0000950131-95-002231.txt : 19950815 0000950131-95-002231.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950131-95-002231 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERRA INDUSTRIES INC CENTRAL INDEX KEY: 0000722079 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 521145429 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08520 FILM NUMBER: 95562832 BUSINESS ADDRESS: STREET 1: TERRA CENTRE 600 4TH ST STREET 2: P.O. BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 BUSINESS PHONE: 7122771340 MAIL ADDRESS: STREET 1: TERRA CENTER STREET 2: 600 4TH ST P O BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 FORMER COMPANY: FORMER CONFORMED NAME: INSPIRATION RESOURCES CORP DATE OF NAME CHANGE: 19920517 10-Q 1 FORM 10-Q ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 1-8520 TERRA INDUSTRIES INC. (Exact name of registrant as specified in its charter) MARYLAND 52-1145429 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) TERRA CENTRE P.O. BOX 6000 600 FOURTH STREET 51102-6000 SIOUX CITY, IOWA (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (712) 277-1340 ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 31, 1995, the following shares of the registrant's stock were outstanding: Common Shares, without par value 81,098,602 shares ============================================================================== PART I. FINANCIAL INFORMATION TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands) (unaudited)
June 30, December 31, June 30, 1995 1994 1994 ---------- ----------- --------- ASSETS Cash and short-term investments $ 201,009 $ 158,384 $ 40,520 Accounts receivable, less allowance for doubtful accounts of $10,665, $8,224 and $7,348 496,351 157,026 352,464 Inventories 389,630 332,952 268,357 Deferred tax asset -- current 43,992 43,992 27,338 Other current assets 43,446 31,069 25,459 ----------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,174,428 723,423 714,138 ----------------------------------------------------------------------------------------------------- Equity and other investments 15,076 14,181 1,432 Property, plant and equipment, net 623,435 552,843 124,786 Deferred tax asset -- non-current --- --- 5,772 Excess of cost over net assets of acquired businesses 317,695 320,559 15,126 Partnership distribution reserve fund 18,480 18,480 --- Net assets of discontinued operations --- --- 3,522 Other assets 66,820 58,484 16,221 ----------------------------------------------------------------------------------------------------- TOTAL ASSETS $2,215,934 $1,687,970 $ 880,997 ===================================================================================================== LIABILITIES Debt due within one year $ 57,365 $ 67,658 $ 109,671 Accounts payable 382,016 181,050 293,361 Accrued and other liabilities 195,017 200,774 102,489 ----------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 634,398 449,482 505,521 ----------------------------------------------------------------------------------------------------- Long-term debt 650,984 511,706 45,782 Deferred tax liability -- non-current 106,735 84,246 4,530 Other liabilities 107,729 53,477 33,832 Minority interest 181,464 170,630 --- ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,681,310 1,269,541 589,665 ----------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Capital stock Common Shares, authorized 133,500 shares; outstanding 81,099, 80,965 and 70,553 shares 133,908 133,770 123,550 Paid-in capital 630,743 630,111 523,915 Cumulative translation adjustment (610) (1,259) (795) Accumulated deficit (229,417) (344,193) (355,338) ----------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 534,624 418,429 291,332 ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,215,934 $1,687,970 $ 880,997 =====================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 2 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per-share amounts) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ----------------------- 1995 1994 1995 1994 ---------- -------- ---------- ---------- REVENUES Net sales $ 971,709 $804,211 $1,405,830 $1,059,475 Other income, net 31,960 14,041 41,179 18,281 ------------------------------------------------------------------------------------------------------- 1,003,669 818,252 1,447,009 1,077,756 ------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 757,828 677,146 1,062,109 900,299 Selling, general and administrative expense 75,736 63,035 131,781 106,618 Equity in earnings of unconsolidated affiliates (2,455) (590) (1,258) (36) Interest income (3,397) (1,127) (6,063) (1,983) Interest expense 16,436 2,906 30,443 5,841 Minority interest 11,616 --- 28,209 --- ------------------------------------------------------------------------------------------------------- 855,764 741,370 1,245,221 1,010,739 ------------------------------------------------------------------------------------------------------- Income before income taxes and extraordinary items 147,905 76,882 201,788 67,017 Income tax provision 62,840 28,980 83,770 25,400 ------------------------------------------------------------------------------------------------------- Income before extraordinary items 85,065 47,902 118,018 41,617 Extraordinary loss on early retirement of debt --- --- --- (2,614) Cumulative effect of accounting changes --- --- --- 3,376 ------------------------------------------------------------------------------------------------------- NET INCOME $ 85,065 $ 47,902 $ 118,018 $ 42,379 ======================================================================================================= EARNINGS PER SHARE: Income before extraordinary items $ 1.05 $ 0.68 $ 1.45 $ 0.59 Extraordinary loss on early retirement of debt --- --- --- (0.04) Cumulative effect of accounting changes --- --- --- 0.05 ------------------------------------------------------------------------------------------------------- NET INCOME $ 1.05 $ 0.68 $ 1.45 $ 0.60 ======================================================================================================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 81,268 70,712 81,241 70,336 ======================================================================================================= CASH DIVIDENDS DECLARED PER SHARE $ 0.02 $ 0.02 $ 0.04 $ 0.04 =======================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 3 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1995 AND 1994 (in thousands) (unaudited)
