10-K405 1 d10k405.txt FORM 10-K ================================================================================ FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 Commission file number 1-10877 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________ to __________ TERRA NITROGEN COMPANY, L.P. (Exact name of registrant as specified in its charter) Delaware 73-1389684 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Terra Centre 51102-6000 600 Fourth Street (Zip Code) P.O. Box 6000 Sioux City, Iowa (712) 277-1340 (Address of principal executive offices) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Units Representing Limited Partner Interests New York Stock Exchange Evidenced by Depositary Receipts Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's common units held by nonaffiliates as of the close of business on January 31, 2002 was $32,057,305,90. ================================================================================ TABLE OF CONTENTS
PART I ------ Page Items 1 and 2. Business and Properties........................................................... 1 Item 3. Legal Proceedings................................................................. 6 Item 4. Submission of Matters to a Vote of Unitholders.................................... 6 PART II ------- Item 5. Market for Registrant's Units and Related Unitholder Matters...................... 7 Item 6. Selected Financial Data........................................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 9 Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................ 9 Item 8. Financial Statements and Supplementary Data....................................... 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................................... 9 PART III -------- Item 10. Directors and Executive Officers of the Registrant................................ 10 Item 11. Executive Compensation............................................................ 11 Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 15 Item 13. Certain Relationships and Related Transactions.................................... 16 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 17 Signatures........................................................................................ 21
TERRA NITROGEN COMPANY, L.P. FORM 10-K PART I Items 1 and 2. Business and Properties General Terra Nitrogen Company, L.P. ("TNCLP") is a Delaware limited partnership that conducts its operations through an operating partnership subsidiary, Terra Nitrogen, Limited Partnership (the "Operating Partnership"). Terra Nitrogen Corporation ("TNC" or "General Partner"), a Delaware corporation, is the general partner of both TNCLP and the Operating Partnership (collectively the "Partnership," unless the context otherwise requires) and owns a consolidated 2.0% interest in the Partnership. TNC is an indirect, wholly-owned subsidiary of Terra Industries Inc. ("Terra" or "the company"), a Maryland corporation. Terra is an industry leader in the production and marketing of both nitrogen products and methanol. Terra is one of the largest North American producers of anhydrous ammonia and nitrogen solutions and is the largest producer of ammonium nitrate in the United Kingdom. In addition, Terra is the largest U.S. producer of methanol. Ownership of TNCLP is comprised of the general partner interest and the limited partner interests. The limited partner interests consist of 18,501,576 common units. Terra and its subsidiaries owned 13,889,014 common units as of December 31, 2001 and the balance are traded on the New York Stock Exchange under the symbol "TNH." The common units are referred to herein individually as a "unit" and collectively as "units." Partnership Products The Partnership is one of the largest U.S. producers and distributors of nitrogen fertilizer products, which are used primarily by farmers to improve the yield and quality of their crops. The Partnership's principal products include ammonia, urea and urea ammonium nitrate solution ("UAN"). The Partnership's product sales are heavily weighted toward UAN, and all of its products are sold on a wholesale basis. Although these different nitrogen products are often interchangeable, each has its own characteristics, and customer product preferences vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices and the cost and availability of appropriate storage, handling and application equipment. The Partnership's principal nitrogen products are described in greater detail below: Anhydrous Ammonia. The Partnership produces anhydrous ammonia (often referred to simply as "ammonia"), the simplest form of nitrogen fertilizer and the feedstock for the production of other nitrogen fertilizers, at its two facilities which are located in Verdigris, Oklahoma and Blytheville, Arkansas. Ammonia is produced by reacting natural gas with steam and air at high temperatures and pressures in the presence of catalysts. Ammonia has a nitrogen content of 82% by weight and is generally the least expensive form of fertilizer per pound of nitrogen. However, because it is a gas that must be kept under pressure and refrigerated, ammonia is more costly to store, ship and apply than other nitrogen fertilizer products and must be applied during a shorter period of the growing season. Ammonia must be injected into the soil by specialized equipment, and soil conditions limit its application. In addition, in certain areas, especially in lesser-developed countries, dealers and farmers lack the equipment necessary to store, ship and apply ammonia and are required to use other forms of nitrogen fertilizer. Ammonia can be upgraded into solid or liquid fertilizers, like urea and UAN, which are easier to transport, store and apply than ammonia. Urea. The Partnership produces granular urea at its Blytheville, Arkansas facility by upgrading portions of its ammonia production. Solid urea is produced by converting ammonia into liquid urea that is then dehydrated, turned into a solid, and either prilled or granulated. Prilled materials are the most common form of solid urea. Granular urea may 1 command a modest price premium in certain markets because the consistency in size of the granules (relative to prills) results in a more controllable spreading pattern and better blending characteristics. Urea has a nitrogen content of 46% by weight, the highest level for any solid nitrogen product. Dry urea is used both as a direct application fertilizer and as an ingredient in the dry bulk blending of mixed fertilizer grades. Urea is transported and stored in bulk or in bags and is often blended by distributors into customized fertilizers containing other nutrients. In addition, urea liquor (liquid) is used as an animal feed supplement and in industrial applications. UAN. The Partnership produces UAN at its Verdigris, Oklahoma facility and at the Blytheville, Arkansas facility by upgrading portions of its ammonia production. UAN is produced by combining liquid urea and ammonium nitrate in water. UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not need to be refrigerated or pressurized for transportation or storage. The nitrogen content of UAN is typically 28% to 32% by weight. As a liquid, UAN has many advantages over solid fertilizers and gaseous ammonia. UAN may be applied more uniformly than non-liquid products and may be mixed with various crop protection products or other nutrients, permitting the farmer to apply several materials simultaneously, thus reducing energy and labor costs. In addition, UAN, unlike ammonia, may be applied from ordinary tanks and trucks and can be applied to the soil either through spraying, injecting or through irrigation systems throughout the growing season. Due to its stable nature, UAN may be used for no-till row crops where fertilizer is spread on the surface of the soil but may be subject to volatilization losses. The use of conservation tilling, which reduces erosion, has increased in the United States over the past decade. This trend, if continued, will likely increase UAN demand. Marketing and Distribution The Partnership sells its products primarily in the Central and Southern Plains and Cornbelt regions of the United States. The Partnership's two facilities are located near the major crop producing and consuming areas of the United States, and the Partnership has ready access to barge, truck and rail transportation at both facilities. In addition, the Verdigris facility has an ammonia pipeline to transport product to primary markets. The Partnership's products are marketed and distributed through an organization based in Sioux City, Iowa that provides combined services to the Partnership and to Terra. For further information on the combined organizations of the General Partner and its affiliates, see "Certain Relationships and Related Transactions." In addition, the