-----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, E26/EjKKS0azGxtpXZGjSrELMCsYygvrp90fur2Xu7xNxffb/vJbXECTkiaBDY8Q 81UZHG+EAkHnQe3elm0gXA== 0000950131-96-003973.txt : 19960816 0000950131-96-003973.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950131-96-003973 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96614696 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, 1996 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 SIOUX CITY, IOWA 51102-6000 (Address of principal executive offices) (Zip Code) 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, 1996, the following shares of the registrant's stock were outstanding: Common Shares, without par value 75,397,684 shares ================================================================================ PART I. FINANCIAL INFORMATION TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in thousands) (unaudited)
June 30, December 31, June 30, 1996 1995 1995 ---------- ------------ ---------- ASSETS Cash and short-term investments $ 47,897 $ 138,707 $ 201,009 Accounts receivable, less allowance for doubtful accounts of $18,464, $10,626 and $10,665 566,112 178,738 496,351 Inventories 364,615 367,272 389,630 Deferred tax asset - current 23,768 23,768 43,992 Other current assets 78,679 55,511 43,446 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 1,081,071 763,996 1,174,428 - ------------------------------------------------------------------------------------------------------------------------------------ Equity and other investments 18,381 15,408 15,076 Property, plant and equipment, net 766,463 694,358 623,435 Excess of cost over net assets of acquired businesses 300,872 308,414 317,695 Partnership distribution reserve fund 18,480 18,480 18,480 Other assets 65,629 67,202 66,820 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $2,250,896 $1,867,858 $2,215,934 ==================================================================================================================================== LIABILITIES Debt due within one year $ 198,481 $ 30,425 $ 57,365 Accounts payable 411,611 203,400 382,016 Accrued and other liabilities 202,610 222,298 195,017 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 812,702 456,123 634,398 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt 405,405 407,162 650,984 Deferred income taxes 122,449 111,871 106,735 Other liabilities 144,657 138,218 107,729 Minority interest 184,339 182,901 181,464 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 1,669,552 1,296,275 1,681,310 - ------------------------------------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY Capital stock Common Shares, authorized 133,500 shares; outstanding 75,775, 81,173 and 81,099 shares 128,573 133,970 133,908 Paid-in capital 562,188 631,195 630,743 Cumulative translation adjustment (260) (271) (610) Accumulated deficit (109,157) (193,311) (229,417) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 581,344 571,583 534,624 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,250,896 $1,867,858 $2,215,934 ====================================================================================================================================
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, ------------------------------ ------------------------------ 1996 1995 1996 1995 ---------- ---------- ---------- ---------- REVENUES Net sales $1,066,861 $ 971,709 $1,455,173 $1,405,830 Other income, net 18,817 31,960 25,246 41,179 - ------------------------------------------------------------------------------------------------------------------------------------ 1,085,678 1,003,669 1,480,419 1,447,009 - ------------------------------------------------------------------------------------------------------------------------------------ COSTS AND EXPENSES Cost of sales 849,780 757,828 1,127,297 1,062,109 Selling, general and administrative expense 92,126 75,736 154,206 131,781 Equity in earnings of unconsolidated affiliates (2,265) (2,455) (1,184) (1,258) Interest income (1,396) (3,397) (3,727) (6,063) Interest expense 15,203 16,436 26,768 30,443 Minority interest 12,628 11,616 25,797 28,209 - ------------------------------------------------------------------------------------------------------------------------------------ 966,076 855,764 1,329,157 1,245,221 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 119,602 147,905 151,262 201,788 Income tax provision 48,152 62,840 61,412 83,770 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 71,450 $ 85,065 $ 89,850 $ 118,018 ==================================================================================================================================== NET INCOME PER SHARE $ 0.90 $ 1.05 $ 1.12 $ 1.45 ==================================================================================================================================== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 79,089 81,263 80,310 81,241 ==================================================================================================================================== CASH DIVIDENDS DECLARED PER SHARE $ 0.04 $ 0.02 $ 0.07 $ 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, 1996 AND 1995 (in thousands) (unaudited)
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 ==================================================================================================== Cumulative Common Paid-In Translation Accumulated Shares Capital Adjustment Deficit Total - ----------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $ 133,970 $ 631,195 $ (271) $(193,311) $ 571,583 Exercise of stock options 121 486 --- --- 607 Stock repurchase (5,735) (72,078) --- --- (77,813) Issuance of common shares 215 2,580 --- --- 2,795 Stock Incentive Plan 2 5 --- --- 7 Translation Adjustment --- --- 11 --- 11 Dividends --- --- --- (5,696) (5,696) Net income --- --- --- 89,850 89,850 - ----------------------------------------------------------------------------------------------------- Balance at June 30, 1996 $ 128,573 $ 562,188 $ (260) $(109,157) $ 581,344 =====================================================================================================
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, ---------------------- 1996 1995 --------- --------- OPERATING ACTIVITIES Net income $ 89,850 $ 118,018 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 37,190 32,139 Deferred income taxes 9,312 22,489 Equity in earnings of unconsolidated affiliates (1,184) (1,258) Minority interest in earnings 25,797 28,209 Other non-cash items 426 (43) Changes in current assets and liabilities, excluding working capital purchased/sold: Accounts receivable (385,464) (341,923) Inventories 11,788 (52,896) Other current assets 6,134 (1,381) Accounts payable 205,885 200,966 Accrued and other liabilities (32,726) (2,242) Unreimbursed Port Neal casualty (34,017) (20,925) Other (3,654) (1,208) - -------------------------------------------------------------------------------------- Net cash used in operating activities (70,663) (20,055) - -------------------------------------------------------------------------------------- INVESTING ACTIVITIES Acquisitions, net of cash acquired (7,798) (12,185) Port Neal plant construction (58,962) (53,119) Insurance proceeds from plant casualty 13,895 53,091 Purchase of property, plant and equipment (26,722) (23,923) Discontinued operations 31 (696) Purchase of minority interest - TNCLP -- (3,629) Proceeds from investments 574 425 - -------------------------------------------------------------------------------------- Net cash used in investing activities (78,982) (40,036) - -------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net short-term borrowings 168,168 (16,395) Proceeds from issuance of long-term debt -- 200,000 Principal payments on long-term debt (1,869) (58,289) Debt issuance costs -- (7,021) Stock issuance/repurchase - net (77,205) 759 Distributions to minority interests (24,574) (13,745) Dividends (5,696) (3,242) - -------------------------------------------------------------------------------------- Net cash provided by financing activities 58,824 102,067 - -------------------------------------------------------------------------------------- Foreign exchange effect on cash and short-term investments 11 649 - -------------------------------------------------------------------------------------- Increase (decrease) in cash and short-term investments (90,810) 42,625 Cash and short-term investments at beginning of period 138,707 158,384 - -------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 47,897 $ 201,009 ======================================================================================
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. Certain reclassifications have been made to prior years' financial statements to conform with current year presentation. These statements should be read in conjunction with the Corporation's 1995 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) 1996 1995 1995 ------------------------------------------------------- Raw materials $ 42,856 $ 36,499 $ 40,869 Finished goods 321,759 330,773 348,761 ------------------------------------------------------- Total $364,615 $367,272 $389,630 =======================================================
4. The Corporation and certain of its subsidiaries are involved in various legal actions and claims, including environmental matters, arising during the normal course of business. Although it is not possible to predict with any certainty the outcome of such matters, it is the opinion of management that these matters will not have a material adverse effect on the results of operations, financial position or cash flows of the Corporation. 5. The Corporation entered into a methanol hedging agreement (the "Methanol Hedging Agreement") 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 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 or are presently accrued under the terms of the agreement. The estimated fair value of the agreement, representing the amount that the Corporation would expect to pay at June 30, 1996 to liquidate the agreement for its remaining term, is less than $1 million. 6. On December 13, 1994, the Corporation's Port Neal facility in Iowa was extensively damaged as a result of an explosion. 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 June 30, 1996, the Corporation had received interim payments of $190.5 million on its insurance claims. The Corporation is in discussions with its insurers concerning additional insurance proceeds to which the Corporation believes it should be entitled. 6 Estimated lost profits recoverable under the business interruption policy are being 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 facility at the time of the explosion. The amount of the gain will be dependent on final construction, clean-up expenditures and the settlement reached with the Corporation's insurance carriers. As of June 30, 1996, $85 million has been recorded as a deferred gain and is included in other liabilities. In September 1995, the Corporation transferred the Port Neal facility to Port Neal Holdings Corp. ("PNH"). PNH was structured to finance and complete the reconstruction of the Port Neal facility through its wholly owned subsidiary, Port Neal Corporation ("PNC"). PNH issued to unrelated third parties $25 million of non-convertible preferred stock. The preferred stock represents 25% of the voting rights of PNH and accrues dividends commensurate with market interest rates. 7. The Corporation's natural gas procurement policy is to effectively fix or cap the price of between 40% and 80% of its natural gas requirements for a one-year period and up to 50% of its natural gas requirements for the subsequent two-year period through various supply contracts, financial derivatives and other forward pricing techniques to gain some protection against natural gas price changes on the spot market. These contracts are based on a designated price, which price is referenced to market natural gas prices or appropriate NYMEX futures contract prices. The Corporation frequently uses prices at Henry Hub Louisiana as the index price. Natural gas supplies for the Corporation's six production facilities are purchased from various suppliers for each plant location. This creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may more than offset the change in the price of physical gas. The Corporation has entered into forward pricing positions for a substantial portion of its natural gas requirements for the remainder of 1996, 1997 and 1998. 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. The Corporation has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies. Unrealized gains from forward pricing positions totaled $78.3 million as of June 30, 1996 decreasing to $32.8 million as of July 31, 1996. As of June 30, 1995 unrealized losses from forward pricing positions totaled $18.0 million. For the 1996 first half, natural gas hedging activities produced cost savings of approximately $42.9 million. Conversely, for the comparable 1995 period, natural gas hedging increased cost by approximately $20.5 million. 8. In June 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 Terra Nitrogen Company, L.P. ("TNCLP"). The remaining net proceeds were used to repay bank term loans. 7 During December 1995, the Corporation amended its credit agreement to provide revolving credit facilities of up to $375 million for domestic working capital needs and other corporate purposes. Bank term loans outstanding were converted into advances under the amended credit agreement. There was $179.0 million outstanding at June 30, 1996. Interest on borrowings under this line is charged at current market rates. 9. In October 1995, the Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock Based Compensation." Beginning in 1996, SFAS 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages, but does not require, the recognition of employee compensation expense related to stock compensation based on the fair value of the equity instrument granted. Companies that do not adopt the fair value recognition provisions of SFAS 123 and continue to follow the existing APB Opinion 25 rules to recognize and measure compensation, will be required to disclose the pro forma amounts of net income and earnings per share that would have been reported had the Corporation elected to follow the fair value recognition of SFAS 123. The Corporation will continue to apply APB Opinion 25 to its stock-based compensation awards to employees and will disclose annually the required pro forma effect on net income and earnings per share. The impact on the Corporation's financial position and results of operations is not material. 