term methanol sales contracts, the most significant of which is with DuPont. In 1996, BMLP sold approximately 62% of its production under such contracts. At December 31, 1996, BMLP had contracted to sell approximately 63% of its 1997 scheduled 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 6 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. No payment was due for the initial period or for calendar year 1996. BMLP will be required to make a payment under the methanol hedging agreement if 1997 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 any increases in the price of methanol during the term of the methanol hedging agreement. 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, $88 million in 1995 and $66 million in 1996 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's bad debt experience is affected by the financial condition of its customers which, in turn, is affected by weather conditions, insect pressure and other factors. Bad debt write offs were $2.8 million in 1994, $7.3 million in 1995 and $17.9 million in 1996. This increase is due principally to two years of drought conditions in the South and mid-South regions of the U.S. 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 and current and projected grain inventories and prices, which are heavily influenced by U.S. exports and world-wide grain markets. U.S. governmental policies may directly or indirectly influence the number of acres planted, the level of grain inventories, the mix of crops planted and crop prices. The U.S. farm bill passed in 1996 put an end to acreage reduction and production control measures, allowing farmers more flexibility in planting. Because of factors which are outside of the Company's control, including the production capacity of competitors, there can be no assurance that the relatively high nitrogen fertilizer price levels recently achieved 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 since mid-1995 have remained near historically "normal" levels after reaching uncharacteristically high levels in late 1994 and early 1995. During 1994, several factors combined to create a tight market that 7 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. Future demand for methanol will depend in part 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. Natural gas costs, including transportation and forward pricing activities, comprised about 45% of the total costs and expenses associated with the Company's Nitrogen Products segment in 1996. Natural gas costs represented about 61% of the total costs and expenses associated with its Methanol segment in 1996. A significant increase in the price of natural gas that is not 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 between 40% and 80% of its natural gas requirements for the upcoming one-year period and up to 50% of its natural gas requirements for the subsequent two-year period using supply contracts, financial derivatives and other forward pricing techniques. Consequently, if natural gas prices were to increase during this period, the Company may benefit from these forward pricing techniques, but conversely, if natural gas prices were to fall, the Company may incur costs above the spot market price as a result of such policies. The settlement dates are scheduled to coincide with gas purchases during such future periods. These contracts are based on a designated price, which price is referenced to market natural gas prices or appropriate NYMEX futures contract prices. The Company believes that there is sufficient supply to allow acceptable costs for the foreseeable future and has entered into firm supply contracts to minimize the risk of interruption or curtailment of natural gas supplies. 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 materials 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 80 liquid, dry and anhydrous ammonia fertilizer terminal storage facilities in numerous states and in Ontario, Canada for both the Distribution and Nitrogen Products segments. 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. 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. Through Terra Express, Inc. ("Terra Express"), a wholly owned truck transportation subsidiary, the Company provides transportation services to its own facilities and customers as a contract carrier. Terra Express uses approximately 90 owner-operators and 14 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 2,200 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 this widespread pipeline system, and has limited access to supplies outside the state. The Beaumont Facility purchases natural gas on a delivered basis via four intrastate pipelines. The Courtright Facility 8 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 Port Neal Facility maintains 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 research station near its Port Neal Facility that is utilized for program development, product testing and demonstration. Product testing and protocols encompass a wide range of subjects, including: fertilization, weed control, insect control, disease control, crop varieties and precision agriculture. Corn, soybeans and wheat are the primary crops grown, with an area set aside for various turf experiments. Trials are viewed by farmers, dealers, university extension personnel, representatives from other product manufacturers, investors and Terra employees. Terra conducts an on-going cotton breeding project in the southern U.S. and has developed several varieties of cotton for grower usage. Experimental corn hybrids and soybean varieties are observed in numerous U.S. locations to identify and select Terra branded cotton, corn and soybean lines. Emphasis is placed on high yielding cotton, corn and soybean lines which also exhibit herbicide, insect and disease resistance. In addition, Terra technical services representatives establish various evaluation projects with universities and private research companies to examine the efficacy of specific Riverside(R) branded crop protection products that are formulated and marketed by the Company. Competition The market for the fertilizer, crop protection products and seed distributed by the Company is highly competitive. In 1996, 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. Furthermore, as a consequence of recent favorable market conditions for nitrogen producers, additional nitrogen fertilizer production capacity is expected in the next few years. 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 of this global commodity. The relative cost and availability of natural gas and the efficiency of production facilities are important competitive factors. Significant determinants of a methanol manufacturing plant's competitive position are the natural gas acquisition and transportation contracts that a plant negotiates with its major suppliers. Domestic competitors for methanol include a number of large integrated petrochemical producers, many of which are better capitalized than the Company. 9 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 its farm service centers and terminals, and estimates that the future cost of complying with these regulations at these locations in 1997 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 results of operations, financial position or net cash flows. 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 $5 million to $10 million through 1998. 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. Because environmental, safety and health regulations are expected to continue to change and generally be more restrictive than current requirements, the 10 costs of complying with such regulations will likely increase. The Company does not expect its compliance with such regulations to have a material adverse effect on the Company's results of operations, financial position or net cash flows. Employees The Company had 3,600 full-time employees at December 31, 1996, none of whom were covered by a collective bargaining agreement. The Company also hires temporary employees on a seasonal basis, and hired approximately 1,650 temporary employees during the peak of its spring selling season in 1996. 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 1996. 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 (43) Executive Vice President and Chief Operating Officer of Terra since February 1997; President of Terra Distribution Division from November 1995 to February 1997; Senior Vice President of Terra from February 1995 to February 1997; Senior Vice President, Distribution of Terra International from October 1994 to February 1997; Vice President, Northern Division thereof from January 1992 to October 1994; Vice President, Wholesale Fertilizer Division thereof from January 1990 to January 1992. John S. Burchfield (56) 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 (52) 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 (55) President and Chief Executive Officer of Terra since May 1991; Executive Vice President and Chief Operating Officer thereof from February 1988 to May 1991. William R. Loomis, Jr. (48) Chairman of the Board of Terra since April 1996; Managing Director of Lazard Freres & Co. LLC since June 1995 and General Partner in the Banking Group of Lazard Freres & Co. from 1984 to June 1995. Francis G. Meyer (45) 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 (51) 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.
12 Present positions and offices with the Company and Name and age principal occupations during the past five years ------------ -------------------------------------------------- W. Mark Rosenbury (49) 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 (45) 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 (48) 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 1996 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 1996 Annual Report to Stockholders under the caption "Five-Year 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 1996 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 1996 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 29, 1997, 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 29, 1997, 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 29, 1997, 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 29, 1997, 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 1996 Annual Report to Stockholders). Consolidated Statements of Financial Position at December 31, 1996 and 1995. Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994. 14 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994. Notes to the Consolidated Financial Statements. Independent Auditors' Report. Quarterly Production Data (Unaudited). Quarterly Financial and Stock Market Data (Unaudited). Revenues. Stockholders. Volumes and Prices (Unaudited). Five-Year 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. 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. 2. 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries' Form 10-K for the year ended December 31, 1992. 3. Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form 10-K for the year ended December 31, 1992. 4. Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.8 to Terra Industries' Form 10-K for the year ended December 31, 1992. 5. Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1992. 15 6. Excess Benefit Plan of Terra Industries, as amended effective as of January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1992. 7. 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. 8. 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. 9. 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. 10. 1997 Incentive Award Program for Officers and Key Employees of Terra Industries filed as Exhibit 10.1.10 to Terra Industries' Form 10-K for the year ended December 31, 1996. 11. Revised Form of Performance Share Award of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.11 to Terra Industries' Form 10-K for the year ended December 31, 1996. 12. Revised Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.12 to Terra Industries' Form 10-K for the year ended December 31, 1996. 13. Revised Form of Nonqualified Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1996. 14. 1997 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended December 31, 1996. (c) Reports on Form 8-K There were no reports on Form 8-K filed during the fourth quarter of 1996. (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. 16 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. 4.3 Amended and Restated Credit Agreement dated as of December 14, 1995 (the "1995 Credit Agreement") 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 filed as Exhibit 4.3 to Terra Industries' Form 10-K for the year ended December 31, 1995, is incorporated herein by reference. 4.4 Consent and Amendment No. 1 dated as of June 4, 1996 to the 1995 Credit Agreement filed as Exhibit 4.4 to Terra Industries' Form 10-Q for the quarter ended June 30, 1996, is incorporated herein by reference. 4.5 Consent and Amendment No. 2 dated as of July 31, 1996 to the 1995 Credit Agreement filed as Exhibit 4.5 to Terra Industries' Form 10-Q for the quarter ended September 30, 1996, is incorporated herein by reference. 4.6 Consent, Waiver and Amendment No. 3 dated as of November 22, 1996 to the 1995 Credit Agreement. 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 Resolution adopted by the Personnel Committee of the Board of Directors of Terra Industries with respect to supplemental retirement benefits for certain senior executive officers of Terra Industries, filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal quarter ended March 31, 1991, is incorporated herein by reference. 10.1.2 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.3 Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.4 Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.5 Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 17 10.1.6 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. 10.1.7 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. 10.1.8 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. 10.1.9 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, is incorporated herein by reference. 10.1.10 1997 Incentive Award Program for Officers and Key Employees of Terra Industries. 10.1.11 Revised Form of Performance Share Award of Terra Industries under its 1992 Stock Incentive Plan. 10.1.12 Revised Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan. 10.1.13 Revised Form of Nonqualified Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan. 10.1.14 1997 Stock Incentive Plan 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. 18 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. 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. 10.12 Receivables Purchase Agreement dated as of August 20, 1996 among Terra Funding Corporation, Terra Capital, Inc., Certain Financial Institutions and Bank of America National Trust and Savings Association filed as Exhibit 10.12 to the Terra Industries' Form 10-Q for the quarter ended September 30, 1996, is incorporated herein by reference. 10.13 Purchase and Sale Agreement dated as of August 20, 1996 among Terra International, Inc., Terra Nitrogen, Limited Partnership, Beaumont Methanol, Limited Partnership, Terra Funding Corporation and Terra Capital, Inc., filed as Exhibit 10.13 to the Terra Industries' Form 10-Q for the quarter ended September 30, 1996, is incorporated herein by reference. 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, 1996. 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 14, 1997 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 -------------------------- William R. Loomis, Jr. * Chief Executive Officer, -------------------------- President and Director Burton M. Joyce (Principal Executive Officer) * Senior Vice President and Chief -------------------------- Financial Officer Francis G. Meyer (Principal Financial Officer) * Vice President, Controller -------------------------- (Principal Accounting Officer) Robert E. Thompson * Director -------------------------- Edward G. Beimfohr * Director -------------------------- Carol L. Brookins * Director -------------------------- Edward M. Carson * Director -------------------------- David E. Fisher 20 * Director -------------------------- Basil T.A. Hone * Director -------------------------- Anthony W. Lea * Director -------------------------- John R. Norton III * Director -------------------------- Henry R. Slack *By: /s/ George H. Valentine March 14, 1997 ------------------------------- George H. Valentine Attorney-in-Fact 21 EXHIBIT INDEX 4.6 Consent, Waiver and Amendment No. 3 dated as of November 22, 1996 to the 1995 Credit Agreement. 10.1.10 1997 Incentive Award Program for Officers and Key Employees of Terra Industries. 10.1.11 Revised Form of Performance Share Award of Terra Industries under its 1992 Stock Incentive Plan. 10.1.12 Revised Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan. 10.1.13 Revised Form of Nonqualified Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan. 10.1.14 1997 Stock Incentive Plan 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, 1996. 21 Subsidiaries of Terra Industries. 24 Powers of Attorney. 27 Financial Data Schedule. [EDGAR filing only] INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS ------------------------------------------------------------
Page ---- 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, 1996, 1995 and 1994......... 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, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 3, 1997; such financial statements and report are included in the 1996 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 3, 1997 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 3, 1997, included in the 1996 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 12, 1997 S-2 SCHEDULE I TERRA INDUSTRIES INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT --------------------------------------------- STATEMENTS OF FINANCIAL POSITION - --------------------------------------------------------------------------------
(in thousands) December 31, - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Assets Cash and short-term investments $ 6,307 $ 10,700 Accounts receivable, net 761 1,721 Deferred tax asset - current 2,020 23,768 Other current assets 12,733 82 - -------------------------------------------------------------------------------- Total current assets 21,821 36,271 Investment in and advances to subsidiaries 1,055,909 1,021,406 Other assets 13,872 14,073 - -------------------------------------------------------------------------------- Total assets $1,091,602 $1,071,750 ================================================================================ Liabilities Income taxes payable $ 5,096 $ 15,897 Accrued and other liabilities 6,631 14,865 - -------------------------------------------------------------------------------- Total current liabilities 11,727 30,762 Long-term debt 358,755 358,755 Deferred income taxes 108,377 105,437 Other liabilities 5,221 4,942 - -------------------------------------------------------------------------------- Total liabilities 484,080 499,896 - -------------------------------------------------------------------------------- Stockholders' Equity Capital stock 127,614 133,970 Paid-in capital 550,850 631,195 Accumulated deficit (70,942) (193,311) - -------------------------------------------------------------------------------- Total stockholders' equity 607,522 571,854 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,091,602 $1,071,750 ================================================================================
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, - ---------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------- Income Equity in earnings of subsidiaries $ 160,204 $ 186,048 $ 64,065 Interest and other income 123 1,367 (49) - ---------------------------------------------------------------------------------------- Total income 160,327 187,415 64,016 - ---------------------------------------------------------------------------------------- Expenses Selling, general and administrative expense 2,544 3,328 3,788 Interest expense 38,725 29,183 6,382 Income tax benefit (14,893) (8,978) (5,329) - ---------------------------------------------------------------------------------------- Total expenses 26,376 23,533 4,841 - ---------------------------------------------------------------------------------------- Income before extraordinary items 133,951 163,882 59,175 Extraordinary loss on early retirement of debt --- (4,338) (2,614) - ---------------------------------------------------------------------------------------- Net income 133,951 159,544 56,561 Cash dividends paid to common stockholders (11,582) (8,662) (5,837) Accumulated deficit - beginning of year (193,311) (344,193) (394,917) - ---------------------------------------------------------------------------------------- Accumulated deficit - end of year $ (70,942) $(193,311) $(344,193) ======================================================================================== Income (loss) per common share: Income before extraordinary items $ 1.72 $ 2.01 $ 0.81 Extraordinary loss on early retirement of debt --- (0.05) (0.03) - ---------------------------------------------------------------------------------------- Net income $ 1.72 $ 1.96 $ 0.78 ========================================================================================
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, - ----------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Operating Activities Net income $ 133,951 $ 159,544 $ 56,561 Adjustments to reconcile net income to net cash used by operations: Equity in earnings of subsidiaries (160,204) (186,048) (64,065) Loss on early retirement of debt --- 4,338 2,614 Deferred income taxes 24,689 44,293 15,291 Other non-cash items 1,588 672 48 Change in working capital components (30,726) 16,071 (9,538) Other 480 785 344 - ----------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities (30,222) 39,655 1,255 - ----------------------------------------------------------------------------------------------- Investing Activities Proceeds from asset sales and discontinued operations --- 5,832 541 Capital contributions to subsidiaries --- --- (113,000) Proceeds from investments --- --- 500 - ----------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities --- 5,832 (111,959) - ----------------------------------------------------------------------------------------------- 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 (11,582) (8,662) (5,837) Stock (repurchase) issuance - net (91,131) 1,187 4,666 Advances from (to) subsidiaries - net 128,542 (234,157) 72,938 - ----------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities 25,829 (45,298) 96,966 - ----------------------------------------------------------------------------------------------- Increase (Decrease) in Cash (4,393) 189 (13,738) Cash and Investments at Beginning of Year 10,700 10,511 24,249 - ----------------------------------------------------------------------------------------------- Cash and Investments at End of Year $ 6,307 $ 10,700 $ 10,511 =============================================================================================== Interest Paid $ 39,639 $ 27,521 $ 6,285 =============================================================================================== Taxes Paid $ 58,809 $ 21,651 $ 16,065 ===============================================================================================
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., Terra Nitrogen Corporation, Beaumont Methanol Limited Partnership and Terra Funding Corporation. Net income in 1995 and 1994 was reduced by $4.3 million and $2.6 million, or $0.05 and $0.03 per share, repectively, 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) 1996 1995 - -------------------------------------------------------------------------------- Senior Notes, 10.5%, due 2005 $ 200,000 $ 200,000 Senior Notes, 10.75%, due 2003 158,755 158,755 - -------------------------------------------------------------------------------- 358,755 358,755 Less current maturities --- --- - -------------------------------------------------------------------------------- Total $ 358,755 $ 358,755 ================================================================================
In 1995, the Registrant issued $200 million unsecured 10.5% Senior Notes due in full June 15, 2005. The 10.5% Senior Notes are redeemable at the option of the Registrant, in whole or part, at any time on or after June 15, 2000, initially at 105.250% of their principal amount, plus accrued interest, declining to 102.625% on or after June 15, 2001, and declining to 100% on or after June 15, 2002. The 10.5% Senior Notes Indenture contains certain restrictions, including the issuance of additional debt, payment of dividends, issuance of capital stock, certain transactions with affiliates, incurrence of liens, sale of assets, and sale-leaseback transactions. 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. 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: 1997, $3.3 million and 1998, $1.7 million. These amounts are not reduced by sublease rentals, which in 1996 were $2.0 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 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 $9.8 million at December 31, 1996. S-6 The Registrant had letters of credit outstanding totaling $5.4 million at December 31, 1996 and $8.9 million at December 31, 1995, guaranteeing various insurance and financing activities. Short-term investments of $5.4 million at December 31, 1996 and $8.9 million at December 31, 1995 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, 1996, 1995, and 1994 --------------------------------------------- (in thousands)
Additions Less Balance at Charged to Write-offs, Balance Beginning Costs and Net of at End Description of Period Expenses Recoveries of Period - -------------------------------------------------------------------------------- Year Ended December 31, 1996: - ----------------------------- Allowance for Doubtful Accounts $ 10,626 $ 15,428 $ (14,663) $ 11,391 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