Cumulative Common Paid-In Translation Accumulated Shares Capital Adjustment Deficit Total -------------------------------------------------------------------------------------------- Balance at December 31, 1993 $ 122,257 $516,128 $ (488) $(394,917) $242,980 Stock Incentive Plan 120 847 --- --- 967 Exercise of stock options 442 1,764 --- --- 2,206 Conversion of Convertible Debentures 731 5,176 --- --- 5,907 Translation Adjustment --- --- (307) --- (307) Dividends --- --- --- (2,800) (2,800) Net income --- --- --- 42,379 42,379 -------------------------------------------------------------------------------------------- Balance at June 30, 1994 $ 123,550 $523,915 $ (795) $(355,338) $291,332 ============================================================================================ Cumulative Common Paid-In Translation Accumulated Shares Capital Adjustment Deficit Total -------------------------------------------------------------------------------------------- Balance at December 31, 1994 $ 133,770 $630,111 $(1,259) $(344,193) $418,429 Exercise of stock options 134 625 --- --- 759 Translation adjustment --- --- 649 --- 649 Stock Incentive Plan 4 7 --- --- 11 Dividends --- --- --- (3,242) (3,242) Net income --- --- --- 118,018 118,018 -------------------------------------------------------------------------------------------- Balance at June 30, 1995 $ 133,908 $630,743 $ (610) $(229,417) $534,624 ============================================================================================
See accompanying Notes to the Consolidated Financial Statements. 4 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, ---------------------------- 1995 1994 --------- --------- OPERATING ACTIVITIES Net income $ 118,018 $ 42,379 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 32,139 9,060 Income taxes 22,489 20,902 Cumulative effect of accounting changes --- (3,376) Equity in earnings of unconsolidated affiliates (1,258) (36) Minority interest in earnings 28,209 --- Other non-cash items (43) 3,147 Changes in current assets and liabilities, excluding working capital purchased/sold: Accounts receivable (341,923) (241,589) Inventories (52,896) (22,032) Other current assets (1,381) (1,214) Accounts payable 200,966 193,442 Accrued and other liabilities (2,242) (16,945) Debt issuance costs (7,021) (2,533) Other (22,133) (1,526) ------------------------------------------------------------------------------------------------ Net cash used in operating activities (27,076) (20,321) ------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Acquisitions, net of cash acquired (12,185) (13,833) Purchase of property, plant and equipment (77,042) (20,978) Discontinued operations (696) (1,794) Purchase of minority interest - TNCLP (3,629) --- Insurance proceeds from plant casualty 53,091 --- Proceeds from investments 425 582 ------------------------------------------------------------------------------------------------ Net cash used in investing activities (40,036) (36,023) ------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Net short-term borrowings (16,395) 100,007 Proceeds from issuance of long-term debt 200,000 --- Principal payments on long-term debt (58,289) (67,344) Stock issuance/repurchase net 759 2,206 Distribution to minority interests (13,745) --- Dividends (3,242) (2,800) ------------------------------------------------------------------------------------------------ Net cash provided by financing activities 109,088 32,069 ------------------------------------------------------------------------------------------------ Foreign exchange effect on cash and short-term investments 649 (307) ------------------------------------------------------------------------------------------------ Increase (decrease) in cash and short-term investments 42,625 (24,582) Cash and short-term investments at beginning of period 158,384 65,102 ------------------------------------------------------------------------------------------------ CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 201,009 $ 40,520 ================================================================================================
See accompanying Notes to the Consolidated Financial Statements. 5 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments necessary to summarize fairly the financial position of Terra Industries Inc. and all majority-owned subsidiaries (the "Corporation") and the results of the Corporation's operations for the periods presented. Because of the seasonal nature of the Corporation's operations and effects of weather-related conditions in several of its marketing areas, earnings of any single reporting period should not be considered as indicative of results for a full year. These statements should be read in conjunction with the Corporation's 1994 Annual Report to Stockholders. 2. Per-share data are based on the weighted average number of Common Shares that would become outstanding after allowing for the exercise of outstanding stock options.