10. 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 next fifteen months. As of June 30, 1996 the Corporation has repurchased 5,731,000 shares for $77.8 million. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS --------------------- QUARTER ENDED JUNE 30, 1996 COMPARED WITH QUARTER ENDED JUNE 30, 1995 CONSOLIDATED RESULTS The Corporation reported net income of $71.5 million, or $0.90 per share, on revenues of $1.1 billion for the second quarter of 1996 compared with net income of $85.1 million, or $1.05 per share, on revenues of $1.0 billion in 1995. The Corporation classifies its operations into three business segments: Distribution, Nitrogen Products and Methanol. The Distribution segment includes sales of products purchased from manufacturers, including the Corporation, and resold by the Corporation. Distribution revenues are derived primarily from grower and dealer customers through sales of crop protection products, fertilizers, seed and services. The Nitrogen Products segment represents only those operations directly related to the wholesale sales of nitrogen products produced at the Corporation's 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 (loss) for the three-month periods ended June 30, 1996 and 1995 were as follows:
(in thousands) 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- REVENUES: Distribution $ 881,733 $ 775,093 Nitrogen Products 190,770 192,478 Methanol 29,664 47,743 Other - net of intercompany eliminations (16,489) (11,645) - ---------------------------------------------------------------------------------------------------------------------------- $1,085,678 $1,003,669 ============================================================================================================================ OPERATING INCOME: Distribution $ 68,964 $ 71,024 Nitrogen Products 75,729 90,378 Methanol 1,615 13,924 Other expense - net (271) (2,766) - ---------------------------------------------------------------------------------------------------------------------------- 146,037 172,560 Interest expense - net (13,807) (13,039) Minority interest (12,628) (11,616) - ---------------------------------------------------------------------------------------------------------------------------- Total from operations $ 119,602 $ 147,905 ============================================================================================================================
9 Volumes and prices for the three month periods ended June 30, 1996 and 1995 were as follows: VOLUMES AND PRICES (excludes the Distribution segment) 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Sales Average Sales Average (quantities in thousands) Volumes Unit Price Volumes Unit Price - ---------------------------------------------------------------------------------------------------------------------- Ammonia (tons) 390 $ 191 303 $ 221 Nitrogen solutions (tons) 798 $ 105 691 $ 109 Urea (tons) 151 $ 170 132 $ 193 Methanol (gallons) 77,089 $ 0.39 84,204 $ 0.57 - ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTION Distribution revenues of $881.7 million during the 1996 second quarter increased $106.6 million, or 13.8%, over 1995 revenues of the comparable quarter. The increase in revenues was due to the shifting of sales from the first quarter to the second quarter 1996 and an expansion of the Corporation's distribution network. Revenues from crop protection products increased $61.5 million, or 12.1%, in the second quarter 1996 compared with the 1995 second quarter. Fertilizer revenues for the 1996 second quarter increased $29.1 million, or 15.8% compared with second quarter 1995. Seed and services revenues increased $16.0 million for second quarter 1996 compared with the same period a year ago. Seed revenues accounted for $9.5 million of the increase and custom application revenues increased $2.7 million. Operating income for the Distribution business totaled $69.0 million in 1996 compared with $71.0 million for the prior year second quarter. An increase in gross profit from crop protection products, fertilizers and custom application revenues was more than offset by higher selling, general and administrative expenses for the 1996 second quarter compared with the 1995 quarter. Higher volumes for crop protection products and fertilizers offset lower margins to generate an $8.5 million increase in gross profit, compared with the 1995 second quarter. Selling, general and administrative expenses increased $14.8 million for the 1996 second quarter in comparison with 1995. Contributing to this increase was an additional provision for bad debts of $6.0 million recorded in the 1996 second quarter due to increased delinquencies relating to two consecutive years of drought conditions in the South. The Corporation also added employees and equipment to meet the demands of the 1996 selling season increasing the related expenses. NITROGEN PRODUCTS Revenues of the Nitrogen Products business decreased $1.7 million for the second quarter of 1996 compared with the same period of 1995. Prices for the second quarter 1996 for ammonia, nitrogen solutions and urea decreased 13.3%, 3.6% and 11.8%, respectively, compared to the same period a year ago creating a negative price variance of $18.0 million. An increase in volumes for the second quarter of 1996 in comparison with 1995 substantially offset the price declines. The restart of the Port Neal manufacturing plant contributed to this 1996 volumes increase. Estimated lost profits from Port Neal recoverable under business interruption insurance (the Corporation has received interim payments under the policy and is currently in discussions with its carriers on the final installment due Terra) were included in 1995 revenues. Operating earnings for Nitrogen Products were $75.7 million in the second quarter of 1996 compared with $90.4 million in the 1995 second quarter. The decline in nitrogen prices as discussed above and a $4.2 million charge for severance expenses at the Courtright manufacturing plant recorded in the 1996 second quarter contributed to the decline in operating income. The use of financial derivatives to forward price a majority of the gas requirements for the 1996 second quarter contributed positively to operating income. 10 METHANOL The Corporation's Methanol business revenues were $29.7 million in the second quarter of 1996 compared with $47.7 million in 1995. Average prices were $0.39 in the 1996 second quarter and $0.57 in the 1995 second quarter, creating a negative price variance of $14.7 million. Sales volumes in 1996 declined 7.1 million gallons, or 8.5%. Methanol production volumes declined due to a maintenance turnaround at the Woodward manufacturing facility. Operating income for the segment was $1.6 million in 1996 compared with $13.9 million in 1995. Lower prices and lower sales volumes accounted for the decline in operating income as discussed above. Lower natural gas costs in 1996 offset a portion of the price effect. The decline in natural gas costs was a result of financial derivatives used to more than offset the increase in the price of physical gas. OTHER OPERATING EXPENSE - NET Other operating expense was $0.3 million in the 1996 second quarter compared with $2.8 million in the comparable 1995 period. Other expense includes expenses not directly related to individual business segments, including certain insurance coverages, corporate finance fees and other costs. Other operating expenses in the second quarter 1995 included consulting fees related to the proposed acquisition of the TNCLP minority interest and the revision of financing arrangements. INTEREST EXPENSE - NET Interest expense, net of interest income, totaled $13.8 million in 1996 compared with $13.0 million in 1995. Net interest expense increased due to increased short-term borrowings to fund current operations and repurchase common shares. 