Partnership occasionally exports UAN through an export marketing association comprised of four domestic UAN producers. All of the Partnership's sales are at the wholesale level. The Partnership's customers for fertilizer products are dealers, national farm retail chains, distributors and other fertilizer producers and traders. National farm retail chains have both distribution and application capabilities. Distributors operate as wholesalers and sell directly to dealers and national farm retail chains, which, in turn, sell directly to farmers. Many dealers maintain year-round storage capacity for inventory as well as application equipment. The majority of the Partnership's nitrogen fertilizer sales are made to dealers. No single customer accounted for more than 10% of the Partnership's 2001 sales. Production and Terminal Facilities Production Facilities. The Partnership's two facilities produce nitrogen fertilizer products. These facilities are located in or near the following locations and have the following production capacities: =========================== ======================================= Location Annual Capacity in Tons --------------------------- --------------------------------------- Ammonia/1/ Urea UAN-28 --------------------------- ------------ ----------- -------------- Blytheville, Arkansas 420,000 480,000 30,000 --------------------------- ------------ ----------- -------------- Verdigris, Oklahoma 1,050,000 - 2,180,000 --------------------------- ------------ ----------- -------------- Total 1,470,000 480,000 2,210,000 =========================== ============ =========== ============== /1/ Measured in gross tons of ammonia produced; net tons available for sale will vary with upgrading requirements. =================================================================== 2 The Partnership's manufacturing facilities are each designed to operate continuously, except for planned shutdowns (usually biennial) for maintenance and efficiency improvements. Capacity utilization (gross tons produced divided by capacity tons at expected operating rates and on-stream factors) of the Partnership's fertilizer manufacturing facilities was 81% in 2001, 89% in 2000 and 97% in 1999. Terra's capacity utilization was reduced in 2001 as a result of plant shutdowns due to high natural gas prices. The Partnership owns all of its manufacturing facilities in fee, unless otherwise stated below. All Partnership manufacturing facilities are subject to encumbrances in favor of lenders. The Verdigris, Oklahoma facility is made up of two ammonia plants, two nitric acid plants, two UAN plants and a port terminal. The Partnership owns the plants in fee, while the port terminal is leased from the Tulsa-Rogers County Port Authority. The leasehold interest on the port terminal is scheduled to expire in April 2004, and the Partnership has an option to renew that lease for an additional five-year term. The Blytheville, Arkansas facility consists of an anhydrous ammonia plant, a granular urea plant and a UAN plant. The ammonia plant is leased from the City of Blytheville at a nominal annual rate. The ammonia plant lease is scheduled to expire in November 2004, and the Partnership has an option to extend the lease for eleven successive terms of five years each at the same rental rate. The Partnership has an unconditional option to purchase the plant for a nominal price at the end of the lease term (including any renewal term). The urea plant is also leased from the City of Blytheville. The urea plant lease is scheduled to expire in November 2005, and the Partnership has an option to extend the lease for three successive terms of five years each at the same rental rate. The Partnership also has a similar, unconditional option to purchase the urea plant for a nominal price. Terminal Facilities. The Partnership owns and operates three terminals used to store and distribute UAN to customers. The Partnership owns UAN terminals near Dublin, Indiana (Henry and Wayne Counties), Blair, Nebraska (Washington County), and Pekin, Illinois (Tazewell County). In addition, the Blair, Nebraska terminal stores and distributes Anhydrous Ammonia. Prior to November 30, 2000, the Partnership held leasehold interests in portions of the Blair and Pekin terminals under a lease with Conoco, Inc. The Partnership exercised its option to purchase these leasehold interests on November 30, 2000. A Partnership-owned facility in Shattuc, Illinois was closed on November 1, 2000 and is currently for sale. Breakdown of Revenue by Product The approximate revenue contributions of the Partnership's principal products (based upon percentages of the Partnership's consolidated revenues) for each of the last three years are as follows: 2001 2000 1999 ---- ---- ---- Ammonia 20% 21% 25% UAN 66% 66% 58% Urea 14% 13% 17% ---- ---- ---- 100% 100% 100% Credit The Partnership's credit terms are generally 15-30 days from date of shipment, but may be extended for longer periods during certain sales seasons consistent with industry practices. The Partnership's bad debt write-offs have been less than $1 million annually for each of the past three years. Seasonality and Volatility The fertilizer business is seasonal, based upon the planting, growing and harvesting cycles. Inventories must be accumulated to allow for uninterrupted customer deliveries and require significant storage capacity. This seasonality generally results in higher fertilizer prices during peak periods, with prices normally reaching their highest point in the spring, decreasing in the summer, and increasing again in the fall as depleted inventories are restored. 3 The fertilizer business can also be volatile as a result of a number of other factors. The most important of these factors are: . Weather patterns and field conditions (particularly during periods of high fertilizer consumption); . Quantities of fertilizers imported to and exported from North America; . Current and projected grain inventories and prices, which are heavily influenced by U.S. exports and worldwide grain markets; and . Price fluctuations in natural gas, the principal raw material used to produce nitrogen fertilizer. Governmental policies may directly or indirectly influence the number of acres planted, the level of grain inventories, the mix of crops planted and crop prices. Nitrogen fertilizer price levels are influenced by world supply and demand for ammonia and nitrogen-based products. Long-term demand is affected by population growth and rising living standards that determine food consumption. Shorter-term demand is affected by world economic conditions and international trade decisions, such as China's cessation of urea imports in recent years. Supply is affected by increasing worldwide capacity and the availability of nitrogen product exports from major producing regions such as the former Soviet Union, the Middle East and South America. During the mid-to-late 1990's favorable nitrogen prices in the industry spurred capacity additions in the form of new and expanded production facilities. More recently, depressed U.S. prices and margins for nitrogen products have resulted in some curtailments or shutdowns of North American capacity. Some, but not all, of these shutdowns are expected to be permanent. Raw materials The principal raw material used to produce manufactured nitrogen products is natural gas. The Partnership believes there is a sufficient supply of natural gas for the foreseeable future and has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies during the peak-demand winter season. Terra's natural gas procurement policy, which is also applicable to the Partnership's gas procurement, is to fix or cap the price of approximately 25% to 80% of its natural gas requirements for a rolling one-year period and up to 50% of its natural gas requirements for the subsequent two-year period, provided that such arrangements would not result in costs that would be greater than the expected selling prices for Terra's finished products. In response to extremely volatile natural gas costs during the last six months of 2000 and uncertainties regarding the ability of finished goods prices to recover the increases in gas costs, Terra's Board of Directors amended the hedging policy and eliminated the minimum hedge requirement through the end of 2001. Early in 2002, the Board revised the hedging policy to permit hedging of 20% - 80% of our natural gas requirements for the upcoming year and up to 50% of the requirements for the following two-year period. Capping natural gas prices is accomplished through various supply contracts, financial derivatives and other instruments. A significant portion of global nitrogen products production occurs at facilities with access to fixed-priced natural gas supplies. These facilities' natural gas costs have been and could continue to be substantially lower than