3. Inventories consisted of the following: June 30, December 31, June 30, (in thousands) 1995 1994 1994 ------------------------------------------------------------------------- Raw materials $ 40,869 $ 38,988 $ 28,751 Finished goods 348,761 293,964 239,606 ------------------------------------------------------------------------- Total $389,630 $332,952 $268,357 =========================================================================
4. The Corporation and certain of its subsidiaries are involved in various legal actions and claims, including environmental matters, arising during the normal course of business. Although it is not possible to predict with any certainty the outcome of such matters, it is the opinion of management that these matters will not have a material adverse effect on the results of operations, financial position or cash flows of the Corporation. 5. On October 20, 1994, the Corporation acquired Agricultural Minerals and Chemicals Inc. ("AMCI") for $400 million plus a working capital adjustment of $102 million. The Consolidated Statements of Operations include the operating results of AMCI subsequent to the acquisition. AMCI, through its subsidiaries, manufactured 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") and Beaumont Methanol, Limited Partnership ("BMLP"). TNC has a 60.2 percent ownership interest in Terra Nitrogen Company, L.P. ("TNCLP"), formerly Agricultural Minerals Company, L.P., which operates nitrogen products manufacturing facilities in Verdigris, Oklahoma and Blytheville, Arkansas through an investment in an operating partnership, Terra Nitrogen, Limited Partnership ("TNLP"), formerly Agricultural Minerals, Limited Partnership. BMLP operates a methanol production facility in Beaumont, Texas. The excess of purchase price over the fair value of net assets acquired is being amortized on a straight-line basis over 18 years which is estimated to be the average remaining useful life of the manufacturing plants acquired. 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. The Corporation used $40 million of the new debt issue to refinance short-term bank debt. The credit agreement initially provided for a $175 million revolving line of credit for use by Terra International, Inc. and BMLP and a $50 million revolving line of credit for TNLP. As a result of the acquisition of AMCI, the Corporation also assumed AMCI's obligations under its $175 million in aggregate principal of 10.75% Senior Notes due 2003. 6 The following table represents unaudited pro forma summary results of operations as if the acquisition of AMCI had occurred at the beginning of 1994:
Three Months Ended Six Months Ended (in thousands, except per-share data) June 30, 1994 June 30, 1994 -------------------------------------------------------------------------------- Revenues $954,202 $1,310,290 Income before extraordinary items $ 58,868 $ 56,399 Net income $ 58,868 $ 57,161 Net income per share $ 0.73 $ 0.71 --------------------------------------------------------------------------------
The pro forma operating results were adjusted to include depreciation of the fair value of capital assets acquired based on estimated useful lives at the acquisition date, 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 periods, and is not intended to be a projection of future operating results or trends. On September 15, 1994, the Corporation acquired an approximate one-third interest in Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a 100-location distributor of crop input and protection products in the mid-Atlantic region. The Corporation accounts for its investment under the equity method, and its share of Royster-Clark's results of operations is included in equity in earnings of unconsolidated affiliates. 6. BMLP entered into a methanol hedging agreement (the Methanol Hedging Agreement) effective October 1994. Pursuant to the agreement, BMLP 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. 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. BMLP's methanol production facility has a production capacity of 280 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. Accruals for payments are recorded as a reduction of revenue. As of June 30, 1995, $20.6 million has been recorded as payable under the Methanol Hedging Agreement based on average prices, for the period October 20, 1994 through June 30, 1995. The actual amount that will be paid is dependent upon average methanol and natural gas prices during each of the periods. The fair value of the agreement, representing the amount that BMLP would expect to pay at June 30, 1995 to liquidate the agreement for its remaining term, is approximately $3.3 million based on a management estimate. 7. On December 13, 1994 the Corporation's Port Neal Facility in Iowa was extensively damaged by an explosion. As of the date of loss, insurance was in force to cover damage to the Corporation's property, business interruption and third party liability claims. The Corporation recognized a $7 million pre-tax charge against 1994 earnings to cover its aggregate expected unrecoverable expenses associated with the incident, including deductibles and uninsured costs. The Corporation expects to recognize a substantial non-recurring gain, representing the difference between the property insurance settlement with the Company's insurers and the carrying value of the facility at the time of the explosion. The non-recurring gain will be recorded when the amount of the property insurance settlement is finalized. 