S-8 EX-4.6 2 CONSENT, WAIVER & AMD 3 TO '95 CREDIT AGREEMENT Exhibit 4.6 [EXECUTION COUNTERPART] CONSENT, WAIVER AND AMENDMENT NO. 3 CONSENT, WAIVER AND AMENDMENT NO. 3 (this "Agreement") dated as of November 22, 1996 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"). PRELIMINARY STATEMENTS Terms used in these Preliminary Statements and not otherwise defined have the respective meanings assigned to them in Section 1 of this Agreement. (1) As more fully provided in the ADP Documents, Terra Canada has leased the ADP Property from the ADP Trust, and has an option (the "Option") to acquire the ADP Property for approximately C$70,000,000. Terra Canada has obtained an independent appraisal of the ADP Property indicating that the same has a current fair market value of approximately C$303,000,000. Accordingly, Terra Canada estimates that the fair market value of the Option is approximately C$233,000,000. (2) Terra Canada wishes to exercise the Option and to utilize non- capital losses within the Minorco-controlled group of Canadian companies to obtain a tax basis in the ADP Property equal to its current fair market value. Terra Canada will pay a negotiated fee to HBMS as consideration for HBMS entering into the Terra Canada Transaction. In connection with the foregoing, Terra Canada wishes to implement the Terra Canada Transaction on the terms and conditions set forth herein. The Company has requested that the Lenders consent to the Terra Canada Transaction and to amend the Credit Agreement in certain respects, and the Lenders are willing to so consent and so amend the Credit Agreement, all on the terms and conditions Consent, Waiver and Amendment No. 3 ----------------------------------- -2- set forth herein. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. In addition, as used herein: "ADP Documents" means, collectively, the InterParty Agreement and the other Operative Documents referred to therein. "ADP Property" means the anhydrous ammonia production facility and related properties located in the Province of Ontario, Canada, owned by the ADP Trust (which facility and related properties constitute the "Property", as defined in the InterParty Agreement). "ADP Trust" means The 1993 Courtright Property Trust formed pursuant to the ADP Documents by a Declaration of Trust dated April 8, 1993. "C$" means the lawful currency of Canada. "HBMS" means Hudson Bay Mining & Smelting Co., Limited, a corporation incorporated under the Canada Business Corporations Act and an indirect wholly owned Subsidiary of Minorco. "HBMS Fees" means the fees payable by Terra International and its Subsidiaries to HBMS in connection with the Terra Canada Transaction. "InterParty Agreement" means the InterParty Agreement dated as of April 8, 1993 among Terra Canada; Terra International, as Guarantor; W. Patrick Moroney, as Trustee; Montreal Trust Company of Canada, as Paying Agent; and the Purchasers party thereto, as from time to time amended. "Terra Canada" means Terra International (Canada) Inc., a corporation governed by the laws of Ontario and an indirect wholly owned Subsidiary of Terra Capital. "Terra Canada Transaction" means, collectively, the transactions described in Section 2(A) of this Agreement, the other transactions described in Section 2(B) of this Agreement and the payment of HBMS Fees. Consent, Waiver and Amendment No. 3 ----------------------------------- -3- Section 2. Description of Terra Canada Transaction. A. Contemplated Transaction. The Company has requested that the Lenders and the Issuing Banks consent to the following transactions (the elements of which would occur in the order set forth below and, as to the elements described in Paragraphs 1 through 4 below, would occur as promptly as reasonably practicable): 1. Formation of Newco. Terra Canada will incorporate a new corporation ("Newco"). The authorized share capital of Newco will include common shares and preferred shares. The authorized preferred shares of Newco will be non- voting, will have no par value and will be redeemable for an amount equal to the fair market value of the consideration received by Terra Canada upon the issuance of such shares. Terra Canada will subscribe for one common share of Newco in exchange for a contribution of C$1.00 to the capital of Newco. Terra Canada will thereupon transfer the Option to Newco in exchange for preferred shares of Newco ("Newco Preferred Shares") having an aggregate redemption amount approximately equal to C$233,000,000. No other consideration will be received by Terra Canada, and no other property will be transferred by Terra or any of its Subsidiaries to Newco, in respect of the elements of the Terra Canada Transaction described in this Paragraph 1. 2. Redemption of Newco Preferred; Newco Note. Newco will redeem the Newco Preferred Shares held by Terra Canada in exchange for the issuance of a promissory note (the "Newco Note") payable by Newco to Terra Canada in an aggregate amount approximately equal to C$233,000,000. The Newco Note will be repayable on demand and will not bear interest. The obligations of Newco to Terra Canada in respect of the Newco Note will be secured by a pledge of the Option; Terra Canada will have no other right of recourse against Newco in respect of the Newco Note. Newco may, at its option, repay or prepay the Newco Note through an assignment of the Option to Terra Canada. 3. Sale of Newco to HBMS. No later than the date three days following the occurrence of the transactions described in Paragraph 2 above, Terra Canada will sell the issued and outstanding common share of Newco to HBMS for C$1.00. Upon the consummation of such sale, Newco will become a wholly owned Subsidiary of HBMS and will cease to be a Subsidiary of Terra Canada. 4. Dissolution of Newco. HBMS will cause Newco to be wound up. Upon the winding up of Newco (i) the assets of Consent, Waiver and Amendment No. 3 ----------------------------------- -4- Newco will be distributed to, and the liabilities of Newco will be assumed by, HBMS and (ii) Newco will be dissolved. Following the assumption of Newco's liabilities from HBMS as aforesaid, Terra Canada will demand repayment of the Newco Note from HBMS. HBMS will transfer the Option to Terra Canada in full satisfaction of the Newco Note. The events referred to in this Paragraph 4 shall be concluded no later than the date three days following the sale of the capital stock of Newco to HBMS as described in Paragraph 3 above. 5. Exercise of Option. Following the transfer of the Option to Terra Canada described in Paragraph 4 above, Terra Canada will exercise the Option in accordance with the terms of the ADP Documents. B. Additional Transaction Elements. In addition to the contemplated steps described in Section 2(A) above, the Terra Canada Transaction may include: (a) such other transactions as are permitted under the terms of the Credit Agreement and the other Loan Documents (in each case as in effect immediately prior to the effectiveness of this Agreement); and/or (b) such other transactions that, taken collectively, have substantially the same result as the transactions described in Section 2(A) above, provided that such other transactions are consummated as promptly as reasonably practicable and (after giving effect to the consummation of all such transactions): (i) do not result in the Disposition by the Company or any of its Subsidiaries of any Collateral; (ii) do not result in the transfer of the Option or any ADP Property to any Person other than a Subsidiary of the Company; (iii) do not result in the Company or any of its Subsidiaries being subject to any continuing indenture, instrument or other agreement containing terms more restrictive than indentures, instruments and other agreements to which such Persons are subject immediately prior to the Terra Canada Transaction; (iv) do not include the sale of ownership interests in any Subsidiary of the Company (other than Subsidiaries created solely for the purpose of the Terra Canada Transaction) to any Person other than to the Company or a Subsidiary of the Company; and Consent, Waiver and Amendment No. 3 ----------------------------------- -5- (v) do not have a Material Adverse Effect. Section 3. Consent, Waiver and Amendment. Subject to the satisfaction of the conditions precedent set forth in Section 6 hereof, but effective as of the date hereof: (a) each of the Lenders and Issuing Banks hereby consents to the Terra Canada Transaction for all purposes of the Credit Agreement and the other Loan Documents, and agrees that the same may be implemented (and in such connection consents to the execution, delivery and performance of all documents, instruments and other undertakings necessary to give effect to the proposed transaction); (b) each of the Lenders and Issuing Banks hereby waives all prepayments under Sections 2.05(b) of the Credit Agreement that would otherwise be required as a result of the occurrence of Dispositions constituting part of the Terra Canada Transaction; (c) each of the Lenders and Issuing Banks hereby waives any Default or Event of Default that would otherwise occur solely as a result of the consummation of the Terra Canada Transaction; and (d) the Credit Agreement shall be amended by adding a new Section 9.16 thereto reading as follows: "Section 9.16. Terra Canada Transaction. Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, nothing in this Agreement or in any of the other Loan Documents shall prohibit or otherwise restrict (or require any prepayment with the Net Available Proceeds (if any) of) the Terra Canada Transaction (as such term is defined in Consent, Waiver and Amendment No. 3 hereto dated as of November 22, 1996)." Section 4. Additional Amendments. Subject to the Agent's receipt of this Agreement, duly executed by each of the Obligors, each of the Lenders and the Agent, but effective as of the date hereof, the Credit Agreement is hereby further amended as follows: A. Definitions. Section 1.01 of the Credit Agreement is hereby amended by amending clause (ii) of the definition of "Disposition" in said Section 1.01 to read as follows: Consent, Waiver and Amendment No. 3 ----------------------------------- -6- "(ii) by any Obligor or a wholly owned Subsidiary of an Obligor to another Obligor or to a wholly owned Subsidiary of an Obligor,". B. Ownership, Etc. Section 5.01(o) of the Credit Agreement shall be amended by amending paragraph (vi) thereof to read as follows: "(vi) TNC will own no property other than cash and: (v) ownership interests of TNCLP and its successors and a general partnership interest in TNLP and its successors; (w) capital stock of a wholly owned Subsidiary of TNC organized for the purpose of holding Senior Preference Units; (x) equipment and other property principally used in connection with TNC's performance of general and administrative services (including, without limitation, property related to incentive compensation plans, deferred compensation plans and other funded benefit plans) for Terra and its Subsidiaries; (y) raw materials and other property used in the manufacture, storage, sale and distribution of nitrogen and methanol products by Terra and its Subsidiaries in the ordinary course of business, provided that the aggregate book value of all tangible property of TNC referred to in this paragraph (y) shall not at any time exceed $10,000,000; and (z) other property incidental to its business as a holding company and a general partner." Section 5. 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. Consent, Waiver and Amendment No. 3 ----------------------------------- -7- Section 6. Conditions Precedent. As provided in Section 3 hereof, the consents, waivers and amendment set forth in said Section 3 shall each become effective, as of the date hereof, upon the Agent's receipt of the following (each in form and substance satisfactory to it): A. Execution and Delivery, Etc. This Agreement, duly executed by each of the Obligors, each of the Lenders and the Agent. B. Consents; Approvals; Etc. A certificate of a senior officer of the Company to the effect that: (a) all necessary governmental and material third party consents and approvals (including, without limitation, a favorable tax ruling from Revenue Canada and the consent of the Trustee of the ADP Trust) in connection with the Terra Canada Transaction have been obtained and remain in effect; and (b) a committee consisting of independent members of Terra's board of directors has approved the amount of the HBMS Fees. C. Other Documents. Such other documents as the Agent or any Lender or special New York counsel to the Agent may reasonably request. Section 7. 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. Consent, Waiver and Amendment No. 3 ----------------------------------- -8- 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 --------------------------------- Title: TERRA NITROGEN, LIMITED PARTNERSHIP By Terra Nitrogen Corporation, its General Partner By --------------------------------- Title: GUARANTORS ---------- TERRA INDUSTRIES INC. By --------------------------------- Title: TERRA NITROGEN CORPORATION By --------------------------------- Title: BEAUMONT METHANOL, LIMITED PARTNERSHIP By Terra Methanol Corporation, its General Partner By ---------------------------- Title: Consent, Waiver and Amendment No. 3 ----------------------------------- -9- TERRA METHANOL CORPORATION By ---------------------------- Title: BMC HOLDINGS, INC. By ---------------------------- Title: TERRA CAPITAL HOLDINGS, INC. By ---------------------------- Title: THE AGENT --------- CITIBANK, N.A. By ---------------------------- Title: COMMITMENTS THE LENDERS ----------- ----------- Terra Commitment CITIBANK, N.A. - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ----------------------------- Title: Terra Commitment THE CHASE MANHATTAN BANK - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ----------------------------- Title: Consent, Waiver and Amendment No. 3 ----------------------------------- -10- Terra Commitment ARAB BANKING CORPORATION - ---------------- $16,500,000.00 TNLP Commitment - --------------- $ 1,100,000.00 By ---------------------------- Title: Terra Commitment BANK OF AMERICA ILLINOIS - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------- Title: Terra Commitment THE BANK OF NOVA SCOTIA - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------- Title: Terra Commitment CAISSE NATIONAL DE CREDIT AGRICOLE - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------- Title: Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN- - ---------------- BOERENLEEBANK, B.A. "RABOBANK $28,500,000.00 NEDERLAND", NEW YORK BRANCH TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------- Title: By ---------------------------- Title: Consent, Waiver and Amendment No. 3 ----------------------------------- -11- Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------- Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By --------------------------------- Title: Terra Commitment DRESDNER BANK AG, CHICAGO AND GRAND - ---------------- CAYMAN BRANCHES $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By --------------------------------- Title: By --------------------------------- Title: Terra Commitment FIRST BANK NATIONAL ASSOCIATION - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------------- Title: Terra Commitment THE FUJI BANK, LIMITED - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------------- Title: Terra Commitment MELLON BANK, N.A. - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By ---------------------------------- Title: Consent, Waiver and Amendment No. 3 ----------------------------------- -12- Terra Commitment NATIONSBANK OF TEXAS, N.A. - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By --------------------------------- Title: Terra Commitment UNION BANK OF SWITZERLAND, NEW YORK - ---------------- BRANCH $16,500,000.00 TNLP Commitment - --------------- $ 1,100,000.00 By ---------------------------------- Title: By____________________________ Title: Consent, Waiver and Amendment No. 3 ----------------------------------- EX-10.1.10 3 INCENTIVE AWARD PROGRAM Exhibit 10.1.10 TERRA INDUSTRIES INC. INCENTIVE AWARD PROGRAM FOR OFFICERS & KEY MANAGERS 1997 ---- I. Purpose of the Plan ------------------- The purpose of this Incentive Award Program is to motivate and reward officers and key managers of the company toward achievement of planned annual goals and improved results. II. Eligibility in the Plan ----------------------- Participation in this Incentive Award Program is limited to officers and key managers of Terra Industries Inc., Terra Distribution and Terra Nitrogen whose efforts are expected to contribute directly to the success and accomplishment of the company's planned goals. III. Special Provisions and Considerations ------------------------------------- Terra's incentive plan year coincides with the company's fiscal year. The Chief Executive Officer will establish corporate financial goals, which are approved by the Board of Directors, which will be used to establish the 1997 incentive pool. Each officer and key manager participating in this plan will be assigned an index which establishes their target incentive as a percentage of year-end base salary. Some Division participants will participate in this Plan and a Division plan and their individual index will be split or allocated between this plan and their Division plan in establishing the year-end pool for this and their Division Plan. The Chief Executive Officer is responsible for approving each plan participant's individual goals or objectives as soon as practicable in 1997. The importance of each goal is reflected in the weight assigned to each goal which sums to one hundred percent (100%). Each plan participant must periodically report on their goal achievement to the Chief Executive Officer. These individual goals or objectives will be used in determining the participant's final incentive payment. IV. Funding the Officers and Key Managers Incentive Award Program ------------------------------------------------------------- The funding for the officers and key managers incentive award pool is based on the accomplishment of Terra Industries Inc. approved income and return-on-equity objectives, which will fund the incentive pool. The income goal will receive fifty percent (50%) weight and the return-on-equity goal will receive fifty percent (50%) weight. The pool starts to fund at fifty (50%) percent when the company's composite performance reaches seventy-five (75%) percent and increases on a straight-line basis where one hundred percent (100%) of composite performance equals a one hundred percent (100%) funding of the pool. Over-achievement is calculated in on a straight-line basis where the pool capped at two hundred percent (200%) at one-hundred-twenty-five (125%) percent of composite plan performance. The pool generated by these calculations may be increased by up to twenty percent (20%) of target, at the Chief Executive Officer's discretion, but the pool cannot exceed 200% of target, including the discretionary portion of the pool. V. Basis of the Incentive Award ---------------------------- The starting point in determining each participant's individual incentive award is the evaluation of the individual objectives. The participant's individual raw award is calculated by taking each participant's year-end salary, times their individual index (or that portion of their index used to calculate this pool) and then adjusted by their individual performance. The sum of all participants' adjusted raw awards creates an adjusted raw pool. This adjusted raw pool is compared with the sum of the plan participant's year-end salary, times their index (or a portion of their index used to calculate this pool) which is then adjusted by the company's composite performance to form the incentive pool. This adjusted raw pool is adjusted up or down to match the incentive pool. All participant incentives are paid from the incentive pool. The Chief Executive Officer has the discretion to adjust any individual's participation up or down to reflect unusual or unplanned events or to reflect the degree of difficulty of the goals. He may adjust amounts between plan participants and may add amounts from the discretionary part of the pool. The Chief Executive Officer may also choose to award less than the full amount of the pool. -2- VI. Review, Revision and Modification of the Goals ---------------------------------------------- Under normal business conditions, the corporate goals or individual objectives will not be altered or revised once established for the year. Unexpected and unforeseen developments during the course of the year may prompt re-examination of an officer or key manager's established goals. It is the responsibility of each officer and key manager to note the conditions of change which would prompt such a review and take timely action. Such action would include review with the Chief Executive Officer for need for revision of an established goal as soon as possible after the detected change. The change(s) is subject to final approval of the Chief Executive Officer. VII. Payment of Award ---------------- The incentive award will be paid each officer and key manager by check as soon as possible after the close of the fiscal year and after approval of the Chief Executive Officer's recommendations by the Personnel Committee of the Board of Directors. To be eligible for full payment, the officer or key manager must have been in the employ of Terra Industries Inc. or one of its subsidiaries as of January 1 of the incentive plan year and must be actively employed by the company on the date the incentive award is paid. VIII. Special Provision ----------------- A newly elected officer or key manager will participate in the officer and key manager's incentive program in proportion to the number of full months worked as an officer or key manager during the incentive program year. An officer or key manager who retires, becomes permanently disabled or dies shall cease to participate in the officers and key managers incentive program as of the end of the month coincident with retirement, disability or death. The proportionate incentive award will be paid as soon as possible after the close of the fiscal year. While it is the intent of the company to make awards under this plan and to continue the plan from year to year, it reserves the right to amend or terminate the plan entirely at its discretion. -3- EX-10.1.11 4 PERFORMANCE SHARE AWARD Exhibit 10.1.11 PERFORMANCE SHARE AWARD Date of Award: [DATE] Number of Shares Awarded: [NUMBER] [NAME] [ADDRESS] [CITY, STATE, ZIP] Dear [SALUTATION]: We are pleased to inform you that as a key employee of Terra Industries Inc. (the "Corporation") or a Subsidiary thereof, you have been awarded, under the 1992 Stock Incentive Plan (the "Plan"), the number of Common Shares of the Corporation set forth above, subject to certain restrictions, terms and conditions set forth in this letter and in the Plan. The restricted Common Shares issued to you are referred to in this letter as the "Performance Shares." 1. From the date hereof until the restrictions on the Performance Shares terminate (the "Restriction Period"), the Performance Shares shall not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed; provided, however, that any of the Performance Shares may be exchanged for any other Common Shares that are similarly restricted. 2. The Restriction Period shall terminate at the following times: a. The Restriction Period shall terminate with respect to twenty-five percent of the Performance Shares on the business day following any period, occurring on or before the fifth anniversary of the Date of Award, of thirty consecutive business days during which the average closing price of the Common Shares on the New York Stock Exchange -- Composite Transactions (or if the Common Shares do not trade on the New York Stock Exchange, on the principal securities market on which the Common Shares are traded) equals or exceeds $_____. b. The Restriction Period shall terminate with respect to another twenty- five percent of the Performance Shares on the business day following any period, occurring on or before the fifth anniversary of the Date of Award, of thirty consecutive business days during which the average closing price of the Common Shares on the New York Stock Exchange -- Composite Transactions (or if the Common Shares do not trade on the New York Stock Exchange, on the principal securities market on which the Common Shares are traded) equals or exceeds $_____. c. The Restriction Period shall terminate with respect to all of the Performance Shares on the business day following any period, occurring on or before the fifth anniversary of the Date of Award, of thirty consecutive business days during which the average closing price of the Common Shares on the New York Stock Exchange -- Composite Transactions (or if the Common Shares do not trade on the New York Stock Exchange, on the principal securities market on which the Common Shares are traded) equals or exceeds $_____. d. The Restriction Period shall terminate with respect to all of the Performance Shares on the day any one of the following occurs: (i) any person or group of persons acting in concert (other than Minorco, a company incorporated under the laws of Luxembourg as a societe anonyme, and its affiliates or a group consisting solely of such persons (the "Minorco Affiliates")) acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934) of the outstanding securities (the "Voting Shares") of the Corporation in an amount having, or convertible into securities having, 25% or more of the ordinary voting power for the election of directors of the Corporation, provided that this 25% beneficial ownership trigger shall apply only when the Minorco Affiliates no longer own 50% or more of the Voting Shares; (ii) during a period of not more than 24 months, a majority of the Board of Directors of the Corporation ceases to consist of the existing membership or successors nominated by the existing membership or their similar successors; (iii) all or substantially all of the individuals and entities who were the beneficial owners of the Corporation's outstanding securities entitled to vote do not own more than 60% of such securities in substantially the same proportions following a shareholder approved reorganization, merger, or consolidation; or (iv) shareholder approval of either (A) a complete liquidation or dissolution of the Corporation or (B) a sale or other disposition of all or substantially all of the assets of the Corporation, or a transaction having a similar effect. e. The Restriction Period shall terminate with respect to all of the Performance Shares on the business day following the ninth anniversary of the Date of Award. The Corporation shall retain possession of the Performance Shares until the later to occur of the termination of the Restriction Period and the termination of the security interest described in Section 6 of this letter. 3. If your employment with the Corporation and all Subsidiaries terminates during the term of this agreement, all Performance Shares subject to the Restriction Period shall automatically be forfeited by you and reconveyed to the Corporation, except as follows: a. If your employment terminates by reason of death, the Performance Shares shall continue to be eligible for vesting pursuant to Sections 2a, 2b and/or 2c for a period of one year from the date of death (provided that such vesting must occur, if at all, on or before the fifth anniversary hereof). b. If your employment terminates by reason of Total Disability or Retirement, the Performance Shares shall continue to be eligible for vesting pursuant to Sections 2a, 2b and/or 2c for a period of three years from the date of Total Disability or Retirement (provided that such vesting must occur, if at all, on or before the fifth anniversary hereof). c. In cases of special circumstances the Committee may, in its sole discretion when it finds that a waiver would be in the best interests of the Corporation, extend the period for vesting or terminate the Restriction Period with respect to all or a portion of your Performance Shares. 2 4. This award shall not be effective unless you sign a copy of this letter and deliver it to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on [DATE]. If the Corporate Secretary does not have your properly executed copy of this letter before such time, then, anything in this letter to the contrary notwithstanding, this award shall terminate and be of no effect. Your signing and delivering a copy of this letter shall evidence your acceptance of the Performance Shares upon the terms and conditions of this Award. Attached is a copy of your Stock Certificate and Stock Power. Your execution of the stock power will permit the Corporation to enforce the security interest described in Section 6 of this letter or reconvey the Performance Shares to the Corporation in the event the Award is forfeited. 