the Partnership's. If natural gas prices rise, the Partnership may benefit from its use of forward-pricing techniques. Conversely, if natural gas prices fall, the Partnership may incur costs above the then-available spot market price. The settlement dates of forward-pricing contracts coincide with gas purchase dates. Forward-pricing contracts are based on a designated price, which price is referenced to market natural gas prices or appropriate NYMEX futures contract prices. Transportation The Partnership uses several modes of transportation to receive materials and ship product to customers, including railroad cars, common carrier trucks, barges and common carrier pipelines. The Partnership uses approximately 60 liquid, dry and anhydrous ammonia fertilizer terminal storage facilities in numerous states. Railcars are the major source of transportation at the Partnership's manufacturing facilities. Terra currently leases approximately 2,120 railcars. Terra also owns 10 nitric acid railcars. In addition, the Verdigris facility distributes ammonia through a common carrier pipeline. The Partnership transports purchased natural gas to its Verdigris, Oklahoma facility via an intrastate pipeline. This pipeline is not an open-access carrier, but is nonetheless part of a widespread regional system through which Verdigris can receive natural gas from any major Oklahoma source. The Partnership also has limited access to out-of-state natural 4 gas supplies for this facility. The Partnership transports purchased natural gas for its Blytheville, Arkansas facility, which is delivered by a natural gas pipeline company. Research and Development The Partnership does not currently have any significant, ongoing research and development efforts. Competition Nitrogen products are a global commodity, and the Partnership's customers include distributors, industrial end-users, dealers and other fertilizer producers. Customers base purchasing decisions principally on the delivered price and availability of the product. The Partnership competes with a number of domestic and foreign producers, including state-owned and government-subsidized entities. Some of the Partnership's principal competitors may have greater total resources and may be less dependent on earnings from nitrogen fertilizer sales than the Partnership. Some foreign competitors may have access to lower cost or government-subsidized natural gas supplies, particularly those with facilities in warmer climates. Natural gas comprises a significant portion of the raw materials cost of the Partnership's nitrogen products. Competitive natural gas purchasing is essential to maintaining a low-cost product position. The Partnership competes with other manufacturers of nitrogen products on delivery terms and availability of products, as well as on price. Environmental and Other Regulatory Matters The Partnership's operations are subject to various federal, state and local environmental, health and safety laws and regulations, including laws relating to air quality, hazardous and solid wastes and water quality. The Partnership is also involved in the manufacture, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by federal, state or other regulatory agencies. Precautions are taken to reduce the likelihood of accidents involving these materials. If such materials have been or are disposed of at sites that are targeted for investigation and remediation by federal or state regulatory authorities, the Partnership may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or analogous laws for all or part of the costs of such investigation and remediation. Freeport-McMoRan Resource Partners, Limited Partnership (a former owner and operator of the Partnership's production facilities) has retained liability for certain environmental matters originating prior to the acquisition of these facilities by the Partnership. The Partnership may be required to install additional air and water quality control equipment, such as low NOX burners, scrubbers, ammonia sensors and continuous emission monitors, at certain of its facilities in order to maintain compliance with Clean Air Act, Clean Water Act and similar requirements. These equipment requirements are also typically applicable to competitors as well. The Partnership estimates that the cost of additional equipment to comply with these requirements in 2002 and beyond will be less than $5 million. The Partnership endeavors to comply in all material respects with applicable environmental, health and safety regulations and has incurred substantial costs in connection with such compliance. Because these regulations are expected to continue to change and generally to be more restrictive than current requirements, the costs of compliance will likely increase. The Partnership does not expect its compliance with such regulations to have a material adverse effect on its results of operations, financial position or net cash flows. Revenues and Assets Terra's revenues from external customers, measure of profit and loss and total assets for the years 1999-2001 are set forth in the Notes to the Consolidated Financial Statements. Terra's revenues and assets according to geography are also set forth in the Notes to the Consolidated Financial Statements. Employees The Partnership does not have any employees, officers or directors. 5 The General Partner is responsible for the management of the Partnership. As of December 31, 2001, the General Partner had 308 employees. None of the General Partner's employees that work in connection with the Partnership's business are subject to collective bargaining agreements. The General Partner considers its labor relations to be good. Limited Call Right Since less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated persons. The General Partner and its affiliates owned 75.1% of the common units at December 31, 2001. If the General Partner elects to acquire all outstanding units, TNCLP is required to give at least 30 but not more than 60 days notice of its decisions to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous 20 trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced. Item 3. Legal Proceedings There is no pending or threatened litigation to the knowledge of the Partnership that would have a material adverse effect on the business or financial condition of the Partnership. Item 4. Submission of Matters to a Vote of Unitholders No items were submitted to a vote of unitholders of TNCLP during the fourth quarter of 2001. 6 PART II Item 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS TNCLP's common units are listed on the New York Stock Exchange. The high and low sales prices of the common units for each quarterly period for 2001 and 2000, as reported on the New York Stock Exchange Composite Price History, were as follows:
2001 2000 ---------------------------- ------------------------------- Quarter High Low High Low 1st $9.5000 $6.8750 $7.8125 $3.8750 2nd 9.5500 6.7000 6.2500 3.6250 3rd 8.8500 5.0000 6.2500 3.5000 4th 6.4500 5.0000 8.8125 5.3125
Based on information received from TNCLP's transfer and servicing agent, the number of registered unitholders as of February 28, 2002 is 374. TNC owned 11,172,414 common units as of December 31, 2001. Terra Capital, Inc. owned 2,716,600 common units as of December 31, 2001. The quarterly cash distributions paid to the holders of common units and the General Partner in 2001 and 2000 were as follows:
Amount Per Amount Common Distributed to Unit General Partner ----------------- ---------------------- 2001 ---- First Quarter $.22 $82,000 Second Quarter $.22 $84,000 Third Quarter - 0 Fourth Quarter - 0 2000 ---- First Quarter - 0 Second Quarter - 0 Third Quarter - 0 Fourth Quarter $.22 $83,000
Under TNCLP's limited partnership agreement, cash distributions to unitholders are based on Available Cash for the quarter as defined therein. Available Cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. There are a number of factors which affect the amount of taxable income reported to unitholders including Partnership earnings, capital spending and cash distributions. Item 6. SELECTED FINANCIAL DATA SELECTED HISTORICAL FINANCIAL AND OPERATING DATA The following table sets forth the Partnership's historical financial and operating data for each of the five years ended December 31, 2001. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this report. 7