7 8. The Corporation's natural gas procurement policy is to fix or cap the price of approximately 40-80% of its natural gas requirements for a 12-month period through various forward pricing techniques. Depending on market conditions, the Corporation may also fix or cap the price of natural gas for longer periods of time. The Corporation has entered into forward pricing positions for the purchase of natural gas amounting to approximately 73% of natural gas volumes for the remainder of 1995, 57% for 1996 and 30% for 1997. As a result of its policies, the Corporation has limited the potential adverse financial impact of natural gas price increases during the forward pricing period, but conversely, if natural gas prices were to fall, the Corporation will incur higher costs. Unrealized losses from forward pricing positions totaled $18 million as of June 30, 1995. 9. During June 1995, the Corporation issued $200 million of 10.5% Senior Notes due June 15, 2005, in part to finance purchases of up to five million of the 7.6 million Senior Preference Units ("SPUs"), representing a 39.8% partnership interest in the acquired nitrogen business. Under terms of the Corporation's bank credit agreement, net proceeds of the issue not used by December 31, 1995 to purchase SPUs, must be used to prepay outstanding long-term bank debt entered into in connection with the AMCI acquisition. The Corporation recently announced that on September 1, 1995 it will prepay up to $190 million of outstanding long-term bank debt to the extent these funds are not used by that date to purchase SPUs. After the September reduction in long-term bank debt, the Corporation would finance any further purchases of SPUs in the open market with available cash or debt. The note indenture contains restrictions similar to those for the 10.75% Senior Notes assumed in connection with the AMCI acquisition. During March 1994, the Corporation redeemed $72.1 million of 8.5% Convertible Subordinated Debentures due 2012 at the required redemption price of 103.4% of par value. During the 20-day notice period, holders of $5.9 million chose to convert their debentures into Common Stock of the Corporation at the conversion price of $8.083 per Common Share. The Corporation issued 730,768 Common Shares and paid cash for fractional shares. The Corporation funded the redemption from available cash balances and short-term credit lines. 10. During March 1994, the Corporation entered into an agreement to sell its receivables. Under this agreement, which expires March 31, 1996, the Corporation may sell an undivided interest in a designated pool of its accounts receivable and receive up to $50 million in proceeds. Undivided interests in new receivables may be sold as collections reduce previously sold interests. The undivided interests are sold at a discount that is included in selling, general and administrative expenses in the Consolidated Statement of Operations. As of June 30, 1995, $50.0 million in proceeds had been received under this agreement. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS --------------------- QUARTER ENDED JUNE 30, 1995 COMPARED WITH QUARTER ENDED JUNE 30, 1994 CONSOLIDATED RESULTS The Corporation reported net income of $85.1 million, or $1.05 per share, on revenues of $1.0 billion for the second quarter of 1995 compared with net income of $47.9 million, or $0.68 per share, on revenues of $818.3 million in 1994. The 1995 results include the operations formerly owned by Agricultural Minerals and Chemicals Inc. ("AMCI"), which was acquired by the Corporation on October 20, 1994. The AMCI acquisition added approximately $146.5 million to revenues and $49.9 million to operating income during the 1995 second quarter. Excluding the impact of the acquisition, revenues increased $47.5 million, or 6%, and operating income increased $21.1 million, or 27%, over the comparable quarter in 1994 primarily resulting from improved selling prices for nitrogen products caused by tight supplies. The Corporation operates in three business segments: Distribution, Nitrogen Products and Methanol. The Distribution segment includes sales of products purchased from manufacturers, including the Corporation. Distribution revenues are derived primarily from grower and dealer customers through sales of chemicals, fertilizers, seed and related services. The Nitrogen Products segment represents only those operations directly related to the wholesale sales of nitrogen products produced at the Corporation's five ammonia manufacturing and upgrading facilities. The Methanol segment represents wholesale sales of methanol produced at the Corporation's two methanol manufacturing facilities. Total revenues and operating income for the Corporation's three business segments for the three-month periods ended June 30, 1995 and 1994 were as follows:
Pro Forma (in thousands) 1995 1994 1994 --------------------------------------------------------------- REVENUES: Distribution $ 775,093 $743,160 $743,160 Nitrogen Products 192,478 174,225 80,716 Methanol 47,743 45,118 2,594 Other - net (11,645) (8,301) (8,218) --------------------------------------------------------------- $1,003,669 $954,202 $818,252 =============================================================== OPERATING INCOME: Distribution $ 71,024 $ 63,087 $ 63,087 Nitrogen Products 90,378 40,590 16,773 Methanol 13,924 17,554 1,044 Other expense - net (2,766) (2,317) (2,243) --------------------------------------------------------------- 172,560 118,914 78,661 Interest expense - net (13,039) (12,321) (1,779) Minority interest (11,616) (9,800) --- --------------------------------------------------------------- Total from operations $ 147,905 $ 96,793 $ 76,882 ===============================================================