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 were used to finance open market purchases of Senior Preference Units of TNCLP, a subsidiary of the Corporation, and repay other long-term debt. INCOME TAXES Income taxes for the second quarter 1996 were recorded at an effective tax rate of 40.3%, compared with 42.5% for the second quarter 1995. The reduction in the effective tax rates is due to lower state income taxes for the 1996 quarter in comparison with 1995. SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995 CONSOLIDATED RESULTS The Corporation reported net income of $89.9 million, or $1.12 per share, on revenues of $1.48 billion for the first six months of 1996 compared with net income of $118.0 million, or $1.45 per share, on revenues of $1.45 billion in the first six months of 1995. 11 Total revenues and operating income (loss) for the six-month periods ended June 30, 1996 and 1995 were as follows:
(in thousands) 1996 1995 - -------------------------------------------------------------------------- REVENUES: Distribution $1,104,646 $1,013,547 Nitrogen Products 343,837 339,666 Methanol 58,560 113,617 Other - net of intercompany eliminations (26,624) (19,821) - -------------------------------------------------------------------------- $1,480,419 $1,447,009 ========================================================================== OPERATING INCOME: Distribution $ 45,555 $ 56,389 Nitrogen Products 150,063 147,762 Methanol 5,644 53,532 Other expense - net (1,162) (3,306) - -------------------------------------------------------------------------- 200,100 254,377 Interest expense - net (23,041) (24,380) Minority interest (25,797) (28,209) - -------------------------------------------------------------------------- Total from operations $ 151,262 $ 201,788 ==========================================================================
Volumes and prices for the six month periods ended June 30, 1996 and 1995 were as follows:
VOLUMES AND PRICES (excludes the Distribution segment) 1996 1995 - --------------------------------------------------------------------------------------------- Sales Average Sales Average (quantities in thousands) Volumes Unit Price Volumes Unit Price - --------------------------------------------------------------------------------------------- Ammonia (tons) 646 $ 190 526 $ 215 Nitrogen solutions (tons) 1,464 $ 102 1,347 $99 Urea (tons) 283 $ 187 308 $ 190 Methanol (gallons) 152,347 $0.38 151,434 $0.75 - ---------------------------------------------------------------------------------------------
DISTRIBUTION Revenues for the Distribution business were $1.1 billion in the 1996 first half compared with $1.0 billion for the 1995 first half. The expansion of the distribution network contributed $38.5 million to the increase in revenues for all product lines and additional sales at existing locations accounted for the remainder of the growth in the first half of the 1996 versus the prior year comparable period. Revenues at existing locations for crop protection products, fertilizers and seed increased $31.2 million, $6.7 million and $9.2 million, respectively, for the first half of 1996 in comparison with 1995. Application income and customer service charges contributed $2.6 million and $1.5 million, respectively, to the revenue increase. Operating income for the Distribution business totaled $45.6 million in 1996 compared with $56.4 million for the prior year. Gross profits from crop protection products, fertilizers and seed increased $5.0 million, $1.4 million and $1.0 million, respectively, for the first six months of 1996 compared with 1995. Higher volumes of crop protection products and fertilizers were offset by lower margins than the prior year comparable period as inventories were liquidated in response to the shortened planting season. Increases in application income and customer service charges contributed to operating income. Offsetting the gross profit increase was a $23.0 million increase in selling, general and administrative expenses for the first half of 1996 versus the prior year comparable period. A $6.0 million bad debt provision was recorded in 1996 as a result of continued drought conditions across the Southern market. The expansion of the Distribution network to 393 locations from 373 in 1995 increased selling expenses by $4.3 million. Normal expense increases and added employees and equipment 12 necessary to meet expected demand increases for products and services for the 1996 planting season contributed to an increase in compensation, depreciation, operating and maintenance expenses. NITROGEN PRODUCTS Nitrogen Products business revenues were $343.8 million in the first half of 1996 compared with $339.7 million in the first half of 1995. Prices for ammonia and urea decreased 11.5% and 1.9%, respectively, while the price for nitrogen solutions increased 3.3% for the first half of 1996 from the prior year comparable period. These price changes reduced revenues by $12.1 million. An increase in volumes more than offset the effect of price declines on revenues. Ammonia and nitrogen solution volumes increased 22.8% and 8.7%, respectively, partially offset by a decline in urea volumes of 8.1%, for the 1996 first six months versus the 1995 six months. The Port Neal manufacturing plant began producing ammonia in December 1995 and nitrogen solutions and urea in May 1996. Included in 1995 revenues were estimated lost profits which would have been generated by the Port Neal plant and were covered by business interruption insurance. Operating income for Nitrogen Products was $150.0 million compared with $147.8 million in the first six months of 1995. Operating income for the first half of 1996 compared with 1995 increased as a result of lower natural gas costs partially offset by a decline in nitrogen prices as discussed above. A decline in the average cost of natural gas of 27.0% was due to the use of financial derivatives for natural gas procurement. In 1996, severance costs of $4.2 million were incurred at the Courtright manufacturing plant. METHANOL Methanol revenues were $58.6 million in 1996 compared with $113.6 million for the first six months of 1995. Average prices were $0.38 and $0.75 for the first six months of 1996 and 1995, respectively, creating a negative price variance of $57.3 million. Sales volumes of methanol were constant for the comparable six months of 1996 and 1995. Methanol operating income for the 1996 first half was $5.6 million compared with $53.5 million in 1995. Lower prices reduced operating income by $57.3 million as compared with the 1995 first half. Lower natural gas costs offset a portion of the pricing shortfall. The