5. Except as set forth in this letter, upon the issuance of the Performance Shares you shall have all of the rights of a stockholder, including the right to vote the Performance Shares and the right to receive dividends thereon. The certificates for any Performance Shares shall bear an appropriate legend reciting the terms, conditions and restrictions applicable thereto, and shall be subject to appropriate stop-transfer orders. The Corporation shall issue your Performance Shares promptly after the Corporation's Corporate Secretary receives the documents set forth in Section 4, the Performance Shares have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which the Common Shares of the Corporation are listed and there has been compliance with such laws and regulations as the Corporation may deem applicable. The Corporation agrees to use its best efforts to effect such listing and compliance. 6. You hereby agree to pay to the Corporation, or otherwise make arrangements satisfactory to the Corporation regarding payment of, any federal, state or local taxes required or authorized by law to be withheld with respect to the award of the Performance Shares or the termination of the Restriction Period (the "Withholding Taxes"). The Corporation shall have, to the extent permitted by law, the right to deduct from any payment of any kind otherwise due to the Employee, any Withholding Taxes and to condition the delivery of the Performance Shares after the termination of the Restriction Period on the payment to the Corporation of the Withholding Taxes. You hereby grant to the Corporation a security interest in the Performance Shares to secure the reconveyance of the Performance Shares to the Corporation upon any forfeiture and to ensure adequate provision for the Withholding Taxes. The Corporation shall release its security interest in respect of any Performance Shares on which (i) the Restriction Period has terminated and (ii) all Withholding Taxes have been paid. In lieu of the payment of such amounts in cash, you may pay all or a portion of the Withholding Taxes by (a) the delivery of Common Shares not subject to any Restriction Period or (b) having the Corporation withhold a portion of the Common Shares otherwise to be delivered upon vesting of the Performance Shares. 7. The Corporation may, in its sole discretion, at any time or from time to time, in lieu of the delivery of all or any portion of your Performance Shares, pay to you cash equal to the Fair Market Value (as defined in the 1992 Stock Incentive Plan) of such shares on the day the Restriction Period terminates. 8. If any distribution is made to the holders of Performance Shares other than a cash dividend and new, different, or additional shares or other securities of the Corporation or of another company are received by the holders of the Performance Shares, or if any recapitalization or reclassification, split-up 3 or consolidation of the Performance Shares shall be effected, or, if in connection with a merger or consolidation of the Corporation or a sale by the Corporation of all or a part of its assets, the Performance Shares are exchanged for a different number or class of shares of stock or other securities of the Corporation or for shares of stock or other securities of any other company, then any such other securities shall be subject to similar restrictions as the Performance Shares, and the number and class of Performance Shares, and the restrictions, terms and other conditions applicable to any such other securities shall be equitably determined by the Committee. 9. Nothing in this Agreement shall confer upon the Employee any right to continue in the employ of the Corporation or a Subsidiary, or affect the right of the Corporation or of any Subsidiary to terminate the employment of the Employee, with or without cause. These Performance Shares are awarded pursuant to the Plan and are subject to its terms. Capitalized terms used in this letter have the same meanings as defined in the Plan. A copy of the Plan is being furnished to you with this letter and also is available on request from the Corporate Secretary of the Corporation. Very truly yours, TERRA INDUSTRIES INC. By: ---------------------------------------------- President and Chief Executive Officer By: ---------------------------------------------- Senior Vice President, General Counsel and Corporate Secretary I hereby agree to the terms and conditions set forth above and acknowledge receipt of the 1992 Stock Incentive Plan and the Prospectus covering shares issued under that Plan. - --------------------- Signature of Employee 4 EX-10.1.12 5 INCENTIVE STOCK OPTION AGREEMENT Exhibit 10.1.12 INCENTIVE STOCK OPTION AGREEMENT Date of Grant: [DATE] Number of Shares: [NUMBER] Exercise Price Per Share: [PRICE] [NAME] [ADDRESS] [CITY, STATE, ZIP] Dear [SALUTATION]: We are pleased to inform you that, as a key employee of Terra Industries Inc. (the "Corporation") or a Subsidiary thereof, you have been granted, under the Terra Industries Inc. 1992 Stock Incentive Plan, an Incentive Stock Option (the "Option"), evidenced by this letter, to purchase up to a total of the number of Common Shares set forth above at the price per share set forth above and on the terms and conditions set forth below. The Option is intended (but not warranted) to be an incentive stock option within the meaning of section 422 of the Internal Revenue Code. 1. The Option cannot be exercised unless you sign your name in the space provided on the copy of this letter enclosed with this letter and deliver it to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on [DATE] . If the Corporate Secretary does not have your properly executed copy of this letter before such time, then, anything in this letter to the contrary notwithstanding, this award shall terminate and be of no effect. Your signing and delivering a copy of this letter will not commit you to purchase any of the shares that are subject to the Option, but will evidence your acceptance of the Option upon the terms and conditions herein stated. 2. Subject to the provisions of this letter, the Option shall be exercisable, in whole at any time or in part from time to time, in integral multiples of 100 shares each (to the maximum extent possible), during the period set forth in this Section 2. a. The Option shall be exercisable with respect to one-third of the Number of Shares set forth above beginning on the first business day following the first anniversary of the Date of Grant. b. The Option shall be exercisable with respect to the next one-third of the Number of Shares set forth above beginning on the first business day following the second anniversary of the Date of Grant. c. The Option shall be exercisable with respect to the final one-third of the Number of Shares set forth above beginning on the first business day following the third anniversary of the Date of Grant. d. The Option shall be exercisable with respect to all of the Number of Shares set forth above beginning on the day any one of the following occurs: (i) any person or group of persons acting in concert (other than Minorco, a company incorporated under the laws of Luxembourg as a societe anonyme, and its affiliates or a group consisting solely of such persons (the "Minorco Affiliates")) acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934) of the outstanding securities (the "Voting Shares") of the Corporation in an amount having, or convertible into securities having, 25% or more of the ordinary voting power for the election of directors of the Corporation, provided that this 25% beneficial ownership trigger shall apply only when the Minorco Affiliates no longer own 50% or more of the Voting Shares; (ii) during a period of not more than 24 months, a majority of the Board of Directors of the Corporation ceases to consist of the existing membership or successors nominated by the existing membership or their similar successors; (iii) all or substantially all of the individuals and entities who were the beneficial owners of the Corporation's outstanding securities entitled to vote do not own more than 60% of such securities in substantially the same proportions following a shareholder approved reorganization, merger, or consolidation; or (iv) shareholder approval of either (A) a complete liquidation or dissolution of the Corporation or (B) a sale or other disposition of all or substantially all of the assets of the Corporation, or a transaction having a similar effect. e. The Option shall in all events terminate at the close of business on the last business day preceding the tenth anniversary of the Date of Grant, but shall be subject to earlier termination as provided in Section 4 hereof. 3. The Option shall not be transferable by you otherwise than by will or by the laws of descent and distribution. During your lifetime, the Option shall be exercisable only by you. 4. If your employment with the Corporation and all Subsidiaries terminates during the term of this agreement, the Option shall automatically terminate and cease to be exercisable, except the term shall be extended (subject to Section 2e) as follows: a. If your employment terminates by reason of your death or Total Disability, the Option shall terminate and cease to be exercisable one year from the date of death or Total Disability. b. If your employment terminates by reason of Retirement, the Option shall terminate and cease to be exercisable three months from the date of Retirement. c. If your employment terminates on or within two years subsequent to the circumstances contemplated in Section 2d, the Option shall terminate and cease to be exercisable three months from the date of such termination. 2 d. Notwithstanding the foregoing, in cases of special circumstances the Committee may, in its sole discretion when it finds that a waiver would be in the best interests of the Corporation, extend the term of this Option with respect to all or a portion of the Number of Shares set forth above for such period of time as the Committee deems appropriate. 5. The Corporation shall not be obligated to deliver any shares until they have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which are listed outstanding shares of the same class as that of the shares at the time subject to the Option and until there has been compliance with such laws or regulations as the Corporation may deem applicable. The Corporation agrees to use its best efforts to effect such listing and compliance. No fractional shares will be delivered. 6. For the purposes of this Agreement: (a) a transfer of your employment from the Corporation to a Subsidiary or vice versa, or from one Subsidiary to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employment of the Corporation or a Subsidiary during such leave of absence. 7. In the event of any merger, consolidation, stock dividend, split-up, combination or exchange of shares or recapitalization or change in capitalization, the number or kind of shares that are subject to the Option immediately prior to such event shall be proportionately and appropriately adjusted without increase or decrease in the aggregate option price to be paid therefor upon exercise of the Option. The determination of the Committee as to the terms of any such adjustment shall be binding and conclusive upon you and any other person or persons who are at any time entitled to exercise the Option. 8. Neither you nor any other person shall have any rights of a stockholder as to shares under the Option until, after proper exercise of the Option, such shares shall have been recorded on the Corporation's official stockholder records as having been issued or transferred. 9. Subject to the terms and conditions of this Agreement, the Option may be exercised in whole at any time or in part from time to time in integral multiples of 100 shares each (to the maximum extent possible) by a written notice on a form approved by the Committee that (i) is signed by the person or persons exercising the Option, (ii) is delivered to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101 (or at such other place that the Corporate Secretary may specify by written notice to you), (iii) signifies election to exercise the Option, (iv) states the number of shares as to which it is being exercised, and (v) is accompanied by payment in full of the option price of such shares. If a properly executed notice of exercise of the Option is not delivered to and in the hands of the Corporate Secretary of the Corporation by the applicable expiration date or dates of this Option, such notice will be deemed null and void and of no effect. If notice of exercise of the Option is given by a person or persons other than you, the Corporation may require as a condition to exercise of the Option 3 the submission to the Corporation of appropriate proof of the right of such person or persons to exercise the Option. Certificates for shares so purchased will be issued and delivered as soon as practicable. 10. Payment of the exercise price for shares may be made in cash, by the delivery of or certification of ownership of Common Shares that have been held by you for a period of at least six months with a Fair Market Value equal to the exercise price, or by a combination of cash and such shares that have been held by you for a period of at least six months. 11. You agree to notify the Corporate Secretary of the Corporation in the event the shares acquired by you on exercise of the Option are sold or otherwise disposed of within one year from the date of exercise or two years from the date the Option was granted. The Option is issued pursuant to the Plan and is subject to its terms. Capitalized terms used in this letter have the same meanings as defined in the Plan. A copy of the Plan is being furnished to you with this letter and also is available on request from the Corporate Secretary of the Corporation. Very truly yours, TERRA INDUSTRIES INC. By: ---------------------------------------- President and Chief Executive Officer By: ---------------------------------------- Senior Vice President, General Counsel and Corporate Secretary I hereby agree to the terms and conditions set forth above and acknowledge receipt of the 1992 Stock Incentive Plan and the Prospectus covering shares issued under that plan. - -------------------------------------- Signature of Employee 4 EX-10.1.13 6 NONQUALIFIED STOCK OPTION AGREEMENT Exhibit 10.1.13 NONQUALIFIED STOCK OPTION AGREEMENT Date of Grant: [DATE] Number of Shares: [NUMBER] Exercise Price Per Share: [PRICE] [NAME] [ADDRESS] [CITY, STATE, ZIP] Dear [SALUTATION]: We are pleased to inform you that, as a key employee of Terra Industries Inc. (the "Corporation") or a Subsidiary thereof, you have been granted, under the Terra Industries Inc. 1992 Stock Incentive Plan, a Nonqualified Stock Option, evidenced by this letter, to purchase up to a total of the number of Common Shares set forth above at the exercise price per share set forth above and on the terms and conditions set forth below. The Option is not intended to be an incentive stock option within the meaning of section 422 of the Internal Revenue Code. 1. The Option cannot be exercised unless you sign your name in the space provided on the copy of this letter enclosed with this letter and deliver it to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on [DATE]. If the Corporate Secretary does not have your properly executed copy of this letter before such time, then, anything in this letter to the contrary notwithstanding, this award shall terminate and be of no effect. Your signing and delivering a copy of this letter will not commit you to purchase any of the shares that are subject to the Option, but will evidence your acceptance of the Option upon the terms and conditions herein stated. 2. Subject to the provisions of this letter, the Option shall be exercisable, in whole at any time or in part from time to time, in integral multiples of 100 shares each (to the maximum extent possible), during the period set forth in this Section 2. a. The Option shall be exercisable with respect to one-third of the Number of Shares set forth above beginning on the first business day following the first anniversary of the Date of Grant. b. The Option shall be exercisable with respect to the next one-third of the Number of Shares set forth above beginning on the first business day following the second anniversary of the Date of Grant. c. The Option shall be exercisable with respect to the final one-third of the Number of Shares set forth above beginning on the first business day following the third anniversary of the Date of Grant. d. The Option shall be exercisable with respect to all of the Number of Shares set forth above beginning on the day any one of the following occurs: (i) any person or group of persons acting in concert (other than Minorco, a company incorporated under the laws of Luxembourg as a societe anonyme, and its affiliates or a group consisting solely of such persons (the "Minorco Affiliates")) acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934) of the outstanding securities (the "Voting Shares") of the Corporation in an amount having, or convertible into securities having, 25% or more of the ordinary voting power for the election of directors of the Corporation, provided that this 25% beneficial ownership trigger shall apply only when the Minorco Affiliates no longer own 50% or more of the Voting Shares; (ii) during a period of not more than 24 months, a majority of the Board of Directors of the Corporation ceases to consist of the existing membership or successors nominated by the existing membership or their similar successors; (iii) all or substantially all of the individuals and entities who were the beneficial owners of the Corporation's outstanding securities entitled to vote do not own more than 60% of such securities in substantially the same proportions following a shareholder approved reorganization, merger, or consolidation; or (iv) shareholder approval of either (A) a complete liquidation or dissolution of the Corporation or (B) a sale or other disposition of all or substantially all of the assets of the Corporation, or a transaction having a similar effect. e. The Option shall in all events terminate at the close of business on the last business day preceding the tenth anniversary of the Date of Grant, but shall be subject to earlier termination as provided in Section 4 hereof. 3. The Option shall not be transferable by you otherwise than by will or by the laws of descent and distribution. During your lifetime, the Option shall be exercisable only by you. 4. If your employment with the Corporation and all Subsidiaries terminates during the term of this agreement, the Option shall automatically terminate and cease to be exercisable, except the term shall be extended (subject to Section 2e) as follows: a. If your employment terminates by reason of death, the Option shall terminate and cease to be exercisable one year from the date of death. b. If your employment terminates by reason of Total Disability or Retirement, the Option shall terminate and cease to be exercisable three years from the date of Total Disability or Retirement. c. If your employment terminates on or subsequent to the circumstances contemplated in Section 2d, the Option shall terminate and cease to be exercisable two years from the date of such "change in control". 2 d. Notwithstanding the foregoing, in cases of special circumstances the Committee may, in its sole discretion when it finds that a waiver would be in the best interests of the Corporation, extend the term of this Option with respect to all or a portion of the Number of Shares set forth above for such period of time as the Committee deems appropriate. 5. The Corporation shall not be obligated to deliver any shares until they have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which are listed outstanding shares of the same class as that of the shares at the time subject to the Option and until there has been compliance with such laws or regulations as the Corporation may deem applicable. The Corporation agrees to use its best efforts to effect such listing and compliance. No fractional shares will be delivered. 6. For the purposes of this Agreement: (a) a transfer of your employment from the Corporation to a Subsidiary or vice versa, or from one Subsidiary to another, without an intervening period, shall not be deemed a termination of employment, and (b) if you are granted in writing a leave of absence, you shall be deemed to have remained in the employment of the Corporation or a Subsidiary during such leave of absence. 7. In the event of any merger, consolidation, stock dividend, split-up, combination or exchange of shares or recapitalization or change in capitalization, the number or kind of shares that are subject to the Option immediately prior to such event shall be proportionately and appropriately adjusted without increase or decrease in the aggregate option price to be paid therefor upon exercise of the Option. The determination of the Committee as to the terms of any such adjustment shall be binding and conclusive upon you and any other person or persons who are at any time entitled to exercise the Option. 8. Neither you nor any other person shall have any rights of a stockholder as to shares under the Option until, after proper exercise of the Option, such shares shall have been recorded on the Corporation's official stockholder records as having been issued or transferred. 9. Subject to the terms and conditions of this Agreement, the Option may be exercised in whole at any time or in part from time to time in intregal multiples of 100 shares each (to the maximum extent possible) by a written notice on a form approved by the Committee that (i) is signed by the person or persons exercising the Option, (ii) is delivered to the Corporate Secretary of the Corporation, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101 (or at such other place that the Corporate Secretary may specify by written notice to you), (iii) signifies election to exercise the Option, (iv) states the number of shares as to which it is being exercised, and (v) is accompanied by payment in full of the exercise price of such shares. If a properly executed notice of exercise of the Option is not delivered to and in the hands of the Corporate Secretary of the Corporation by the applicable expiration date or dates of this Option, such notice will be deemed null and void and of no effect. If notice of exercise of the Option is given by a person or persons other than you, the Corporation may require as a condition to exercise of the Option the submission to the Corporation 3 of appropriate proof of the right of such person or persons to exercise the Option. Certificates for shares so purchased will be issued and delivered as soon as practicable. 10. Payment of the exercise price for shares may be made in cash, by the delivery of or certification of ownership of Common Shares that have been held by you for a period of at least six months with a Fair Market Value equal to the exercise price, or by a combination of cash and such shares that have been held by you for a period of at least six months. 11. You hereby agree to pay to the Corporation, or otherwise make arrangements satisfactory to the Corporation regarding payment of, any federal, state or local taxes required or authorized by law to be withheld with respect to the award of this Option or its exercise (the "Withholding Taxes"). The Corporation shall have, to the extent permitted by law, the right to deduct from any payment of any kind otherwise due to the Employee, any Withholding Taxes and to condition the delivery of the Common Shares after the exercise of the Option on the payment to the Corporation of the Withholding Taxes. In lieu of the payment of such amounts in cash, you may pay all or a portion of the Withholding Taxes by (i) the delivery of Common Shares not subject to any Restriction Period or (ii) having the Corporation withhold a portion of the Common Shares otherwise to be delivered upon exercise of the Option. The Option is issued pursuant to the Plan and is subject to its terms. Capitalized terms used in this letter have the same meanings as defined in the Plan. A copy of the Plan is being furnished to you with this letter and also is available on request from the Corporate Secretary of the Corporation. Very truly yours, TERRA INDUSTRIES INC. By: ---------------------------------------------- President and Chief Executive Officer By: ---------------------------------------------- Senior Vice President, General Counsel and Corporate Secretary I hereby agree to the terms and conditions set forth above and acknowledge receipt of the 1992 Stock Incentive Plan and the Prospectus covering shares issued under that Plan. - --------------------- Signature of Employee 4 EX-10.1.14 7 1997 STOCK INCENTIVE PLAN Exhibit 10.1.14 TERRA INDUSTRIES INC. 1997 STOCK INCENTIVE PLAN 1. Purpose of the Plan; Effect on Prior Plan (a) The purpose of this Stock Incentive Plan (the "Plan") is to aid Terra Industries Inc. and its Subsidiaries in securing and retaining Key Employees of outstanding ability by making it possible to offer them an increased incentive, in the form of a proprietary interest in the Corporation, to join or continue in the service of the Corporation and to increase their efforts for its welfare. (b) From and after stockholder approval of the Plan, no stock awards shall be granted under the Corporation's 1992 Stock Incentive Plan. All outstanding stock options and restricted stock awards previously granted under the Corporation's 1992 Stock Incentive Plan shall remain outstanding in accordance with the terms thereof. 