9 The 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 new 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 are presented for informational purposes only and are not necessarily indicative of the results that actually would have been obtained if the transactions had occurred on January 1, 1994. In addition, the pro forma results are not intended to be a projection of future operating results or trends. DISTRIBUTION Distribution revenues of $775.1 million during the 1995 second quarter increased $31.9 million, or 5%, over 1994 revenues of the comparable quarter. The revenue increase relates primarily to higher selling prices for nitrogen fertilizers and increased chemical revenues due to normal price increases. Distributed fertilizer revenues were $11.9 million higher than in the second quarter of 1994. Increased prices added $26.9 million to revenues while reduced volumes offset $15.0 million of the price increase. Chemical revenues were $10.9 million higher than in the same 1994 period due, in part, to expansion of the distribution network, despite wet field conditions prevailing during the first half of the 1995 second quarter. Seed and other sales and services increased $9.1 million as a result of expansion of the distribution network. Operating income for the Distribution business totaled $71.0 million in 1995 compared with $63.1 million for the prior year. Increased chemical margins accounted for a $9.1 million increase in gross profits. Income from fertilizer sales was $1.4 million higher in 1995 than for the same period in 1994. The increase was due to higher selling prices as noted above, offset by reduced volumes and increased costs. The operating income improvements were partially offset by a $5.8 million increase in selling and administrative expenses. The increase in expenses included $1.5 million for compensation costs resulting from additional personnel due to expansion of the distribution network and normal wage increases. Equipment leasing, facility costs, and operating and maintenance expenses increased $2.1 million. The Distribution business is seasonal, coincident with crop plantings, which generally results in higher earnings in the second quarter compared with other periods during the year. NITROGEN PRODUCTS Revenues of the Nitrogen Products business increased $111.8 million for the second quarter of 1995 compared with the same period of 1994. The acquisition of AMCI contributed $104.5 million to the revenue increase. Excluding the effect of the acquisition, revenues increased $7.3 million, or 9%, from the year earlier period due to increased selling prices for nitrogen fertilizers. Production of nitrogen fertilizer was reduced during the 1995 second quarter by conversion of approximately 30% of the Woodward, Oklahoma plant capacity from ammonia to methanol production. Nitrogen Products revenues were reduced approximately $15 million due to the loss of production at the Port Neal nitrogen manufacturing plant from the December 1994 explosion. The plant's ammonia production facilities are expected to be operational in the fall of 1995, and upgrade production facilities are expected to be fully operational in the first half of 1996. Operating earnings for Nitrogen Products were $90.4 million in the second quarter of 1995 compared with $16.8 million in the 1994 second quarter. The AMCI acquisition accounts for $47.3 million of the increase. Excluding the acquisition, operating earnings increased $26.3 million due to price increases of $24.6 million and lower gas costs of $3.3 million. The increased operating income was partially offset by increased costs for salaries and wages and maintenance expenses. 10 METHANOL The Corporation's Methanol business revenues were $47.7 million in the second quarter of 1995 compared with $2.6 million in 1994. The acquisition of AMCI added $42.1 million to revenues and the remainder resulted from increased sales volumes of methanol produced at the Corporation's Woodward manufacturing facilities which began methanol production in the 1994 second quarter. The Corporation's Beaumont plant, a former AMCI facility, was not operational for 28 days during the 1995 second quarter due to a scheduled maintenance turnaround. Operating income for the segment was $13.9 million in 1995 compared with $1.0 million in 1994. The AMCI acquisition contributed $12.1 million of the increase. Increased sales volumes for the Woodward plant added $2.2 million to operating earnings but lower prices compared with the prior year offset $1.8 million of the increase. The sharp decline in methanol prices continued in the second quarter of 1995 from the unprecedented high levels in late 1994. Average realized prices, including the effect of the methanol hedge agreement (see Note 8 to the Consolidated Financial Statements), were $0.57 per gallon compared with $1.14 in the 1994 fourth quarter and $0.98 in the first quarter of 1995. OTHER OPERATING EXPENSE - NET Other operating expense was $2.8 million in the 1995 second quarter compared with $2.2 million in the comparable 1994 period. Other expense includes expenses not directly related to individual business segments, including certain insurance coverages, corporate finance fees and other costs. INTEREST EXPENSE - NET Interest expense, net of interest income, totaled $13.0 million in 1995 compared with $1.8 million in 1994. The increase is primarily the result of assumption of $158.8 million in long-term debt and issuance of $270 million of additional debt, both in connection with the acquisition of AMCI. At the end of the 1995 second quarter, the Corporation issued $200 million of additional long-term Senior Notes. The net proceeds of the debt