average natural gas cost decreased 10.5% as a result of financial derivatives used to forward price gas requirements. OTHER OPERATING EXPENSE - NET Other operating expense was $1.2 million in the first half of 1996 compared with $3.3 million in 1995. Other expense includes expenses not directly related to individual business segments, including certain insurance coverages, corporate finance fees and other costs. Other operating expenses in the first half of 1995 included consulting fees related to the proposed acquisition of the TNCLP minority interest and revised financing arrangements. INTEREST EXPENSE - NET Net interest expense was $23.0 million in 1996 compared with $24.4 million in 1995. Interest expense on long-term debt for the first six months of 1996 declined $5.0 million due to the repayment of bank term loans in 1995. This decline was partially offset by an increase in net short-term interest expense as a result of an increase in short-term borrowings used to fund operations. INCOME TAXES Income tax expense was recorded at an effective rate of 40.6% for the first six months of 1996 compared with 41.5% in the 1995 first half. The reduction in the effective tax rates is due to lower state income taxes in 1996. 13 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 stock dividends, make capital expenditures and acquisitions, and fund repurchases of its common stock. The principal sources of funds will be cash flow from operations and borrowings under available bank facilities. The Corporation believes that cash from operations and available financing sources will be sufficient to meet anticipated cash requirements. Cash used for operations in the first six months of 1996 was $70.7 million due to a seasonal increase in working capital balances of $194.4 million. The Corporation has available a $375 million revolving credit facility for domestic working capital needs. As of June 30, 1996, $179.0 million was outstanding under this facility. Cash used for investing activities was $79.0 million in the first half of 1996, $59.0 million was used to rebuild the Port Neal manufacturing plant while $26.7 million funded other investments in plant and equipment. Cash used for acquisitions represents amounts paid to acquire new locations for the Corporation's distribution network. The Corporation received $13.9 million of insurance proceeds related to the Port Neal casualty in the 1996 first half. The Corporation is in discussions with its insurers and expects that additional proceeds will be received in connection with the insurance claim. The rebuild of the Port Neal manufacturing plant is substantially complete. The Corporation intends to begin construction in the third quarter of 1996 on a $23 million nitric acid plant at Port Neal with the facility expected to be fully operational by the end of 1997. In addition, the Corporation expects 1996 capital expenditures, exclusive of expenditures related to the Port Neal casualty and the acquisition of retail distribution locations, to approximate $50 million consisting of the expansion of existing service centers, routine replacement of equipment, and efficiency improvements at manufacturing facilities. In May 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. There were no repurchases in the first half of 1996. 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 next fifteen months. As of June 30, 1996, the Corporation has repurchased 5.7 million shares for $77.8 million. During the first half of 1996, the Corporation distributed $3.54 per unit, or $23.6 million, to minority Senior Preference unitholders, paid a dividend rate of 7.95%, or $1.0 million, to minority preferred stock shareholders, and paid a dividend of $0.07 per Common Share which totaled $5.7 million. Cash balances at June 30, 1996 were $47.9 million of which $8.7 million is used to collateralize letters of credit supporting recorded liabilities. 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS 4.4 Consent and Amendment No. 1 dated as of June 4, 1996 to Amended and Restated Credit Agreement dated as of December 14, 1995 among Terra Industries Inc., Terra Capital, Inc., Terra Nitrogen, Limited Partnership, Certain Guarantors, Certain Lenders, Certain Issuing Banks and Citibank, N.A. 27 Financial Data Schedule [EDGAR filing only] (B) REPORTS ON FORM 8-K None 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, 1996 /s/ Francis G. Meyer ------------------------------------------------- Francis G. Meyer Senior Vice President and Chief Financial Officer and a duly authorized signatory 15 EX-4.4 2 CONSENT AND AMENDMENT NO. 1 EXHIBIT 4.4 CONSENT AND AMENDMENT NO. 1 CONSENT AND AMENDMENT NO. 1 dated as of June 4, 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"). The Company has requested that the Lenders consent to the "Beaumont Disposition" (as hereinafter defined) and to amend the Credit Agreement in certain respects. The Lenders are willing to so consent and are willing to so amend the Credit Agreement, all on the terms and conditions set forth herein. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. Section 2. Amendments to Credit Agreement. Subject to the satisfaction of the conditions precedent specified in Section 5 hereof, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. General. References in the Credit Agreement and the other Loan Documents (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. B. Definitions. Section 1.01 of the Credit Agreement shall be amended by adding the following new definitions in their appropriate alphabetical locations (to the extent that such terms are not presently defined in Section 1.01 of the Credit Agreement) and by restating the following definitions (to the extent such terms are presently defined in said Section 1.01): "Beaumont Disposition" has the meaning assigned to such term in Section 5.02(e)(viii). Consent and Amendment No. 1 --------------------------- -2- "Beaumont Disposition Proceeds" has the meaning assigned to such term in Section 5.02(e)(viii). "Beaumont Disposition Time" means the time as of which the Beaumont Disposition shall have occurred in accordance with the terms set forth herein and in the other Loan Documents. "BMCH" means BMC Holdings, Inc., a Delaware corporation. "BMLP" means Beaumont Methanol, Limited Partnership, a Delaware limited partnership. "Continuing Methanol Hedge Agreement Obligations" means liabilities and other obligations under the Methanol Hedging Agreement with respect to periods from and after the Beaumont Disposition Time. "Cumulative Adjusted Net Income" means, for any period, the sum, for each complete fiscal year of Terra (beginning with the fiscal year ending December 31, 1995) during such period, of the Adjusted Net Income Amounts for all such fiscal years. For purposes of this definition, "Adjusted Net Income Amount" means, for any fiscal year of Terra, the greater of (x) 33-1/3% of the net income of Terra and its Subsidiaries on a Consolidated basis during such fiscal year and (y) $20,000,000. "Other Distribution" means a Dividend Payment made with respect to the capital stock of the Company except to the extent that the Company determines, reasonably and in good faith, that such Dividend Payment (1) is made to fund one or more of the items described in the definition of "Specified