2. Definitions As used in the Plan, the following words shall have the following meanings: (a) "Award" means an award granted to any Key Employee in accordance with the provisions of the Plan in the form of Options, Rights, Performance Units or Restricted Stock, or any combination of the foregoing. (b) "Beneficiary" means the beneficiary or beneficiaries designated pursuant to Section 13 of the Plan to receive the amount, if any, of Awards of Performance Units or Restricted Stock payable under the Plan upon the death of a Key Employee. (c) "Board of Directors" means the Board of Directors of the Corporation. (d) "Committee" means the committee described in Section 4 of the Plan. (e) "Common Shares" means the Common Shares (without par value) of the Corporation. (f) "Corporation" means Terra Industries Inc. and its successors and assigns. (g) "Fair Market Value" means (except as provided in Section 8(d)), as of any date, the closing sales price of a Common Share on the New York Stock Exchange- Composite Transactions or, if there are no sales reported on the New York Stock Exchange - Composite Transactions for such date, such closing sales price for the next preceding date for which sales were reported. (h) "Incentive Stock Option" means an option to purchase Common Shares that is intended to qualify as an incentive stock option as defined in Section 422 of the Internal Revenue Code. (i) "Internal Revenue Code" means the Internal Revenue Code of 1986 as now in effect or as hereafter amended or modified from time to time. (j) "Key Employee" means any person, including officers and directors, in the regular full-time employment of the Corporation or a Subsidiary who, in the opinion of the Committee, is, or is expected to be, primarily responsible for the management, growth or protection of some part or all of the business of the Corporation and its Subsidiaries or otherwise to contribute substantially to the success of the Corporation and its Subsidiaries. (k) "Nonqualified Stock Option" means an option to purchase Common Shares that is intended not to qualify as an incentive stock option as defined in Section 422 of the Internal Revenue Code. (l) "Option" means an Incentive Stock Option or a Nonqualified Stock Option. (m) "Performance Unit" means a performance unit awarded under Section 10 of the Plan. (n) "Restricted Stock" means one or more Common Shares awarded under Section 11 of the Plan, subject to such restrictions as the Committee deems appropriate or desirable. (o) "Retirement" means becoming eligible to receive immediate retirement benefits under a retirement or pension plan of the Corporation or any Subsidiary. (p) "Right" means a stock appreciation right to elect to receive Common Shares with a Fair Market Value, at the time of any exercise of such stock appreciation right, equal to the amount by which the Fair Market Value of all shares subject to the Option (or part thereof) in respect of which such stock appreciation right was granted exceeds the exercise price of the Option (or part thereof) or to receive from the Corporation, in lieu of such shares, the Fair Market Value thereof in cash, as provided in Sections 7 and 8. (q) "Subsidiary" means any corporation (other than Corporation) in an unbroken chain of corporations beginning with Corporation if each of the corporations other than the last corporation in the unbroken chain owns more than 50% of the voting stock in one of the other corporations in such chain. (r) "Total Disability" means the complete and permanent inability of a Key Employee to perform the Key Employee's duties under the terms of the Key Employee's employment with the Corporation or any Subsidiary, as determined by the Committee upon the basis of such evidence, including independent medical reports and data, as the Committee deems appropriate or necessary. 3. Shares Subject to the Plan (a) The aggregate number of Common Shares that may be subject to Awards under the Plan shall not exceed 3,800,000 shares. Such shares shall be made available from authorized and unissued shares. If, for any reason, any Common Shares awarded or subject to purchase by exercising an Option under the Plan are not delivered or are reacquired by the Corporation, for reasons including, but not limited to, a forfeiture of Restricted Stock or termination, expiration or cancellation of an Option, Right or a Performance Unit, such Common Shares shall again become available for award under the Plan. For the purposes of determining the aggregate number of shares that are subject to Awards, Common Shares issuable upon settlement of a Performance Unit shall be valued at their Fair Market Value on the date of award. To the extent a Right granted in 2 connection with an Option is exercised, the related Option shall, solely for the purposes of determining the total number of shares available for grant under this Plan, be deemed to have been exercised, and the Common Shares that otherwise would have been issued upon the exercise of such Option shall not thereafter be available for any further grants. In the event the Corporation makes an acquisition or is a party to a merger or consolidation and the Corporation assumes the options of the company acquired, merged or consolidated that are administered pursuant to this Plan, the assumed options shall not count as part of the total number of Common Shares that may be made subject to Awards under this Plan. (b) The maximum number of shares that may be granted in the form of Awards pursuant to any and all Awards granted in any fiscal year to a Key Employee shall be 500,000 shares (subject to adjustment in the same manner as provided in Section 15). The limitations set forth in the preceding sentence shall be applied in a manner which will permit compensation generated under the Plan to constitute "performance-based" compensation for purposes of Section 162 (m) of the Internal Revenue Code. 4. Administration of the Plan (a) The Plan shall be administered by a Committee of directors of the Corporation appointed by the Board of Directors and consisting of at least two members of the Board of Directors. (b) All decisions, determinations or actions of the Committee made or taken pursuant to grants of authority under the Plan shall be made or taken in the sole discretion of the Committee and shall be final, conclusive and binding on all persons for all purposes. (c) The Committee shall have full power, discretion and authority to interpret, construe and administer the Plan and any part thereof and to make and amend rules for carrying out the Plan, and its interpretations and constructions thereof and actions taken thereunder shall be, except as otherwise determined by the Board of Directors, final, conclusive and binding on all persons for all purposes. (d) The Committee's decisions and determinations under the Plan need not be uniform and may be made selectively among Key Employees, whether or not such Key Employees are similarly situated. (e) The Committee may, in its sole discretion, delegate such of its powers as it deems appropriate. (f) The Committee may adopt its own rules of procedure; and the action of a majority of the Committee, taken at a meeting or taken without a meeting by a writing signed by such majority, shall constitute action by the Committee. 5. Grant of Awards and Award Agreements (a) Subject to the provisions of the Plan, the Committee shall (i) determine and designate from time to time those Key Employees or groups of Key Employees to whom Awards are to be granted; (ii) determine the form or forms of Award to be granted to any Key Employee; (iii) determine the 3 amount or number of Common Shares or Performance Units subject to each Award; and (iv) determine the terms and conditions of each Award. (b) Each Award granted under the Plan shall be evidenced by a written Award Agreement. Such agreement shall be subject to and incorporate the express terms and conditions, if any, required under the Plan or otherwise provided by the Committee, including, but not limited to, provisions relating to change in control situations. (c) The Committee may impose such conditions as it deems advisable on the grant of an Award. (d) The Committee may, in its discretion, grant one or more new Options (and related Rights) to any Key Employee, having any such terms permitted under the Plan as the Committee may determine, on the condition that such Key Employee surrender to the Corporation for cancellation one or more Options (and related Rights) previously granted to such Key Employee, whether or not at a higher price. 6. Terms of Options The terms of each Option granted under the Plan shall be as determined from time to time by the Committee and shall be set forth in a form approved by the Committee, consistent however with the following: (a) The Option exercise price per share shall not be less than Fair Market Value at the time the Option is granted. (b) (i) Options may be granted for such lawful consideration as shall be determined by the Committee. Such consideration may, but need not, consist of a condition that, prior to exercise, the recipient of the Award remain in the employ of the Corporation or a Subsidiary for such period or periods after the date of grant of the Option as may be determined by the Committee. The Option shall be exercisable in whole or in part from time to time during the period beginning at the earlier of the date of grant or the completion of any required service period stated in the Option and ending at the expiration of ten years from the date of grant of an Incentive Stock Option and ten years and three months from the date of grant of a Nonqualified Stock Option, unless an earlier expiration date shall be stated in the Option or the Option shall cease to be exercisable pursuant to paragraph (d) of this Section 6. (ii) The aggregate Fair Market Value, determined at the time an Incentive Stock Option is granted, of the shares with respect to which Incentive Stock Options may be exercisable for the first time by a Key Employee in any calendar year under all plans of the Corporation and any parent corporation of the Corporation and any Subsidiary shall not exceed $100,000. (c) Payment in full of the Option exercise price shall be made upon exercise of each Option and may be made (i) in cash; (ii) by the delivery of or certification of ownership of Common Shares with a Fair Market Value equal to the Option exercise price, provided the Key Employee has held such shares for a period of at least six months; (iii) by a combination of cash and such shares that have been held by the Key Employee for a period of at least six months, the Fair Market Value of which, together with such cash, shall equal the exercise price; or (iv) for any other lawful consideration as determined by the Committee. The Committee may also permit the holders of Options, in 4 accordance with such procedures as the Committee may in its sole discretion establish, to exercise Options and sell Common Shares thereby acquired pursuant to a brokerage or similar arrangement, approved in advance by the Committee, and to use the proceeds from such sale as payment of the exercise price of such Options. (d) (i) If a Key Employee's employment with the Corporation and all Subsidiaries terminates other than by reason of the Key Employee's death, Total Disability or Retirement, the Key Employee's Option shall terminate and cease to be exercisable upon termination of employment, unless the Committee shall determine otherwise. (ii) If a Key Employee's employment with the Corporation and all Subsidiaries terminates by reason of death, the Key Employee's Option shall terminate and cease to be exercisable at the earlier of one year from the date of death, unless the Committee shall determine otherwise, or the expiration of the term stated in the Option Agreement. (iii) If a Key Employee's employment with the Corporation and all Subsidiaries terminates by reason of Total Disability or Retirement, the Key Employee's Option shall terminate and cease to be exercisable at the earlier of three years from date of Total Disability or Retirement, unless the Committee shall determine otherwise, or the expiration of the term stated in the Option Agreement. 7. Granting of Rights The Committee, at the time of grant of an Option, or at any time prior to the expiration of its term may also grant, subject to the terms and conditions of the Plan, Rights in respect of all or part of such Option to the Key Employee who has been granted the Option, provided that at such time the grantee is a Key Employee. 8. Exercise of Options and Rights (a) The holder of an Option or Right who decides to exercise the Option or Right in whole or in part shall give notice to the Corporate Secretary of the Corporation of such exercise in writing on a form approved by the Committee. A notice exercising a Right shall also specify the extent, if any, to which the Key Employee elects to receive Common Shares and the extent, if any, to which the Key Employee elects to receive cash, and shall be subject to the determination by the Committee as provided in Section 8(d). Any exercise shall be effective as of the date the Corporate Secretary of the Corporation receives the notice of exercise, and in the case of exercise of an Option, payment in full of the Option exercise price. (b) To the extent an Option is exercised in whole or in part, any Right granted in respect of such Option (or part thereof) shall terminate and cease to be exercisable. To the extent a Right is exercised in whole or in part, the Option (or part thereof) in respect of which such Right was granted shall terminate and cease to be exercisable. (c) Subject to Section 7, a Right shall be exercisable only during the period in which the Option (or part thereof) in respect of which such Right was granted is exercisable. In addition, a Right that relates to an Incentive Stock Option shall be exercisable only if and when there is a "positive spread" within the meaning of applicable Treasury Regulations. 5 (d) The Committee shall have sole discretion to determine the form in which payment will be made following exercise of a Right. All or any part of the obligation arising out of an exercise of a Right may be settled (i) by payment in Common Shares with a Fair Market Value equal to the cash that would otherwise be paid; (ii) by payment in cash; or (iii) by payment in combination of such shares and cash. 9. Limitations and Conditions on Awards (a) No Award shall be granted under the Plan after March 31, 2002, but Awards theretofore granted may extend beyond that date. At the time an Award is granted or amended or the terms or conditions of an Award are changed, the Committee may provide for limitations or conditions on the exercisability or vesting of the Award. (b) An Award shall not be transferable by the Key Employee otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. A Right shall never be transferred except to the transferee of the related Option. During the lifetime of the Key Employee, an Option or Right shall only be exercisable by the Key Employee. Notwithstanding the foregoing, at the discretion of the Committee, a grant of an Award may permit the transfer of the Award by the Key Employee solely to members of the Key Employee's immediate family or trusts or family partnerships for the benefit of such persons, subject to such terms and conditions as may be established by the Committee. (c) No person shall have any rights of a stockholder (i) as to shares under Option until, after proper exercise of the Option, such shares shall have been recorded on the Corporation's official stockholder records as having been issued or transferred or (ii) as to shares to be delivered following exercise of a Right until, after proper exercise of the Right and determination by the Committee to make payment therefor in shares, such shares shall have been recorded on the Corporation's official stockholder records as having been issued or transferred. 10. Performance Units (a) Subject to the provisions of the Plan, the Committee shall (i) determine and designate from time to time those Key Employees or groups of Key Employees to whom Awards of Performance Units are to be made, (ii) determine the Performance Period (the "Performance Period") and Performance Objectives (the "Performance Objectives") applicable to such Awards, (iii) determine the form of settlement of a Performance Unit and (iv) generally determine the terms and conditions of each such Award. Each Performance Unit shall have a value of $100. (b) The Committee shall determine a Performance Period of not less than two nor more than five years. Performance Periods may overlap and Key Employees may participate simultaneously with respect to Performance Units for which different Performance Periods are prescribed. (c) The Committee shall determine the Performance Objectives of Awards of Performance Units. Performance Objectives may vary from Key Employee to Key Employee and between groups of Key Employees and shall be based upon such performance criteria or combination of factors as the Committee may deem appropriate, including, but not limited to, minimum earnings, earnings per share, earnings growth, earnings per share growth, return on equity or share price appreciation. If during the course of a Performance Period there shall occur significant events that the Committee expects to have a substantial effect on the applicable Performance Objectives during such period, the Committee may revise such Performance Objectives. 6 (d) At the beginning of a Performance Period, the Committee shall determine for each Key Employee or group of Key Employees the number of Performance Units that shall be paid to the Key Employee or member of the group of Key Employees if the applicable Performance Objectives are met in whole or in part. (e) If a Key Employee terminates service with the Corporation and all Subsidiaries during a Performance Period because of death, Total Disability, Retirement, or under other circumstances where the Committee in its sole discretion finds that a waiver would be in the best interests of the Corporation, that Key Employee may, as determined by the Committee, be entitled to an Award of Performance Units at the end of the Performance Period based upon the extent to which the Performance Objectives were satisfied at the end of such period and prorated for the portion of Performance Period during which the Key Employee was employed by the Corporation or any Subsidiary; provided, however, the Committee may provide for an earlier payment in settlement of such Performance Units in such amount and under such terms and conditions as the Committee deems appropriate or desirable. If a Key Employee terminates service with the Corporation and all Subsidiaries during a Performance Period for any other reason, then such Key Employee shall not be entitled to any Award with respect to that Performance Period unless the Committee shall otherwise determine. (f) Each Award of a Performance Unit shall be paid in whole Common Shares, or cash, or a combination of Common Shares and cash either as a lump sum payment or in annual installments, all as the Committee shall determine, with payment to commence as soon as practicable after the end of the relevant Performance Period. (g) Common Shares issued in settlement of Performance Units shall be valued at their Fair Market Value on the last day of the Performance Period. (h) No Key Employee awarded a Performance Unit shall have any right as a stockholder with respect to any shares covered by the Award prior to the date such shares have been recorded on the Corporation's official stockholder records as having been issued or transferred to the Key Employee. 11. Restricted Stock (a) Restricted Stock shall be subject to a restriction period (after which restrictions shall lapse), which shall mean a period commencing on the date the Award is granted and ending on such date as the Committee shall determine (the "Restriction Period"). The Committee may provide for the lapse of restrictions in installments where deemed appropriate. The Committee may, at its discretion, provide that the Restricted Stock shall be subject to Performance Objectives (as such term is defined in Section 10). (b) Except when the Committee determines otherwise pursuant to Section 11(d), if a Key Employee terminates employment with the Corporation and all Subsidiaries for any reason before the expiration of the Restriction Period, all shares of Restricted Stock still subject to restriction shall be forfeited by the Key Employee and shall be reacquired by the Corporation. (c) Except as otherwise provided in this Section 11 or in the last sentence of Section 9(b), no shares of Restricted Stock received by a Key Employee shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Restriction Period. 7 (d) In cases of death, Total Disability or Retirement or in cases of special circumstances, the Committee may, in its sole discretion when it finds that a waiver would be in the best interests of the Corporation, elect to waive any or all remaining restrictions or extend the restriction period on a basis consistent with the extension of Options contemplated in Section 6(d) with respect to such Key Employee's Restricted Stock. (e) The Committee may require, under such terms and conditions as it deems appropriate or desirable, that the certificates for Common Shares delivered under the Plan may be held in custody by a bank or other institution, or that the Corporation may itself hold such shares in custody until the Restriction Period expires or until restrictions thereon otherwise lapse, and may require, as a condition of any Award of Restricted Stock that the Key Employee shall have delivered a stock power endorsed in blank relating to the Restricted Stock. (f) Nothing in this Section 11 shall preclude a Key Employee from exchanging any shares of Restricted Stock subject to the restrictions contained herein for any other Common Shares that are similarly restricted. (g) Subject to Section 11(e) and Section 12, each Key Employee entitled to receive Restricted Stock under the Plan shall be issued a certificate for the Common Shares. Such certificate shall be registered in the name of the Key Employee, and shall bear an appropriate legend reciting the terms, conditions and restrictions, if any, applicable to such Award and shall be subject to appropriate stop-transfer orders. (h) Except for the restrictions on Restricted Stock under this Section 11, each Key Employee who receives Common Shares in settlement of an Award of Restricted Stock shall have the rights of a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. 12. Certificates for Awards of Stock (a) The Corporation shall not be required to issue or deliver any certificates for Common Shares prior to (i) the listing of such shares on any stock exchange on which the Common Shares may then be listed and (ii) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Corporation shall, in its sole discretion, determine to be necessary or advisable. (b) All certificates for Common Shares delivered under the Plan shall also be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Shares are then listed and any applicable federal, state or local securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. 13. Beneficiary Designation (a) Each Key Employee may file with the Corporation a written designation of one or more persons as the Beneficiary or Beneficiaries who shall be entitled to receive the benefits of any Award payable under the Plan upon the Key Employee's death. Subject to the requirements of law, a Key Employee may from time to time revoke or change the Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Corporation. The last such designation received by the Corporation shall be controlling; provided, however, that no designation, 8 or change or revocation thereof, shall be effective unless received by the Corporation prior to the Key Employee's death, and in no event shall it be effective as of a date prior to such receipt. (b) If no such Beneficiary designation is in effect at the time of a Key Employee's death, or if no designated Beneficiary survives the Key Employee or if such designation conflicts with the law, the Key Employee's estate shall be entitled to receive the benefits of any Award payable under the Plan upon the Key Employee's death. If the Committee is in doubt as to the right of any person to receive such Award, the Corporation may retain such Award, without liability for any interest thereon, until the Committee determines the rights thereto, or the Corporation may pay such Award into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Corporation therefor. 14. Transfers and Leaves of Absence Solely for the purposes of the Plan: (a) a transfer of a Key Employee's employment without an intervening period from the Corporation to a Subsidiary or vice versa, or from one Subsidiary to another, shall not be deemed a termination of employment, and (b) a Key Employee who is granted in writing a leave of absence shall be deemed to have remained in the employ of the Corporation or a Subsidiary, as the case may be, during such leave of absence. 15. Stock Adjustments In the event of any merger, consolidation, stock or other non-cash dividend, split-up, combination or exchange of shares or recapitalization or change in capitalization involving the Corporation, or any other similar corporate event, the number of shares set forth in Section 3 shall be proportionately and appropriately adjusted. In any such case, (i) the number and kind of shares that are subject to any Award (including any Option outstanding after termination of employment) and the Option exercise price per share shall be proportionately and appropriately adjusted without any change in the aggregate Option exercise price to be paid therefor upon exercise of the Option, and (ii) the Committee may make such adjustments in the number and kind of Rights, Performance Units and Restricted Stock as it shall deem appropriate in the circumstances. The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. 16. Tax Benefit Rights and Withholding (a) The Committee may also from time to time and upon such terms and conditions as it may in its discretion determine, grant the holder of any Option under this Plan selected by the Committee the right ("tax benefit right") to receive from the Corporation or any of its wholly owned subsidiaries as a result of the exercise of any Option or Right (except an Incentive Stock Option or Right with respect thereto) granted pursuant to this Plan, an amount, in cash, equal to the then applicable maximum statutory federal income tax rate for corporations (subject to a maximum of 40%) multiplied by the amount of compensation, if any, realized by the holder for federal income tax purposes upon exercise. Such payment shall not be made except pursuant to the exercise of any Option or Right not earlier than six months after the date of grant of the related tax benefit right. The Committee may cancel or place a limit on the term or amount of any tax benefit right at any time and shall determine all other terms and provisions of any tax benefit right. (b) The Corporation shall have the right to deduct from any cash payment made under the Plan any federal, state or local income or other taxes required by law to be withheld with respect to such payment. It shall be a condition to the obligation of the Corporation to deliver Common Shares 9 upon the exercise of any Option or Right, upon payment of a Performance Unit or upon delivery of Restricted Stock that the Key Employee pay to the Corporation such amount as may be requested by the Corporation for the purpose of satisfying any liability for such withholding taxes. Any Award Agreement may provide that the Key Employee may elect, in accordance with any conditions set forth in such Award Agreement, to pay a portion or all of such withholding taxes in Common Shares. 17. Amendment and Termination (a) The Board of Directors may amend, suspend, or discontinue the Plan at any time; provided, however, that no amendment, suspension or discontinuance shall adversely affect any outstanding benefit and if any law, agreement or exchange on which Common Shares of the Corporation is traded requires stockholder approval for an amendment to become effective, no such amendment shall become effective unless approved by vote of the Corporation's stockholders. (b) The Board of Directors may suspend or terminate the Plan at any time. No such suspension or termination shall affect Awards then in effect. (c) The Committee may, in its discretion, amend or modify the terms and conditions of outstanding Awards, including amending or modifying an Option to convert the Option from an Incentive Stock Option to a Nonqualified Stock Option or from a Nonqualified Stock Option to an Incentive Stock Option. (d) The Committee may not, without the consent of the Award recipient, modify such terms and conditions in a manner that would adversely affect the rights of such person, except to the extent, if any, provided in the Plan or in the Award. 18. Effective Date The Plan shall be effective as of February 20, 1997, subject to its approval by the stockholders of the Corporation. All Awards that have been or may be granted under the Plan prior to stockholder approval shall be conditioned upon, and may not vest or be exercisable until after, such stockholder approval. 