issue will be used to finance open market purchases of Senior Preference Units of TNCLP, a subsidiary of the Corporation, or repay other long-term debt. SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994 CONSOLIDATED RESULTS The Corporation reported net income of $118.0 million, or $1.45 per share, on revenues of $1.45 billion for the first six months of 1995 compared with net income of $42.4 million, or $0.60 per share, on revenues of $1.08 billion in the first six months of 1994. The AMCI acquisition added approximately $290.6 million to net revenue and $104.0 million to operating income during the 1995 first half. Excluding the impact of the acquisition, revenues increased $63.2 million, or 6%, and operating income increased $30.8 million, or 46%, over the comparable period in 1994 primarily resulting from improved selling prices for nitrogen products caused by tight supplies. Overall, operating income improvements are primarily attributable to higher prices for nitrogen products and methanol, combined with lower natural gas costs. 11 Total revenues and operating income for the Corporation's three business segments for the six-month periods ended June 30, 1995 and 1994 were as follows:
Pro Forma (in thousands) 1995 1994 1994 ---------------------------------------------------------------- REVENUES: Distribution $1,013,547 $ 949,638 $ 949,638 Nitrogen Products 339,666 288,895 134,872 Methanol 113,617 81,214 2,594 Other - net (19,821) (9,457) (9,348) ---------------------------------------------------------------- $1,447,009 $1,310,290 $1,077,756 ================================================================ OPERATING INCOME (LOSS): Distribution $ 56,389 $ 50,188 $ 50,188 Nitrogen Products 147,762 61,341 23,761 Methanol 53,532 26,165 1,044 Other expense - net (3,306) (4,233) (4,118) ---------------------------------------------------------------- 254,377 133,461 70,875 Interest expense - net (24,380) (25,021) (3,858) Minority interest (28,209) (15,526) --- ---------------------------------------------------------------- Total from operations $ 201,788 $ 92,914 $ 67,017 ================================================================
The pro forma results of operations have been prepared on a comparable basis as discussed above for the three-month period ended June 30, 1994. The pro forma financial data is presented for informational purposes only and are not necessarily indicative of the results that actually would have been obtained if the transactions had occurred on January 1, 1994. In addition, the pro forma results are not intended to be a projection of future operating results or trends. DISTRIBUTION Revenues for the Distribution business were $1.0 billion in the 1995 first half, or $63.9 million higher than 1994 revenues for the comparable period. The revenue increase is related to improved 1995 selling prices for nitrogen fertilizers which averaged 13% higher than in the 1994 first half and increased chemical revenues due to normal price increases. Distributed fertilizer revenues were $32.3 million higher than in the first six months of 1994 due principally to increased prices. Chemical revenues were $20.9 million higher than in 1994, and seed and other sales and services increased $10.6 million as a result of expansion of the distribution network. Operating income for the Distribution business totaled $56.4 million in 1995 compared with $50.2 million for the prior year. Increased margins on chemical sales contributed $9.6 million to the increase in gross profits for 1995. Gross profit on fertilizer sales was $3.9 million higher for 1995 than in the first half of 1994. The increase in product gross profits was partially offset by a $12.4 million increase in selling and administrative expenses. The increase in expenses included $4.0 million for compensation costs resulting from additional headcount and normal wage increases. Equipment leasing, facility costs, and operating and maintenance expenses increased $2.1 million. NITROGEN PRODUCTS Nitrogen Products business revenues were $339.7 million in the first half of 1995 compared with $134.9 million in the first half of 1994. The acquisition of AMCI contributed revenues of $194.2 million. Excluding the acquisition, revenues increased $10.6 million compared with the 1994 first half. The increase in revenues during 1995 was the result of higher selling prices which averaged 34% above the 12 1994 average for the same period. Revenues were reduced approximately $25 million due to loss of Port Neal production from the December 1994 explosion. Operating income for Nitrogen Products was $147.8 million compared with $23.8 million in the first six months of 1994. The AMCI acquisition accounted for $84.6 million of the increase. Excluding the acquisition, operating earnings increased $39.4 million due primarily to price increases of $36.0 million and lower gas costs of $8.0 million. METHANOL Methanol revenues were $113.6 million in 1995 compared with $2.6 million for the first six months of 1994. The acquisition of AMCI added $96.4 million to revenues while the remainder resulted primarily from increased sales volumes of methanol produced at the Corporation's Woodward manufacturing facilities which began methanol production in April 1994. Methanol operating income for the 1995 first half was $53.5 million compared with $1.0 million in 1994. The AMCI acquisition contributed $43.4 million of the increase. Increased sales volumes from the Woodward plant added $4.9 million to operating earnings and higher average prices added another $3.6 million. Average realized prices, including the effect of the methanol hedge agreement (see Note 