Payments" in this Section 1.01 or (2) is made out of the then- available amount of Cumulative Adjusted Net Income. "Prepay" means, with respect to any Debt, to purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, such Debt, in each case except for regularly scheduled payments of principal and interest in respect thereof required pursuant to the instruments evidencing such Debt. "Purchase Event" means that, during any period commencing January 1, 1995, the aggregate amount of Dividend Consent and Amendment No. 1 --------------------------- -3- Payments with respect to the capital stock of the Company during such period exceeds the sum of (a) the aggregate amount of Specified Payments for such period plus (b) Cumulative Adjusted Net Income for such period plus (c) the amounts available during such period for Restricted Transactions under paragraphs (A) and (B) of Section 5.02(h) (without taking into account the proviso at the end of said Section 5.02(h)) to the extent not utilized for Restricted Transactions during such period. Notwithstanding anything herein to the contrary, a Purchase Event will not be deemed to occur hereunder unless a "Purchase Event" also would have occurred pursuant to the terms of the Original Credit Agreement. "Receivables Subsidiary" means a Subsidiary of the Company that meets both of the following criteria: (1) such Subsidiary is formed solely for the purpose of, and is engaged solely in the business of, (x) purchasing Receivables of the Company and one or more of its Subsidiaries under an Intercompany Receivables Facility and, at its option, selling all or a portion of such Receivables under a Permitted Receivables Facility and/or (y) owning the capital stock of, or other ownership interests in, one or more Receivables Subsidiaries; and (2) all of the capital stock of such Subsidiary (other than, in the case of a Subsidiary of the Company that is an obligor or a seller under a Permitted Receivables Facility, shares of preferred stock of such Subsidiary having a de minimis liquidation value, which preferred shares may be held by one or more financial institutions party to such Permitted Receivables Facility or their designees) is owned beneficially and of record, directly or indirectly, by Terra Capital Holdings, the Company and/or one or more other Receivables Subsidiaries. "Senior Preference Units" means, collectively, (a) the "Senior Preference Units" issued and outstanding under, and as defined in, the Agreement of Limited Partnership dated as of December 4, 1991 of TNCLP, as such Agreement of Limited Partnership is in effect on the Restatement Date, and (b) the "Common Units" into which such Senior Preference Units may be converted in accordance with Section 5.5 of such Agreement of Limited Partnership. "Specified Acquisitions" means Investments (including, without limitation, Investments arising by reason of any Consent and Amendment No. 1 --------------------------- -4- merger or consolidation permitted under Section 5.02(d)(i)(y), but excluding (1) Investments contemplated by the Port Neal Transaction, (2) Terra Stock Repurchases, (3) the purchase, redemption or other acquisition of Senior Preference Units pursuant to the SPU Redemption and (4) capital contributions to Subsidiaries of Terra) consisting of acquisitions of ownership interests in one or more entities engaged in the same or allied line or lines of business as Terra and its Subsidiaries, taken as a whole. "Subsidiary Guarantor" means, collectively, (x) TNC, (y) prior to the Beaumont Disposition Time, BMCH, TMC and BMLP and (z) from and after the SPU Redemption Time, TNLP and its successors. "Terra Guarantors" means, collectively, (x) Terra, Terra Capital Holdings and TNC, (y) prior to the Beaumont Disposition Time, TMC, BMCH and BMLP and (z) from and after the SPU Redemption Time, TNLP and its successors. "TMC" means Terra Methanol Corporation, a Delaware corporation. "TNLP Guarantors" means, collectively, (x) Terra, Terra Capital Holdings, the Company and TNC and (y) prior to the Beaumont Disposition Time, TMC, BMCH and BMLP. C. Prepayments. Section 2.05(b)(i) of the Credit Agreement shall be amended by deleting "and" immediately following clause (x) in the proviso therein, by substituting "; and" for the period at the end of clause (y) in said proviso and by adding the following new clause (z) to said proviso: "(z) the Beaumont Disposition shall not be deemed to be a Disposition for purposes of this clause (i)." D. Representations. Section 4.01(i) of the Credit Agreement shall be amended by restating the first sentence thereof to read as follows: "No Obligor is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used for any purpose which violates the provisions of the regulations of the Board of Governors of the Federal Reserve System." Consent and Amendment No. 1 --------------------------- -5- E. Preservation of Existence, Etc. Section 5.01(e) of the Credit Agreement shall be amended to read as follows: "(e) Preservation of Corporate Existence, Etc. Subject to Section 5.02(d) and (e), preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, that the Obligors may consummate the Reorganization Transaction, the Port Neal Transaction and the Beaumont Disposition, and that neither any Obligor nor any of its Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of such Obligor or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Obligor or such Subsidiary, as the case may be, and that the loss thereof will not have a Material Adverse Effect." F. Ownership of Obligors. Section 5.01(o) shall be amended by restating the introductory clause thereof to read as follows: "Take, and will cause each of its Subsidiaries to take, such action from time to time as shall be necessary to ensure that, except to the extent necessary to give effect to either or both of the Reorganization Transaction and the Beaumont Disposition:". G. Use of Beaumont Disposition Proceeds. The Credit Agreement shall be amended by adding a new Section 5.01(q) reading as follows: "(q) Use of Beaumont Disposition Proceeds. Take one or more of the following actions at such times and in such manner as shall be necessary such that neither Terra nor any of its Subsidiaries shall be required to Prepay 1995 Terra Debt or AMCI Senior Notes with all or any portion of the Beaumont Disposition Proceeds: (1) invest and/or commit to invest (subject to the terms and conditions hereof and of the other Loan Documents) Beaumont Disposition Proceeds in the business of Terra and its Subsidiaries; (2) prepay the Advances pursuant to Section 2.05(a); and (3) reduce the Commitments pursuant to Section 2.04(a). Consent and Amendment No. 1 --------------------------- -6- In addition, Terra will not, and will not permit any of its Subsidiaries to, Prepay any Debt of Terra or any of its Subsidiaries (other than (i) Debt hereunder and under the other Loan Documents, and (ii) Debt outstanding under revolving lines of credit to the extent said lines of credit remain available for reborrowing after giving effect to such prepayment) with Beaumont Disposition Proceeds, in each case except to the extent required pursuant to the instruments evidencing such Debt as in effect on May 1, 1996; provided that nothing herein shall prohibit Terra or any of its Subsidiaries from using Beaumont