10 EX-13 8 ANNUAL REPORT Exhibit 13 TERRA INDUSTRIES INC. 1996 ANNUAL REPORT FINANCIAL SECTION FINANCIAL TABLE OF CONTENTS Financial Review Consolidated Statements of Financial Position Consolidated Statements of Income Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders' Equity Notes to the Consolidated Financial Statements Responsibility for Financial Statements Independent Auditors' Report Quarterly Production Data Quarterly Financial and Stock Market Data Revenues Volumes and Prices Stockholders Financial Summary CONFIDENTAL 2 Financial Review Consolidated Results Net income for 1996 amounted to $134.0 million compared with $159.5 million in 1995 and $56.6 million in 1994 with per share earnings of $1.72, $1.96 and $0.78, respectively. Revenues increased to $2.32 billion in 1996 from $2.29 billion in 1995 and $1.67 billion in 1994. In 1996, income taxes were reduced $18 million as a result of a transaction with a Canadian subsidiary of Minorco, the Corporation's majority shareholder. The Corporation purchased $32 million of tax benefits at a cost of $14 million. Net income in 1995 and 1994 was reduced by $4.3 million and $3.1 million, or $0.05 and $0.04 per share, respectively, due to the write-off of deferred financing fees in connection with the early retirement of debt. Additionally, 1994 results included a net gain of $3.4 million, or $0.05 per share, to recognize the cumulative effect of a change in the method of accounting for major maintenance costs and adoption of Statement of Financial Accounting Standards (SFAS) 112, "Employers' Accounting for Post-Employment Benefits." Financial Comparability and Overview The Corporation's improved earnings in 1996 and 1995 compared to 1994 reflect internal growth and acquisitions which have increased its manufacturing and distribution capabilities. The following acquisitions are included in operating results: On October 20, 1994, the Corporation acquired the stock of Agricultural Minerals and Chemicals Inc. (AMCI), for $506 million in cash. Through the AMCI acquisition and subsequent open market purchases, the Corporation, including its interest as the general partner, has an approximate 65% ownership interest in ammonia production and upgrading facilities located in Verdigris, Oklahoma and Blytheville, Arkansas. The acquisition also included a wholly owned methanol production facility located in Beaumont, Texas. On September 15, 1994, the Corporation acquired an approximate 34% interest in Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a 104-location distributor of crop production products in the mid-Atlantic region with annual sales of approximately $200 million. In addition, the Corporation continues to add distribution locations each year through acquisition of numerous distributors in its marketing area. CONFIDENTAL 3 Factors That Affect Operating Results Factors that may affect the Corporation's future operating results include: the relative balance of supply and demand for nitrogen fertilizers and methanol, the number of planted acres - which is impacted by both worldwide demand and governmental policies - the types of crops planted, the effects general weather patterns have on the timing and duration of field work for crop planting and harvesting, the supply of crop production products, the availability and cost of natural gas, the effect of environmental legislation on demand for the Corporation's products, the availability of financing sources to fund seasonal working capital needs, and the potential for interruption to operations due to accident or natural disaster. Prices for nitrogen products are influenced by the world supply and demand balance for ammonia and nitrogen-based products. Long-term demand is affected by population growth and rising living standards that determine food consumption. Supply is affected by worldwide capacity and the availability of nitrogen product exports from major producing regions such as the former Soviet Union, the Middle East and South America. Due to several years of favorable economics in the industry, capacity additions in the form of new and expanded production facilities have been undertaken. Consequently, new nitrogen fertilizer suppliers are anticipated to come on-stream during the next few years. If increasing demand is insufficient to absorb new supplies, profit margins would be under pressure. Methanol is used as a raw material in the production of formaldehyde, methyl tertiary butyl ether (MTBE), acetic acid and numerous other chemical derivatives. The price of methanol is highly influenced by the supply and demand for each of these secondary markets, in particular MTBE, an oxygenate used in reformulated gasoline and an octane enhancer used in non-reformulated gasoline. Future demand for MTBE and methanol will depend on the degree to which Clean Air Act Amendments are implemented and enforced, potential legislation and the willingness of regulatory agencies to grant waivers. Due to the higher quantities of crop production products per acre for corn and cotton compared with other major crops, changes in corn and cotton acreages have a more significant effect on the demand for the Corporation's products and services than changes in other crops. Passage of the 1996 Farm Bill (the Federal Agriculture Improvement and Reform Act of 1996) eliminates over the next seven years annual acreage set-asides and base acreage restrictions for most crops. This will provide farmers more freedom in making decisions regarding what crops are planted. Worldwide grain stocks remain at low levels. Planted acreage for corn is expected to increase CONFIDENTAL 4 in 1997 to 82.1 million acres from 79.5 million acres in 1996. Planted cotton acreage in the U.S. is estimated to decline to 13.7 million acres from 14.7 million acres in 1996. Weather can have a significant effect on the Corporation's operations. Weather conditions that delay or intermittently disrupt field work during the planting and growing season may result in fewer than normal crop production products being applied and/or shift plantings to crops with shorter growing seasons. Similar conditions following harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop yields, which lowers the income of growers and could impair their ability to pay for crop production products purchased from the Corporation and its dealer customers. During 1996 planting conditions were unfavorable in many areas of the U.S. causing a reduction in planted acres and use of certain crop production products. Reliable sources for supply of crop production products at competitive prices are critical to the Distribution portion of the Corporation's business. The Corporation's sources for fertilizer, crop protection products and seed are typically manufacturers without the capability to distribute products to the North American grower. The Corporation has entered into purchase agreements which should ensure an adequate supply of products for its grower and dealer customers through 1997, with some major supplier agreements extending into 1999. The principal raw material used to produce manufactured nitrogen products and methanol is natural gas. Natural gas costs comprise almost 45% of the total costs and expenses associated with nitrogen production and in excess of 50% of the total costs and expenses associated with methanol. The Corporation's natural gas procurement policy is to effectively fix or cap the price of approximately 40% to 80% of its natural gas requirements for a one-year period and up to 50% of its natural gas requirements for the subsequent two-year period through various supply contracts, financial derivatives and other forward pricing techniques. The Corporation believes that there is a sufficient supply to allow acceptable costs for the foreseeable future and has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies during the heating season. The Corporation's Distribution business segment is highly seasonal with the majority of sales occurring during the second quarter in conjunction with spring planting activity. Due to the seasonality of the business and the relatively brief periods during which products can be used by customers, the Corporation builds inventories during the first quarter of the year in order to ensure timely product availability during the peak sales season. The Corporation's ability to purchase product at off-season prices and carry inventory until periods of peak demand generally contributes to higher margins. For its current level of sales, the Corporation requires lines of credit to CONFIDENTAL 5 fund inventory increases and to support customer credit terms. The Corporation believes that its credit facilities are adequate for expected sales levels in 1997 and for the next several years. The Corporation's manufacturing operations may be subject to significant interruption if one or more of its facilities were to experience a major accident or were damaged by severe weather or other natural disaster. The Corporation currently maintains insurance (including business interruption insurance) and expects that it will continue to do so in an amount which it believes is sufficient to allow the Corporation to withstand major damage to any of its facilities. The Corporation's Port Neal facility experienced such a casualty on December 13, 1994. Derivative Financial Instruments The Corporation uses derivative financial instruments to manage risk in the areas of (a) foreign currency fluctuations, (b) changes in natural gas supply prices, (c) changes in interest rates and (d) the effect of methanol prices relative to natural gas prices. See Note 13 to the Consolidated Financial Statements for information on the use of derivative financial instruments. Results of Operations 1996 Compared with 1995 Consolidated Results The Corporation reported net income of $134.0 million, or $1.72 per share, on revenues of $2.32 billion for 1996 compared with net income of $159.5 million, or $1.96 per share, on revenues of $2.29 billion in 1995. The 1995 results included an extraordinary loss on early retirement of debt of $4.3 million, or $0.05 per share. 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 those operations directly related to 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. CONFIDENTIAL 6 Total revenues and operating income for years ended December 31, 1996 and 1995 were as follows:
(in thousands) 1996 1995 - ------------------------------------------------------------------------ REVENUES: Distribution $1,573,827 $1,495,166 Nitrogen Products 654,486 635,126 Methanol 132,533 194,565 Other - net of intercompany eliminations (44,360) (32,684) - ------------------------------------------------------------------------ $2,316,486 $2,292,173 ======================================================================== OPERATING INCOME: Distribution $ 25,268 $ 41,207 Nitrogen Products 255,263 263,787 Methanol 18,520 77,138 Other expense - net (3,870) (4,430) - ------------------------------------------------------------------------ 295,181 377,702 Interest expense - net (52,845) (51,086) Minority interest (44,485) (47,234) - ------------------------------------------------------------------------ Total from operations $ 197,851 $ 279,382 ========================================================================
Distribution Distribution revenues for the year ended December 31, 1996 increased 5.3% to $1.57 billion from the comparable 1995 period. New locations in 1996 contributed $69.0 million to the increase in revenues. Same store revenues did not significantly change in 1996 due to adverse weather conditions, change in mix of crops, lower insect pressure and the economic condition of some growers. Operating income for the Distribution segment amounted to $25.3 million for 1996 in comparison with $41.2 million for 1995. Provisions for doubtful accounts increased $8.1 million in 1996 as a result of two consecutive years of drought conditions across Southern markets. Growth of the Distribution network to 393 locations from 382 in 1995 increased gross profits by $12.7 million but also increased selling expenses by $11.7 million. Expense increases resulting from an expanded sales force and additional equipment at existing locations to meet demands for services and products in the 1996 season exceeded increases to gross profits by approximately $8 million. Nitrogen Products Nitrogen Products revenues increased $19.4 million to $654.5 million for 1996 in comparison with 1995 due to greater sales volumes for ammonia and nitrogen solutions partly offset by lower sales volumes for urea and lower prices. Sales volumes increased as a result of the start-up of the Port Neal manufacturing plant which began producing ammonia in December 1995 and nitrogen solutions in May 1996. CONFIDENTIAL 7 Nitrogen Products 1996 operating income of $255.3 million was $8.5 million less than 1995. Earnings attributable to the 1996 start-up of the Port Neal plant approximated 1995 business interruption proceeds. Price declines of $20.7 million were partially offset by natural gas cost savings of $18.3 million for 1996 compared with 1995. The use of financial derivatives to forward price natural gas costs more than offset an approximate 27% increase in the 1996 spot market price of natural gas compared with 1995. Non-recurring costs of $4.2 million were incurred in 1996 as a result of staff reductions at the Courtright manufacturing plant. Methanol Methanol revenues in 1996 and 1995 totaled $132.5 million and $194.6 million, respectively. Revenues declined in 1996 as the result of significantly lower selling prices. Prices fell almost one-third from $0.62 per gallon in 1995 to $0.42 per gallon in 1996. Methanol operating income for 1996 was $18.5 million while 1995 operating income was $77.1 million. Lower selling prices reduced 1996 Methanol operating income but were partially offset by lower natural gas costs. Natural gas costs were lower as the use of financial derivatives to forward price a majority of the natural gas requirements more than offset an approximate 27% increase in the spot market price of natural gas for 1996 in comparison with 1995. The Corporation expects methanol prices to continue within their "normal" historical range of $0.30 to $0.60 per gallon. Other Operating Expense - Net Other operating expense was $3.9 million in 1996 compared with $4.4 million in 1995. Other expense includes expenses not directly related to individual business segments, including certain insurance coverages, corporate finance fees and other costs. Interest Expense - Net Net interest expense of $52.8 million in 1996 approximated 1995 amounts for the year ended December 31, 1996. Minority Interest Minority interest, representing primarily third party unitholder interest in the earnings of Terra Nitrogen Company, L.P. (TNCLP), totaled $44.5 million in 1996 compared with $47.2 million in 1995. Minority interest declined due primarily to the purchase of Senior Preference Units (SPUs) by the Corporation in the second and third quarters of 1995. CONFIDENTIAL 8 Income Taxes Income tax expense was recorded at an effective rate of 32.3% for the year ended December 31, 1996 compared with 41.3% in 1995. During 1996 the Corporation purchased tax benefits from a Canadian subsidiary of Minorco, resulting in a deferred tax asset for the Corporation which reduced the effective rate by 9.1%. Results of Operations 1995 Compared with 1994 Consolidated Results The Corporation reported net income of $159.5 million, or $1.96 per share, on revenues of $2.29 billion in 1995 compared with net income of $56.6 million, or $0.78 per share, on revenues of $1.67 billion in 1994. Results for 1995 include a full year's effect of the AMCI acquisition which took place on October 20, 1994. The effect of including a full year of operations of the acquired business increased 1995 revenues by $433 million and net income by $60 million. Other significant factors that contributed to a successful 1995 were continued growth in the Distribution segment despite a reduction in planted acres, a 24% increase in nitrogen prices and natural gas costs which averaged 15% less than the prior year. Total revenues and operating income for the years ended December 31, 1995 and 1994 were as follows:
Pro Forma 1994 (in thousands) 1995 (unaudited - see below) 1994 - ------------------------------------------------------------------------------- REVENUES: Distribution $1,495,166 $1,318,416 $1,318,416 Nitrogen Products 635,126 539,152 296,557 Methanol 194,565 246,404 70,274 Other - net (32,684) (19,145) (19,300) - ------------------------------------------------------------------------------- $2,292,173 $2,084,827 $1,665,947 =============================================================================== OPERATING INCOME: Distribution $ 41,207 $ 33,784 $ 33,784 Nitrogen Products 263,787 111,961 48,369 Methanol 77,138 129,888 42,679 Other expense - net (4,430) (9,466) (9,537) - ------------------------------------------------------------------------------- 377,702 266,167 115,295 Interest expense - net (51,086) (49,367) (16,541) Minority interest (47,234) (34,916) (8,809) - ------------------------------------------------------------------------------- Total from operations $ 279,382 $ 181,884 $ 89,945 ===============================================================================
CONFIDENTIAL 9 The unaudited, pro forma results of operations have been prepared to give effect to the Corporation's (i) acquisition of AMCI, (ii) issuance of 9.7 million Common Shares, and (iii) borrowing under a credit agreement entered into in connection with the acquisition, assuming that all such transactions had occurred on January 1, 1994. The pro forma financial data is presented for informational purposes only and is not necessarily indicative of the results that actually would have been obtained if the transactions had occurred on January 1, 1994. Distribution Distribution revenues were $1.50 billion in 1995 compared with $1.32 billion in 1994, an increase of 13%. Higher volumes and the expansion of the retail distribution network contributed to increased sales despite wet weather during the spring planting season and a reduction in planted acres. Same store sales increased by approximately 7%. About $100 million of the 1995 sales growth consisted of increased retail chemical sales including sales of Terra's own brand of Riverside products. Riverside product sales increased by $19 million. Distributed fertilizer sales increased $62 million. Seed and other sales and services increased by $17 million. Operating income for the Distribution business was $41.2 million in 1995 compared with $33.8 million in 1994. Overall gross profits increased by approximately $50 million. Increased sales volumes added approximately $30 million in gross profits while higher margin grower and Riverside brand sales accounted for the remainder. Selling, general and administrative expenses increased $42.6 million. An estimated 60%, or $25 million, of the expense increase relates to expansion of the Distribution business. The remaining increase of $17 million includes increased marketing and promotional spending, an increase in bad debt experience from 1994 and inflationary cost increases. Nitrogen Products Nitrogen Products revenues were $635 million in 1995 compared with $297 million in 1994. The increase reflects the inclusion in the Corporation's Consolidated Financial Statements of a full year of results from the Verdigris, Oklahoma and Blytheville, Arkansas ammonia plants acquired in October 1994. The acquired plants raised the Corporation's total production capacity from 1.3 million to 2.7 million gross tons of ammonia. Revenues also increased as a result of an approximate 24% increase in prices. Operating income for the Nitrogen Products business was $264 million in 1995 compared with $48 million in 1994. The increase reflects a full year of results from the Verdigris, Oklahoma and Blytheville, Arkansas plants as well as the effect of the approximate 24% increase in prices. Additionally, natural gas costs decreased by CONFIDENTIAL 10 approximately 15% compared with 1994 costs. The increase in operating margin to 42% in 1995 from 16% in 1994 primarily reflects the change in nitrogen prices and natural gas costs. Methanol Methanol revenues were $195 million in 1995 compared with $70 million in 1994. The increase reflects the inclusion in the Corporation's Consolidated Financial Statements of a full year of results from the Beaumont, Texas methanol facility, which was acquired in October 1994, and a full year of operation of the Corporation's Woodward, Oklahoma plant, whose capacity was partially converted from ammonia to methanol production in April 1994. The production capacities of the two plants are 280 million gallons per year and 40 million gallons per year, respectively. Operating income totaled $77 million in 1995 compared with $43 million in 1994. Prices for methanol rose rapidly in the fourth quarter of 1994 and then fell sharply in February, March and April of 1995. The reduction in operating margin from 61% in 1994 to 40% in 1995 primarily reflects the decline in selling prices. Gross profits were $82.6 million in 1995 compared with $44.8 million in 1994. Selling, general and administrative expenses were $5.5 million in 1995 compared with $2.1 million in 1994. In October 1994, the Corporation entered into the Methanol Hedging Agreement. Under the Methanol Hedging Agreement the Corporation is required to make payments should the market price of methanol increase in relation to the cost of natural gas for defined quantities of production. As a result of the unusually high methanol prices at the end of 1994, $15.9 million was accrued as payable under the Methanol Hedging Agreement. This accrual was reversed in 1995 as prices declined to lower levels. The effect of the accrual and its subsequent reversal was to decrease 1994 revenues and operating income by $15.9 million and increase 1995 revenues and operating income by a like amount. Other Operating Expense - Net Other operating expense was $4.4 million in 1995 compared with $9.5 million in 1994. Other operating expense consists of corporate level expenses, including certain insurance coverages, corporate finance fees and other costs. Interest Expense - Net Interest expense, net of interest income, totaled $51.1 million in 1995 compared with $16.5 million in 1994. The increase was principally the result of higher interest expense due to additional debt in connection with the acquisition of AMCI. CONFIDENTIAL 11 Minority Interest Minority interest, representing third party unitholder interest in the earnings of TNCLP, increased to $47.2 million in 1995 compared with $8.8 million in 1994. The increase was due to the inclusion of a full year of operations of TNCLP in the Corporation's Consolidated Financial Statements and the effect of higher nitrogen prices on TNCLP's results. Income Taxes Income tax provision was recorded at an effective rate of 41.3% for 1995 compared with 37.5% for 1994. The increased rate results primarily from the amortization of goodwill from the AMCI acquisition which is not deductible for tax purposes. 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 Shares, make capital expenditures and acquisitions, and fund repurchases of its Common Shares. Its principal sources of funds will be cash flow from operations and borrowings under available credit facilities. The Corporation believes that cash from operations and available financing sources will be sufficient to meet anticipated cash requirements. Cash provided by operations in 1996 was $201.8 million. The net amount received in 1996 from the sale of receivables (see Note 4 to the Consolidated Financial Statements) was included in cash flows from operating activities and amounted to $82 million. The decrease in receivables was partially offset by a $53.2 million increase in inventory due in part to a weaker than expected fall fertilizer season. The ratio of current assets to current liabilities decreased to 1.4 at December 31, 1996 from 1.7 at December 31, 1995. The Corporation has available a $355 million revolving credit facility for domestic working capital needs. As of December 31, 1996, $110.0 million was outstanding under this facility. Cash used in investing activities in 1996 was $168.5 million. Construction costs for rebuilding the Port Neal facility amounted to $86.3 million and were partially offset by insurance advances of $26.7 million. The purchase of property, plant and equipment, excluding Port Neal, amounted to $99.3 million. Included in this amount was $55 million to exercise the purchase option under the Courtright, Ontario nitrogen manufacturing plant lease. CONFIDENTIAL 12 Cash used for acquisitions, $16.2 million, represents amounts paid to acquire new locations for the Corporation's distribution network. The Port Neal nitrogen manufacturing plant became fully operational in 1996. Additionally, in order to increase nitrogen solution production, the Corporation began construction in the third quarter of 1996 on a $23 million nitric acid expansion project at Port Neal. The nitric acid expansion is expected to be completed by the end of 1997. The Corporation has received $203 million in advances from its insurers ($26.7 million in 1996) related to the Port Neal casualty. The Corporation is in discussions with its insurers concerning additional proceeds to which the Corporation believes it should be entitled in connection with the insurance claim. The Corporation expects other 1997 capital expenditures, exclusive of 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 December 31, 1996, the Corporation had repurchased 6.8 million shares for $91.8 million. During 1996, the Corporation distributed $7.73 per unit, or $51.5 million, to minority Senior Preference Unitholders, paid a dividend rate of 8.0%, or $2.0 million, to minority preferred stock shareholders of Port Neal Holdings, and paid dividends of $0.15 per Common Share of the Corporation which totaled $11.6 million. Cash generated from operations during 1997 is expected to be adequate to meet normal business requirements and service debt. Cash balances at December 31, 1996 were $100.7 million of which $5.4 million was used to collateralize letters of credit supporting recorded liabilities. The Corporation's bank facility contains certain restrictions which are described in Notes 9 and 11. Additionally, the public holders of TNCLP's SPUs representing a 35% interest in the Corporation's Blytheville, Arkansas and Verdigris, Oklahoma ammonia plants are entitled to receive a minimum quarterly distribution of $0.605 per unit, or $4.0 million, plus arrearages before any distribution to the Corporation's Common Units. At December 31, 1996 there were no distributions in arrears. The preference period for SPUs ended on December 31, 1996 and the SPUs can now be converted into Common Units. In addition, the SPUs can now be called by the general partner. See Note 22 for additional information. CONFIDENTIAL 13 Consolidated Statements of Financial Position