8 to the Consolidated Financial Statements), were $0.75 per gallon compared with $0.65 in 1994. OTHER OPERATING EXPENSE - NET Other operating expense was $3.3 million in the first half of 1995 compared with $4.1 million in 1994. The reduction to other expense is primarily related to reduced incentive compensation costs tied to the market value of the Corporation's stock. INTEREST EXPENSE - NET Net interest expense was $24.4 million in 1995 compared with $3.9 million in 1994. The higher expense is the result of additional debt issued and assumed in connection with the acquisition of AMCI. INCOME TAXES Income tax expense was recorded at an effective rate of 41.5% for the first six months of 1995 compared with 37.9% in the 1994 first half. The increased rate results from amortization of goodwill from the AMCI acquisition which is not deductible for tax purposes. LIQUIDITY AND CAPITAL RESOURCES -------------------------------- The Corporation's primary uses for cash are to fund its working capital needs, make payments on its indebtedness and other obligations, make quarterly distributions to partners in the acquired nitrogen business, make quarterly dividends to stockholders and make capital expenditures. Its principal sources of funds are cash flow from operations and borrowings. The Corporation believes that cash from operations and available financing sources will be sufficient to meet anticipated cash requirements for seasonal operating needs, minority distributions, debt repayments, capital expenditures and expansion strategies. 13 On March 27, 1995 the Corporation announced its offer to purchase the Senior Preference Units (SPUs) representing a 39.8% partnership interest in the Corporation's acquired nitrogen business for $30 per unit of TNCLP, or approximately $230 million. The Corporation and an independent committee of the Board of Directors of Terra Nitrogen Corporation ("TNC") designated to represent the holders of the SPUs were unable to reach an agreement on price and, on May 11, 1995, the Corporation withdrew its offer. On May 11, 1995, the Board of Directors of the Corporation approved an open market purchase program pursuant to which the Corporation may purchase up to five million SPUs from time to time at prices and in quantities determined by the Corporation's management. In late June, 125,000 units were acquired by the Corporation for $3.6 million. The Corporation issued $200 million of 10.5% Senior Notes in June, in part to fund the open market purchases. The Corporation recently announced that on September 1, 1995 it will prepay up to $190 million of outstanding long-term bank debt to the extent these funds are not used by that date to purchase SPUs. After the September reduction in long-term bank debt, the Corporation would finance any further purchases of SPUs in the open market with available cash or debt. Cash used in operations for the 1995 first half totaled $27.1 million due to seasonal increases in accounts receivable balances and inventory. Cash and short-term investments increased $42.6 million principally the result of receipt of 10.5% Senior Note proceeds. Cash used for acquisitions includes a $6.1 million payment as a final valuation for working capital balances purchased in connection with the Corporation's acquisition of AMCI and $6.1 million paid to acquire new locations for the Corporation's distribution network. Investments in plant and equipment totaled $77.0 million, including $53.1 million in connection with the Port Neal plant rebuild. The Corporation expects 1995 capital expenditures, exclusive of amounts to be recovered by insurance coverage, to approximate $70 million consisting of the expansion of service centers, routine replacement of equipment, and efficiency improvements at manufacturing facilities including approximately $30 million for expansion and design improvements at the Port Neal facility. During the quarter, the Corporation distributed $1.14 per unit, or $8.7 million, to minority unitholders in the acquired nitrogen business and paid the Corporation's quarterly dividend of $0.02 per share which totaled $1.6 million. The Corporation announced a third quarter distribution of $1.73 per unit, or $13.0 million, to minority unitholders and an increase in its regular quarterly dividend to $0.03 per share, or $2.4 million, for the 1995 third quarter. Cash balances at June 30, 1995 were $201.0 million of which $9.6 million is used to collateralize letters of credit supporting recorded liabilities. Cash balances together with cash generated from operations during the second half of 1995 is expected to be adequate to meet normal business requirements and pay down debt. 14 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION. On August 11, 1995, Terra Industries Inc. issued the press release contained in Exhibit 99.1 hereto, which is incorporated by reference herein. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS 10.1.15 Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred Compensation Plan 99.1 Terra Press Release dated August 11, 1995 (b) REPORTS ON FORM 8-K Current Report on Form 8-K dated May 11, 1995 reporting withdrawal of offer to acquire senior preference units of TNCLP and approval of open market purchase program authorizing the purchase of up to five million senior preference units. Amendment to Current Report on Form 8-K/A dated May 12, 1995 correcting certain information in the May 11 announcement. Current Report on Form 8-K dated July 17, 1995 reporting the cause of the explosion at the Port Neal facility. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERRA INDUSTRIES INC. Date: August 14, 1995 /s/ Robert E. Thompson ---------------------- Robert E. Thompson Vice President and Controller and a duly authorized signatory EX-10.1.15 2 AMD. #1 SUPP. DEF. COMP. PLAN EXHIBIT 10.1.15 AMENDMENT NO. 1 TO THE TERRA INDUSTRIES INC. SUPPLEMENTAL DEFERRED COMPENSATION PLAN Terra Industries Inc. desires to amend its Supplemental Deferred Compensation Plan dated as of December 20, 1993 (the "Plan"), all on the terms and conditions herein. Accordingly, the Plan shall be amended as follows: (a) Article II of the Plan shall be amended by adding the following new section 2.20 therein reading in its entirety as follows: "2.20 Salary. "Salary" means a Participant's base salary for the calendar year before reduction for contributions to the Company's Qualified Plan, but shall not include bonuses or payments similar to bonuses." (b) Section 4.01 of the Plan shall be amended by substituting the figure 20% for the figure 10%. (c) Section 4.02 of the Plan shall be amended by substituting the figure 20% for the figure 10%. (d) Article V of the Plan shall be amended by adding the following new section 5.04 therein reading in its entirety as follows: "5.04 Employer Matching Contributions. Effective on and after May 1, 1995, the Company shall credit (as an "Employer Matching Contribution") to the Bookkeeping Account for each Participant who defers the maximum amount of "Compensation" under the Qualified Plan an amount, which amount shall be determined consistent with the Employer Matching Contributions made under the Qualified Plan, so that Employer Matching Contributions will be made or credited under this Plan or the Qualified Plan with respect to an aggregate amount not to exceed 6% of such Participant's Salary that is elected to be deferred, whether deferred pursuant to the Qualified Plan or this Plan; provided, however, that (a) the level of Employer Matching Contributions, if any, pursuant to this Plan may be modified consistent with the discretion provided to adjust the level of Employer Matching Contributions under the Qualified Plan, (b) a Company stock fund shall not be available as an investment fund for purposes of measuring the value of a Participant's Bookkeeping Account and (c) each Participant shall be vested in an amount equal to a percentage of the balance then credited as an Employer Matching Contribution to the Bookkeeping Account for such Participant in accordance with the following schedule: YEARS OF SERVICE VESTED PERCENTAGE ---------------- ----------------- Less than one year 0% One year, but less than two 20% Two years but less than three 40% Three years but less than four 60% Four years but less than five 80% Five years or more 100% Participants will be automatically 100% vested, however, in the case of death or disability." (e) Except as herein provided, the Plan shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer as of the 1st day of May, 1995. TERRA INDUSTRIES INC. By /s/ George H. Valentine ------------------------------------------- Its Vice President, General Counsel and Corporate Secretary EX-99.1 3 PRESS RELEASE Exhibit 99.1 (Terra Logo) Terra Industries Inc. 600 Fourth Street P.O. Box 6000 Sioux City, IA 51102-6000 Telephone: (712) 277-1340 Telefax: (712) 233-3648 -------------------------------------------------------------------------------- News Release -------------------------------------------------------------------------------- For Immediate Release Contact: Paula C. Norton (712) 277-5438 TERRA INDUSTRIES REGISTERS PREVIOUS PRIVATE NOTE PLACEMENT; ANNOUNCES BANK DEBT REPAYMENT Sioux City, Iowa (August 11, 1995)--Terra Industries Inc. (NYSE symbol: TRA) announced today that it expects to shortly commence a registered exchange offer to holders of its $200 million privately placed Senior Notes, enabling those Notes to be publicly traded. The Senior Notes were issued in June to provide financing for the purchase of publicly traded senior preference units of Terra Nitrogen Company, L.P. (TNCLP; NYSE symbol: TNH) and for the prepayment of bank debt. Terra also announced that on September 1, 1995 it will prepay up to $190 million of outstanding long-term bank debt to the extent these funds are not used by that date to purchase senior preference units. The company has used approximately $10 million of the Senior Note proceeds to purchase senior preference units of TNCLP and to pay fees and expenses associated with the Senior Note issuance. After the September reduction in long-term bank debt, Terra would finance any further purchases of TNCLP units in the open market with available cash or debt. Terra Industries Inc., with pro forma 1994 revenues of $2.1 billion, is a leading marketer and producer of nitrogen fertilizer, crop protection products, seed and services for agricultural, turf, ornamental and other growers. Terra also produces nitrogen products and methanol for industrial customers. # # # Note: Terra Industries' news releases are available at no charge through PR Newswire's "Company News On-Call" fax service. For a menu of Terra's news releases or to retrieve a specific release, call (800) 758-5804, code 437906. EX-27 4 FINANCIAL DATA SCHEDULE
5 This Schedule contains summary financial information extracted from the consolidated statement of financial position of Terra Industries Inc. as of June 30, 1995 and the related consolidated statement of income for the six-month period then ended. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 27,905 173,104 507,016 (10,665) 389,630 87,438 802,432 (178,997) 2,215,934 634,398 650,984 0 0 133,908 400,716 2,215,934 1,405,830 1,447,009 1,062,109 1,177,496 43,345 3,106 30,443 201,788 83,770 118,018 0 0 0 118,018 1.45 0.00