Selected Historical Financial and Operating Data ----------------------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- ---------- --------- (Dollars in Thousands, except Income per Unit and Average Realized Prices) Income Statement Data: Revenues $ 304,872 $ 320,239 $ 257,166 $ 282,772 $ 375,837 Other income 953 744 787 1,326 1,353 --------- --------- --------- --------- --------- Total revenues 305,825 320,983 257,953 284,098 377,190 Cost of goods sold 304,648 288,468 256,956 235,319 261,364 --------- --------- --------- --------- --------- Gross profit 1,177 32,515 997 48,779 115,826 Operating expenses 10,074 11,493 7,797 9,179 12,147 --------- --------- --------- --------- --------- Operating income (8,897) 21,022 (6,800) 39,600 103,679 Interest expense (924) (1,436) (1,947) (2,288) (2,201) Interest income 2 623 649 1,463 3,660 --------- --------- --------- --------- Net income (loss) $ (9,819) $ 20,209 $ (8,098) $ 38,775 $ 105,138 ========= ========= ========= ========= ========= Net income (loss) per limited partner unit $ (0.52) $ 1.07 $ (0.43) $ 1.60 $ 4.17 ========= ========= ========= ========= ========= Partnership Distributions Paid: Senior preference units $ - $ - $ - $ - $ 372 Common units 8,140 4,071 - 53,469 96,023 General partner 166 83 - 13,326 39,108 --------- --------- --------- --------- --------- Total partnership distributions $ 8,306 $ 4,154 $ - $ 66,795 $ 135,503 ========= ========= ========= ========= ========= Distributions Paid Per Unit: Senior preference units $ - $ - $ - $ - $ 1.21 ========= ========= ========= ========= ========= Common units $ 0.44 $ 0.22 $ - $ 2.89 $ 5.20 ============================================================================= Balance Sheet Data (at period end): Net property, plant and equipment $ 136,335 $ 147,597 $ 157,275 $ 164,689 $ 169,533 Total assets 210,417 224,034 242,424 236,077 253,828 Long-term debt and capital lease obligations, including current maturities 8,200 9,250 847 8,965 10,036 Partners' capital 167,500 186,712 170,657 178,755 206,775 Operating Data: Production (000's tons): Ammonia-net of upgrades 226 332 452 485 487 UAN 1,982 2,184 2,114 2,270 2,299 Urea 140 264 395 492 496 --------- --------- --------- --------- --------- Total production 2,348 2,780 2,961 3,247 3,282 Sales Volume (000's tons): Ammonia 259 373 479 456 475 UAN 1,942 2,409 2,191 2,151 2,249 Urea 290 282 417 453 496 --------- --------- --------- --------- --------- Total sales 2,491 3,064 3,087 3,060 3,220
8 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information with respect to management's discussion and analysis of financial condition and results of operations contained in Exhibit 13 hereto is incorporated herein by reference. Item 7A. QUANTITATIVE AND QUALTITATIVE DISCLOSURES ABOUT MARKET RISK Information with respect to quantitative and qualitative disclosures about market risk contained in Exhibit 13 hereto (primarily under the subheading "Risk Management and Financial Instruments" discussion) is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Partnership together with the report thereon of Deloitte & Touche LLP, independent auditors, contained in Exhibit 13 hereto are incorporated by reference. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data are as follows (in thousands, except per unit amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter ------------------------------------------------ 2001 --------------------------------------- Revenues $ 65,632 $ 101,750 $ 55,751 $ 82,692 Gross profit 3,757 1,870 (8,858) 4,408 Net income (loss) 1,599 (922) (11,398) 902 Net income per limited partnership unit 0.09 (0.05) (0.61) 0.05 2000 --------------------------------------- Revenues $ 79,534 $ 94,489 $ 66,896 $ 80,064 Gross profit 7,305 15,635 4,964 4,611 Net income 4,288 11,866 3,637 418 Net income per limited partnership unit 0.23 0.63 0.19 0.02
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change in accountants, nor has there been any matter of accounting principles or practices or financial disclosure, which in either case is required to be reported pursuant to this Item 9. 9 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT TNC, in its capacity as General Partner, manages and controls the activities of TNCLP and the Operating Partnership. Unitholders do not direct or participate in the management or control of either TNCLP or the Operating Partnership. The General Partner does not intend to establish any advisory board or similar body to which the Unitholders would be entitled to elect representatives. The Partnership has no directors or executive officers. Set forth below is certain information concerning the directors and executive officers of the General Partner. The sole stockholder of the General Partner elects the directors of the General Partner. All directors hold office until their successors are duly elected and qualified or their earlier resignation or removal. All officers of the General Partner serve at the discretion of the directors.
Directors: Age Position with the General Partner (Position with Terra Industries Inc.) Michael L. Bennett ........... 48 Director and President (President and Chief Executive Officer) Burton M. Joyce .............. 60 Chairman of the Board Dennis B. Longmire ........... 57 Director Francis G. Meyer ............. 50 Director and Vice President (Senior Vice President and Chief Financial Officer) Theodore D. Sands ............ 56 Director Robert W. Todd ............... 74 Director Principal Operating Executive Officers: Michael L. Bennett ........... 48 Director and President (President and Chief Executive Officer) Mark A. Kalafut .............. 48 Vice President, General Counsel and Corporate Secretary (Vice President, General Counsel and Corporate Secretary) Francis G. Meyer ............. 50 Director and Vice President (Senior Vice President and Chief Financial Officer) W. Mark Rosenbury ............ 54 Vice President (Senior Vice President and Chief Administrative Officer) Steven A. Savage ............. 57 Senior Vice President-Manufacturing
In 2001, the Audit Committee of the Board of Directors of TNC was composed of Messrs. Longmire, Sands and Todd. Mr. Joyce succeeded Mr. Todd on the Audit Committee after Mr. Todd left the board on December 31, 2001. The Audit Committee has authority to review policies and practices of TNC dealing with various matters relating to the financial condition and auditing procedures of TNC, the Partnership and the Operating Partnership. Mr. Bennett has been President of TNC since June 1998 and a director since March 1995. He has been President and Chief Executive Officer of Terra since April 2001, Executive Vice President and Chief Operating Officer of Terra from February 1997 to April 2001, President of Terra Distribution Division from November 1995 to February 1997 and Senior Vice President of Terra from February 1995 to February 1997. He was Senior Vice President, Distribution of Terra International from October 1994 to February 1997. He was Vice President, Northern Division thereof from January 1992 to October 1994. Mr. Joyce has been Chairman of the Board of Directors of TNC since June 1998. He was President and Chief Executive Officer of Terra from May 1991 through April 2001. Mr. Kalafut has been Vice President and General Counsel of TNC since July 2001 and Corporate Secretary since December 1999. He has been Vice President, General Counsel and Corporate Secretary of Terra since July 2001. He was Vice President and Associate General Counsel from April 1992 to July 2001 and General Counsel of Terra International, Inc. from April 1989 to April 1992. Mr. Longmire has been a director since April 1997. He has been Chairman of the Board and Chief Executive Officer of McCauley Bros., Inc. since September 1999; Chairman of the Board and Chief Executive Officer of Darling International, Inc. from 1994 to 1999; and Group Vice President of Central Soya Feed from 1990 to 1993. 10 Mr. Meyer has been Vice President of TNC since December 1994 and a director since March 1995. He has been Senior Vice President and Chief Financial Officer of Terra since November 1995. He was Vice President and Chief Financial Officer of Terra from November 1993 to November 1995. Mr. Rosenbury has been Vice President of TNC since March 2000 and was a director from November 1994 through April 1998. He has been a Senior Vice President and Chief Administrative Officer of Terra since August 1999; Vice President, European Operations of Terra and Managing Director of Terra Nitrogen U.K. from January 1998 to August 1999; and Vice President, Business Development and Strategic Planning of Terra from November 1995 to January 1998. Mr. Sands has been a director since July 2000. He has been the President of HAAS Capital, LLC since February 1999; and was Managing Director-Investment Banking and Coordinator-Global Metals/Mining Group of Merrill Lynch & Co. from 1978 to 1999. Mr. Savage has been Senior Vice President, Manufacturing since April 1995. He was Vice President, Engineering and Plant Manager, Verdigris facility from February 1990 to April 1995. Mr. Todd has been a director since March 1995. He was Vice President, Chemical Industry Services for Citibank, N.A. until retiring in June 1990. None of the executive officers or directors of TNC is related by blood, marriage or adoption to any other executive officer or director of TNC. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership's executive officers, directors and greater than ten percent beneficial owners to file initial reports of ownership and reports of changes in beneficial ownership with the Securities and Exchange Commission ("SEC") and the New York Stock Exchange. Executive officers and directors are required by SEC regulations to furnish the Partnership with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Partnership and written representations from the Partnership's executive officers and directors, all of the Partnership's officers, directors and greater than ten percent beneficial owners made all required filings. Item 11. Executive Compensation TNCLP and the Operating Partnership have no executive officers or employees. The following table sets forth certain summary information concerning the combined compensation of the named executive officers of TNC, including compensation from Terra (a portion of which is allocated to the Partnership). These executive officers are those in office as of December 31, 2001 and are collectively referred to below as the "named executive officers." Compensation information is provided for the years 2001, 2000 and 1999. 11 SUMMARY COMPENSATION TABLE