- -------------------------------------------------------------------------------------------------------------------------- At December 31, - -------------------------------------------------------------------------------------------------------------------------- (in thousands) 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Assets Cash and short-term investments $ 100,742 $ 138,707 Accounts receivable, less allowance for doubtful accounts of $11,391 and $10,626 81,606 178,738 Inventories 422,938 367,272 Other current assets 107,008 79,279 - -------------------------------------------------------------------------------------------------------------------------- Total current assets 712,294 763,996 - -------------------------------------------------------------------------------------------------------------------------- Equity and other investments 16,579 15,408 Property, plant and equipment, net 846,353 694,358 Excess of cost over net assets of acquired businesses 291,645 308,414 Deferred tax asset 15,311 --- Partnership distribution reserve fund --- 18,480 Other assets 87,183 67,202 - -------------------------------------------------------------------------------------------------------------------------- Total assets $1,969,365 $1,867,858 ========================================================================================================================== Liabilities Debt due within one year $ 118,937 $ 30,425 Accounts payable 198,273 203,400 Accrued and other liabilities 207,927 222,298 - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 525,137 456,123 - -------------------------------------------------------------------------------------------------------------------------- Long-term debt 404,707 407,162 Deferred income taxes 134,523 111,871 Other liabilities 125,013 138,218 Minority interest 173,893 182,901 Commitments and contingencies (Note 12) - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,363,273 1,296,275 - -------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity Capital stock Common Shares, authorized 133,500 shares; 75,010 and 81,173 shares outstanding 127,614 133,970 Paid-in capital 550,850 631,195 Cumulative translation adjustment (1,430) (271) Accumulated deficit (70,942) (193,311) - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 606,092 571,583 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,969,365 $1,867,858 ==========================================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 14 CONFIDENTAL Consolidated Statements of Income
- ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per-share amounts) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Net sales $2,264,509 $2,215,874 $1,633,499 Other income, net 51,977 76,299 32,448 - ------------------------------------------------------------------------------------------------------------------------------------ 2,316,486 2,292,173 1,665,947 - ------------------------------------------------------------------------------------------------------------------------------------ Cost and Expenses Cost of sales 1,722,450 1,657,070 1,344,062 Selling, general and administrative expense 300,897 259,295 207,333 Equity in earnings of unconsolidated affiliates (2,042) (1,894) (743) - ------------------------------------------------------------------------------------------------------------------------------------ 2,021,305 1,914,471 1,550,652 - ------------------------------------------------------------------------------------------------------------------------------------ Income from operations 295,181 377,702 115,295 Interest income 7,102 13,811 5,541 Interest expense (59,947) (64,897) (22,082) Minority interest (44,485) (47,234) (8,809) - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes, extraordinary items and cumulative effect of accounting changes 197,851 279,382 89,945 Income tax provision 63,900 115,500 33,700 - ------------------------------------------------------------------------------------------------------------------------------------ Income before extraordinary items and cumulative effect of accounting changes 133,951 163,882 56,245 Extraordinary loss on early retirement of debt --- (4,338) (3,060) Cumulative effect of accounting changes --- --- 3,376 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 133,951 $ 159,544 $ 56,561 ==================================================================================================================================== Weighted average number of shares outstanding 77,757 81,332 72,870 ==================================================================================================================================== Income Per Share: Income before extraordinary items $ 1.72 $ 2.01 $ 0.77 Extraordinary loss on early retirement of debt --- (0.05) (0.04) Cumulative effect of accounting changes --- --- 0.05 - ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 1.72 $ 1.96 $ 0.78 ====================================================================================================================================
See accompanying Notes to the Consolidated Financial Statements. CONFIDENTAL 15 Consolidated Statements of Cash Flows
================================================================================ Year ended December 31, - -------------------------------------------------------------------------------- (in thousands) 1996 1995 1994 Operating Activities Net income $ 133,951 $ 159,544 $ 56,561 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 83,210 66,075 27,218 Deferred income taxes 15,959 47,849 20,956 Cumulative effect of accounting changes --- --- (3,376) Minority interest in earnings 44,485 47,234 8,809 Other non-cash items (3,059) 2,544 10,923 Change in current assets and liabilities, excluding working capital purchased: Accounts receivable 100,359 (24,557) 19,615 Inventories (53,185) (30,466) (59,303) Other current assets (42,849) 46 (13,056) Accounts payable (8,291) 22,950 60,478 Accrued and other liabilities (27,952) 35,349 39,405 Unreimbursed Port Neal casualty (26,498) (68,748) --- Other (14,291) (14,699) 212 - -------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 201,839 243,121 168,442 - -------------------------------------------------------------------------------- Investing Activities Port Neal plant construction (86,323) (133,106) --- Insurance proceeds from plant casualty 26,675 127,557 --- Acquisitions, net of cash acquired (16,181) (22,326) (373,722) Purchase of property, plant and equipment (99,326) (44,023) (31,213) Purchase of minority interest - TNCLP --- (28,834) --- Proceeds from asset sales 5,798 --- --- Other 861 5,670 (1,448) - -------------------------------------------------------------------------------- Net Cash Used In Investing Activities (168,496) (95,062) (406,383) - -------------------------------------------------------------------------------- Financing Activities Net short-term borrowings 90,318 4,906 13,795 Proceeds from issuance of long-term debt 151 203,112 326,407 Principal payments on long-term debt (4,412) (349,134) (101,416) Debt issuance costs --- (8,333) (13,581) Stock (repurchase) issuance - net (91,131) 1,187 117,666 Distributions to minority interests (53,493) (36,750) (5,040) Sale of minority interest in subsidiaries --- 24,950 --- Dividends (11,582) (8,662) (5,837) - -------------------------------------------------------------------------------- Net Cash (Used In) Provided by Financing Activities (70,149) (168,724) 331,994 - -------------------------------------------------------------------------------- Foreign Exchange Effect on Cash and Short-Term Investments (1,159) 988 (771) - -------------------------------------------------------------------------------- (Decrease) Increase in Cash and Short-Term Investments (37,965) (19,677) 93,282 Cash and Short-Term Investments at Beginning of Year 138,707 158,384 65,102 - -------------------------------------------------------------------------------- Cash and Short-Term Investments at End of Year $ 100,742 $ 138,707 $ 158,384 ================================================================================ Interest Paid $ 58,706 $ 77,800 $ 16,500 ================================================================================ Income Taxes Paid $ 80,340 $ 47,665 $ 22,600 ================================================================================
See accompanying Notes to the Consolidated Financial Statements. CONFIDENTAL 16 Consolidated Statements of Changes in Stockholders' Equity
===================================================================================================== Capital Stock Cumulative ----------------- Paid-In Translation Accumulated (in thousands) Shares Amount Capital Adjustment Deficit Total - ----------------------------------------------------------------------------------------------------- December 31, 1993 69,455 $122,257 $516,128 $ (488) $(394,917) $242,980 Conversion of debentures 731 731 5,176 --- --- 5,907 Exercise of stock options 847 847 3,819 --- --- 4,666 Issuance of Common Shares 9,700 9,700 103,300 --- --- 113,000 Translation adjustment --- --- --- (771) --- (771) Stock Incentive Plan 232 235 1,688 --- --- 1,923 Dividends --- --- --- --- (5,837) (5,837) Net income --- --- --- --- 56,561 56,561 - ----------------------------------------------------------------------------------------------------- December 31, 1994 80,965 133,770 630,111 (1,259) (344,193) 418,429 Exercise of stock options 192 192 1,073 --- --- 1,265 Translation adjustment --- --- --- 988 --- 988 Stock Incentive Plan 16 8 11 --- --- 19 Dividends --- --- --- --- (8,662) (8,662) Net income --- --- --- --- 159,544 159,544 - ----------------------------------------------------------------------------------------------------- December 31, 1995 81,173 133,970 631,195 (271) (193,311) 571,583 Exercise of stock options, net 144 144 515 --- --- 659 Issuance of Common Shares 219 219 2,623 --- --- 2,842 Repurchase of Common Shares (6,827) (6,827) (84,963) --- --- (91,790) Translation adjustment --- --- --- (1,159) --- (1,159) Stock Incentive Plan 301 108 1,480 --- --- 1,588 Dividends --- --- --- --- (11,582) (11,582) Net income --- --- --- --- 133,951 133,951 - ----------------------------------------------------------------------------------------------------- December 31, 1996 75,010 $127,614 $550,850 $(1,430) $ (70,942) $606,092 =====================================================================================================
See accompanying Notes to the Consolidated Financial Statements. CONFIDENTAL 17 Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies Basis of presentation: The Consolidated Financial Statements include the accounts of Terra Industries Inc. and all majority owned subsidiaries (the Corporation). All significant intercompany accounts and transactions have been eliminated. Foreign exchange: Results of operations for the Canadian subsidiary are translated using average currency exchange rates during the period while assets and liabilities are translated using current rates. Resulting translation adjustments are recorded as currency translation adjustments in stockholders' equity. Cash and short-term investments: The Corporation considers short-term investments with an original maturity of three months or less to be cash equivalents which are reflected at their approximate fair value. Inventories: Inventories are stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in, first-out method. Property, plant and equipment: Expenditures for plant and equipment additions, replacements and major improvements are capitalized. Related depreciation is charged to expense on a straight-line basis over estimated useful lives ranging from 15 to 20 years for buildings and 3 to 18 years for plant and equipment. Maintenance and repair costs are expensed as incurred. Excess of costs over net assets of acquired business: The Corporation amortizes costs in excess of fair value of net assets of businesses acquired using the straight-line method over periods ranging from 15 to 18 years. Management periodically determines the recoverability of this asset through an assessment of future operations. Plant turnaround costs: Costs related to the periodic scheduled major maintenance of continuous process production facilities (plant turnarounds) are deferred and charged to product costs on a straight-line basis during the period to the next scheduled turnaround, generally two years. Accounting standards not adopted: In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes accounting and reporting standards for such transfers. The Corporation will adopt SFAS 125 effective January 1, 1997 as required. The impact on the Corporation's financial position and results of operations is not expected to be material. Hedging transactions: Realized gains and losses from hedging activities and premiums paid for option contracts are deferred and recognized in the month to which the hedged transactions relate. Stock-based compensation: The Corporation recognizes compensation costs for stock-based employee compensation plans based on the difference, if any, between the quoted market price of the stock and the amount an employee pays to acquire the stock. CONFIDENTAL 18 Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: Certain reclassifications have been made to prior years' financial statements to conform with current year presentation. Per-share results: Earnings-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. 2. Acquisitions On October 20, 1994, the Corporation acquired Agricultural Mineral and Chemicals Inc. (AMCI) for $506 million in cash. AMCI, through its subsidiaries manufactures nitrogen-based fertilizers and industrial use products and methanol. The subsidiaries controlled by the Corporation as a result of the AMCI acquisition include Terra Nitrogen Corporation (TNC), Beaumont Methanol, Limited Partnership (BMLP) and Terra Nitrogen Company, L.P. (TNCLP). As a result of the acquisition and subsequent open market purchases (see Note 11 - Long-Term Debt), the Corporation and its subsidiaries have approximately a 65% ownership interest in TNCLP, formerly Agricultural Minerals Company, L.P., which operates nitrogen products manufacturing facilities in Verdigris, Oklahoma and Blytheville, Arkansas through an operating partnership, Terra Nitrogen, Limited Partnership (TNLP). Terra Methanol Corporation (TMC) is the general partner of BMLP which operates a methanol production facility in Beaumont, Texas. The acquisition has been accounted for using the purchase method of accounting. To finance the acquisition of AMCI, the Corporation issued 9.7 million Common Shares for aggregate net proceeds of approximately $113 million, entered into credit arrangements to issue $310 million of long-term debt, and refinanced certain bank debt and credit lines of the Corporation, AMCI and AMCI's subsidiaries aggregating $260 million of which $152 million in borrowings were outstanding. As a result of the acquisition of AMCI, the Corporation also assumed AMCI's obligations including its 10.75% Senior Notes due 2003 (see Note 11 - Long-Term Debt). On September 15, 1994, the Corporation acquired an approximate 34% interest in Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a 104-location distributor of crop input and protection products in the mid-Atlantic region. CONFIDENTAL 19 Operating results of the acquired businesses subsequent to the respective dates of each acquisition are included in the Consolidated Statements of Income. The following represents unaudited pro forma summary results of operations as if the acquisition of AMCI had occurred at the beginning of 1994:
(in thousands, except per-share data) Year ended December 31, - -------------------------------------------------------------------------------- 1994 - -------------------------------------------------------------------------------- Revenues $ 2,084,827 Income before extraordinary items and cumulative effect of accounting changes $ 110,370 Net income $ 110,680 Income per share before extraordinary items $ 1.37 Net income per share $ 1.37 ================================================================================
The pro forma operating results were adjusted to include depreciation of the fair value of capital assets acquired based on estimated useful lives, amortization of intangibles, reduction of incentive compensation expense for plans terminated at acquisition, interest expense on the acquisition borrowings, the issuance of common stock and the effect of income taxes. The pro forma information listed above does not purport to be indicative of the results that would have been obtained if the operations were combined during the above period, and is not intended to be a projection of future operating results or trends. 3. Accounting Changes Coincident with the 1994 acquisition of AMCI (see Note 2 - Acquisitions), the Corporation changed its method of accounting for major maintenance turnarounds at manufacturing facilities and recorded a $4.2 million credit, net of income taxes of $2.7 million, as the cumulative effect at January 1, 1994 of the change in accounting principle. Excluding the cumulative effect, this change increased net income for 1994 by approximately $1.0 million, or $0.01 per share. Under the new accounting principle the Corporation defers the cost of turnarounds when incurred and charges the costs to production ratably over the period until the next scheduled turnaround. Previously, estimated costs of turnarounds were charged to product costs over the period preceding each scheduled major maintenance, generally two years. The change was made to charge turnaround costs to production over the period most clearly benefited by the turnaround. In 1994, the Corporation adopted SFAS 112, "Employers' Accounting for Post- Employment Benefits." This change required the Corporation to recognize future liabilities of $0.8 million, net of income taxes of $0.5 million, for benefits to disabled employees. Prior to the adoption of SFAS 112, the Corporation recognized such expenses in the period the benefits were paid. 4. Accounts Receivable On August 20, 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 financial institution to sell an undivided interest in its accounts receivable. Under the agreement, which expires August 20, 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 December 31, 1996, the proceeds of the uncollected balance of accounts receivable sold totaled $132 million. The Corporation pays a monthly discount fee on the outstanding amount of the accounts receivable sold which is included in interest expense in the Consolidated Statements of Income. TFC is a separate legal entity whose creditors have received security interests in its assets. Under a previous agreement which expired during 1996, the Corporation sold an undivided interest in a designated pool of its accounts receivable up to $50 million in proceeds. CONFIDENTAL 20 5. Inventories Inventories consisted of the following at December 31:
(in thousands) 1996 1995 - -------------------------------------------------------------------------------- Raw materials $ 39,782 $ 36,499 Finished goods 383,156 330,773 - -------------------------------------------------------------------------------- Total $ 422,938 $ 367,272 ================================================================================
6. Other Current Assets Other current assets consisted of the following at December 31:
(in thousands) 1996 1995 - -------------------------------------------------------------------------------- Deferred tax asset - current $ 15,180 $ 23,768 Income taxes recoverable - federal 12,641 --- Income taxes recoverable - foreign 10,884 --- Partnership distribution reserve fund 18,480 --- Insurance recoverable --- 29,808 Other current assets 49,823 25,703 - -------------------------------------------------------------------------------- Total $ 107,008 $ 79,279 ================================================================================
7. Property, Plant and Equipment, Net Property, plant and equipment, net consisted of the following at December 31:
(in thousands) 1996 1995 - -------------------------------------------------------------------------------- Land and buildings $ 128,741 $ 105,715 Plant and equipment 886,150 556,206 Finance leases 3,526 4,716 Construction in progress 30,576 171,967 - -------------------------------------------------------------------------------- 1,048,993 838,604 Less accumulated depreciation and amortization (202,640) (144,246) - -------------------------------------------------------------------------------- Total $ 846,353 $ 694,358 ================================================================================
8. Port Neal Casualty On December 13, 1994, the Corporation's Port Neal facility in Iowa was extensively damaged as a result of an explosion. There were four employee fatalities plus injuries to other people and property damage. Insurance was in force to cover the Corporation's property damage, business interruption and third party liability claims. A $7 million pretax charge was recorded in 1994 for expected uninsured costs associated with the incident, including deductibles. As of December 31, 1996, the Corporation had received interim payments of $203.3 million on its claim. The Corporation is in discussions with its insurers as to additional insurance proceeds to which the Corporation believes it should be entitled. 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. 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 CONFIDENTIAL 21 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. As of December 31, 1996, $119.6 million has been recorded as a deferred gain and is included in other liabilities. 9. Debt Due Within One Year Debt due within one year consisted of the following at December 31:
(in thousands) 1996 1995 - -------------------------------------------------------------------------------- Short-term borrowings $116,332 $26,014 Current maturities of long-term debt 2,605 4,411 - -------------------------------------------------------------------------------- Total $118,937 $30,425 ================================================================================ Weighted average short-term borrowings $109,701 $53,483 ================================================================================ Weighted average interest rate 7.6% 8.4% ================================================================================
During 1996, the Corporation had a credit agreement to provide revolving credit facilities of up to $375 million for domestic seasonal working capital needs and other corporate purposes. At December 31, 1996, the revolving credit facilities were reduced to $355 million. The Corporation also has a $25.6 million ($35 million Cdn) revolving credit facility used to provide for working capital needs for its Canadian operations. There was $110.0 million outstanding at December 31, 1996 under the domestic facility and $6.3 million outstanding under the Canadian facility. Interest on borrowings under these lines is charged at current market rates. Under the credit agreement, the Corporation has agreed, among other things, to maintain certain financial covenants including minimum net worth and interest coverage ratios and maximum debt to cash flow ratios, and to adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayment of subordinated indebtedness, changes in lines of business and transactions with affiliates. The Corporation's domestic revolving credit facilities expire December 31, 2000. A commitment fee is charged on the unused portion of the facilities under the credit agreement, currently 1/4 percent adjustable based on the Corporation's most recent quarter debt to cash flow ratio. The credit agreement is secured by the stock of certain principal subsidiaries of the Corporation as well as the personal property of the former AMCI subsidiaries. Under the Canadian facility, the Corporation has agreed, among other things, to maintain a certain level of net worth and restrict payments to the Corporation from operating subsidiaries. The Canadian facility expires May 25, 1997 and is renewable every 240 days for a 360-day term. A commitment fee of 1/8 percent is paid on the facility. 10. Accrued and Other Liabilities Accrued and other liabilities consisted of the following at December 31:
(in thousands) 1996 1995 - -------------------------------------------------------------------------------- Customer deposits $102,347 $101,851 Payroll and benefit costs 26,382 33,242 Income taxes - federal --- 12,761 Income taxes - state 5,096 13,448 Other 74,102 60,996 - -------------------------------------------------------------------------------- Total $207,927 $222,298 ================================================================================
CONFIDENTIAL 22 11. Long-Term Debt Long-term debt consisted of the following at December 31:
(in thousands) 1996 1995 - -------------------------------------------------------------------------------- Senior Notes, 10.5%, due 2005 $200,000 $200,000 Senior Notes, 10.75%, due 2003 158,755 158,755 Senior Notes, 8.48%, due 2005 30,000 30,000 Industrial Development Revenue Bonds bearing interest at an average 6.81% with increasing payments from 1997 to 2011 8,860 9,045 Notes, 8.75%, due 1997 to 1998 2,000 4,500 Other 7,697 9,273 - -------------------------------------------------------------------------------- 407,312 411,573 Less current maturities (2,605) (4,411) - -------------------------------------------------------------------------------- Total $404,707 $407,162 ================================================================================
Scheduled principal payments for each of the five years 1997 through 2001 are $2.6 million, $2.6 million, $3.5 million, $8.2 million and $5.4 million, respectively. In 1995, the Corporation 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 Corporation, 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 Corporation, in whole or part, at any time on or after September 30, 1998, initially at 105.375% of their principal amount, plus accrued interest, declining to 102.688% on or after September 30, 1999, and declining to 100% on or after September 30, 2000. The 10.75% Senior Notes Indenture contains restrictions similar to those in the 10.5% Senior Notes Indenture. The $30 million unsecured 8.48% Senior Notes require annual principal payments commencing November 1, 1999 through May 1, 2005. The notes include covenants similar to the revolving credit agreement described in Note 9 - Debt Due Within One Year and a requirement for rental and interest obligations coverage. The Corporation has executed interest rate swap agreements to convert one-half of the 8.48% unsecured Senior Notes to LIBOR-based floating rate instruments. The interest rate agreements became effective on April 15, 1993 and terminate on April 15, 2003. The Industrial Development Revenue Bonds due in 2011 are secured by a letter of credit guaranteed by the Corporation and, along with other long-term debt due in 2003, by the Corporation's headquarters building located in Sioux City, Iowa. CONFIDENTIAL 23 12. Commitments and Contingencies The Corporation and its subsidiaries are committed to various non-cancelable operating leases for agricultural equipment, and office, production, and storage facilities expiring on various dates through 2010. Total minimum rental payments are as follows:
(in thousands) - ------------------------------------------------------------------------------- 1997 $ 44,486 1998 28,737 1999 21,110 2000 9,292 2001 and thereafter 7,942 - ------------------------------------------------------------------------------- Total $111,567 ===============================================================================