Disposition Proceeds (I) to fund all or a portion of the Restricted Transactions referred to in Section 5.02(h)(C) and/or (II) to redeem the preferred stock of Port Neal Holdings and otherwise to pay all or a portion of the obligations of Terra or any of its Subsidiaries in respect of the Port Neal Transaction. For purposes of this paragraph, the Company shall be entitled to make determinations as to whether funds used by Terra and its Subsidiaries for a particular purpose constituted "Beaumont Disposition Proceeds", provided that such determinations are made reasonably and in good faith. For purposes of determining compliance with this Section 5.01(q), the Company shall, from time to time upon the request of the Agent or the Required Lenders (through the Agent), deliver to the Agent a report in form and detail reasonably satisfactory to the Required Lenders setting forth the manner in which the Beaumont Disposition Proceeds have been or are to be applied (including, without limitation, the amounts thereof that have been used for the respective purposes described in this Section 5.01(q))." H. Liens. Section 5.02(a) of the Credit Agreement shall be amended by deleting "and" at the end of paragraph (xv) thereof, by substituting "; and" for the period at the end of paragraph (xvi) thereof and by adding the following new paragraph (xvii) thereto: "(xvii) Liens securing obligations of the Company and its Subsidiaries under Hedge Agreements permitted by Section 5.02(c)." I. Hedge Agreements. Section 5.02(c) of the Credit Agreement shall be amended by adding "prior to the Beaumont Disposition Time," at the beginning of paragraph (y) thereof. J. Sales, Etc., of Assets. Section 5.02(e) of the Credit Agreement shall be amended by deleting the "and" at the end of paragraph (vi) thereof, by redesignating the paragraph immediately following said paragraph (vi) as paragraph (vii), by Consent and Amendment No. 1 --------------------------- -7- substituting "; and" for the period at the end of said paragraph (vii) and by adding the following new paragraph (viii) thereto: "(viii) the Disposition (the "Beaumont Disposition") of BMLP (whether through the Disposition by the Company of the capital stock of TMC and BMCH, the Disposition by TMC and BMCH of the partnership interests of BMLP, the Disposition by BMLP of all or substantially all of its assets or otherwise) to one or more Persons (collectively, the "Beaumont Purchasers"), provided that such Disposition shall be effected in accordance with the following terms (or on such other terms as shall be reasonably satisfactory to the Required Lenders): (A) both immediately prior to and after giving effect to such Disposition, no Default or Event of Default shall have occurred and be continuing; (B) none of the Beaumont Purchasers shall be an Affiliate of the Company; (C) the aggregate Net Available Proceeds of such Disposition (the "Beaumont Disposition Proceeds") shall be not less than $125,000,000 (at least $100,000,000 of which shall be in the form of cash); (D) after giving effect to such Disposition, Terra and its Subsidiaries shall have no Continuing Methanol Hedge Agreement Obligations (or, in the alternative, all of the Continuing Methanol Hedge Agreement Obligations shall be assumed by one or more of the Beaumont Purchasers, and such Beaumont Purchasers shall indemnify and hold harmless Terra and its Subsidiaries from and against all claims, damages, losses, liabilities, and expenses that may be incurred by Terra and its Subsidiaries in connection therewith); (E) to the extent the assets subject to such Disposition constituted part of the Collateral, all proceeds thereof (whether in the form of cash, instruments or otherwise) shall become subject to the Lien created by the Security Documents in accordance with the terms thereof (it being understood that nothing herein shall require Terra or any of its Subsidiaries to segregate any of the cash proceeds of such Disposition); and (F) the Company shall deliver to the Agent a true, correct and complete copy of each of the principal documents executed in connection with the Consent and Amendment No. 1 --------------------------- -8- Beaumont Disposition and shall certify to the Agent and the Lenders that such Disposition has been (or is being) consummated in all material respects in accordance with the terms and conditions set forth herein (including, without limitation, in this Section 5.02(e)) and in the other Loan Documents." K. Restricted Transactions. Section 5.02(h) of the Credit Agreement shall be amended to read as follows: "(h) Restricted Transactions. Make any Capital Expenditures or Specified Acquisitions except for: (A) Restricted Transactions, for Terra and its Subsidiaries on a Consolidated basis, in any fiscal year (the "Subject Fiscal Year") in an aggregate amount not exceeding the sum of (i) $150,000,000 plus (ii) for fiscal years beginning January 1, 1996 and thereafter, the lesser of (x) an amount equal to the unused portion (if any) of the amount available for Restricted Transactions pursuant to paragraph (i) of this Section 5.02(h)(A) for the prior fiscal year and (y) $100,000,000; (B) additional Restricted Transactions, for Terra and its Subsidiaries on a Consolidated basis, during the period from and after the Beaumont Disposition Time in an aggregate amount not exceeding the excess, if any, of (x) the Beaumont Disposition Proceeds received from time to time in the form of cash (including cash payments received under instruments constituting part of the Beaumont Disposition Proceeds) over (y) the aggregate amount of prepayments of Terra Advances and Terra Commitment reductions, if any, made in accordance with Section 5.01(q) prior to the occurrence of the relevant Restricted Transaction; and (C) additional Restricted Transactions, for Terra and its Subsidiaries on a Consolidated basis, in an aggregate amount not exceeding $60,000,000 constituting the purchase by the Company and/or one or more of its Subsidiaries of the Courtright manufacturing plant located in Ontario, Canada, from W. Patrick Moroney, as Trustee of The 1993 Courtright Property Trust; provided that the amounts available for Restricted Transactions pursuant to clauses (A) and (B) of this Section 5.02(h) shall be deemed to be reduced at the time of each Other Distribution by the amount thereof as follows: Consent and Amendment No. 1 --------------------------- -9- (1) first, the amount of such Other Distribution shall reduce (but not below zero) the amount remaining available under said clause (A) for the then-current fiscal year; and (2) then, after the amount available for Restricted Transactions under said clause (A) is reduced to zero (whether by the making of Restricted Transactions and/or by the application of the preceding clause (1)), the amount of such Other Distribution shall reduce (but not below zero) the amount remaining available under said clause (B)." L. Methanol Hedging Agreement. Section 5.02(l) of the Credit Agreement shall be amended by adding, immediately after "Cancel or terminate" therein, ", except as expressly provided in Section 5.02(e)(viii)(D),". Section 3. Consents relating to the Beaumont Disposition. Subject to the satisfaction of the conditions precedent set forth in Section 5 hereof, but effective as of the date hereof, each of the Lenders hereby consents to the Beaumont Disposition for all purposes of the Credit Agreement and the other Loan Documents, and hereby authorizes and directs the Agent, upon the consummation thereof, to execute such agreements, documents and other instruments, and to take such other action, as the Company may reasonably request in order to (x) release the Liens in favor of the Agent and the other "Secured Parties" under the Security Documents with respect to the Collateral that is to be transferred as part of the Beaumont Disposition and (y) release each of TMC, BMCH and BMLP from their respective obligations as "Subsidiary Guarantors", "Terra Guarantors" and "TNLP Guarantors" (and, thereby, to release each of TMC, BMCH and BMLP from their respective obligations as "Guarantors", "Terra Obligors", "TNLP Obligors" and "Obligors") under the Credit Agreement and the other Loan Documents. Section 4. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Lenders that, both before and after giving effect to the amendments to the Credit Agreement and the consents set forth herein: (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 Consent and Amendment No. 1 --------------------------- -10- (b) no event has occurred and is continuing that constitutes a Default or an Event of Default. Section 5. Conditions Precedent. As provided in Sections 2 and 3 hereof, the amendments to the Credit Agreement set forth in said Section 2 and the consents set forth in said Section 3 shall each become effective, as of the date hereof, upon the satisfaction of the condition precedent that the Agent shall have received the following (each in form and substance satisfactory to it): A. Execution and Delivery, Etc. This Consent and Amendment No. 1, duly executed by each of the Obligors, each of the Lenders and the Agent. B. Other Documents. Such other documents as the Agent or any Lender or special New York counsel to the Agent may reasonably request. Section 6. 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 Consent and Amendment No. 1 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 Consent and Amendment No. 1 by signing any such counterpart. This Consent and Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Consent and Amendment No. 1 to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWERS ------------- TERRA CAPITAL, INC. By /s/ F. G. Meyer ------------------------------- Title: Vice President TERRA NITROGEN, LIMITED PARTNERSHIP By Terra Nitrogen Corporation, its General Partner By /s/ Robert E. Thompson --------------------------- Title: Vice President Consent and Amendment No. 1 --------------------------- -11- GUARANTORS ---------- TERRA INDUSTRIES INC. By /s/ F. G. Meyer -------------------------------- Title: Vice President TERRA NITROGEN CORPORATION By /s/ Robert E. Thompson -------------------------------- Title: Vice President BEAUMONT METHANOL, LIMITED PARTNERSHIP By Terra Methanol Corporation, its General Partner By /s/ G. H. Valentine --------------------------- Title: Vice President TERRA METHANOL CORPORATION By /s/ G. H. Valentine -------------------------------- Title: Vice President BMC HOLDINGS, INC. By /s/ G. H. Valentine -------------------------------- Title: Vice President TERRA CAPITAL HOLDINGS, INC. By /s/ F. G. Meyer -------------------------------- Title: Vice President Consent and Amendment No. 1 --------------------------- -12- THE AGENT --------- CITIBANK, N.A. By /s/ Judith C. Fisher -------------------------------- Title: Attorney-in-Fact COMMITMENTS THE LENDERS ----------- ----------- Terra Commitment CITIBANK, N.A. - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Judith C. Fisher -------------------------------- Title: Attorney-in-Fact Terra Commitment CHEMICAL BANK - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Peter Ling -------------------------------- Title: Vice President Terra Commitment ARAB BANKING CORPORATION - ---------------- $16,500,000.00 TNLP Commitment - --------------- $ 1,100,000.00 By /s/ Grant E. McDonald --------------------------------- Title: Vice President Terra Commitment BANK OF AMERICA ILLINOIS - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ M. H. Claggett -------------------------------- Title: Vice President Terra Commitment THE BANK OF NOVA SCOTIA - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ F. C. Ashby -------------------------------- Title: Senior Manager Loan Operations Consent and Amendment No. 1 --------------------------- -13- Terra Commitment CAISSE NATIONAL DE CREDIT AGRICOLE - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ W. Leroy Startz --------------------------------- Title: First Vice President Terra Commitment COOPERATIEVE CENTRALE RAIFFEISEN- - ---------------- BOERENLEEBANK, B.A. "RABOBANK $28,500,000.00 NEDERLAND", New York Branch TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Angela R. Reilly -------------------------------- Title: Vice President By /s/ W. Jeffrey Vollack -------------------------------- Title: Vice President, Manager Terra Commitment CREDIT LYONNAIS CHICAGO BRANCH - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Michel Buysschaert ------------------------------- Title: Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Michel Buysschaert ------------------------------- Title: Authorized Signature Terra Commitment DRESDNER BANK AG, CHICAGO AND GRAND - ---------------- CAYMAN BRANCHES $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Thomas J. Nadramia -------------------------------- Title: Vice President By /s/ John W. Sweeney -------------------------------- Title: Assistant Vice President Consent and Amendment No. 1 --------------------------- -14- Terra Commitment FIRST BANK NATIONAL ASSOCIATION - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Marc E. Meirovitz ------------------------------- Title: Commercial Banking Officer Terra Commitment THE FUJI BANK, LIMITED - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ Peter L. Chinnici -------------------------------- Title: Joint General Manager Terra Commitment MELLON BANK, N.A. - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ George Davis -------------------------------- Title: Vice President Terra Commitment NATIONSBANK OF TEXAS, N.A. - ---------------- $28,500,000.00 TNLP Commitment - --------------- $ 1,900,000.00 By /s/ C. Todd Kulp -------------------------------- Title: Vice President Terra Commitment UNION BANK OF SWITZERLAND, NEW YORK - ---------------- BRANCH $16,500,000.00 TNLP Commitment - --------------- $ 1,100,000.00 By /s/ Philippe R. Sandmeier ------------------------------- Title: Assistant Vice President By /s/ C. C. Glockler -------------------------------- Title: Vice President Consent and Amendment No. 1 --------------------------- EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated statement of financial position of Terra Industries Inc. as of June 30, 1996 and the related consolidated statement of income for the six months then ended. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 37,678 10,219 584,576 (18,464) 364,615 1,081,071 943,740 (177,277) 2,250,896 812,702 405,405 128,573 0 0 452,771 2,250,896 1,455,173 1,480,419 1,127,297 1,255,528 50,588 8,740 26,768 151,262 61,412 89,850 0 0 0 89,850 1.12 0
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