============================================================================================================================ All Other Annual Compensation Long-Term Compensation Compensation/5/ ---------------------------------------------------------------------------------------------------------------------------- Other Restricted Securities Name and Annual Stock Underlying Principal Position Year Salary /1/ Bonus/ 2/ Compensation /3/ Award(s)/4/ Options ---------------------------------------------------------------------------------------------------------------------------- Michael L. Bennett 2001 $368,269 -- $2,372 $408,800/6/ -- $8,160 President 2000 310,577 $55,000 4,284 206,250/7/ -- 8,458 1999 322,346 -- -- -- 160,000 13,715 ---------------------------------------------------------------------------------------------------------------------------- Burton M. Joyce 2001 162,347 -- 5,505 7,300/6/ -- 282,422 Chairman of the Board 2000 502,501 75,000 10,138 412,500/7/ -- 8,143 1999 612,020 -- -- -- 415,000 8,145 ---------------------------------------------------------------------------------------------------------------------------- Mark A. Kalafut 2001 153,983 -- 2,372 73,000/7/ -- 7,391 Vice President, General Counsel 2000 137,395 13,000 4,284 13,103 and Corporate Secretary 1999 136,476 -- -- 15,886 ---------------------------------------------------------------------------------------------------------------------------- Francis G. Meyer 2001 253,007 -- 2,669 116,800/6/ -- 10,669 Vice President 2000 226,539 23,000 4,749 165,000/7/ -- 8,446 1999 235,124 -- -- -- 100,000 9,558 ---------------------------------------------------------------------------------------------------------------------------- W. Mark Rosenbury 2001 221,946 -- 2,372 116,800/6/ -- 10,137 Vice President 2000 208,827 24,000 20,798/8/ 154,688/7/ -- 9,571 1999 211,296 -- 34,575/9/ -- 90,000 9,610 ---------------------------------------------------------------------------------------------------------------------------- Steven A. Savage 2001 209,846 -- 3,454 87,600/6/ -- 9,584 Sr. Vice President 2000 193,173 18,000 5,600 82,500/7/ -- 29,748 Manufacturing 1999 197,904 -- -- -- 50,000 37,707 ============================================================================================================================
/1/ For all years includes amounts deferred at the election of the named - executive officer under Terra's Employees' Savings and Investment Plan and Supplemental Deferred Compensation Plan. /2/ "Bonus" includes, for the applicable year of service, amounts awarded under - Terra's Incentive Award Program for Officers and Key Employees and includes portions thereof deferred at the election of the named executive officer under Terra's Supplemental Deferred Compensation Plan. Bonuses earned in one year are paid in the following year. Each year shown therefore indicates the salary earned and paid in that year and any bonus earned in that year and paid in the next year. /3/ "Other Annual Compensation" includes tax reimbursements or "gross-ups" with - respect to certain perquisites provided to the named executive officers. While the named executive officers receive certain other perquisites, such perquisites do not exceed the lesser of $50,000 or 10% of such officer's salary and bonus, except for Mr. Rosenbury as described below. /4/ This item shows the grant date value of restricted stock awards. The number - of such shares still subject to restriction and the value thereof (shown in parenthesis), at December 31, 2001 by each of the named executive officers is: Mr. Joyce: 202,500 ($708,750); Mr. Bennett: 240,000 ($840,000); Mr. Kalafut 25,000 ($87,500); Mr. Meyer: 120,000 ($420,000); Mr. Rosenbury: 115,000 ($402,500 and Mr. Savage: 70,000 ($245,000). During the restricted period, a holder of restricted shares is entitled to all benefits incidental to ownership of Terra common stock, including voting such shares and receiving such dividends as from time to time may be declared by the Board of Directors. /5/ "All Other Compensation" comprises amounts contributed, allocated or - accrued for the named executive officers under both Terra's Employees' Savings and Investment Plan and Supplemental Deferred Compensation Plan. The value accrued under Terra's Employees' Savings and Investment Plan and the value accrued under the Supplemental Deferred Compensation Plan (shown in parenthesis) in 2001 was: Mr. Bennett $8,160 and ($0); Mr. Joyce $7,422 and ($0); Mr. Kalafut $7,391 and ($0); Mr. Meyer $8,160 and ($2,509); Mr. Rosenbury $8,160 and ($1,977); Mr. Savage $8,160 and ($1424). In 2000, Mr. Bennett $8,458 and ($0); Mr. Joyce $8,143 and ($0); Mr. Kalafut $7,749 and ($5,354); Mr. Meyer $8,446 and ($0); Mr. Rosenbury $8,429 and ($1,142); Mr. Savage $10,431 and ($19,317). In 1999, Mr. Bennett $8,023 and ($5,692); Mr. Joyce $8,145 and ($0); Mr. Kalafut $7,697 and ($8,189); Mr. Meyer $8,008 and ($1,550); Mr. Rosenbury $8,020 and ($1,590); Mr. Savage $10,000 and ($27,707). In addition, "All Other Compensation" includes consulting service payments to Mr. Joyce in 2001 totaling $275,000 under Mr. Joyce's April 26, 2001 Retirement and Consulting Agreement. /6/ On August 2, 2001, Terra's Board of Directors approved, as recommended by - its Personnel Committee, the grant of the following restricted shares under Terra's 1997 Stock Incentive Plan: 140,000 to Mr. Bennett; 2,500 to Mr. Joyce; 25,000 to Mr. Kalafut; 40,000 to Mr. Meyer; 40,000 to Mr. Rosenbury; and 30,000 to Mr. Savage. The closing price per common share on the New York Stock Exchange ("NYSE") on the date of the award was $2.92. Except for Mr. 12 Joyce, the restrictions lapse on the earlier of (i) the business day following the third anniversary of the date of the award (i.e., August 3, 2004) or (ii) specified changes in control or ownership of Terra (as defined in the award). In regard to Mr. Joyce's stock grants, the restrictions lapse on the earlier of (i) the business day following the second anniversary of the date of the award (i.e., August 3, 2003) or (ii) specified changes in control or ownership of Terra (as defined in the award). /7/ On February 16, 2000, Terra's Board of Directors approved, as recommended -- by its Personnel Committee, the grant of the following restricted shares under Terra's 1997 Stock Incentive Plan: 200,000 to Mr. Joyce; 100,000 to Mr. Bennett; 80,000 to Mr. Meyer; 75,000 to Mr. Rosenbury, and 40,000 to Mr. Savage. The closing price per common share on the New York Stock Exchange ("NYSE") on the date of the award was $2.0625. The restrictions lapse on the earlier of (i) the business day following the third anniversary of the date of award (i.e., February 17, 2003) or (ii) specified changes in control or ownership of Terra (as defined in the award). /8/ "Other Annual Compensation" for Mr. Rosenbury in 2000 consists of: (i) a -- tax gross-up for excess U.K. taxes over hypothetical U.S. federal and state taxes - $20,029; and (ii) taxable reimbursement of expatriate living expenses while on assignment in the U.K. - $769. /9/ "Other Annual Compensation" for Mr. Rosenbury in 1999 consists of: (i) a -- tax gross-up for excess U.K. taxes over hypothetical U.S. federal and state taxes - $15,325; and (ii) taxable reimbursement of expatriate living expenses while on assignment in the U.K. - $19,250. Option Exercises and Year-End Value Table The following table provides information concerning the exercise of stock options during 2001 and the number and value of unexercised options to purchase Terra common stock granted under Terra's stock incentive plans.