Total rental expense under all leases, including short-term cancelable operating leases, was approximately $54.1 million, $46.8 million and $37.3 million for the years ended December 31, 1996, 1995 and 1994, respectively. In April 1993, the Corporation entered into a lease financing agreement in connection with the purchase of an ammonia manufacturing plant and related upgrading facilities located near Sarnia, Ontario. The agreement included an option to purchase the nitrogen plant which the Corporation exercised during 1996. The Corporation 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 Corporation 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% or more of any company liable for such benefits as of certain specified dates becomes liable for such benefits if the company directly liable is unable to pay them. As a result, if the purchaser becomes unable to pay its retiree medical obligations assumed pursuant to the sale, the Corporation may have to pay such amount. The Corporation has estimated the present value of contingent liabilities at approximately $9.8 million at December 31, 1996. The Corporation is involved in various legal actions and claims, including environmental matters, arising from the normal course of business. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on either the results of operations, financial position or net cash flows of the Corporation. 13. Derivative Financial Instruments The Corporation manages four categories of risk using derivative financial instruments: (a) foreign currency fluctuations (b) changes in natural gas supply prices (c) interest rate fluctuations and (d) the effect of fluctuations in methanol prices relative to natural gas prices. Derivative financial instruments have credit risk and market risk. To manage credit risk, the Corporation only enters into derivative transactions with counter-parties that are currently rated AA or better or equivalent as recognized by a national rating agency. The Corporation will generally continue in a derivative transaction if the counter-party's credit rating is downgraded to A. Appropriate steps will be taken to minimize risks if the counter-party's credit rating is downgraded below A. The Corporation will not enter into transactions with counter-parties if the additional transaction will result in credit exposure exceeding $20 million. For purposes of this policy, "credit exposure" means the market value of derivatives transactions with that counter- party. Additionally, the credit rating of counter-parties may be modified through guarantees, letters of credit or other credit enhancement vehicles. Market risk related to derivative financial instruments should be substantially offset by changes in the valuation of the underlying items being hedged. CONFIDENTAL 24 Foreign Currency Fluctuations - The Corporation enters into foreign exchange forward and option contracts to manage risk associated with foreign currency exchange rate fluctuations. The contracts are designated as hedges of fixed obligations and hedges of net foreign currency positions. Contract maturities are consistent with the settlement dates of items being hedged. Foreign currency hedges require cash settlement at termination. Gains and losses on these contracts are deferred and included as a component of the related transaction. A significant portion of the Corporation's Canadian production is sold in the U.S., or is based on U.S. prices, but many of the production costs are in Canadian dollars. As a result, the Corporation's earnings will decline when the Canadian dollar increases in value compared with the U.S. dollar. Consequently, the Corporation buys Canadian dollars forward or uses derivatives to fix future exchange rates over a twelve-month period to cover a portion of its estimated net Canadian dollar requirements which include firm commitments to purchase natural gas. As of December 31, 1996, the existing forward contracts represented approximately 20% of anticipated net 1997 Canadian dollar requirements of approximately $25 million (Cdn). Natural Gas Prices - Natural gas supplies to meet production requirements at the Corporation's production facilities are purchased at market prices. Natural gas market prices, as with other commodities, are volatile and the Corporation effectively fixes prices for a portion of its natural gas production requirements and inventory through the use of futures contracts, swaps and options. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. The contracts' physical prices are frequently based on the Henry Hub Louisiana price. Natural gas supplies for the Corporation's six production facilities are purchased from various suppliers for each plant location which creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the change in the price of physical gas. The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period. A swap is a contract between the Corporation and a third party to exchange cash based on a designated price. Option contracts give the holder the right to either own or sell a futures or swap contract. The futures contracts require maintenance of cash balances generally 10% to 20% of the contract value and option contracts require initial premium payments ranging from 2% to 5% of contract value. The following summarizes open natural gas contracts at December 31, 1996 and 1995:
(in thousands) 1996 1995 - --------------------------------------------------------------------- Contract Unrealized Contract Unrealized MMBtu Gain (Loss) MMBtu Gain - --------------------------------------------------------------------- Futures 2,530 $ (1,024) 6,840 $ 592 Swaps 177,315 41,958 167,040 13,475 Options 6,260 1,102 6,470 797 - --------------------------------------------------------------------- 186,105 $ 42,036 180,350 $ 14,864 =====================================================================
Annual production requirements are approximately 134,000 MMBtu. Contracts were in place at December 31, 1996 to cover 65% of 1997 natural gas requirements, 59% for 1998 and 23% for 1999. Gains and losses on settlement of these contracts and premium payments on option contracts are credited or charged to cost of sales in the month in which the hedged transaction occurs. The risk and reward of outstanding natural gas positions are directly related to increases or decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices. Realized gains on closed contracts and premium payments on option contracts of $18.1 million and $4.7 million, respectively, relating to future periods have been deferred and are included in other current assets as of December 31, 1996. During 1996, natural gas hedging activities reduced the Corporation's natural gas costs by approximately $74.3 million compared with spot prices. During 1995, natural gas hedging activities produced cost increases of approximately $34.5 million compared with spot prices. During 1994, natural gas hedging increased cost by approximately $15.5 million compared with spot prices. CONFIDENTIAL 25 The Corporation has also entered into basis swaps. Such contracts require payments to or from the Corporation for the amount, if any, that monthly published gas prices from the source specified in the contract differ from prices of NYMEX natural gas futures during a specified period. As of December 31, 1996 and 1995, MMBtu's under such contracts totaled 16.0 million and 14.7 million, respectively. Interest Rate Fluctuations - The Corporation has limited the effect of interest rate fluctuations for a portion of its floating rate obligations through the use of interest rate collar agreements which are designated as hedges. The agreements require payments to the Corporation for the amount, if any, that interest costs, based on LIBOR, exceed 8.5% to 9.0% and require payments by the Corporation for the amount that interest costs based on LIBOR fall below 5.65%. The interest rate collar agreements, with a notional amount of $135 million (which declines over the remaining two-year period), cover 54% of the variable interest rate obligations at December 31, 1996. The unamortized cost of the collar agreements is carried in other assets in the Consolidated Statement of Financial Position. The Corporation paid $100,000 during the year and $39,000 was due at December 31, 1996 related to the agreements. The Corporation has also entered into interest rate swap agreements to convert 50% of its $30 million fixed-rate, long-term borrowings to variable rates through April 15, 2003. The interest rate swap agreements are designated as hedges. For 1996, the net interest rate effect of the swap arrangements totaled 1.7% effectively reducing the interest rate on its $30 million of 8.48% Senior Notes to 7.61%. For 1995, the net interest rate effect of the swap arrangements totaled 1.8% effectively reducing the interest rate to 7.58%. At December 31, 1996, the notional amount of the swap agreement was approximately $15 million. Methanol Prices - The Corporation entered into a methanol hedging agreement (the Methanol Hedging Agreement) effective October 1994. Pursuant to the agreement, the Corporation received $4 million in cash and 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 the periods October 20, 1994 to December 31, 1995, calendar year 1996, and calendar year 1997. The amount due, if any, is dependent upon average methanol and natural gas prices during each of the periods. Payments are due five days after the end of each period. The quantities subject to the agreement for each of these periods are 155.5 million, 140 million and 130 million gallons, respectively. The Corporation's methanol production facilities have a production capacity of 320 million gallons of methanol per year. The $4 million received pursuant to the Methanol Hedging Agreement is being recognized as income over the term of the agreement. No amounts have been paid by the Corporation or are presently accrued under the terms of the agreement. The following table presents the carrying amounts and estimated fair values of the Corporation's derivative financial instruments at December 31, 1996 and 1995. SFAS 107, "Disclosures about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1995 - --------------------------------------------------------------------------- Carrying Fair Carrying Fair (in millions) Amount Value Amount Value - --------------------------------------------------------------------------- Foreign currency $ -- $ -- $ -- $ 0.7 Natural gas 9.6 51.6 6.2 21.1 Interest rate 0.3 0.3 0.7 (1.9) Methanol (1.3) -- (2.5) -- ===========================================================================
The following methods and assumptions were used to estimate the fair value of each class of derivative financial instrument: Foreign currency contracts: Estimated based on quotations received from a quotation service and computations prepared by the Corporation. CONFIDENTAL 26 Natural gas futures, swaps and options: Estimated based on quoted market prices from brokers, and computations prepared by the Corporation. Interest rate collar agreements and interest rate swap agreements: Estimated based on quotes from the market makers of these instruments. Methanol Hedging Agreement: Estimated based on historical and forecasted market prices for both methanol and natural gas prices and computations prepared by the Corporation. 14. Financial Instruments and Concentrations of Credit Risk The following table presents the carrying amounts and estimated fair values of the Corporation's financial instruments at December 31, 1996 and 1995. SFAS 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1995 - --------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair (in millions) Amount Value Amount Value - --------------------------------------------------------------------------------------------- Financial Assets Cash and short-term investments $ 100.7 $ 100.7 $ 138.7 $ 138.7 Receivables 81.6 81.6 178.7 178.7 Equity and other investments 16.6 18.6 15.4 17.7 Other assets 9.2 9.8 9.0 9.6 Financial Liabilities Short-term borrowings (116.3) (116.3) (26.0) (26.0) Long-term debt (407.3) (437.0) (411.6) (444.8) =============================================================================================
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and receivables: The carrying amounts approximate fair value because of the short maturity of those instruments. Equity and other investments: Investments in untraded companies are valued on the basis of management's estimates and, when available, comparisons with similar companies whose shares are publicly traded. Other assets: The amounts reported relate to notes receivable obtained from sale of previous operating assets. The fair value is estimated based on current interest rates and repayment terms of the individual notes. Short-term borrowings: The carrying amounts approximate fair value because of the short maturity of these issues. Long-term debt: The fair value of the Corporation's long-term debt is estimated based on the quoted market price of these or similar issues or by discounting expected cash flows at the rates currently offered to the Corporation for debt of the same remaining maturities. Concentration of Credit Risk - The Corporation is subject to credit risk through trade receivables and short-term investments. Although a substantial portion of its debtors' ability to pay is dependent upon the agribusiness economic sector, credit risk with respect to trade receivables is minimized due to a large customer base and its geographic dispersion. Short-term cash investments are placed in short duration corporate and government debt securities funds with well capitalized, high quality financial institutions. By policy, the Corporation limits the amount of credit exposure in any one type of investment instrument. CONFIDENTAL 27 Financial Instruments - At December 31, 1996, the Corporation had letters of credit outstanding totaling $21.5 million, guaranteeing various insurance and financing activities. Short-term investments of $5.4 million and $8.9 million at December 31, 1996 and 1995, respectively, are restricted to collateralize certain letters of credit. 15. Stockholders' Equity The Corporation allocates $1.00 per share upon the issuance of Common Shares to the Common Share capital account. At December 31, 1996, 1.9 million Common Shares were reserved for issuance upon award of restricted shares and exercise of employee stock options. The Corporation has authorized 16,500,000 Trust Shares for issuance. There was no activity related to the Trust Shares from December 31, 1993 to December 31, 1996 and no Trust Shares were outstanding at December 31, 1996. In September 1995, the Corporation transferred its Port Neal facility (including improvements then in progress) and $1.3 million in cash to Port Neal Holdings Corp. (PNH) and PNH issued $25 million of non-convertible preferred stock to unrelated third parties. As a result, the Corporation owns 100% of the common stock of PNH (representing 75% of the voting rights of PNH). PNH was structured to finance and complete the construction of the Port Neal facility through its wholly owned subsidiary, Port Neal Corporation (PNC). The preferred stock represents 25% of the voting rights of PNH and accrues dividends at a floating rate commensurate with market interest rates. The Corporation accounts for the preferred stock as a minority interest. Various agreements between the Corporation and certain subsidiaries were entered into with PNH and/or PNC including intercompany debt obligations and lease arrangements. 16. Stock-Based Compensation The Corporation accounts for its stock-based compensation under the provisions of Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," which utilizes the intrinsic value method. Compensation cost related to stock-based compensation was $2.8 million and $1.0 million for the years ended December 31, 1996 and 1995, respectively. The Corporation's 1992 Stock Incentive Plan authorized granting key employees options to purchase Common Shares at not less than fair market value on the date of grant and also authorizes the award of performance units and restricted shares. Awards to a maximum of 2.5 million Common Shares may be granted under the 1992 Plan. There were no performance units outstanding at December 31, 1996. Options generally may not be exercised prior to one year or more than ten years from the date of grant. Stock options and restricted shares vest over specified periods, or in some cases upon the attainment, prior to a termination date, of pre-established market price objectives for the Corporation's Common Shares. The restricted shares are entitled to normal voting rights and earn dividends as declared during the performance periods. Compensation expenses are accrued on a ratable basis through the service periods. At December 31, 1996, 479,000 Common Shares were available for grant under the 1992 Plan. CONFIDENTIAL 28 A summary of the Corporation's stock-based compensation activity related to stock options for the years ended December 31, is as follows:
(in thousands, except $ amounts) - ---------------------------------------------------------------------------------------------------- 1996 1995 1994 ----------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price - ----------------------------------------------------------------------------------------------------- Outstanding - beginning of year 1,350 $ 6.92 1,533 $ 6.79 2,145 $ 5.81 Granted 535 14.62 9 13.00 289 10.50 Expired/terminated 8 10.50 --- --- 54 8.10 Exercised 158 5.36 192 6.16 847 5.50 - ----------------------------------------------------------------------------------------------------- Outstanding - end of year 1,719 $ 9.44 1,350 $ 6.92 1,533 $ 6.79 =====================================================================================================
The following table summarizes information about stock options outstanding and exercisable at December 31, 1996:
(in thousands, except years and $ amounts) - ------------------------------------------------------------------------------------------------------ Options Outstanding Options Exercisable ------------------------------------------------ ----------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------ $ 3.00 $ 5.99 538 5.3 years $ 4.96 538 $ 4.96 6.00 8.99 267 2.5 6.81 267 6.81 9.00 11.99 370 4.8 10.29 230 10.16 12.00 14.99 544 9.9 14.60 --- --- - ------------------------------------------------------------------------------------------------------ Total 1,719 6.2 $ 9.44 1,035 $ 6.59 ======================================================================================================
There were 1,052,000 and 1,244,000 options exercisable at December 31, 1995 and 1994, respectively. The weighted average fair value of options granted was $4.34 per option for 1996 and $5.08 per option for 1995. The fair value of options granted under the 1992 Plan was estimated at the date of grant using a binomial option pricing model with the following assumptions:
1996 1995 - -------------------------------------------------------------------------------- Risk-free interest rate 5.93% 6.45% Dividend yield 1.00% 1.00% Expected volatility 27.0% 27.0% Expected life (years) 4.5 7.0 ================================================================================
There were 376,000 restricted shares granted during 1996 with a weighted average fair value of $14.40 per share. There were 54,000 restricted shares granted during 1995 with a weighted average fair value of $12.80 per share. The effect on 1996 and 1995 net income and earnings per share of accounting for stock-based compensation using the fair value method required by SFAS 123, "Accounting for Stock-Based Compensation" is immaterial. 17. Retirement Plans The Corporation and its subsidiaries maintain non-contributory pension plans that cover substantially all salaried and hourly employees. Benefits are based on a final pay formula for the salaried plans and a flat benefit formula for the hourly plans. The plans' assets consist principally of equity securities and corporate and government debt CONFIDENTAL 29 securities. The Corporation and its subsidiaries also have certain non- qualified pension plans covering executives, which are unfunded. The Corporation accrues pension costs based upon annual independent actuarial valuations for each plan and funds these costs in accordance with statutory requirements. The components of net periodic pension expense were as follows:
(in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Current service cost $ 5,280 $ 4,120 $ 3,248 Interest on projected benefit obligation 6,098 4,746 3,971 Actual loss (return) on assets (6,591) (12,763) 361 Net amortization and other 1,203 8,080 (4,764) - -------------------------------------------------------------------------------- Pension expense $ 5,990 $ 4,183 $ 2,816 ================================================================================
Net periodic pension expense for 1994 includes components of expense for the former AMCI plan for the period from acquisition through December 31, 1994. The following table reconciles the plans' funded status to amounts included in the Consolidated Statements of Financial Position at December 31:
(in thousands) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Plans with Plans with Plans with accumulated Plans with accumulated assets in excess benefits in assets in excess benefits in of accumulated excess of of accumulated excess of benefits plan assets benefits plan assets - ------------------------------------------------------------------------------------------------------------------------------------ Actuarial present value of: Vested benefit obligations $(57,455) $ (3,206) $(46,543) $ (2,496) =================================================================================================================================== Accumulated benefit obligations $(62,092) $ (3,354) $(50,778) $ (2,718) =================================================================================================================================== Projected benefit obligations $(84,997) $ (4,169) $(70,658) $ (3,160) Plan assets at fair value 71,596 --- 60,460 -- - ------------------------------------------------------------------------------------------------------------------------------------ Funded status (13,401) (4,169) (10,198) (3,160) Unrecognized net experience loss (gain) 5,570 915 (2,737) 526 Unrecognized prior service cost 155 276 205 311 Unrecognized net transition (asset) obligation (2,371) 466 1,744 372 Additional minimum liability --- (753) --- (767) - ------------------------------------------------------------------------------------------------------------------------------------ Pension liability $(10,047) $ (3,265) $(10,986) $ (2,718) ====================================================================================================================================
The assumptions used to determine the actuarial present value of benefit obligations and pension expense during each of the years in the three-year period ended December 31, 1996 were as follows:
1996 1995 1994 - -------------------------------------------------------------------------------- Weighted average discount rate 7.5% 7.25% 8.5% Long-term per annum compensation increase 5.0% 5.0% 5.0% Long-term return on plan assets 9.5% 9.5% 9.5% ================================================================================
The Corporation also sponsors a qualifying savings plan covering most full-time employees. Contributions made by participating employees are matched based on a specified percentage of employee contributions up to 6% of the employees' pay base. The cost of the Corporation's matching contribution to the savings plan totaled $4.0 million in 1996, $3.7 million in 1995 and $1.9 million in 1994. CONFIDENTIAL 30 18. Post-Retirement Benefits The Corporation also provides health care benefits for eligible retired employees of one of its wholly owned subsidiaries. Participants generally become eligible after reaching retirement age with ten years of service. The plan pays a stated percentage of most medical expenses reduced for any deductible and payments made by government programs. The plan is unfunded. Employees hired prior to January 1, 1990 are eligible for participation in the plan. Participant contributions and co-payments are subject to escalation. The following table indicates the components of the post-retirement medical benefits obligation included in the Corporation's Consolidated Statements of Financial Position at December 31:
(in thousands) 1996 1995 - ------------------------------------------------------------------------------------------------------------- Accumulated post-retirement medical benefit obligation: Retirees $ (2,554) $ (2,713) Fully eligible active plan participants (2,099) (2,140) Other active participants (4,583) (6,617) - ------------------------------------------------------------------------------------------------------------- Funded status (9,236) (11,470) Unrecognized net gain (3,367) (141) Unrecognized prior service benefit (1,505) (1,784) - ------------------------------------------------------------------------------------------------------------- Accrued post-retirement benefit cost $(14,108) $(13,395) =============================================================================================================
Net periodic post-retirement medical benefit cost consisted of the following components:
(in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------- Service cost of benefits earned $ 424 $ 521 $ 534 Interest cost on accumulated post-retirement medical benefit obligation 638 730 624 Net amortization and other (260) (193) (127) - ------------------------------------------------------------------------------------------------------------- Net periodic post-retirement medical benefit cost $ 802 $1,058 $ 1,031 =============================================================================================================
The Corporation limits its future obligation for post-retirement medical benefits by capping at 5% the annual rate of increase in the cost of claims it assumes under the plan. The weighted average discount rate used in determining the accumulated post-retirement medical benefit obligation is 7.5% in 1996, 7.25% in 1995, and 8.5% in 1994. 19. Other Income, Net Other income consisted of the following:
(in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------- Fertilizer service revenue $ 28,529 $ 25,132 $ 17,294 Service charge income 10,318 8,178 6,008 Other, including business interruption 13,130 42,989 9,146 - ------------------------------------------------------------------------------------------------------------- Total $ 51,977 $ 76,299 $ 32,448 =============================================================================================================
CONFIDENTAL 31 20. Income Taxes Components of the income tax provision (benefit) applicable to operations are as follows:
(in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- Current: Federal $ 28,853 $ 45,938 $ 9,925 Foreign 12,939 12,285 2,416 State 6,149 9,416 4,291 - ----------------------------------------------------------------------------------------------------- 47,941 67,639 16,632 - ----------------------------------------------------------------------------------------------------- Deferred: Federal 49,994 42,673 15,197 Foreign (34,876) 3,568 2,533 State 841 1,620 (662) - ----------------------------------------------------------------------------------------------------- 15,959 47,861 17,068 - ----------------------------------------------------------------------------------------------------- Total income tax provision $ 63,900 $115,500 $ 33,700 ===================================================================================================== The income tax provision differs from the federal statutory provision for the following reasons: (in thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- Income from operations before taxes: U.S. $138,318 $237,892 $ 75,842 Canada 59,533 41,490 14,103 - ----------------------------------------------------------------------------------------------------- $197,851 $279,382 $ 89,945 ===================================================================================================== Statutory income tax: U.S. $ 48,411 $ 83,262 $ 26,545 Canada 22,801 15,891 5,359 - ----------------------------------------------------------------------------------------------------- 71,212 99,153 31,904 Purchased Canadian tax benefit (18,000) --- --- Non-deductible expenses, primarily goodwill 6,312 6,020 650 State and local income taxes 6,069 8,345 2,545 Benefit of loss carryforwards (1,001) (1,183) (613) Other (692) 3,165 (786) - ----------------------------------------------------------------------------------------------------- Income tax provision $ 63,900 $115,500 $ 33,700 =====================================================================================================
Current deferred tax assets totaled $15.2 million and $23.8 million at December 31, 1996 and 1995, respectively, while deferred tax liabilities totaled $134.5 million and $111.9 million, respectively. Deferred tax assets, non-current totaled $15.3 million and none at December 31, 1996 and 1995, respectively. The tax effect of net CONFIDENTIAL 32 operating loss (NOL) and tax credit carryforwards and significant temporary differences between reported and taxable earnings that gave rise to net deferred tax (liabilities) assets were as follows:
(in thousands) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ NOL, capital loss and tax credit carryforwards $ 6,306 $ 21,807 Discontinued business costs 7,461 7,832 Unfunded employee benefits 16,605 17,376 Accrued liabilities (12,517) (66) Inventory valuation 3,799 3,157 Investments in partnership (28,569) (29,536) Depreciation (88,369) (103,247) Valuation allowance (9,142) (4,022) Other 394 (1,403) - ------------------------------------------------------------------------------------------------------------------------------------ $(104,032) $ (88,102) ====================================================================================================================================
Remaining unutilized NOL carryforwards were approximately $0.7 million and $12.5 million at December 31, 1996 and 1995, respectively. NOL carryforwards that have not been utilized expire in 2005. Alternative minimum tax (AMT) credits were $3.0 million and $13.4 million at December 31, 1996 and 1995, respectively. AMT credits have an indefinite life. The Corporation's capital loss carryforwards totaled $8.6 and $11.5 million at December 31, 1996 and 1995, respectively. Capital loss carryforwards that are not utilized will expire in 1997. A valuation allowance is provided since the realization of tax benefits of capital loss carryforwards is not assured. During 1996, the Corporation, after receiving a favorable ruling from Revenue Canada, refreshed its tax basis in plant and equipment at its Canadian subsidiary by entering into a transaction with a Canadian subsidiary of Minorco, resulting in a deferred tax asset for the Corporation. Minorco, through its beneficial ownership of Common Shares, owned approximately 57% of the equity of the Corporation at December 31, 1996. The ultimate realization of the deferred tax asset will require future taxable income in Canada. The Corporation has assessed its past earnings history and trends and has established a valuation allowance of $6.1 million related to the transaction. The Corporation will continue to review this valuation allowance and make adjustments as appropriate. Components of income tax provision (benefit) included in net income other than from continuing operations are as follows:
(in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Current: Federal $ --- $ (2,392) $ (1,647) State --- (107) (44) - ------------------------------------------------------------------------------------------------------------------------------------ --- (2,499) (1,691) - ------------------------------------------------------------------------------------------------------------------------------------ Deferred: Federal --- --- 1,816 State --- --- 331 - ------------------------------------------------------------------------------------------------------------------------------------ --- --- 2,147 - ------------------------------------------------------------------------------------------------------------------------------------ $ --- $ (2,499) $ 456 ====================================================================================================================================
Current tax benefits in 1995 and 1994 result from losses on early retirement or refinancing of long-term debt. Deferred income taxes in 1994 were provided for the net cumulative effect of changes in accounting principles. 21. Industry Segment Data The Corporation operates in three principal industry segments - Distribution, Nitrogen Products and Methanol. The Distribution segment sells crop inputs - fertilizer, crop protection products, seed and services - through its CONFIDENTIAL 33 farm service center network. These inputs include both Terra's own brands and vendor products from virtually all other agricultural chemical and seed suppliers. Terra has the largest company-operated farm service center network in North America. The Nitrogen Products business produces and distributes ammonia, urea, nitrogen solutions, and urea feed which are used by farmers to provide crops with nitrogen, an essential nutrient for plant growth and as a feed additive for livestock. The Methanol business manufactures and distributes methanol, which is principally used as a raw material in the production of a variety of chemical derivatives and in the production of methyl tertiary butyl ether (MTBE), an oxygenate and an octane enhancer for gasoline. Inter-segment sales have been recorded at amounts approximating market. Segment revenues and costs for Distribution, Nitrogen Products and Methanol include inter-segment transactions. Included in Other are eliminations of inter-segment sales and unallocated portions of the business. The following summarizes additional information about the Corporation's industry segments:
Nitrogen (in thousands) Distribution Products Methanol Other Total - -------------------------------------------------------------------------------------------------------------------------------- 1996 Sales $ 1,573,827 $ 654,486 $ 132,533 $ (44,360) $ 2,316,486 Operating earnings 25,268 255,263 18,520 (3,870) 295,181 Identifiable assets 639,062 1,048,241 194,635 87,427 1,969,365 Depreciation and amortization 17,101 47,690 12,866 5,553 83,210 Capital expenditures 27,310 156,833 1,327 179 185,649 ================================================================================================================================ 1995 Sales $ 1,495,166 $ 635,126 $ 194,565 $ (32,684) $ 2,292,173 Operating earnings 41,207 263,787 77,138 (4,430) 377,702 Identifiable assets 564,243 984,363 225,034 94,218 1,867,858 Depreciation and amortization 12,245 32,518 16,636 4,676 66,075 Capital expenditures 14,347 150,687 10,329 1,766 177,129 ================================================================================================================================ 1994 Sales $ 1,318,416 $ 296,557 $ 70,274 $ (19,300) $ 1,665,947 Operating earnings 33,784 48,369 42,679 (9,537) 115,295 Identifiable assets 502,921 713,209 347,147 124,693 1,687,970 Depreciation and amortization 9,497 9,575 4,263 3,883 27,218 Capital expenditures 16,374 6,086 8,732 21 31,213 ================================================================================================================================
22. Agreements of Limited Partnership In accordance with the Agreement of Limited Partnership of TNCLP, quarterly distributions to Unitholders and TNC (the General Partner) are made in an amount equal to 100% of its Available Cash, as defined, unless Available Cash is required to fund a reserve amount. TNCLP must fund and maintain a reserve of $18.5 million to support Minimum Quarterly Distributions, as defined, on the Senior Preference Units (the Reserve Amount). Such Reserve Amount was fully funded and included in other current assets at December 31, 1996. During the period which commenced December 4, 1991, and ended on December 31, 1996 (the Preference Period), Senior Preference Units (SPUs) and Common Units participated equally in distributions after each class of units received its Minimum Quarterly Distribution, subject to the General Partner's right to receive cash distributions. The General Partner receives a combined minimum 2% of total cash distributions, and as an incentive, the General Partner's participation increases if cash distributions exceed specified target levels. Pursuant to the provisions of the TNCLP Agreement of Limited Partnership, the Preference Period for TNCLP ended on December 31, 1996. Until March 31, 1997, the holders of all SPUs have the right to elect to convert their SPUs into Common Units on a one-for-one basis, effective as of December 31, 1996. Any SPUs which do CONFIDENTIAL 34 not convert will continue to be entitled to the Minimum Quarterly Distribution but will not participate with the Common Units in any additional distributions. After March 31, 1997, any or all of the non-converted SPUs may be redeemed at the option of the Partnership, exercised at the sole discretion of the General Partner, upon at least 30 but not more than 60 days' notice at a price equal to Unrecovered Capital plus accrued arrearages, if any. Unrecovered Capital, as further defined in the Partnership Agreement, means an amount equal to the excess of (i) the initial public offering price per SPU ($21.50) over (ii) the sum of all distributions made in respect of an SPU out of Available Cash constituting Cash from Interim Capital Transactions. If after giving effect to an anticipated redemption, fewer than 1.0 million SPUs would be held by non- affiliates of the General Partner, the Partnership must redeem all such SPUs if it redeems any SPUs. If at any time less than 25% of the issued and outstanding units of any class (Senior Preference or Common) are held by non-affiliates of the General Partner, the Partnership may call, or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated person. TNCLP shall give at least 30 but not more than 60 days notice of its decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of any previous twenty trading days closing prices as of the date five days before the purchase is announced or (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced. After March 31, 1997, the Reserve Amount will be maintained only to support distributions on any remaining non-converted SPUs. The Reserve Amount will be maintained in the amount equal to four quarters of Minimum Quarterly Distributions on all non-converted SPUs. It is anticipated that any reduction in the Reserve Amount from its current level of $18.5 million will be available for cash distributions to partners of TNCLP in May 1997. CONFIDENTIAL 35 RESPONSIBILITY FOR FINANCIAL STATEMENTS The accompanying Consolidated Financial Statements of Terra Industries Inc. and its subsidiaries have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances. The integrity and objectivity of data in these financial statements and supplemental data, including estimates and judgments related to matters not concluded by year end, are the responsibility of management. The Corporation has a system of internal accounting controls that provides management with reasonable assurance that transactions are recorded and executed in accordance with its authorizations, that assets are properly safeguarded and accounted for, and that financial records are maintained to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, and organizational structure that segregates duties, and a comprehensive program of periodic audits by the internal auditors. The Corporation also has instituted policies and guidelines that require employees to maintain the highest level of ethical standards. The Audit Committee of the Board of Directors is responsible for the review and oversight of the financial statements and reporting practices used, as well as the internal audit function. The Audit Committee meets periodically with management, internal auditors and the independent accountants. The independent accountants and internal auditors have access to the Audit Committee and, without management present, have the opportunity to discuss the adequacy of internal accounting controls and to review the quality of financial reporting. The Consolidated Financial Statements contained in this Annual Report have been audited by our independent accountants. Their audits included a review of internal accounting controls to establish a basis for reliance thereon in determining the nature, extent and timing of audit tests applied in their examinations of the Consolidated Financial Statements. Burton M. Joyce Francis G. Meyer Robert E. Thompson President and Chief Financial Officer Chief Accounting Officer Chief Executive Officer CONFIDENTIAL 36 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Terra Industries Inc. We have audited the accompanying consolidated statements of financial position of Terra Industries Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Terra Industries Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Corporation changed its method of accounting for major maintenance turnarounds and post-employment benefits effective January 1, 1994. DELOITTE & TOUCHE LLP Omaha, Nebraska February 3, 1997 CONFIDENTIAL 37
Quarterly Production Data (unaudited) - ---------------------------------------------------------------------------- Quarter Quarter Quarter Quarter Year Ended Ended Ended Ended Ended March 31 June 30 Sept. 30 Dec. 31 Dec. 31 - ---------------------------------------------------------------------------- 1996 Net Production (tons): Anhydrous ammonia 333,934 278,868 308,404 282,777 1,203,983 Nitrogen solutions 738,659 745,663 750,754 885,472 3,120,548 Urea 142,798 154,494 154,139 190,047 641,478 Methanol (million gallons) 84.3 68.0 78.5 80.9 311.7 1995 Net Production (tons): Anhydrous ammonia 262,210 274,377 247,117 257,026 1,040,730 Nitrogen solutions 662,508 659,044 596,833 696,272 2,614,657 Urea 154,140 140,554 154,745 110,594 560,033 Methanol (million gallons) 75.1 58.7 81.4 83.7 298.9 ============================================================================ Quarterly Financial and Stock Market Data (unaudited) - ---------------------------------------------------------------------------- (in thousands, except per-share data and stock prices) March 31, June 30, Sept. 30, Dec. 31, - ---------------------------------------------------------------------------- 1996 Total revenues $394,741 $1,085,678 $471,538 $364,529 Gross profit 117,224 235,898 128,433 112,481 Net income 18,400 71,450 23,902 20,199 Per Share: Net income $ 0.23 $ 0.90 $ 0.32 $ 0.27 Dividends 0.03 0.04 0.04 0.04 Common Share Price: High $ 14.25 $ 14.25 $ 15.00 $ 15.00 Low 11.00 12.38 12.00 13.63 ============================================================================ 1995 Total revenues $443,340 $1,003,669 $492,265 $352,899 Gross profit 139,059 245,841 135,122 115,081 Income before extraordinary items 32,953 85,065 29,235 16,629 Net income 32,953 85,065 24,897 16,629 Per Share: Income before extraordinary items $ 0.41 $ 1.05 $ 0.36 $ 0.20 Net income 0.41 1.05 0.31 0.20 Dividends 0.02 0.02 0.03 0.03 Common Share Price: High $ 13.38 $ 12.38 $ 14.88 $ 14.25 Low 9.75 9.75 12.00 11.75 ============================================================================
CONFIDENTIAL 38
Revenues - -------------------------------------------------------------------------------- (in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Manufactured nitrogen products $ 654,486 $ 635,126 $ 296,557 Methanol 132,533 194,565 70,274 Resale fertilizer 386,774 360,725 307,400 Crop protection products 975,000 956,727 859,151 Seed 90,175 78,588 71,355 Other 77,518 66,442 61,210 - -------------------------------------------------------------------------------- Total $2,316,486 $2,292,173 $1,665,947 ================================================================================
Volumes & Prices (unaudited) - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Sales Realized Sales Realized (quantities in thousands) Volumes/(1)/ Price/unit Volumes Price/unit - -------------------------------------------------------------------------------- Anhydrous ammonia (tons) 1,174 $ 185 1,089 $ 195 Nitrogen solutions (tons) 3,180 94 2,667 95 Urea (tons) 575 179 640 189 Other nitrogen products (tons) 159 184 102 138 Methanol (gallons) 314,670 0.42 316,022 0.62 ================================================================================
(1) Sales volumes in 1996 include sales from Port Neal production which was shut down for substantially all of 1995. STOCKHOLDERS - -------------------------------------------------------------------------------- The Corporation's Common Shares are traded principally on the New York Stock Exchange. At January 31, 1997, 75 million Common Shares were outstanding and held by 4,662 stockholders. CONFIDENTIAL 39
Financial Summary - ------------------------------------------------------------------------------------------ (in thousands, except per-share and employee data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------- Financial Position Working capital $ 187,157 $ 307,873 $ 273,941 $ 231,287 $ 215,817 Total assets $1,969,365 $1,867,858 $1,687,970 $ 634,482 $ 580,192 Long-term debt $ 407,312 $ 411,573 $ 558,256 $ 121,384 $ 133,679 Stockholders' equity $ 606,092 $ 571,583 $ 418,429 $ 242,980 $ 221,476 Results of Operations Revenues $2,316,486 $2,292,173 $1,665,947 $1,238,001 $1,082,191 Costs and expenses (2,021,305) (1,914,471) (1,550,652) (1,196,173) (1,056,472) Interest income 7,102 13,811 5,541 3,261 3,084 Interest expense (59,947) (64,897) (22,082) (12,944) (10,617) Minority interest (44,485) (47,234) (8,809) --- --- Income tax provision (63,900) (115,500) (33,700) (9,300) (7,757) - ------------------------------------------------------------------------------------------- Income from continuing operations 133,951 163,882 56,245 22,845 10,429 Discontinued operations --- --- --- --- (1,665) Extraordinary items --- (4,338) (3,060) --- --- Cumulative effect of accounting changes --- --- 3,376 --- 22,265 - ------------------------------------------------------------------------------------------- Net income $ 133,951 $ 159,544 $ 56,561 $ 22,845 $ 31,029 =========================================================================================== Earnings per share: Continuing operations $ 1.72 $ 2.01 $ 0.77 $ 0.33 $ 0.15 Discontinued operations --- --- --- --- (0.02) Extraordinary items --- (0.05) (0.04) --- --- Cumulative effect of accounting changes --- --- 0.05 --- 0.32 - ------------------------------------------------------------------------------------------- Total $ 1.72 $ 1.96 $ 0.78 $ 0.33 $ 0.45 =========================================================================================== Dividends Per Share $ 0.15 $ 0.10 $ 0.08 $ 0.02 $ --- =========================================================================================== Capital Expenditures Continuing operations $ 185,649 $ 177,129 $ 31,213 $ 21,620 $ 17,620 Discontinued operations --- --- --- --- 2,231 - ------------------------------------------------------------------------------------------- Total $ 185,649 $ 177,129 $ 31,213 $ 21,620 $ 19,851 =========================================================================================== Permanent employees at end of period 3,575 3,415 3,210 2,570 2,020 ===========================================================================================
Amounts have been restated as appropriate to reflect continuing operations. EX-21 9 SUBSIDIARIES OF TERRA INDUSTRIES Exhibit 21 TERRA INDUSTRIES INC. MAJORITY AND PARTIALLY OWNED SUBSIDIARIES February 17, 1997
Percentage Percentage Name of Company Held by TRA Held by Sub Jurisdiction - --------------- ----------- ----------- ------------ I. El Rancho Rock & Sand, Inc. 100.0 California II. Hudson Bay Gold Inc. 100.0 Canada which owns A. Mingold Resources Inc. /1/ 50.0 Canada III. Inspiration Coal Inc. 100.0 Delaware IV. Inspiration Coal Development Company 100.0 Delaware which owns A. Ashland Mining Corporation 100.0 W. Virginia B. Briarwood Mining Inc. 100.0 Virginia C. Plateau Fuels, Inc. 100.0 Kentucky D. Southern Floyd Coal, Inc. 100.0 Kentucky V. Inspiration Consolidated Copper Company 100.0 Maine which owns A. Black Pine Mining Company 100.0 Montana B. Inspiration Development Company 100.0 Delaware VI. Inspiration Gold Incorporated 100.0 Delaware VII. Terra Capital Holdings, Inc. 100.0 Delaware which owns A. Terra Capital, Inc. 100.0 Delaware which owns 1. Terra Methanol Corporation 100.0 Delaware 2. Terra International, Inc. 100.0 Delaware which owns a. Farmbelt Chemicals, Inc. 100.0 Delaware b. Farmers Agricultural Credit Corporation 100.0 Iowa c. Northern Agricultural Credit Corporation 100.0 Minnesota
- ------------------------------ /1/ 50% of Special Voting Preference Shares held by Hudson Bay Gold. Western Gold Exploration and Mining Co., Limited owns 100% of Limited Voting Common Shares and 100% of Non-Voting Preference Shares. TERRA INDUSTRIES INC. MAJORITY AND PARTIALLY OWNED SUBSIDIARIES February 17, 1997
Percentage Percentage Name of Company Held by TRA Held by Sub Jurisdiction - --------------- ----------- ----------- ------------ A. Terra Capital, Inc. (continued) 2. Terra International, Inc. (continued) d. Terra International (Oklahoma) Inc. 100.0 Delaware e. Terra Real Estate Corporation 100.0 Iowa f. Terra Real Estate Development Corporation 100.0 Iowa g. Terra Express, Inc. 100.0 Delaware h. Terra International (Canada) Inc. 100.0 Ontario, Canada which owns 1. Belmont Farm Supply Inc. 50.0 Federal 2. Bluewater Agromart Limited 50.0 Ontario 3. Brussels Agomart Ltd. 50.0 Ontario 4. Cardinal Farm Supply Limited 50.0 Ontario 5. Fingal Farm Supply Limited 50.0 Ontario 6. Grand Falls Agromart Ltd. 50.0 Federal 7. Hartland Agromart Ltd. 50.0 Federal 8. Harvex Agromart Inc. 50.0 Ontario 9. Hoegy's Farm Supply Limited 50.0 Ontario 10. Lakeside Grain & Feed Limited 50.0 Ontario 11. Macroblend Limited 50.0 Ontario 12. Maple Farm Supply Limited 50.0 Ontario 13. Max Underhill's Farm Supply Limited 50.0 Ontario 14. Munro Agromart Ltd. 50.0 Ontario 15. Oakwood Agromart Ltd. 50.0 Ontario 16. Oxford Agropro Ltd. 50.0 Ontario 17. Scotland Agromart Ltd. 50.0 Ontario 18. Setterington's Fertilzer Service 50.0 Ontario Limited 19. Sprucedale Agromart Limited 50.0 Ontario 20. Tri-County Agromart Ltd. 50.0 Ontario i. Royster-Clark, Inc. 34.14 Delaware j. Port Neal Holdings Corp./2/ 100.0 Delaware which owns 1. Port Neal Corporation 100.0 Delaware
- ----------------------------- /2/ An outside investor has a 25% voting interest represented by 1,000,000 shares of Cumulative Variable Rate Voting Preferred Stock. TERRA INDUSTRIES INC. MAJORITY AND PARTIALLY OWNED SUBSIDIARIES February 17, 1997 3. BMC Holdings, Inc. 100.0 Delaware which owns a. Beaumont Methanol, Limited Partnership/3/ 99.0 Delaware 4. Terra Nitrogen Corporation 100.0 Delaware which owns a. Terra Nitrogen Company, L.P./4/ 65.0 Delaware which owns 1. Terra Nitrogen, Limited Partnership/5/ 99.0 Delaware 5. Terra Capital Funding LLC/6/ 99.0 Delaware a. Terra Funding Corporation/7/ 100.0 Delaware VIII. Western Gold Exploration and Mining Company, Limited Partnership 50.0 Delaware which owns A. West Gold Placer, Inc. 100.0 Delaware B. No. 136 Sail View Ventures Ltd. 100.0 British Col. which owns 1. Coastech Research Inc. 50.3 British Col.
- ------------------------------ /3/ Terra Methanol Corporation is 1% General Partner. /4/ Terra Nitrogen Corporation's interest includes 1.0101% as General Partner. /5/ Terra Nitrogen Corporation is 1% General Partner. /6/ Terra Capital Holdings, Inc. has a 1% interest. /7/ An outside investor owns one share of Class SV Preferred Shares with limited voting rights. EX-24 10 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, EDWARD G. BEIMFOHR hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 14th day of February, 1997. /s/ Edward G. Beimfohr ------------------------------- EDWARD G. BEIMFOHR POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, CAROL L. BROOKINS hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ Carol L. Brookins ------------------------------- CAROL L. BROOKINS POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, EDWARD M. CARSON hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ Edward M. Carson ------------------------------- EDWARD M. CARSON POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, DAVID E. FISHER hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ David E. Fisher ------------------------------- DAVID E. FISHER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, BASIL T.A. HONE hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ Basil T.A. Hone ------------------------------- BASIL T.A. HONE POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, BURTON M. JOYCE hereby constitute and appoint George H. Valentine, Francis G. Meyer and Robert E. Thompson, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 18th day of February, 1997. /s/ Burton M. Joyce ------------------------------- BURTON M. JOYCE POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, ANTHONY W. LEA hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 19th day of February, 1997. /s/ Anthony W. Lea ------------------------------- ANTHONY W. LEA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, WILLIAM R. LOOMIS, JR. hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ William R. Loomis, Jr. ------------------------------- WILLIAM R. LOOMIS, JR. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, JOHN R. NORTON III hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 21st day of February, 1997. /s/ John R. Norton III ------------------------------- JOHN R. NORTON III POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, HENRY R. SLACK hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 14th day of February, 1997. /s/ Henry R. Slack ------------------------------- HENRY R. SLACK POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, FRANCIS G. MEYER hereby constitute and appoint George H. Valentine, Robert E. Thompson and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as Senior Vice President and Chief Financial Officer of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ Francis G. Meyer ------------------------------- FRANCIS G. MEYER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, ROBERT E. THOMPSON hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as Vice President, Controller of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 20th day of February, 1997. /s/ Robert E. Thompson ------------------------------- ROBERT E. THOMPSON EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated statement of financial position of Terra Industries Inc. as of December 31, 1996 and the related consolidated statement of income for the year then ended. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 94,570 6,172 92,997 (11,391) 422,938 712,294 1,048,993 (202,640) 1,969,365 525,137 404,707 127,614 0 0 478,478 1,969,365 2,264,509 2,316,486 1,722,450 1,946,995 118,795 15,428 59,947 197,851 63,900 133,951 0 0 0 133,951 1.72 0
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