=================================================================================================================== Number of Number of Securities Value of Unexercised shares acquired Value Underlying Unexercised in-the-Money Options at Name on exercise in Realized Options at December 31, 2001 December 31, 2001 /1/ 2001 ------------------------------------------------------------ Exercisable Unexercisable Exercisable Unexercisable ------------------------------------------------------------------------------------------------------------------- Michael L. Bennett -0- -0- $106,666 $53,334 -0- -0- Burton M. Joyce -0- -0- 826,666 138,334 -0- -0- Mark A. Kalafut -0- -0- 26,700 4,000 $28,000 $14,000 Francis G. Meyer -0- -0- 33,333 66,667 -0- -0- W. Mark Rosenbury -0- -0- 60,000 30,000 -0- -0- Steven A. Savage -0- -0- 33,333 16,667 -0- -0- ===================================================================================================================
/1/ Based on the closing price on the New York Stock Exchange Composite Price -- History of Terra common stock on December 31, 2001 ($3.50). 13 PENSION PLAN TABLES The following table shows for Mr. Rosenbury and certain employees retiring in 2001 the estimated annual retirement benefit payable on a straight life annuity basis under the Employees' Retirement Plan (the "Retirement Plan") and Terra's Excess Benefit Plan (the "Excess Benefit Plan"), on a non-contributory basis, at various levels of accrued service and compensation. -------------------------------------------------------------------------------- Remuneration Years of Credited Service 5 10 15 20 25 30 -------------------------------------------------------------------------------- $150,000 $12,009 $24,017 $36,026 $48,035 $60,043 $72,052 250,000 20,759 41,517 62,276 83,035 103,793 124,552 500,000 42,634 85,267 127,901 170,535 213,168 255,802 750,000 64,509 129,017 193,526 258,035 322,543 387,052 1,000,000 86,384 172,767 259,151 345,535 431,918 518,302 -------------------------------------------------------------------------------- Average compensation (as defined under the Retirement Plan) as of December 31, 2001 for Mr. Rosenbury was $370,936. The estimated credited years of service under the retirement plan for Mr. Rosenbury was 14. Certain other Terra executive officers and employees, including Messrs. Bennett, Kalafut, Meyer and Savage, are entitled to the estimated annual retirement benefit (payable on a straight life annuity basis) under the Retirement Plan and Excess Benefit Plan as set forth in the following table: -------------------------------------------------------------------------------- Remuneration Years of Credited Service 5 10 15 20 25 30 -------------------------------------------------------------------------------- $150,000 $10,509 $21,017 $31,526 $42,035 $52,543 $63,052 250,000 18,259 36,517 54,776 73,035 91,293 109,552 500,000 37,634 75,267 112,901 150,535 188,168 225,802 750,000 57,009 114,017 171,026 228,035 285,043 342,052 1,000,000 76,384 152,767 229,151 305,535 381,918 458,302 -------------------------------------------------------------------------------- Average compensation (as defined under the Retirement Plan) as of December 31, 2001 for Mr. Bennett was $378,964; for Mr. Kalafut $163,394; for Mr. Meyer $311,029; and for Mr. Savage $235,061. The estimated credited years of service under the Retirement Plan for each such officer was as follows: Mr. Bennett - 28; Mr. Kalafut - 12; Mr. Meyer - 19; and Mr. Savage - 14. "Compensation" under the Retirement Plan includes the total salary and wages paid to a participant, including bonuses, overtime, commissions and elective contributions made by Terra on behalf of the participant pursuant to Internal Revenue Code (the "Code") sections 401(k) or 125. Covered earnings are limited by Section 401(a)(17) of the Code to $170,000 in 2001. The above benefits are subject to the limitations of Section 415 of the Code, which provides for a maximum annual payment of approximately $140,000 in 2001. Under the Excess Benefit Plan, however, Terra will supplement those benefits so that the amount the participant will receive will be equal to the amount that would have been received under the Retirement Plan but for such limitations. "Compensation" under the Excess Benefit Plan also includes amounts deferred under the Supplemental Deferred Compensation Plan. Employee Contracts, Termination of Employment and Change in Control Arrangements Terra's chief executive officer and each of the other named executive officers are party with Terra to an executive retention agreement. Each such agreement provides the executive with certain benefits if his employment is terminated under specified conditions. To receive benefits, the executive must be terminated within two years of a change of control 14 (as defined in the agreement) of Terra. In addition, such termination must be made either by Terra or a successor entity without cause, or by the executive for good reason. Benefits under the executive retention agreements include (a) continuation of base salary and bonus for two years; (b) continuation of medical and dental benefits for two years; (c) payment of accrued but unpaid compensation; (d) automatic vesting in Terra's Excess Benefit Plan with an addition of two years to the credited service level and the age of the participant for purposes of computing the accrued benefits under the Excess Benefit Plan; and (e) certain outplacement services. Such benefits are in lieu of any other severance benefits that may otherwise be payable. Compensation earned from other employment shall not reduce the amounts otherwise payable by Terra. Terra also agreed to reimburse each such officer on an after-tax basis for any excise tax incurred as a result of the "excess parachute payment" provisions of the Internal Revenue Code. Mr. Joyce retired effective April 26, 2001 and resigned as Terra's President and Chief Executive Officer on that date. In connection with Mr. Joyce's retirement, Terra entered into a retirement and consulting agreement providing Mr. Joyce certain benefits. Under this agreement, Mr. Joyce agreed to provide consulting services to the company for the five-year period commencing April 26, 2001 at a rate of $550,000 annually. Either party may terminate the consulting period effective May 1, 2004 and in the event of such termination, the company shall pay Mr. Joyce $1,100,000 in a lump sum on June 1, 2004. The company also agreed to reimburse Mr. Joyce up to $65,000 for the cost of secretarial services and office space through May 1, 2004. In addition to providing consulting services as described above, Mr. Joyce forgoes all rights to all benefits under the Executive Retention Agreement dated December 31, 1998 and provided the company a general release of all claims. Board of Directors Compensation Independent directors of TNC receive an annual retainer fee of $20,000 for their directorship, plus a fee of $1,000 for each TNC Board meeting attended and each Audit Committee meeting attended. No other director of TNC receives any compensation for serving as a director. Compensation Committee Interlocks and Insider Participation TNC does not have a compensation committee. The Personnel Committee of the Board of Directors of Terra has made executive officer compensation decisions with respect to those TNC executive officers who are also key employees of Terra. The Personnel Committee of TNC is composed of the directors named as signatories to the "Report on Executive Compensation" below. No director has any direct or indirect material interest in or relationship with TNC other than stockholdings as discussed above and as related to his or her position as a director, except as described under the caption "Certain Relationships and Related Transactions." During 2001, no officer or other employee of TNC served on the board of directors of any other entity, where any officer or director of such entity also served on TNC's Board. None of the members of such Personnel Committee are employees of Terra or its subsidiaries. Item 12. Security Ownership of Certain Beneficial Owners and Management TNC owns the entire general partner interest in both TNCLP and the Operating Partnership. TNC's principal executive offices are located at 600 Fourth Street, Sioux City, Iowa 51101. Terra Capital, Inc. owns all the outstanding capital stock of TNC, and is an indirect, wholly-owned subsidiary of Terra. The stock of TNC is pledged as security under the Credit Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Financial Statements. Terra Capital, Inc. owned, as of December 31, 2001, 2,716,600 common units of TNCLP. Terra and its subsidiaries are engaged in certain transactions with the Partnership described under the caption "Certain Relationships and Related Transactions" below. The capital stock of Terra is owned 49.1% by Taurus International S.A ("Taurus") as of December 31, 2001. Taurus is a company incorporated under the laws of Luxembourg as a societe anonyme and is wholly-owned by Anglo American plc ("Anglo American"), a company incorporated under the laws of England and Wales as a public limited company. Anglo American, with its subsidiaries, joint ventures and associates, is a global leader in the mining and natural resource sectors. It has significant and focused interests in gold, platinum, diamonds, coal, base and ferrous metals, industrial minerals and forest products. 15 The following table shows the ownership of TNCLP common units and Terra common stock as of December 31, 2001 by (a) each person known to TNC to be a beneficial owner of more than 5% of the TNCLP common units (based on information reported to the SEC by or on behalf of such persons); (b) each director of TNC; (c) each of the named executive officers of TNC; and (d) by all directors and executive officers of TNC as a group.
Number of Terra Number of Percent of Common Shares Percent of Name Units Class Beneficially Owned1/ Class ---- ----- ----- ------------------- ----- Terra Nitrogen Corporation/2/ 11,172,414 60.4% -- -- 600 Fourth Street Sioux City, Iowa 51101 Terra Capital, Inc. 2,716,600 14.7% -- -- 600 Fourth Street Sioux City, Iowa 51101 Michael L. Bennett -- -- 439,438/3/ * - Burton M. Joyce -- -- 1,211,338/3/ 1.6% - Mark A. Kalafut -- -- 88,973/3/ * -- Dennis B. Longmire -- -- -- -- Francis G. Meyer -- -- 314,729/3/ * - W. Mark Rosenbury 2,500 * * 342,537/3/ Theodore D. Sands 13,500 * * -- Steven A. Savage 4,000 * 125,457/3/ * - Robert W. Todd -- -- -- -- All directors and executive 20,000 * 2,591,856/3/ 3.4% - officers as a group (10 persons) * Represents less than 1% of class.
/1/ Each person has sole voting and investment power of all the securities - indicated. The shares of Terra common stock shown include ownership of restricted common stock, which is subject to certain performance-related vesting conditions, and shares held under Terra's Employees' Savings and Investment Plan, in each case as of December 31, 2001. /2/ Terra Nitrogen Corporation also owns the entire general partner interests - in the Partnership. Each of Terra Nitrogen Corporation and Terra Capital, Inc. is an indirect, wholly-owned subsidiary of Terra Industries Inc. /3/ The shares of Terra common stock shown include shares subject to - employee stock options that can be exercised on or before April 30, 2002. Upon such exercise, the option holder(s) would acquire beneficial ownership of shares as follows: Mr. Bennett (106,666); Mr. Joyce (826,666); Mr. Kalafut (18,700); Mr. Meyer (66,666); Mr. Rosenbury (60,000); and Mr. Savage (33,333); and one unnamed executive officer (30,834); and all directors and executive officers as a group (1,142,865). Item 13. Certain Relationships and Related Transactions Information with respect to certain relationships and related transactions contained in Footnote 4 to Exhibit 13 hereto is incorporated herein by reference. 16 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Financial Statement Schedules 1. Consolidated Financial Statements of Terra Nitrogen Company, L.P. (incorporated herein by reference to Exhibit 13 hereof.) Consolidated Balance Sheets at December 31, 2001 and 2000. Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999. Consolidated Statements of Partners' Capital for the years ended December 31, 2001, 2000 and 1999. Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999. Notes to the Consolidated Financial Statements. Independent Auditors' Report (b) Executive Compensation Plans and Other Arrangements Exhibits 10.14 through 10.26 and 10.29 through 10.36 are incorporated herein by reference. (c) Reports on Form 8-K None. (d) Exhibit 3.1 Agreement of Limited Partnership of TNCLP, filed as Exhibit 3.1 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference. 3.2 Certificate of Limited Partnership of TNCLP, filed as Exhibit 3.2 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 4.1 Deposit Agreement among TNCLP, the Depositary and Unitholders, filed as Exhibit 4.1 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference. 4.2 Form of Depositary Receipt for Common Units (included as Exhibit B to the Deposit Agreement filed as Exhibit 4.1 hereto), filed as Exhibit 4.3 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference. 4.3 Form of Transfer Application (included in Exhibit A to the Deposit Agreement filed as Exhibit 4.1 hereto), filed as Exhibit 4.4 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference. 4.4 Certificate of Limited Partnership of the Operating Partnership, filed as Exhibit 4.5 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 4.5 * Intercompany Promissory Note dated October 10, 2001, between Terra Nitrogen, Limited Partnership and Terra Capital, Inc. 4.6 Amended and Restated Credit Agreement dated as of October 10, 2001 among Terra Capital, Inc., Terra Nitrogen (U.K.) Limited, and Terra Nitrogen, Limited Partnership, certain guarantors, certain lenders, certain issuing banks and Citicorp USA, Inc., filed as Exhibit 4.2 to Terra Industries' Form 8-K dated October 10, 2001, is incorporated herein by reference. 17 10.1 Agreement of Limited Partnership of the Operating Partnership, filed as Exhibit 10.1 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference. 10.2** Master Agreement dated October 11, 1989, among ONEOK Inc., Oklahoma Natural Gas Company, ONG Western Inc., ONG Red Oak Transmission Company, ONG Transmission Company, Agrico Chemical Company and Freeport-McMoRan Resource Partners, Limited Partnership. 10.3** Lease Agreement dated October 11, 1989, among ONEOK Inc., Oklahoma Natural Gas Company, ONG Western Inc., ONG Red Oak Transmission Company, ONG Transmission Company, Agrico Chemical Company and Freeport-McMoRan Resource Partners, Limited Partnership. 10.4 Gas Service Agreement dated October 11, 1989, between Oklahoma Natural Gas Company and Agrico Chemical Company, filed as Exhibit 10.4 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 10.5** Transportation Service Agreement dated as of September 1, 1988, among Reliant Energy Gas Transmission Company and Agrico Chemical Company, as supplemented by Letter Agreements dated September 2, 1988, and November 1, 1990, and Consent to Assignment dated March 9, 1990. 10.6 Transportation Service Agreement effective January 1, 1990, between MAPCO Ammonia Pipeline, Inc. and Agrico Chemical Company, and Consent to Assignment dated January 22, 1991, filed as Exhibit 10.6 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 10.7 Car Service Contract dated as of March 2, 1990, between General American Transportation Corporation and TNC, and Consent to Assignment dated February 22, 1990, filed as Exhibit 10.8 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 10.8 Lease Agreement dated as of December 22, 1988, between PLM Investment Management, Inc. and Agrico Chemical Company, and Consent to Assignment dated February 23, 1990, and Assignment and Assumption effective as of March 1, 1990, filed as Exhibit 10.9 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 10.9 Lease and Agreement dated December 1, 1964, between City of Blytheville, Arkansas, and Continental Oil Company, as supplemented, filed as Exhibit 10.10 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 10.10 Lease dated November 1, 1975, between the City of Blytheville, Arkansas, and The Williams Companies, Inc., as supplemented, filed as Exhibit 10.11 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference. 10.11 Lease dated September 6, 1977, between Tulsa-Rogers County Port Authority and Agrico Chemical Company, as supplemented, filed as Exhibit 10.12 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference. 10.12 General and Administrative Services Agreement Regarding Services by Terra Industries Inc. filed as Exhibit 10.11 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995 (file no. 1-8520), is incorporated herein by reference. 10.13 General and Administrative Services Agreement Regarding Services by Terra Nitrogen Corporation filed as Exhibit 10.12 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995 (file no. 1-8520), is incorporated herein by reference. 10.14 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries' Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference. 10.15 Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference. 18 10.16 Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries' Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference. 10.17 Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference. 10.18 Terra Industries Inc. Supplemental Deferred Compensation Plan effective as of December 20, 1993, filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1993 (file no. 1-8520), is incorporated herein by reference. 10.19 Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries' Form 10-Q for the quarter ended September 30, 1995 (file no. 1-8520), is incorporated herein by reference. 10.20 Amendment No. 2 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, filed as Exhibit 10.1.8.a to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference. 10.21 Excess Benefit Plan of Terra Industries, as amended effective as of January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference. 10.22 Amendment to the Terra Industries Excess Benefit Plan, dated July 26, 2000, filed as Exhibit 10.1.6.a to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference. 10.23 Revised Form of Performance Share Award of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.11 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference. 10.24 Revised Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.12 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference. 10.25 Revised Form of Nonqualified Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.13 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference. 10.26 1997 Stock Incentive Plan of Terra Industries, filed as Exhibit 10.1.14 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference. 10.27 Amended Demand Deposit Agreement, dated as of August 20, 1996, between Terra Nitrogen Limited Partnership and Terra Capital, Inc. filed as Exhibit 10.62 to TNCLP's Form 10-K for the year ended December 31, 1996, is incorporated herein by reference. 10.28 Demand Promissory Note dated August 26, 1998 from Terra Nitrogen L.P., as Payor, to Terra Capital Inc. filed as Exhibit 10.69 to TNCLP's Form 10-Q for the quarter ended September 30, 1998, is incorporated herein by reference. 10.29 Form of Incentive Stock Option Agreement of Terra Industries under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.13 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1999 (File No. 1-8520), is incorporated herein by reference. 10.30 Form of Nonqualified Stock Option Agreement of Terra Industries under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.14 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1999 (File No. 1-8520), is incorporated herein by reference. 10.31 Form of Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan filed as Exhibit 10.1.15 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1998 (File No. 1.8520), is incorporated herein by reference. 19 10.32 Retirement and Consulting Agreement for Burton M. Joyce dated April 26, 2001 filed as Exhibit 10.1.16 of Terra Industries Inc. Form 10-K for the year ended December 31, 2001, is incorporated herein by reference. 10.33 Form of Executive Retention Agreement for Other Executive Officers filed as Exhibit 10.1.19 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1998 (File No. 1.8520), is incorporated herein by reference. 10.34 2002 Incentive Award Program for Officers and Key Employees of Terra Industries filed as Exhibit 10.1.18 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2001, is incorporated herein by reference. 10.35 Form of Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, dated February 16, 2000, filed as Exhibit 10.1.22 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference. 10.36 Form of Non-Employee Director Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, dated May 2, 2000, filed as Exhibit 10.1.23 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference. 13* Financial Review and Consolidated Financial Statements as contained in the Annual Report to Stockholders of Terra Nitrogen for the fiscal year ended December 31, 2001. 99.1 Conversion Statement dated December 31, 1996, filed as Exhibit 99.1 to the TNCLP Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference. * Filed herewith. ** Confidential treatment has been granted for portions of the exhibit. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Terra Nitrogen Company, L.P. By: Terra Nitrogen Corporation, as General Partner By: /s/ Francis G. Meyer ----------------------------------- Francis G. Meyer Vice President (Principal Financial Officer) Dated: March 19, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant as of March 19, 2002 and in the capacities indicated. Signature Title /s/ Burton M. Joyce Chairman of the Board ------------------------------- of Terra Nitrogen Corporation (Burton M. Joyce) /s/ Michael L. Bennett Director and President ------------------------------- of Terra Nitrogen Corporation (Michael L. Bennett) /s/ Dennis B. Longmire Director of Terra Nitrogen Corporation ------------------------------- (Dennis B. Longmire) /s/ Francis G. Meyer Director and Vice President of Terra ------------------------------- Nitrogen Corporation (Francis G. Meyer) /s/ Theodore D. Sands Director of Terra Nitrogen Corporation ------------------------------- (Theodore D. Sands) /s/ Robert W. Todd Director of Terra Nitrogen Corporation ------------------------------- (Robert W.Todd) 21